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Buss 115: Macro Economics Question Paper

Buss 115: Macro Economics

Course:Business Administration

Institution: Kenya Methodist University question papers

Exam Year:2010

FACULTY : BUSINESS AND MANAGEMENT STUDIES
DEPARTMENT : BUSINESS ADMINISTRATION
TIME : 2 HOURS
INSTRUCTIONS Answer Question ONE and any Other TWO Questions

QUESTION 1
a) Distinguish between;
(i) Average propensity to consume and marginal propensity to consume. (4marks)
(ii) Average propensity to save and marginal propensity to save. (4marks) b) You are given the following information about a three – sector macro- model;

Y = C + I + G
C = a + b Yd
T = T + t Y
Yd = Y – T
I = I
G = G
(i) Derive consumption function in terms of Y and the reduced form of the equation. (8marks)
(ii) Derive the government expenditure multiplier, investment expenditure multiplier and the tax reduction multiplier. c) Outline the main distinction between flexible exchange rate, fixed exchange rate and managed float (6 marks)
d) Explain in detail the process of credit creation by commercial banks in the economy. (8 marks)

QUESTION 2
a) Define inflation and explain its effects in an economy. (10marks) b) Identify and define the various types of unemployment and clearly state the causes of each. (10marks)

QUESTION 3
a) Distinguish between inflationary and recessionary gaps. (5marks) b) Explain the following terms;
(i) Liquidity trap
(ii) Value added
(iii) Implicit deflator
(iv) Simple multiplier
(v) Speculative demand for money. (15 marks)

QUESTION 4
a) Define money and outline its characteristics. (8 marks)
b) Explain the functions and significance of money in an economy. (6 marks) c) Explain the J.M. Keynes three motives of holding money. (6 marks)

QUESTION 5
Gross National Product (GNP) is a standard international index of output and should not be thought of as a measure of economic or social welfare of any particular economy.
Discuss this statement and suggest necessary modifications in calculating Gross National Product if it has to be used as a measure of social welfare. (20 marks)

Buss 115: Macro Economics Question Paper

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