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Eet 201: Macroeconomics Theory Ii Question Paper

Eet 201: Macroeconomics Theory Ii

Course:Bachelor Of Economics

Institution: Kenyatta University question papers

Exam Year:2015

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2014/2015

SECOND SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF ECONOMICS

EET 201: MACROECONOMIC THEORY II

DATE: Thursday 26th march 2015
TIME: 2.00pm-4.00pm

INSTRUCTIONS:
Answer question one and any other two questions.

QUESTION ONE
a) Enumerate the key contributions of the Keynesians economics and the main recommendations advanced by the classics management of economic affairs of a nation. (10 mrks)

b)Demonstrate using the classic model how a decrease in the money supply, a decrease in income velocity, and a rise in the transaction demand for money would affect prices, money wages and real variables. (20 mrks)

QUESTION TWO
a) Distinguish the following concepts:

I. Income velocity and nominal income
II. Full employment and unemployment
III. Demand side and the supply side of the economy
IV. Real theory and monetary theory of interest

b) The following set of equations describe the economy of country A, in Africa.
C= 2000 + 0.75Yd …………………….Consumption equation
I= 3600 …………………………………… Investment
G= 3600 …………………………………Government expenditure
X= 2550 ………………………………….. exports
M= 410 + 0.3Y ……………………….import equation
T= 100 + 0.25Y…………………………Tax equation

Required:

i)Compute the equilibrium National income and imports for the country A (1mrk)

ii) Compute the tax multiplier and the government spending multiplier (2 mrks)

c) With the aid of well labelled diagrams distinguish between relative income hypothesis and lifecycle income hypothesis. (9 mrks)

QUESTION THREE
a) Demonstrate why the government is a necessary evil in the management of a market. (10 mrks)

b) If the money is fixed and individuals cannot accept wage cut, use a diagram to explain classical remedy to unemployment rising in this case. (10 mrks)

QUESTION FOUR
a) Distinguish between balance of payments and balance of trade(3 mrks)

b)Distinguish between current account and capital account of the balance of payments.
Mention the various items on both of these accounts. (10 mrks)

c) Under what conditions would devaluation improve the balance of payment position in an economy (7 mrks)

QUESTION FIVE
Explain clearly using a well labelled diagram (saving and investment curves) the effects of the following

a) Investment tax credit (that is, a tax exception to firms that are investing on physical capital) on interest rate and quantity of loanable funds (government funds). (10 mrks)

b) Government budget deficit of interest rate and quality of loanable fund. (10 mrks)

Eet 201: Macroeconomics Theory Ii Question Paper

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