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Aec 102: Elements Of Macroeconomics Question Paper

Aec 102: Elements Of Macroeconomics

Course:Bachelor Of Education

Institution: Kenyatta University question papers

Exam Year:2008

1
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2007/2008
SUPPLEMENTARY/SPECIAL EXAMINATION FOR THE DEGREE OF
BACHELOR OF ARTS, BACHELOR OF COMMERCE AND
BACHELOR OF EDUCATION
AEC 102: ELEMENTS OF MACROECONOMICS
DATE: Thursday 9th October 2008________________TIME: 10.00am – 12.00pm

INSTRUCTIONS: Answer question ONE and any other TWO questions

Question One
(a) Compare and contrast the Absolute Income Hypothesis and the relative income
hypothesis. [10 marks]
(b) Consider an open economy with savings being 500, investments 700, trade
balance 200. determine the budget balance. Is it a deficit or a surplus?
[10 marks]
(c) Using well labeled diagrams, explain the impact of an increase in income on
interest rates with two scenarios
(i) Money supply is held constant. [5 marks]
(ii) Money supply is increased to match the increase in GDP. [5 marks]

Question Two
(a) Discuss the Keynesian motives of holding money. [9 marks]
(b) Assuming an open economy with fixed government expenditure and investments,
derive the expressions for equilibrium income. [11 marks]

Question Three
(a) Differentiate between Marginal Efficiency of Capital (MEC) and Marginal
Efficiency of Investments. [6 marks]
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(b) Explain your understanding of fiduciary issue, giving an example of Kenya.
[3 marks]
(c) Why is it necessary at any time to discount cash flows in any investment project?
[3 marks]
(d) The basis of international trade is the basic theories. Using relevant numerical
examples, explain the basic theories of international trade. [8 marks]

Question Four
(a) Compare and contrast the capital account and the current account of the balance
of payments. [8 marks]
(b) Differentiate between economic growth and development in the most basic sense
and provide an example. [7 marks]
(c) What is your understanding of a multiplier? Provide a clear example with your
answer. [5 marks]

Question Five
Write short notes on the following
(a) Budget deficit [2 marks]
(b) Inflation [2 marks]
(c) Unemployment [2 marks]
(d) Philips’ curve [2 marks]
(e) Open market operations [2 marks]
(f) Gross Domestic Product [2 marks]
(g) Gross National Product [2 marks]
(h) Money illusion [2 marks]
(i) Real balance effect [2 marks]
(j) Intrinsic value [2 marks]
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Aec 102: Elements Of Macroeconomics Question Paper

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