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Hbc 2125: Introduction To Macroeconomics Question Paper
Hbc 2125: Introduction To Macroeconomics
Course:Bachelor Of Commerce
Institution: Dedan Kimathi University Of Technology question papers
Exam Year:2011
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KIMATHI UNIVERSITY COLLEGE OF TECHNOLOGY
UNIVERSITY EXAMINATION 2010/2011
SECOND YEAR SPECIAL /SUPPLEMENTARY EXAMINATIONS FOR THE DEGREE
OF BACHELOR OF COMMERCE
UNIT CODE: HBC 2125
UNIT TITLE: INTRODUCTION TO MACROECONOMICS
DATE: 12TH NOVEMBER 2010 TIME: 8.30AM – 10.30AM
INSTRUCTIONS Answer question ONE and any other TWO
Question One (Compulsory) 30 Marks
a) Using an appropriate diagram, illustrate the concept of reservation wage (5 Marks)
b) Briefly explain the determinants of aggregate spending (5 Marks)
c) Explain the relationship between the size of the multiplier and the Gross Domestic Product (5 Marks)
d) Briefly describe two types of inflation based on the degree of control (5 Marks)
e) Explain the relationship between Transactions demand for money and level of Income (5 Marks)
f) Briefly describe the following concepts: (5 Marks)
i) Structural Unemployment
ii) Residual Unemployment
Question Two (20 Marks)
Given the information below for an economy with only 2 consumption goods, Maize Flour and Cooking Fat;
2008
2009
Item
Price
Quantity
Price
Quantity
Maize Flour
90
180
110
195
Cooking Oil
30
250
50
240
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a) Find the CPI for the year 2009. The base year is 2008. The basket is made up of Maize Flour and Cooking Oil. (4marks)
b) If the CPI, is 138 in 2010, compute the rate inflation or deflation in the economy from 2008 to 2009? Explain your result. (4marks)
c) Explain why CPI is not the ideal basis for computing inflation in an economy (4marks)
d) Discuss the different causes of Inflation in an economy (8 Marks)
Question Three (20 Marks)
a) Briefly explain the drawbacks of Macroeconomic Data. (5marks)
b) What determines the fluctuations in unemployment rate? (3 Marks)
c) Outline the causes of Natural Unemployment (12marks)
Question Four (20 Marks)
a) Illustrate the determination of the equilibrium rate of interest in the money market (6marks)
b) Briefly explain the postulation of the supply side economic policies as propounded by monetarists (6 marks).
c) The reserve ratio for the banks is 25%. ABC Bank has 20,000 million in deposits and 12,000 million in reserves. Assume all other commercial banks are loaned up.
i) What is the value of ABC Bank’s excess liquidity? (1Mark)
ii) What is the value of the additional loans that can be made by the commercial banking system? (2marks)
iii) What is the money multiplier? (1 Mark)
iv) By how much will total deposits expand if this bank lends all its excess reserves and there is no leakage from the banking system? (2marks)
Question Five (20 Marks)
a) Describe the assumptions underlying the aggregate expenditures model (6 Marks)
b) Using appropriate macroeconomic concepts, examine the difference that may exist between the equilibrium level of output and that corresponding to the full-employment level of output (14marks)
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