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Introduction To Macroeconomics Question Paper
Introduction To Macroeconomics
Course:Bachelor Of Commerce
Institution: Kenyatta University question papers
Exam Year:2011
UNIVERSITY EXAMINATIONS: 2010/2011
FIRST YEAR EXAMINATION FOR THE DEGREE OF BACHELOR OF
COMMERCE
CFU 103 INTRODUCTION TO MACROECONOMICS
DATE: DECEMBER2011 TIME: 2 HOURS
INSTRUCTIONS: Answer Question One and Any Other Two Questions
Question One
a) The following table describes the production of Agricultural manufactured goods and in two
countries.
Countries Agricultural Goods Manufactured goods
A 40 80
B 20 50
Total 60 130
(i) Which country has a comparative advantages in the production of agricultural
goods (2Marks)
(ii) Which country has comparative advantages in the production of manufactured
goods? (2 Marks)
(iii) Which countries if any has an absolute advantages in production of
Agricultural goods and manufactured goods ( 2 Marks)
b) With the use of relevant diagrams, explain the difference between inflationary and deflationary
gap in an economy. (5Marks)
2
c) What problems are experienced when measuring the National income of a
country like Kenya? ( 5 Marks)
d) What are the cost of inflations ( 5 Marks)
e) Highlights the principle of a good tax system. (4 Marks)
f) "According to keynesians people have a liquidity preference for money for various motives"
Discuss (5 Marks)
Question Two
Keynesian economists argue that one way to cure unemployment is to increase public
expenditure; another is to cut taxation by an equivalent amount.
(a) Compare the two approaches and show which of the alternatives is likely to be
more effective. (6 Marks)
(b) Explain the concept of Philips curve ( 6 Marks)
(c) Explain major types of unemployment experience in your country (8 Marks)
Question Three
a) Trade between developed and developing countries is trade between
unequal partners considering that many developing countries have
liberalized their economies, discuss major negative consequences of free
trade between developed and developing countries
(10 Marks)
b) (i) What are the main causes of budget deficit (4 Marks)
(ii) Explain why the reduction of government deficits has become an important issue in the
fiscal policy frameworks of developing countries
(6Marks)
Question Four
In seeking to account for the impressive economic growth of the Tiger economies of specific
rim, a senior economist concluded that high level of saving and investment were important
factors in all countries.
(a) Explain why the marginal propensity to consume determines the value of the
simple Keynesian multiplier. ( 6 Marks)
3
(b) Explain how high level of saving and investment contributes to economic growth.
(6 Marks)
(c) Using a diagram, discuss the concept of “Trade cycle” in explaining the fluctuations of
National income and economic growth. (8 Marks)
Question Five
(a) The following statistics are derived from a hypothetical economy. The figures are in millions
of Kenya Shillings. (10 Marks)
Gross national product =15,000
Net income from abroad =600
Depreciation =3,000
Indirect Business taxes =2,000
Social Security Contribution =1,000
Corporate income taxes =1,700
Undistributed profits =300
Transfer Payments =2,000
Population =200
Direct personal taxes =2,000
Required:
(i) Net National product at market prices
(ii) National income
(iii) Personal income
(iv) Disposable Income
(v) Per capital Income
(b) Discuss the reasons why National Income per-Capital is misleading indicator of the standard
of living or well being between two countries. (5Marks).
(c) Describe the usefulness of national Income Statistics (5 Marks
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