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Econ 120: Introduction To Macroeconomics December 2010 Question Paper

Econ 120: Introduction To Macroeconomics December 2010

Course:Bachelor Of Science In Economics And Mathematics

Institution: Kabarak University question papers

Exam Year:2010

COURSE CODE: ECON 120
COURSE TITLE: INTRODUCTION TO MACROECONOMICS
STREAM: Y1S2
DAY: TUESDAY
TIME: 2.00 – 4.00 P.M
DATE: 7/12/2010

INSTRUCTIONS:
1. Answer question ONE and and any other TWO Questions.
2. Question one carries Thirty (30) marks and all other questions carry Twenty (20) marks
each.

QUESTION ONE (COMPULSORY)
(a) An economy is described by the following structural and behavioral equations:
1) C = 100 + 0.6Y [ Consumption]
2) I = 200 [ Investment]
3) G = 400 [ Government spending]
4) X = 300 [ Export]
5) M = 500 + 0.2Y [ Import]
Using this information answer the following questions :
i. Explain why this economy is described as an open economy (2 marks)
ii. Explain the meaning of the coefficients of both the consumption and import
equations (4 marks)
iii. Using the Keynesian Model of income determination, calculate the equilibrium
level of income of this economy. (6 marks)
iv. What will be the value of the equilibrium consumption of this economy?
(4 marks)
v. Define the simple Keynesian investment multiplier and calculate it using the
above information. Interpret your result. (6 marks)

(b) Explain the major economic forces that influence the level of investment in an economy.
Why is the investment function volatile? (6 marks)
(c) Distinguish between cost of living and standard of living (2 marks)
QUESTION TWO
a) Distinguish between demand pull inflation and cost push inflation. Explain the possible
measures that can be taken to combat each of these types of inflation.
(14 marks)
b) Define and explain the concept “Phillips curve” (6 marks)

QUESTION THREE
a) Define money and fully explain the motives of people holding money. (8 marks)
b) Distinguish between the following pairs of economic concepts:-

i. Per capita income and disposable income (3 marks)
ii. Economic growth and economic development (3 marks)
iii. Terms of trade and Balance of payments (3 marks)
iv. Liquidity preference and liquidity trap (3 marks)
QUESTION FOUR
a) Explain the major causes of unemployment in Kenya (10 marks)
b) Why is unemployment considered as one of the major macroeconomic problems in Less
Developed Countries? (10 marks)

QUESTION FIVE
a) Explain the effects of high population growth rate in an economy like Kenya (8 marks)
b) Explain the determinants of aggregate demand in an economy (6
marks)
c) Define monetary policy and outline its objectives (6 marks)

Econ 120: Introduction To Macroeconomics December 2010 Question Paper

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