Elements Of Macroeconomics Question Paper

Elements Of Macroeconomics

Course:Bachelor Of Arts In Economics

Institution: Kenyatta University question papers

Exam Year:2008

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2007/2008
SUPPLEMENTARY/SPECIAL EXAMINATION FOR THE DEGREE OF
BACHELOR OF ARTS, BACHELOR OF COMMERCE AND
BACHELOR OF EDUCATION

AEC 102: ELEMENTS OF MACROECONOMICS

DATE: Thursday 9th October 2008________________TIME: 10.00am ? 12.00pm
INSTRUCTIONS: Answer question ONE and any other TWO questions

Question One
(a)
Compare and contrast the Absolute Income Hypothesis and the relative income
hypothesis.
[10
marks]
(b)
Consider an open economy with savings being 500, investments 700, trade
balance 200. determine the budget balance. Is it a deficit or a surplus?
[10 marks]
(c)
Using well labeled diagrams, explain the impact of an increase in income on
interest rates with two scenarios

(i)
Money supply is held constant.

[5 marks]

(ii)
Money supply is increased to match the increase in GDP. [5 marks]

Question Two
(a)
Discuss the Keynesian motives of holding money.

[9 marks]
(b)
Assuming an open economy with fixed government expenditure and investments,
derive the expressions for equilibrium
income.
[11
marks]

Question Three
(a)
Differentiate between Marginal Efficiency of Capital (MEC) and Marginal
Efficiency
of
Investments.
[6
marks]

1
(b)
Explain your understanding of fiduciary issue, giving an example of Kenya.

[3 marks]
(c)
Why is it necessary at any time to discount cash flows in any investment project?

[3 marks]
(d)
The basis of international trade is the basic theories. Using relevant numerical
examples, explain the basic theories of international trade.
[8 marks]

Question Four
(a)
Compare and contrast the capital account and the current account of the balance
of
payments.
[8
marks]
(b)
Differentiate between economic growth and development in the most basic sense
and
provide
an
example.
[7
marks]
(c)
What is your understanding of a multiplier? Provide a clear example with your
answer.

[5 marks]

Question Five
Write short notes on the following
(a)
Budget
deficit
[2
marks]
(b)
Inflation

[2 marks]
(c)
Unemployment [2
marks]
(d)
Philips?
curve
[2
marks]
(e)
Open
market
operations
[2
marks]
(f)
Gross
Domestic
Product
[2
marks]
(g)
Gross
National
Product [2
marks]
(h)
Money
illusion [2
marks]
(i)
Real
balance
effect
[2
marks]
(j)
Intrinsic value

[2 marks]

========

2

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