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Hbc2115:Introduction To Macro Economics Question Paper
Hbc2115:Introduction To Macro Economics
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2014
QUESTION ONE – (30MARKS) During the year ended 30th June 2013, a Country known as Zadik nation had the following information pertaining the performance of its economy.
(Shs) billions
Gross national product (market Price) 389.2 Indirect taxes less subsidies 42.4 Depreciation 47.0 Business taxes 11.4 Retained profits 13.0 Government transfers 59.3 Personal income taxes 66.3 The government feels that based on poor per capita income, there is need to review its trading policy with the rest of the world in order to make its balance of payment more favourable. Many of the government officials have been pro-liberization while others advocate for protectionism. The Central bank was recently inherited to break the stalemate between the two groups of the government officials and it advised that monetary tools and fiscal tools were sufficient to help the government achieve its objective with respect to international trade.
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Required:
(a) Explain the factors which influences per capita income. (4 Marks) (b) Explain four possible reasons why majority of the government officials were proliberalization as opposed to protectionism. (8 Marks) (c) Calculate: (i) Net national product at market price. (2 Marks) (ii) Net national income at factor cost. (2 Marks) (iii) Personal income. (2 Marks) (iv) Disposable income for the economy. (2 Marks) (d) Based on the advice of the Central bank of Zadik nation, explain five possible objectives of proposing deployment of monetary tools. (10 Marks)
QUESTION TWO – (20 MARKS)
(a) Describe the three approaches to the measurement of national income in an economy. (6 Marks) (b) Explain the factors that determine the size of an economy’s national income. (4 Marks) (c) Explain the various difficulties likely to be encountered in measuring national income. (5 Marks) (d) Explain why per capita income is not a good measure of material wellbeing of the people. (5 Marks)
QUESTION THREE – (20 MARKS)
(a) Describe the different kinds of money. (4 Marks) (b) What motives do agents/people have for holding money in the Keynesian model. (6 Marks) (c) What functions of money doe the following items satisfy? Justify your answer in each case. (i) Mobile phone airtime (2 Marks) (ii) A gold chain (2 Marks) (iii) A movie ticket (2 Marks) (d) Is it true that an increase in inflation leads to a rise in interest rates? Explain your answer in detail. (4 Marks)
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QUESTION FOUR – (20 MARKS)
Consider an economy describe by the following equations:
?? = ?? + ?? + ?? + ????
?? = 5,000, ?? = 1,000, ?? = 1,000
?? = 250 + 0.75(?? - ??)
?? = 1,000 - 50??
???? = 500 - 500 ?
?? = ?? = 5
Where Y, C, I, G and NX are respectively output, consumption, investment, government purchases and net exports while r is the interest rate and ? is the exchange rate.
(a) In this economy solve for national saving, investment, the trade balance and the equilibrium exchange rate. (8 Marks) (b) Suppose now that G rises to 1,250, solve for the same variables as in (a) above. Explain the difference to findings in part (a). (10 Marks) (c) What would happen to the exchange rate in interest rates was higher? Explain. (2 Marks)
QUESTION FIVE – (20 MARKS)
(a) Define the following terms: (i) Trade policy (2 Marks) (ii) Capital flight (2 Marks) (b) Would each of the following groups be happy if the Kenya shilling appreciated? Explain your answer and reasoning. (i) Kenyan manufacturing industries. (2 Marks) (ii) British tourists planning a trip to Mombasa. (2 Marks) (iii) A Kenyan firm trying to purchase property overseas. (2 Marks) (iv) A Kenyan Restaurant selling “Kienyeji” in London. (2 Marks) (c) How would the following transactions affect Kenya exports, imports and net exports? Explain briefly: (i) A Kenyan art professor spends the summer touring museums in Egypt. (2 Marks) (ii) Students in Meru University flock to see the latest movie from Nolly wood. (2 Marks) (iii) A Somali in Daadab Refugee Camp buys a kilo of Miraa. (2 Marks) (iv) A Ugandan buys fuel in the Kenyan side of Busia town to avoid Ugandan fuel taxes. (2 Marks)
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