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Eet 101: Macroeconomic Theory I April 2016 Question Paper

Eet 101: Macroeconomic Theory I April 2016

Course:Bachelor Of Commerce

Institution: Kenyatta University question papers

Exam Year:2016

KENYATTA UNIVERSITY
UNIVERSITY EXAMINATIONS 2015/2016
SECOND SEMESTER EXAMINATION FOR THE DEGREE OF BACHELOR OF ARTS,
BACHELOR OF COMMERCE, BACHELOR OF EDUCATION, BACHELOR OF
ECONOMICS, BACHELOR OF ECONOMICS AND FINANCE, AND BACHELOR OF
ECONOMICS AND STATISTICS

EET 101: MACROECONOMIC THEORY 1
DATE: Wednesday, 6th April 2016 TIME 2 hours

INSTRUCTIONS:
Answer Question ONE and any other TWO questions.

QUESTION ONE (COMPULSORY)

(a) Define the following terms:
(i) Gross domestic product
(ii) Monetary policy
(iii) Fixed exchange rate regime
(iv) Cyclical unemployment
(v) Internal rate of return
(10 marks)

(b) Consider the following model of National Income determination

C = 3000 + 0.75 (Y - T)
T = 1000
I = 4750
G = 1500
Y = E = C + I + G
Required:

i) List all the exogenous and endogenous variables
(2 marks)
ii) Solve for the equilibrium values for all the endogenous variables
(4 marks)
iii) Suppose government expenditure increases by 500 find the new equilibrium values of the endogenous variables
(2 marks)
iv) Calculate the value of the government spending multiplier
(2 marks)
(c) Using appropriate examples discuss
(i) Cost push inflation
(5 marks)
(ii) Demand pull inflation
(5 marks)

QUESTION TWO
(a) Explain the various causes of unemployment in developing countries.
(10 marks)
(b) Explain the factors that affect construction in an economy
(10 marks)

QUESTION THREE
(a) Describe the Keynesian theory of money demand highlighting the factors that determine money demand in the economy.
(15 marks)
(b) Using an illustration explain the J _curve phenomenon
(5 marks)
QUESTION FOUR

(a) Is per capital income a good measure of social welfare? Explain
(8 marks)
(b) Explain the factors that influence the size of a countries’ national income
(6 marks)
(c) The central bank of Kenya has macroeconomics department, explain why macroeconomic is important to a country
(6 marks)

QUESTION FIVE
(a) What is a paradox of thrift
(4 marks)
(b) With the aid of a well labeled diagram, describe the life cycle income hypothesis of consumption behavior
(8 marks)
(c) The following information is extracted from the national income accounting for a certain country

	Kshs. Millions
National income	2120
Undistributed corporate profits	45
Social insurance contributions	200
Transfer payments from government and business	340
Interest payment by government	30
Personal taxes	340
Subsidies	5
Capital consumption allowances	290
Indirect taxes	210
Personal saving	150

Compute
i) Gross National product
(2 marks)
ii) Personal income
(2 marks)
iii) Disposable income
(2 marks)
iv) Personal consumption spending
(2 marks)

Eet 101: Macroeconomic Theory I April 2016 Question Paper

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