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Elements Of Macroeconomics Question Paper
Elements Of Macroeconomics
Course:Bachelor Of Commerce
Institution: Kenyatta University question papers
Exam Year:2008
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATION 2007/2008
SECOND SEMESTER EXAMINATION FOR DEGREE OF
BACHELOR OF COMMERCE
AEC 102: ELEMENTS OF MACROECONOMICS
DATE: Wednesday 28th May 2008 TIME: 11:30 am - 1:30 pm
INSTRUCTIONS: Answer question 1 and any other two questions.
Question 1 carries 30 marks and the other questions carry 20 marks each.
Question One (Compulsory)
(a) Define the term National Income
(b) Explain the three approaches that can be used to determine the national income of a country.
(c) The information given below is from a certain economy. Use the information to determine national income based on the expenditure approach.
Consumer expenditure 367,853
Gross domestic fixed capital formation 95,442
Value of physical increase in stock and work in progress 5,303
General government final consumption 121,899
Net property income from abroad 328
Capital consumption 63,968
Taxes on expenditure 83,023
Subsidies 5,878
Imports of goods and services 140,415
Export of goods and services 135,115
Statistical discrepancy -445
(10 marks)
(d) State and explain why national income is not a good measure of material well being of the people.
(e) State four problems encountered in measuring the national income of a country. (4 marks)
Question Two
(a) The following equations describe a certain economy
C = 500 + 0.65 Yd (consumption function)
I = 400 - 100 r (investment function)
T = 70 + 0.2 Y (tax function)
G = 200 (government expenditure)
X = 20 (exports)
M = 250 + 0.08 Y (imports)
Ms = 5000 (money supply)
Md = 0.4y - 20r (money demand)
Required:
(i) Derive the IS and LM equations. (4 marks)
(ii) Calculate the equilibrium income and interest rate. (4 marks)
(iii) Calculate the equilibrium consumption, savings, imports, tax and money demand. (5 marks)
(b) With the help of a diagram, show the effect of the following on general equilibrium.
(i) A decrease in investment. (2 marks)
(ii) A decrease in money supply. (2 marks)
(iii) Simultaneous increase in investment and money supply by equal amounts.
(3 marks)
Question Three
(a) Trade deficit is one of the most challenging problems of less developed countries. Explain four methods that can be used to correct the trade deficit. (8 marks)
(b) Explain any four forms of protection that can be used by a country showing their effect on international trade. (8 marks)
(c) Explain the J- Curve phenomenon as used in international trade. (4 marks)
Question four
(a) Discuss the following theories, which have been advanced to explain the demand for money.
(i) The fisher (3 marks)
(ii) Cambridge (2 marks)
(iii) Keynesian (6 marks)
(b) Distinguish between marginal efficiency of investment and marginal efficiency of capital. (3 marks)
(c) Various hypotheses have been advanced to reconcile the discrepancy between short and long run function of consumption. Explain relative income hypothesis and life cycle hypothesis. (6 marks)
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