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Econ 120: Introduction To Macroeconomics Y1s2 Question Paper

Econ 120: Introduction To Macroeconomics Y1s2

Course:Bachelor Of Commerce

Institution: Kabarak University question papers

Exam Year:2008

COURSE CODE: ECON 120
COURSE TITLE: INTRODUCTION TO
MACROECONOMICS
STREAM: Y1S2

INSTRUCTIONS:
1. Attempt QUESTION ONE and any other TWO questions.
2. Clear and well-labeled diagrams my be used where they serve to
illustrate an answer
QUESTION 1
(a) Briefly explain two similarities between microeconomics and macroeconomics.
(4mks)
(b) You are given the following information about a hypothetical economy;
C = 800 + 0.75Y
I = 500
G = 900
Where
C = Consumption
I = Investment
G = Government spending
(i) Compute the equilibrium level of national output and consumption.
(3mks)
(ii) What is the size of government expenditure multiplier (1mk)
(iii) Interpret the government expenditure multiplier in 1 (b) (ii) above
(2mks)
(c) (i) Explain the concept of accelerator principle (2mks)
(ii) What is multiplier? (1mk)
(iii) Explain the limitations to the application of multiplier in economic
management. (4½mks)
(d) The Central Bank of Kenya has realized that due to recently completed Safaricom
initial public offer, there is excess money supply circulating in the economy.
Advise the central Bank Governor on three instruments of monetary policy that
can be used to reduce money supply. (6mks)
(e) Explain the main functions that money performs in a developing country like
Kenya (4½mks)
QUESTION 2
(a) Discuss the main difficulties experienced in measurement of national income in
Kenya. (8mks)
(b) Explain the main effects of inflation on consumers and producers in Kenya.
(6mks)
(c) How can the Central Bank of Kenya use monetary policy to minimize the
problem of unemployment in Kenya? (2½mks)
(d) According to Keynes, three motives give rise to demand for money. Explain
(4½mks)
QUESTION 3
(a) (i) Using a well-labeled diagram, explain “demand-pull” inflation
(3mks)
(ii) Explain the measures that can be used to minimize “demand-pull”
inflation (3mks)
(b) Explain clearly the main objectives of macroeconomics policy (6mks)
(c) (i) Distinguish between balance of trade and balance of payment
(2mks)
(ii) Why do most developing countries experience balance of payment deficit?
(2½mks)
(d) Explain the main factors that influence investment in Kenya (4½mks)
QUESTION 4
(a) (i) Clearly outline the main causes of unemployment in Kenya
(4mks)
(ii) For each cause identified in 4(a)(i) above, explain the remedies
(6mks)
(b) What are the main factors influencing balance of payment of a country
(4½mks)
(c) Protectionism in international trade is not good for a country practicing it.
Explain why? (4½mks)
(d) (i) What is fiscal policy? (1mk)
(ii) How is fiscal policy used to minimize the problem of inflation?
(1mk)

Econ 120: Introduction To Macroeconomics Y1s2 Question Paper

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