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Hbc2213:Intermediate Macro Economics Question Paper
Hbc2213:Intermediate Macro Economics
Course:Bachelor Of Commerce
Institution: Meru University Of Science And Technology question papers
Exam Year:2010
QUESTION ONE – (30 MARKS) COMPULSORY
(a) Explain the concept of LM schedule. (4 Marks) (b) Consider the following demand for money schedule, where income is in billions of Kenya shillings and the interest rate is calculated as a percentage. Md = 0.4y 80r (i) What is the demand for money when income is Ksh400 billion and the interest rate is 5 percent? (3 Marks) (ii) What is the velocity of money at the given level of income (Ksh400 billion)? (2 Marks) (iii) With the level of income taken as given, how would your answer to (i) and (ii) change if the interest rate were to be one (1) percent? (2 Marks) (c) Suppose the money Market Model is as follows: Money demand; Md= 0.4y 80r Money supply; Ms = Ms = 1200 (i) What is the rate of interest when the money market is in equilibrium? (3 Marks) (d) Assume we have the following consumption and investment functions; Consumption: C = 600 + 0.7y Investment: Ip = 250 +0.1y 10r
And the money market relations in (c) holds i.e. Md = 0.4y 80r Ms = 1200
Determine: (i) The IS and LM schedules. (8 Marks) (ii) The income and rate of interest at which both the goods market and the money market will be in equilibrium. (8 Marks)
QUESTION TWO – (20 MARKS)
(a) Explain what is meant by an economy that s n a goods-maret eulbrum (4 Marks) (b) Consider a closed economy (no foreign sector) without a government sector that is described by the following equations: C= 700 + 0.6 y (consumption) Ip= 300 + 0.2y 40r (Investment) Assume that the interest rate is fixed at 5 percent by monetary policy. (i) Calculate the magnitude of autonomous spending. (2 Marks) (ii) Calculate the multiplier and the level of income that gives goods-market equilibrium. (4 Marks) (iii) What is the level of saving at equilibrium? (2 Marks) (iv) Suppose output was at the level of 5,500. What would be the level of unplanned inventory accumulation? (2 Marks) (v) If the level of autonomous investment (Io) were to rise to 400, what would be the effect on equilibrium income? (2 Marks) (c) (i) Explain the concept of IS schedule. (2 Marks) (ii) Using the consumption and investment functions in (b), determine the IS schedule. (2 Marks)
QUESTION THREE – (20 MARKS)
(a) hat s a classcal model (3 Marks) (b) Outline the basic monetarist framework. (5 Marks) (c) Briefly discuss the monetarists main criticism of the income-expenditure model. (5Marks) (d) (i) Present the salient features of the real-business cycle model. (4 Marks) (ii) Which are the major criticisms that have been put forward against the real-business cycle model? (3 Marks)
QUESTION FOUR – (20 MARKS)
(a) Explain the relevance of Milton Friedman polcy prescrpton of constant money supply groth model n ensurng economc stablty. (4 Marks) (b) (i) Why does output not change in response to aggregate demand changes in the classical model? (2 Marks) (ii) What is the role of aggregated demand in the classical model? (2 Marks)
(c) Briefly explain the following terms: (i) Policy ineffectiveness theorem. (2 Marks) (ii) Choice theoretic framework. (2 Marks) (iii) Business cycles. (2 Marks) (d) (i) Explain what is meant by monetary shock. (2 Marks) (ii) Why does the Lucas supply schedule depend upon surprises to generate an increase in real output? (2 Marks) (iii) Would you consider such an increase in output a surprise that is likely to be permanent? (2 Marks)
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