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Aec 202: Intermediate Macroeconomic Theory Question Paper
Aec 202: Intermediate Macroeconomic Theory
Course:Bachelor Of Arts In Education
Institution: Kenyatta University question papers
Exam Year:2009
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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: Thursday 2nd April, 2009 TIME: 8.00 a.m. – 10.00 a.m.
INSTRUCTIONS
Answer question ONE and any other TWO questions.
QUESTION ONE
Distinguish between the following sets of terms. [30 marks]
i) Fiscal and monetary policy
ii) Fisher’s equation and equation of exchange
iii) Real wage and money wage
iv) Income velocity and nominal income
v) Flexible accelerator and rigid accelerator
vi) Inflation and stagflation
vii) Liquidity trap and crowding out effect
viii) Exchange rate of foreign exchange
ix) Full employment and unemployment
x) Labor demand curve and Phillips’ curve
QUESTION TWO
a) Kenya employs a flexible exchange rate regime. In recent months, the Kenya
shilling has been under pressure due to a multiplicity of factors, making it to lose
value against most world currencies.
i) What is the most likely consequence of this pressure on Kenya’s balance
of payments position? [3 marks]
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ii) Outline three measures that the government of Kenya can institute to
correct the situation. [3 marks]
iii) With aid of a well labeled diagram, explain the process by which such
situation gets corrected. [10 marks]
b) Outline the four pillars of classical theory. [4 marks]
QUESTION THREE
a) Distinguish in detail the Keynesian and classical views on the labor market. Use
diagrams where necessary. [14 marks]
b) Briefly explain why inflation and unemployment are considered to necessary evils
in macroeconomics. [6 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 diagram, explain how such
effects would be reflected in the economy from the perspective of classical
theory. [12 marks]
b) Outline and briefly explain four causes of inflation in Kenya. [8 marks]
QUESTION FIVE
a) 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 treasure bonds from kshs. 1 million to Kshs.50,000 on
the performance of the Nairobi stock exchange. [8 marks]
b) Most developed countries are formulating rescue packages for their economies in
the face of the current global financial crisis. Using a well labeled diagram
explain the effectiveness of the fiscal policies in the classical, Keynesian and
intermediate ranges. [12 marks]
………………………….
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