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Eet 101: Macroeconomic Theory 1 Question Paper
Eet 101: Macroeconomic Theory 1
Course:Bachelor Of Arts In Economics
Institution: Kenyatta University question papers
Exam Year:2009
KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2009/2010
FIRST SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF
ARTS
EET 101:
MACROECONOMIC THEORY 1
DATE: Thursday, 26th November, 2009
TIME: 2.00 p.m. – 4.00 p.m.
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INSTRUCTIONS:
Answer question ONE and any other TWO questions.
QUESTION ONE (COMPULSORY)
a) With an aid of diagram where necessary explain the following terms as used in
economics. Marginal efficiency of capital (3 marks)
Labor market equilibrium (2 marks)
National income equilibrium (2 marks)
Aggregate demand (2 marks)
Liquidity trap (3 marks)
Paradox of thrift (3 marks)
IS – LM model (2 marks)
Ratchet effect (3 marks)
b) Given that Y = C + I + G + X – M. Where Y = Income, C = Consumption,
I= Investment, G = Government expenditure, X = Exports, M = Imports and that,
C = 10 + 0.75yd
T = 50 + 4Y
X = 150 + 6Y
M = 60 + 10Y
I = Io
Required
i) Define a multiplier (2 marks)
ii) List the types of multiplier that can derive from the model (3 marks)
iii) If investment increases from 100 to 150 units. Find the multiplier and
interpret your results.
(5 marks)
QUESTION TWO
i) Discuss the methods for estimating national income and explain why they give the
same results. (8 marks)
ii) Highlight the main features of permanent income hypothesis (8 marks)
iii)Identify the main functions of money. (4 marks)
QUESTION THREE
i) Identify the limitations of national income accounting (6 marks)
ii) Explain the causes of demand pull inflation in an economy (8 marks)
iii) Why is high levels unemployment of concern in modern society? (6 marks)
QUESTION FOUR
i) With the aid of a diagram, explain the inflationary and deflationary Gaps and give
their relevance to policy formulation (10 marks)
ii) Distinguish between fiscal and monetary policy. Highlight how fiscal policy can
be used to achieve economic stability. (10 marks)
QUESTION FIVE
i) What are the main propositions of quantity theory of money as given by classical
economist? (6 marks)
ii) Explain the measure that can be taken by government to control high levels of unemployment(10 marks)
iii) Identify the main assumptions in the acceleration theory of investment (4 marks)
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