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Eet201: Macroeconomic Theory Ii Question Paper

Eet201: Macroeconomic Theory Ii

Course:Bachelor Of Economics

Institution: Kenyatta University question papers

Exam Year:2012

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2011/2012
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF
ECONOMICS
EET 201: MACROECONOMIC THEORY II

DATE: Tuesday 28th March, 2012

TIME: 2.00 p.m. – 4.00 p.m.
_______________________________________________________________________________
INSTRUCTIONS
Answer Question one and any other Two questions.

QUESTION ONE (COMPULSORY)
a)
Compare and contrast the significance of the demand management policies under the following
schools of thought:

i)
Keynesian theory

[3 marks]

ii)
Classical theory

[3 marks]
b)
Using a country of your choice as an example explain how fixed exchange rates are sustained.

[5 marks]
c)
Given the following equations for a certain economy

C = 100 + 0.8Yd
(Consumption function)

I = 10 – 10r
(Investment function)

G = 10

(Government purchases)

T = 0.25Y

(Tax rate)

L = Y – 100r
(Real money demand)

M = 295

(Real money supply)
Required
i)
Derive equations for IS and LM curves.

[5 marks]
ii)
Determine the r and y pair at which the two markets are clearing.
[2 marks]
iii)
Compute the values of C, I and L.

[3 marks]

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d)
In order to demonstrate your understanding of the Keynesian theory. Systematically discuss the
contribution of Keynes to the theory of money.

[9 marks]

QUESTION TWO
Explain through the use of short notes the foundations of classical model and provide a clear argument
against each as provided by John M. Keynes.

[20 marks]

QUESTION THREE
a)
Explain the difference between the devaluation of a currency and the appreciation of a currency.

[4 marks]
b)
Using well labeled diagrams, analyze the impact of an increase in money supply in the classical
model. This should be followed by a detailed explanation.

[8 marks]
c)
With aid of well labeled diagrams analyze the impact of investments in ICT in the classical
model.

[8 marks]

QUESTION FOUR
a)
Compare and contrast the capital account and the current account of the balance of payments.

[4 marks]
b)
Clearly distinguish between commodity and money markets.

[4 marks]
c)
Explain the J-curve phenomena.

[5 marks]
d)
Explain the effects of monetary policy in the three ranges of LM curve.

[6 marks]

QUESTION FIVE
a)
Using well labeled diagrams explain the adjustment to balance of payment deficit under flexible
exchange rate.

[10 marks]
b)
Using well labeled diagrams explain how balance of payment surplus under fixed exchange rate
would be rectified.

[10 marks]
…………………………..
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Eet201: Macroeconomic Theory Ii Question Paper

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