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Microeconomics Theory I Question Paper
Microeconomics Theory I
Course:Master Of Economics
Institution: Kenyatta University question papers
Exam Year:2009
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2009/2010
SUPPLEMENTARY EXAMINATION FOR THE DEGREE OF MASTER OF
ECONOMICS
EET 501: MICROECONOMICS THEORY I
DATE: Monday
23rd November 2009
TIME: 9.00 am – 12.00 Noon
INSTRUCTIONS:
Answer any FOUR questions. All questions carry equal marks.
1.
a)
i)
Using a diagram, show and explain tax, consumption and saving
functions.[3marks]
i)
Show graphically the equilibrium level of income and explain what
happens if there is increase in the desire to save.[4marks]
b)
Given that
y = c(y - t )+ i + g
Where y=real output, t=taxes, i=investment and g=government purchases
i)
Show that balanced budge multiplier (dy/dg) = 1
[4marks]
ii)
Assuming that tax is a function of income, t=t(y), derive the
general multiplier expression.[3marks]
c)
Explain the meaning of the following terms
i)
Crowding out effect[6marks]
ii)
Liquidity trap [5marks]
2.
a)
Show and explain money and market equilibrium and derive the LM
curve.[9marks]
b)
Using diagram, explain the effectiveness of the monetary policy.[5marks]
c)
Explain how the economy moves towards equilibrium if it is operating
from a point of disequilibrium. [11marks]
3.
a)
Assuming a small open economy, show and explain how fiscal policy at
home and abroad affects the trade balance.
[9marks]
b)
Using Mundel-Fleming model, explain the effectiveness of monetary and
fiscal policy in influencing aggregate income of an economy under
fl exile exchange rate.[10marks]
c)
Explain the effect of trade under fixed exchange rate system.[6marks]
4.
a)
Given that an individual lives for two periods and that he/she inherits no
assess and leaves no bequest,
i)
Show that savings in period one equals the opposite of saving in
period two.[2mark]
ii)
Show and explain his/her inter temporal budge constrain.[4marks]
b)
Explain the life cycle hypothesis and why it may not explain consumption
behavior in your country adequately. [9marks]
c)
Most theories of consumption consider income as the only determinant of
consumption. Explain other factors that are likely to influence the
consumption behavior of people. [10marks]
5.
a)
Explain the following models of investment
i)
the accelerator model[5marks]
ii)
the adjustment cost approach[5marks]
iii)
the q-theory.[5marks]
b)
Explain various policies which can be adopted to increase the level of
private investment in your country.[10marks]
6.
a)
Using the Solow Model
i)
explain clearly the assumption underlying this model [3marks]
ii)
derive
k = sf (k ) - (n + g + d )k and explain the terms in this equation.[7marks]
iii)
Using diagram plot the expression for k as a function k.[5marks]
b)
Explain the meaning of the balance growth path and using a phase
diagram, explain what happens to output and consumption if saving
increase.[10marks]
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