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Intermediate Macro-Economics Question Paper

Intermediate Macro-Economics

Course:Bachelor Of Commerce

Institution: Kabarak University question papers

Exam Year:2010

COURSE CODE: ECON 220
COURSE TITLE: INTERMEDIATE MACRO-ECONOMICS
STREAM: Y2S2

INSTRUCTIONS:
1. Answer any THREE questions
2. Question ONE Compulsory

QUESTION ONE
The table below represents the values of economics transactions for a given country in billions of
shillings.

Ksh. (Billions)
Wages and salaries ……………….. 90
Income from meat …………………. 6
Corporate profits …………………. 16
Net Interests ………………………. 8
Subsidies ………………………….. 6
Indirect taxes ……………………… 14
Depreciation ………………………. 16
Population …………………………. 20

Required:
a)
i. Gross National Product (GNP) (2marks)
ii. Gross Domestic Product (GDP) (2marks)
iii. Net Domestic Product at Market Prices (2marks)
iv. Net Domestic Product at factor Cost. (2marks)
v. Per Capita Income (2marks)
b) Discuss the problems associated with the input approach of
measuring national income. (4marks)

c) A central bank is referred to by economists as the back at the apex of monetary
authority. Clearly explain the major functions of a central bank in a country.
(4marks)

d) Define fiscal policy and explain the difficulties associated with using fiscal policy in
developing countries. (4marks)
e) Give the arguments for and against the international trade restriction.
(4marks)
f) State the various objectives of monetary policy in a given
economy. (4marks)

QUESTION TWO
a) If the money supply in a given country equals 500 while the velocity of circulation
and price equal to 8 and 2 respectively, determine the level of real output.
(4marks)
b) Discuss any four instruments of monetary policy used to control and regulate money
supply by the central bank. (8marks)
c) Discuss the concept of “investment multiplier” and its role in the theory of income and
employment. (4marks)

d) In a certain economy, the marginal propensity to sale (mps) is 0.2 and the autonomous
consumption equals to 400.

i. Formulate the consumption function. (2marks)

ii. If the Kenya economy spent an extra 80 billion on the modernization of the
communication system, calculate the probable effect of such a policy on aggregate
demand. (2marks)

QUESTION THREE
a) The commodity and money markets of a given economy are presented hypothetically below.
Commodity Market
Y = C+1(National income function)
C = 100+0.3Y (Consumption function)
I = 2,000 – 2.1r (Investment Function)

Money Markets
Lt = 0.2y (Transaction demand for money function)
Ls= 10 – 2r (Speculative demand for money function)
Ms = 1,500 (Money supply function)

a) Derive IS and LM curves (5marks)
b) Derive the equilibrium level of income and rate of interests. (5marks)
c) If the money supply is increased by 50, what would be the effect on the equilibrium
level of income and rate of interest. (10marks)

QUESTION FOUR
a) What are the dangers to a country engaging in international trade.
(5marks)
b) Explain the various possible solutions to unemployment problem in developing
countries. (5marks)

c) Explain the various consequences of inflation in any country (5marks)

d) Explain some of the protectionist policies at the disposal to a country.
(5marks)

QUESTION FIVE
In Keynesian model of National income determination, I and X are assumed to be independent of
level of income. Considering a two sector economy and given the following.

C= 10+0.75 Y
I=50+4Y
X=150+6Y
M=60+10Y

Required:
a) Complete equilibrium level of national income and corresponding level of consumption.
(6marks)

b) Compute and interpret investment multiplier (6marks)

c) Name the various multipliers in the given model (2marks)

d) If the investment increases from 100 to 150 units find the multiplier and interpret your
results. (6marks)

Intermediate Macro-Economics Question Paper

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