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Topics In Economic Theory Question Paper

Topics In Economic Theory

Course:Bachelor Of Arts In Economics

Institution: Kenyatta University question papers

Exam Year:2007

KENYATT A UNIVERSITY
UNIVERSITY EXAMINATIONS 2007/2008
FIRST SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF
ARTS
AEC 400:
.............
TOPICS IN
............................... ECONOMIC THEORY
..................................... ...
DATE: Wednesday 28th November 2007
TIME: 8.00am - 10.00am
INSTRUCTIONS:
Answer section A and one question from section B and section C.
SECTION A (COMPULSORy)
1.
Assume the Solow model with technological progress but no human capital.
a.
Derive the steady-state levels of capital per effective unit of labor and output per effective
unit of labor.
[5 Marks]
b.
Using the Solow diagram, identify the steady-state levels of capital per effective units of
labor, and output per effective units of labor.
[5 marks)
c.
Suppose the investment rate rises. Examine the effect of this policy change in the Solow
model with technological progress, assuming that the economy begins in steady-state. Does
the policy change permanently increase the level or the growth rate of output per worker?
[5 marks]
d.
Suppose Rift Valley fever wipes out half labor force but population growth, rate of
technological progress, savings rate and rate of depreciation of capital stay the same. What '
effect would the plague have on the economy?
[5 marks]
e.
' Briefly explain how the growth rate of output per worker differs between the Solow model
c:
with technological progress, and the one without.
[3(1/3) marks]
SECTION B (ANSWER ONE QUESTION)
2.
With the aid of well-labeled diagrams distinguish between Baumol's dynamic model and
Marris model of managerial enterprise
[23{1/3) marks]

2
3.
Rationalize the sales maximization hypothesis and with a well-labeled diagram show that
though sales maximizing output is always greater than its profit maximizing counterpart,
the former may not be attainable.
[23(1/3) marks]
SECTION C (ANSWER ONE OUESTION)
4.
Explain the meaning of a macro econometric model and highlight its main uses in an
economy.
[23(1/3) marks]
5.
Fiscal policy is a powerful instrument of stabilization in developing economies. Discuss
this assertion using your country's experience.
[23(1/3) marks]
'1

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