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Elements Of Macro-Economics Question Paper
Elements Of Macro-Economics
Course:Bachelor Of Commerce
Institution: Pwani University question papers
Exam Year:2011
PWANI UNIVERSITY COLLEGE
A CONSTITUENT COLLEGE OF KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2010/2011 ACADEMIC YEAR
1ST YEAR 2ND SEMESTER EXAMINATION FOR THE DEGREE OF
BACHELOR OF ARTS &BACHELOR OF COMMERCE
COURSE CODE/TITLE: AEC 102: ELEMENTS OF MACRO ECONOMICS
END OF SEMESTER II DURATION: 3HRS
DAY/TIME: TUESDAY 8.00AM- 11.00 AM DATE: 29.03.2011 (LTW)
INSTRUCTIONS
1. Answer Question ONE and any other THREE
2. Marks indicated in brackets ()
Question One
i) Giving examples, explain the difference between stock and flow macro-economic variables. (4mks)
ii) Identify and briefly explain any shortcomings of Macro-economic theory. (4mks)
iii) With the help of appropriate diagram, illustrate the concept of full-employment. (4mks)
iv) Identify and explain any two possible causes of a rise in the general level of prices when there is excess capacity in the economy. (6mks)
v) Differentiate between Net exports and Net Property income from abroad. (2mks)
vi) Why should governments worry about unemployment? (4mks)
vii) Show that the multiplier and the marginal propensity to save have inverse relationship. (4mks)
viii) For the following consumption and tax functions: C=a+bYd and T=tY
a) Express C as a function of Y
b) Find the level of C when Y=0 (4mks)
ix) What effect would a fall in the world market price of coffee have on the supply and demand of coffee in Kenya? Use diagrammatic illustration. (4mks)
x) In the context of international trade, distinguish between terms of trade and balance of trade (4mks)
Question Two
i) Using leakages-injections approach, illustrate in algebraic terms the process of National Income determination in a four sector closed economy model. (11mks)
ii) Derive government transfer payments multiplier of your model in 2 (i) above and describe its constituent parameters. (6mks)
a) Compare the transfer payments multiplier and the direct government expenditure multiplier. (1mk)
b) Why is it very important for the government to consider multiplier in determining its economic policy?
Question Three
i) using geometric exposition, illustrate the effect of supply shock on the general level of price and the equilibrium real national income. (8mks)
ii) what are the possible causes of the shocks in 3 (i) above? (3mks)
iii)with the help of illustrative diagram, explain how the government would use fiscal policy tools to manage deflationary gaps in the economy. (9mks)
Question Four
Suppose C = 50 + 0.6 ( Y – T), I = 35, Y=30, G=25, T = 20, M = 8+ 0.1Y Find,
a) The equilibrium level of income (5mks)
b) change in G to increase income by 16 (5mks)
C) Change in G if financed totally by change in T under condition (b). (7mks)
d) Trade balance at equilibrium level of income with change in G = change in T.(3mks)
Question Five
a) Examine in detail the circular flow of national income in an open Economy Model. (10mks)
b) using both verbal and geometric exposition, examine Keyne’s ‘paradox of thrift’. (10mks)
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