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Econ 220: Intermediate Microeconomics Question Paper

Econ 220: Intermediate Microeconomics

Course:Bachelor Of Science In Economics And Mathematics

Institution: Kabarak University question papers

Exam Year:2008

COURSE CODE: ECON 220
COURSE TITLE: INTERMEDIATE
MICROECONOMICS
STREAM: Y2S2
DAY: FRIDAY
TIME: 8.30 – 10.30 A.M.
DATE: 8/8/2008
INSTRUCTIONS:
1. Answer QUESTION ONE and any other TWO questions.
2. Question ONE carries 30 marks and the rest 20 marks each.
QUESTION 1
(a) Given the following macroeconomic model:
C = 68 + 0.7 Yd
(Consumption function)
I = 114 + 0.Yd
– 8r (Investment function)
T = -10 + 0.25Y (Tax function)
G = 250 (Government expenditure)
Md
= 5 + 0.25Y – 10r (Money demand)
Ms
= 205 (Money supply)
(i) Define and derive the IS and LM curves (8mks)
(ii) Calculate equilibrium rate of interest and income. (4mks)
(iii) What is the effect of increasing money stock by $20 million on
equilibrium income and interest rate? (Calculate) (2mks)
(iv) What is the effect of increasing government expenditure by $20 million on
personal savings and investment? (Calculate) (2mks)
(b) Derive the empirically measurable form Ando-Modigliani consumption function
(10mks)
(c) Explain in detail the uses of national income statistics (4mks)
QUESTION 2
(a) Explain any SIX factors that influence the level of investment in an economy.
(b) Discuss the effectiveness of fiscal policy in developing country,
(c) Derive the flexible accelerator
(d) Explain the main limitations of accelerator principle
QUESTION 3
(a) Explain speculative demand for money (5mks)
(b) Using Portfolio Balance Approach derive the money demand function.
(5mks)
(c) With reference to only the commodity market, show that an increase in taxes will
shift the IS-curve by an amount equal to the tax multiplier times change in tax.
(5mks)
(d) Determine the magnitude of the shift in the IS curve if an increase in government
spending was matched by an equal increase in the level of taxes. What sort of
multiplier are we referring to in this case? (5mks)
QUESTION 4
Given the following information about an economy:
C = 600 + 0.8 (Y – T) (Consumption function)
I = 500 (Investment)
G = 600 (Government expenditure)
T = 200 (Taxes)
(i) Calculate the equilibrium level of output and consumption.
(8mks)
(ii) If government spending is cut to 300, what would be the change in income
and consumption? (5mks)
(iii) What is the size of government expenditure multiplier on output?
(4mks)
(iv) Outline any three limitations of a multiplier. (3mks)
QUESTION 5
(a) Identify and explain the approaches to measuring the value of aggregate output of
a country over time. (9mks)
(b) Explain the objectives of monetary policy. (6mks)
(c) Explain in detail how inflation can be used to make the economy grow.
(5mks)

Econ 220: Intermediate Microeconomics Question Paper

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