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Eco 411: Advanced Macroeconomics Question Paper

Eco 411: Advanced Macroeconomics

Course:Bachelor Of Arts In Economics And Statistics

Institution: Moi University question papers

Exam Year:2012

ECO 411: ADVANCED MACROECONOMICS

ANSWER ANY FOUR QUESTIONS

QUESTION ONE
Discuss the Ando-modigliani Life-cycle theory of consumption and compare and contrast the theory with James Duesenberry's Relative income hypothesis. What are the main contributions of the post-Keynesian consumption theories in macroeconomic analysis and research. (25mks)

QUESTION TWO
Suppose the government employed an expansionary fiscal policy in a classical real wage economy.
i. Trace its impacts in the goods, money and labour markets. (13mks)
ii. Indicate the policy's impact on prices, interest rates, investments, employment and output. (12mks)

QUESTION THREE
Given the following facts and figures about an economy:

C=100+0.8Yd
I=1000-100r
G=500
T=0.5Y
L=200+0.5Y-10r
M=1000

i. Derive the expression for IS and LM curves and interpret them (8mks)

ii. Calculate the equilibrium r, y, I and C. (8mks)

iii. Compute the fiscal and monetary policy multipliers and interpret them. (2mks)

iv. Obtain the new expression for IS curve if MPC rises to 0.9 with exogenous consumption equal to 200. State the effect of the rise in MPC on the IS curve. Show this effect diagramatically. (7mks)

QUESTION FOUR
a. Use the Mundell-Fleming model to discuss the impacts of fiscal and monetary policies on a small open economy with:
i. A fixed exchange rate
ii. A flexible exchange rate. (13mks)

b. Discuss the neoclassical model of investment behaviour and show that it encompasses both the Keynesian and the accelerator investment models. (12mks)

QUESTION FIVE
Discuss the major theories of labour market, employment and inflation and evaluate their contribution to macroeconomic management of developing economies. (25mks)

QUESTION SIX
a. Discuss the application of monetary policy in Kenya. Does fiscal policy dominate monetary policy in Kenya?
State why the choice of the best indicator monetary policy is a problem to policy makers? (15mks)

b. Derive the short-run Philip's curve and explain why it is convex to the origin. (10mks)

Eco 411: Advanced Macroeconomics Question Paper

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