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Eet 101: Macroeconomic Theory 1 Question Paper

Eet 101: Macroeconomic Theory 1

Course:Alternative Dispute Resolution

Institution: Kenyatta University question papers

Exam Year:2014

INSTRUCTIONS
ANSWER QUESTION ONE AND ANY OTHER TWO
QUESTION ONE
a) In the recent past, Kenya has faced a sharp depreciation of its shillings to major foreign currencies resulting in a balance of payment disequilibrium. Discuss any FIVE measures that would be applied to help correct the disequilibrium (10 marks)
b) Briefly explain FIVE types of unemployment an economy can face (10 marks)
c) Explain the meaning of the following terms as used in Economics.
i. Ratchet effect
ii. Liquidity trap
iii. Crowding out
iv. Money illusion
v. Phillips curve (5 marks)
d) Explain the goals of macroeconomics as explained in the Economic theory (5 marks)
e) Suppose that consumption, C=10+0.85Y and Equilibrium level of investment, = KSHS.540. compute the Equilibrium Income and Consumption (5 marks)

QUESTION TWO
a) Using a well labeled diagram show the derivation of the IS curve, and show how equilibrium in the Economy is attained. (7 marks)
b) Highlight clearly FIVE factors that affect consumption (5 marks)
c) Describe FOUR difficulties encountered when measuring national income (8 marks)

QUESTION THREE
a) The liberalization of trade to allow for importation of second hand clothes (Mitumba) into Kenya, has dealt a major blow to the local clothing industry. Discuss FIVE instruments that can be used by the government to control the importation of clothes (10 MARKS)
b) Use the Keynesian Liquidity Preference Theory to discuss the demand for money in a modern economy such as Kenya (10 marks)
QUESTION FOUR
a) “The idea that Switzerland’s GDP per capita is 150 more than that of Kenya does not that a Swiss is 150 times better than a Kenyan in terms of living standards”. Discuss
(5 marks)
b) Discuss any FIVE instruments of monetary policy (10 marks)
c) While inflation may be a problem in the economy, “mild inflation” may be needed to “grease the wheels of the economy”. Discuss (5 marks)
QUESTION FIVE
a) Unemployment is one of the major macroeconomic problems in Kenya. Discuss FOUR ways that can be used to address this problem (8 marks)
b) With the aid of a well labeled diagram explain national income equilibrium determination using the injections and withdrawals approach. (5 marks)
c) Using a well labeled diagram explain the difference between inflationary and deflationary gap, and suggest ways of bridging the gaps. (7 marks)

Eet 101: Macroeconomic Theory 1 Question Paper

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