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Bcom 103: Principles Of Macroeconomics Question Paper

Bcom 103: Principles Of Macroeconomics

Course:Bachelor Of Commerce

Institution: Chuka University question papers

Exam Year:2012

CHUKA UNIVERSITY

COLLEGE

UNIVERSITY EXAMINATIONS

FIRST YEAR EXAMINATION FOR THE AWARD OF DEGREE OF
BACHELOR OF COMMERCE

BCOM 103: PRINCIPLES OF MACROECONOMICS

STREAMS: BCOM Y1S1 TIME: 2 HOURS
DAY/DATE: TUESDAY 11/12/2012 2.30 P.M – 4.30 P.M.
INSTRUCTIONS:

• Answer question One and any other Two questions.
• Do not write anything on the question paper.

Question One: (Compulsory)

1. (a) Explain the meaning of inflation. [3 marks]

(b) Explain the causes of inflation. [5 marks]

(c) Discuss the measures to control inflation in an economy. [5 marks]

(d) Per capita income of the economy of Wonderland is three times larger than the per capita income of Dreamland economy. Therefore, the material welfare of the people of Wonderland economy is three times better than that of Dreamland people. Do you agree? [5 marks]

(e) Consider a simple Keynesian model of income determination in a closed
economy: Y = C + I + G. I = Investment, Y = Income, C = Consumption,
G = Government expenditure. Where C = a + by, a and b are positive parameters.

(i) Give an economic interpretation of a & b. [2 marks]

(ii) Assume b = 0.75 & that government expenditure increases by KSh.50 billion, what effect will this have on income? [5 marks]

(iii) Suppose now that the government decides to levy a lump sum tax (T); which will reduce disposable income, what effect will this have on income? [5 marks]

Question Two:

2. (a) With the help of a well labeled diagram explain the circular flow of income in an
economy showing clearly the leakages and injections. [8 marks]

(b) Economists argue that people hold cash for different motives. What is Keynesian contribution to this? [9 marks]

(c) Discuss at least three causes of unemployment. [3 marks]

Question Three:

3. (a) Explain the methods that are used to correct the Balance of payment deficit in
an economy. [8 marks]

(b) With aid of a diagram explain the Philips curve. [5 marks]

(b) What are the factors one need to consider before making a decision on whether
to invest or not to invest? Explain. [7 marks]

Question Four:

Write short notes on the following:

(a) Relative income hypothesis of consumption [5 marks]

(b) Liquidity trap [5 marks]

(c) Flexible exchange rate regime [5 marks]

(d) Paradox of thrift [5 marks]

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Bcom 103: Principles Of Macroeconomics Question Paper

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