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Bcom 202:Intermediate Macro Economics. Question Paper
Bcom 202:Intermediate Macro Economics.
Course:Bachelor Of Commerce
Institution: Egerton University question papers
Exam Year:2011
INSTRUCTIONS
Answer Question ONE and any other TWO Questions.
1. (a) Explain the main arguments for Keynesian macroeconomics. (4 marks)
(b) Consider a hypothetical economy described by the following equations.
C = 100 + O8Yd (Consumption function)
I = 200 (Investment)
G = 100 (Government expenditure)
X = 10 (Export)
M = 2 + 0.25y (import function)
T = 25 + o.3 (Tax Function)
When y= National income and yd = National income after tax.
Compute:
(i) The equilibrium level of national income. (4 marks)
(ii) The level of consumption income after tax and net exports that correspond to the equilibrium level of national income. (4 marks)
(iii) From (ii) above, identify the balance of trade, which types of countries are associated with this balance of trade and why? (4 marks)
Compute and interpret government expenditure multiplier and tax multiplier, (4 marks)
* Which of the two multipliers in (IV) above is larger and why? (2 marks)
Distinguish between the following:
(i) Capital and investment. (2 marks)
(ii) Autonomous investment and induced investment. (2 marks)
(iii) Net investment and Gross investment. (2 marks)
(iv) Endogenous and Exogenous variables. (2 marks)
Q2. (a) With the aid of a diagram show that according to the relative income hypothesis, the short-run average propensity to consume is greater than the
long-run average propensity to consume. (10 marks)
(b) You are given the following information about a hypothetical economy.
C = 100 + O.8y (Consumption function)
1= 75 - 100r (Investment)
G = 350 (Government spending)
ms = 950 ( Real money supply)
md = 0.2y (Transaction demand for money)
mdsp = 750 - 260r (Speculative demand for money)
Where y = income, r = rate of interest. Required:
(i) Specify both the IS and Lm equations. (5 marks)
(ii) Compute the equilibrium values of y and r that simultaneously clear both the
goods and money markets. (2 marks)
iii) Compute the equilibrium values of C, I and mdsp (3 marks)
3. Distinguish between the following paired concepts:
(i) Nominal Gross National Product and Real Gross National Product.
(2 marks)
(ii) Gross National Product at factor cost and Gross National Product at market
price. (2 marks)
(iii) Gross National Product and Gross domestic product. (2 marks)
(b) Identify the main problems encountered in measuring national income accounts.
(7 marks)
(c) You are given the following data of an economy (in billions of shillings)
Shs.
Exports 700
Imports 1, 000
Consumer''s expenditure 45,000
Government expenditure 3,800
Gross domestic fixed capital information 4,200
Net property income from abroad 400
Capital consumption allowance 890
Solve for:
(i) Gross domestic product (3 marks)
(ii) Gross National product (2 marks)
(iii) Net national product (2 marks)
Q4. (a) Explain the following terms:
(i) Moderate inflation (1 mark)
(ii) Galloping inflation (1 mark)
(iii) Hyper inflation (1 mark)
(b) Discuss the view that the introduction of a minimum wage in Kenya would increase unemployment among teenagers.
(8 marks)
(c) Clearly explain the reasons for holding money in Keynesian system. (6 marks)
(d) If a government pursues a balanced budget policy, what effect will this have on the national income? (3 marks)
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