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Econ 220 Question Paper
Econ 220
Course:Bachelor Of Science In Economics And Mathematics
Institution: Kabarak University question papers
Exam Year:2009
INTERMEDIATE MACROECONOMICS
INSTRUCTIONS:
1. Answer question ONE and any other TWO questions.
2. Question ONE carries thirty (30 Marks) and the rest (20) Marks each.
3. Show all your workings clearly.
QUESTION ONE
a) The following information was found in an economy
US $ Millions
Consumption expenditure 328,453
Export of goods and services 123,396
Taxes on expenditure 80,136
General government final expenditure 99,426
Import of goods and services 142,527
Subsidies 5,668
Capital consumption 56,186
Value of physical increase in stocks 3,012
Gross domestic capital formation 100,472
Interest and dividends from abroad 14,582
Property income paid abroad 10,000
i) Prepare a detailed statement of national income using expenditure
approach. (10mks)
ii) Explain the uses of national income statistics you have calculated in (i)
above. (5mks)
b) Country A’s economic growth was 3.2% in 2007 and in 2008 was 4.8%, therefore
the social welfare of the citizens improved. Discuss (6mks)
c) Explain the objectives of monetary policy in developing countries
(6mks)
d) Outline any three factors that influence investment in a country
(3mks)
QUESTION TWO
a) Without using diagrams define:
i) IS curve (2mks)
ii) LM curve (2mks)
b) Given the following model
C = 10 + 0.8Yd
(Consumption function)
I = 20 – 1000r (Investment function)
G = 55 (Government expenditure)
T = 50 (Tax)
Md
= Y – 1000r (Demand for money function)
Ms
= 90 (Money supply)
i) Derive IS and LM equations (5mks)
ii) Calculate equilibrium levels of income and interest rate
(4mks)
iii) Explain the factors that cause the shift in IS and LM curves
(4mks)
iv) Outline the main limitations of IS – LM model (3mks)
QUESTION THREE
a) i) Define the term inflation (2mks)
ii) Explain cost push inflation (8mks)
iii) Suggest measures that would be undertaken to control cost push inflation.
(4mks)
b) Explain the following types of unemployment;
i) Frictional unemployment (2mks)
ii) Natural rate of unemployment (2mks)
iii) Structural unemployment (2mks)
QUESTION FOUR
a) Explain the factors that determine the level of consumption in a country
(8mks)
b) Explain the life cycle hypothesis of consumption theory. (9mks)
c) Outline Kuznets (1946) findings on consumption theories. (3mks)Page 4 of 4
QUESTION FIVE
Given the following information;
C = 40 + 0.75Yd
(Consumption function)
T = 12 + 0.25Y (Tax function)
I = 16 (Investment function)
G = 12 (Government expenditure function)
X = 20 (Export expenditure)
M = 4 + 0.02Y (Import function)
a) i) Calculate equilibrium, Income, Consumption, Tax and imports
(8mks)
ii) State the position on the government budget and give reason for your
answer (2mks)
iii) Calculate the government expenditure multiplier and interpret your results.
(4mks)
b) Explain the factors that determine the balance of payment (B. O. P) of a country.
(6mks)
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