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Aec 102: Elements Of Macroeconomics Question Paper

Aec 102: Elements Of Macroeconomics

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2008

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2007/2008
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF
BACHELOR OF COMMERCE

AEC 102: ELEMENTS OF MACROECONOMICS
DATE: Wednesday zs" May 2008 TIME: 11.30 am -1.30pm

INSTRUCTIONS: Answer question 1 and any other two questions. Question 1
carries 30 marks the other questions carry 20 marks each.

Question One (Compulsory)
(a) Define the term National Income
(b) Explain the three approaches that can be used to determine the national income of
a country.
(c)The information given below is from a certain economy. Use the information to
determine the national income based on expenditure approach.
Consumer expenditure 367,853
Gross domestic fixed capital formation 95,442
Value of physical increase in stock and work in progress 5,303
General government final consumption 121,899
Net property income from abroad 328
Capital consumption 63,968
Taxes on expenditure 83,023
Subsidies 5,878
Imports of goods and services 140,415
Export of goods and services 135,115
Statistical discrepancy -445
[10 marks]
(d)State and explain the reason why national income is not a good measure of
material well being of the people.
(e)State four problems encountered in measuring the national income of a country.
[4 marks]

Question Two
(a) The following equations describe a certain economy
C = 500 + 0.65l (consumption function)
1= 400 - 100 r (investment function)
T = 70 + 0.2 Y (tax function)
G = 200 (government expenditure)
X = 20 ( exports)
M = 250 + 0.08Y (imports)
Ms = 5000 (money supply)
Md = OAy - 20r (money demand)
Required:
(i) Derive the IS and the LM equations. [4 marks]
(ii) Calculate the equilibrium income and interest rate. [4 marks]
(iii) Calculate the equilibrium consumption, savings, imports, tax and money
demand. [5 marks]
(b) With the help of a diagram show the effect of the following on general
equilibrium.
(i) A decrease in investment. [2 marks]
(ii) A decrease in money supply. [2 marks]
(iii) Simultaneous increase in investment and money supply by equal amounts.
[3 marks]

Question Three
(a) Trade deficit is one of the most challenging problems of less developed countries.
Explain four methods that can be used to correct trade deficit. [8 marks]
(b) Explain any four forms of protection that can be used by a country showing their
effect on international trade. [8 marks]
(c) Explain the J-Curve phenomenon as used in international trade. [4 marks]

Question Four
(a) Discuss the following theories, which have been advanced to explain the demand
for money.
(i) The fisher [3 marks]
(ii) Cambridge [2 marks]
(iii) Keynesian [6 marks]
(b) Distinguish between marginal efficiency of investment and marginal efficiency of
capital. [3 marks]
(c) Various hypotheses have been advanced to reconcile the discrepancy between
short and long run function of consumption. Explain relative income hypothesis
and life cycle income hypothesis. [6 marks]

Aec 102: Elements Of Macroeconomics Question Paper

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