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Intermediate Macroeconomic Theory Question Paper
Intermediate Macroeconomic Theory
Course:Bachelor Of Arts In Economics
Institution: Kenyatta University question papers
Exam Year:2009
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2008/2009
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR
OF ARTS, BACHELOR OF COMMERCE AND BACHELOR OF EDUCATION
AEC 202:
INTERMEDIATE MACROECONOMIC THEORY
DATE: Friday, 11th September, 2009
TIME: 8.00 a.m. ? 10.00 a.m.
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INSTRUCTIONS:
Answer question ONE and any other TWO questions.
QUESTION ONE
Distinguish between the following sets of terms
(30 marks)
i)
Income and money
ii)
Real wage and money wage
iii)
Income velocity and accelerator
iv)
Underemployment and unemployment
v)
Inflation and stagflation
vi)
Liquidity trap and crowding out effect
vii)
Exchange rate and foreign exchange
viii)
Nominal income and real income
ix)
Labor demand curve and Phillips? curve
x)
Fisher?s equation and equation of exchange
QUESTION TWO
a)
Suppose that Kenya employs a fixed exchange rate regime. In recent months, the Kenya shilling has been under pressure due to a multiplicity of factors, making it to loss value against most world currencies.
i)
What is the most likely consequence of this pressure on Kenya?s balance of payments position? (4 marks)
ii)
Would the effect be different if Kenya employed a flexible exchange rate regime? (2 marks)
iii)
With aid of a well labeled diagram, explain the process by which such situation gets corrected under flexible exchange rate regime. (10 marks)
b)
Outline the four pillars of classical theory (4 marks)
QUESTION THREE
a)
The Keynesian and classical economists differ significantly on the operations of the labor market. Distinguish in detail the Keynesian and classical views on the labor market. Use diagrams where necessary (12 marks)
b)
The recent high rates of inflation in Kenya are considered a threat to the country?s achievement of its desired levels of economic growth. Do you agree? Briefly explain your answer. (8 marks)
QUESTION FOUR
a)
The emergence of the HIV/AIDS pandemic had devastating effects on the economies of most developing countries. This is because it affected labor productivity adversely. With the aid of well labeled diagrams, explain how such effects would be reflected in the economy form the perspective of classical theory (12 marks)
b)
Using the classical crowding out of private investment concept, explain the consequences of the Central Bank of Kenya?s decision to lower the minimum amount for investment in treasury bonds from Kshs. 1 million to Kshs. 50,000 on the performance of the Nairobi stock exchange. (8 marks)
QUESTION FIVE
a)
Using a well labeled diagram explain the effectiveness of the fiscal policies in the classical, Keynesian and intermediate ranges. (12 marks)
b)
Outline and briefly explain four causes of unemployment in Kenya. (8 marks)
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