Hbc2213:Intermediate Macro Economics Question Paper

Hbc2213:Intermediate Macro Economics

Course:Bachelor Of Commerce

Institution: Meru University Of Science And Technology question papers

Exam Year:2011

QUESTION ONE – (30 MARKS)
a) Explain the following concepts a. Income Multiplier (4 marks) b. Good-market equilibrium. (4 marks) b) Consider an IS-LM model. The money supply is fixed and the interest rate is determined in the model. The economy is described by the following equations:
C = 950 + 0.65 V (consumption)
I = 350 + 0.1 V – 20 V (investment)
Md =0.6V – 120 v (money demand)
Ms = 2196 (money supply)
Determine:
i) The equation that describes the IS schedule. (3 marks) ii) The equation that describes the LM schedule. (3 marks) iii) The equilibrium level of income and the equilibrium rate of interest(4 marks) iv) The money demand at equilibrium. (3 marks) v) The velocity of money at the equilibrium level of income and interest rate (3 marks) vi) State the relationship between the IS curve and LM curve. (6 marks)
2
QUESTION TWO (20 MARKS)
a) Outline the Keynesian criticism of the classical theory of full employment (10 marks) b) Discuss the accelerators theory. (4 marks) c) Explain the crowding out effect in an economy. (6 marks)
QUESTION THREE (20 MARKS)
a) Explain the following terms: a. Investment demand. (3 marks) b. Business cycle (3 marks) b) Discuss the factors that determine the level of investment demand (6 marks) c) Manipulating investment demand provides an important avenue for realization of Macro-economic goals. Briefly discuss this statement. (8 marks)
QUESTION FOUR (20 MARKS)
Assume a closed economy with a fixed price level in which investment I and G are autunotious and t are lumpsum given the following information:
C = 22 + 0.6 V I = 10 G = 20 T = 20 Required:
i) Write down the equations relating consumption and savings to National income (10 marks) ii) Plot these relationships on a graph. (10 marks)
QUESTION FIVE (20 MARKS)
a) Discuss the following as used in an economy: a. Monetary policies. (5 marks) b. Fiscal policies (5 marks) b) Using the Keynesian theory, discuss aggregate demand and aggregate supply. (10 Marks)

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