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Dba 104: Introduction To Macroeconomics Question Paper

Dba 104: Introduction To Macroeconomics

Course:Introduction To Macro Economics

Institution: University Of Nairobi question papers

Exam Year:2013

UNIVERSITY OF NAIROBI
MODULE II DEGREE PROGRAMME 2012/2013
(DAY CLASS)
FIRST YEAR EXAMINATIONS FOR THE DEGREE OF BACHELOR OF COMMERCE

DBA 104: INTRODUCTION TO MACROECONOMICS

DATE: AUGUST 21, 2013 TIME: 9.00A.M- 11.00A.M.

INSTRUCTIONS
Answer Question 1 and TWO other questions.

QUESTION ONE

a) i) Explain how unemployment rate in a given economy is measured. (3 marks)

ii) What criteria must be met for a person to be considered as unemployed (3 marks)

iii) Suppose there are 5 million people in the national labour force and 4 million are employed. How many people are unemployed?
What is the unemployment rate?

Assume that the total adult population of the country is 6 million. Calculate the Employment ratio and the participation rate.

(9 marks)
b) i) By means of a suitable diagram, explain how equilibrium income in a closed economy is determined. (5 marks)

ii) Demonstrate how a change in fiscal policy impacts on equilibrium. You may consider a contractionary or expansionary fiscal policy.
(5 marks)
iii) Show how the "crowding out effect" occcurs when the money market comes into play. (5 marks)

QUESTION TWO

Write short notes on the following pairs:

a) Net National Product and National Income in national income accounts.
b) The Discount Rate and Open Market Operations in the control of money supply.
c) Nominal GDP and Potential/Natural GDP.
d) Cyclical and structural uemployment in the business cycle.
e) Autonomous and induced Consumption in the Keynesian Consumption function. (4 marks each)

QUESTION THREE

a) Define money and explain its main functions in a given economy. (6 marks)

b) Explain how money supply is measured by the monetary aggregates M2 and M3 in a named economy. (6 marks)

c) Discuss the main functions of the central/reserve bank in a country of your choice. (8 marks)

QUESTION FOUR

a) Consider an economy described by the following equations:

S= -200+ 0.2Yd, Planned Investment I= 100, Government Purchases G= 200, Taxes T= 150

i) Derive the consumption function

ii) Compute the tax multiplier and autonomous spending.

iii) What level of Government spending is needed to achieve and income of 2000? (10 marks)

b) Answer TRUE or FALSE and justify your answer.

i) Monetary policy is the policy of the government with respect to government spending, taxation and transfers.

ii) An increase in the production of Brooke Bond Tea in Kenya will raise the GDP of Kenya while having no effect n the GDP of the
United Kingdom.

iii) A high marginal prospensity to consume (MPC) increases the effect of any expansion in autonomous investment.

iv) The estimated rent of a house owner residing in his own house is included in the GDP of Kenya.

v) National savings equals Y-C-G and in an open economy, at equilibrium, must equal 1.
(10 marks)

QUESTION FIVE

a) Define inflation and explain how it is measured. (5 marks)

b) By means of a suitable diagram illustrate the short-run trade-off between inflation rate and the unemployment rate. Why does the trade-off not exist
between the two rates in the long-run? (5 marks)

c) Given the information below:

Market Basket Year 1 unit price(Shs) Year 2 unit price(Shs)
200 pens 40 50
100 shirts 1500 1800
60 pans 3000 3500

i) Calculate the CPI using Year 1 as the base year.

ii) What is the rate of inflation in this economy?
(10 marks)

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Dba 104: Introduction To Macroeconomics Question Paper

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