Dfi 203: Principles Of Macroeconomics Question Paper

Dfi 203: Principles Of Macroeconomics

Institution: University Of Nairobi question papers

Exam Year:2014

UNIVERSITY OF NAIROBI

FIRST SEMESTER EXAMINATIONS 2013/2014

SECOND YEAR EXAMINATIONS FOR THE DEGREE OF BACHELOR OF
COMMERCE
DFI 203: PRINCIPLES OF MACROECONOMICS

DATE: AUGUST 25, 2014 TIME: 2.00 P.M.- 4.00 P.M.

INSTRUCTIONS
Answer question 1 and TWO other questions.

Question 1

a) What do you understand by Net National Product (NNP) and Disposable Income in National Income accounts?

b) State whether each of the following activities/transactions are counted in the GDP and briefly explain your answer.

i) An estate agent''s fees for the sale of an old house.

ii) A bakers flour inventory at the end of the year.

iii) The spending on the control of malaria outbreak during the year.

iv) Informal economy sales of second hand furniture.

v) Subsistence production of maize and milk by small-scale farmers.

c) Increase in the real GDP are said to mean rising standards of living and improved welfare of people. Explain the difficulties that arise from this interpretation

Question 2

a) Given the information below on an imaginary small economy

Year Output Prices

X Y Z X Y Z
1 100 120 150 60 120 150
2 120 150 160 100 150 170
3 125 145 175 105 155 165

i) Calculate nominal GDP for each year.
ii) Compute the real GDP using year 2 as the base year.
iii) Compute the GDP Deflator.
iv) What is the rate of inflation between year 2 and 3.

b) Distinguish between the following pairs:

i) Injections and leakages in the circular flow diagram of income and expenditure.
ii) Savings and investments in a closed and open economy.
iii) Natural and cyclical unemployment.
iv) Natural/potential GDP and Real GDP.

Question 3

a) List the main functions of money in an economy.

b) Clearly distinguish the monetary aggregates M1, M2 and M3 as employed in an economy of a country of your choice.

c) i) By means of clearly labelled diagram show how the money market equilibrium is determined.

ii)Derive the LM curve and state why it is positively sloped.

Question 4

a) Enumerate the major types of unemployment in a given economy.

b) Explain the short-run trade-off between inflation and unemployment rates. How would the situation differ in the long-run

c) Assume that the total adult population of a country is 20 million people. 15 million are employed and 3 million are unemployed.

i) What is the total size of the labour force?
ii) What is the unemployment rate?
iii) What is the employment ratio?
iv) What is the participation rate?

Question 5

a) Explain the concept of fiscal and monetary policies.

b) How could fiscal policy tools be used to influence the equilibrium income in the Keynesian cross?

c) A given economy has consumption function C= 100+ 0.75Yd, Planned Investment I= Io, G= Go and T= To.

i) Derive the saving function.
ii) Compute the multiplier for Tax, To
iii) What is the magnitude of the marginal propensity to consume (MPC)
iv) What is the value of the MPS?
v) How are the MPC and MPS realated?

Dfi 203: Principles Of Macroeconomics Question Paper

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