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Advanced Macroeconomic Theory Question Paper

Advanced Macroeconomic Theory

Course:Bachelor Of Arts Economics

Institution: University Of Nairobi question papers

Exam Year:2011

THIRD YEAR EXAMINATIONS FOR THE DEGREE OF BACHELOR OF ARTS

ADVANCED MACROECONOMICS THEORY

INSTRUCTIONS;
ANSWER THREE QUESTIONS.QUESTION ONE IS COMPULSORY

1.The Australian model developed by W.Salter and T.Swan provides a framework for considering the interaction of absorption and price effects to bring about simultaneous balance in internal and external balance accounts.

(a)Derive the internal and external balance schedules
(b)Present the four zones of economic unhappiness
(c)Present an appropriate policy that is relevant for the inflation-surplus case(quadrant) and unemployment-deficit case(quadrant)

2.(a)Explain the concept of rational expectations. How does it differ from adaptive expectations?
(b) According to the Policy Ineffectiveness Propositon,expansionary monetary and fiscal policy are not effective at increasing real GDP and lowering unemployment under certain conditions.What are these conditions?
(c) Suppose wages and prices are flexible ,people form their expectations rationally,and they anticipate policy incorrectly. What happens?

3. Write detailed notes on the following;
(i)Marshall-Lerner condition
(ii)Balance of payments accounts
(iii)Keynesian multiplier
(iv)Seigniorage

4. (a) Distinguish between short-run aggregate supply and long-run aggregate supply.
(b) With AS-AD model explain economic fluctuations in the economy. Explain the impact of increase and decrease in aggregate demand on GDP and price level in the economy.

5. Money is a fundamental asset without which individuals would have to use barter to conduct transactions.

(a) Explain how both base and high powered money and broad money are created.
(b) Derive and explain the nature of the money multiplier
(c) Demonstrate with the help of a diagram how devaluation would affect the supply of money.

Advanced Macroeconomic Theory Question Paper

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