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Bcom - Y1s2 Cat 2 Question Paper

Bcom - Y1s2 Cat 2

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2016

KENYATTA UNIVERSITY
BCOM – Y1S2
CAT 2
1 HR
ANSWER ANY ONE QUESTION
ALL THREE QUESTION CARRY THE SAME MARKS
Question one
a) Consider the following model of National Income determination in an open economy

C = 3000 + 0.75(Y - T)
T = 1000
I = 4750
G = 1500
X = 300
M = 10-0.1Y

Required:

(i) Find the equilibrium Income in this particular economy
(3 marks)
(ii) Suppose government expenditure increases by 1000 find the new equilibrium values of the equilibrium income
(3 marks)
(iii) Calculate the value of the government spending multiplier
(2 marks)
b) Explain the measure that can be taken by government to control high levels of youth unemployment in Kenya
(7 marks)

Question TWO

a) Using appropriate diagrams and illustrations, explain the meaning of the following concepts as used in macroeconomics.

Leakage and Injection
(2 marks)
Real and Normal Gdp
(2 marks)
Fixed and Floating Exchange Rate
(2 marks)
Ratchet Effect and Paradox of Thrift
(3 marks)
b) Discuss the various concerns of macroeconomic while highlighting why it is necessary to study macroeconomics
(6 marks)

Question three

a) Given Y = C + I + G + X – M where C = a + ßY, M = Mo + M1 Y and I = Io – kr. G = Go
X = Xo, X – Exports G- government purchase, Derive the IS equation assuming an open economy and equilibrium income
(6 marks)
b) Discuss the life hypothesis and the relative income hypothesis theories of consumption.
(10 marks)

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