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Econ 121: Principles Of Macroeconomics Question Paper

Econ 121: Principles Of Macroeconomics

Course:Bachelor Of Science In Economics And Statistics

Institution: Chuka University question papers

Exam Year:2012

STREAMS: B.Sc. (ECON. & STATS) & TIME: 2 HOURS
B.A (ECON. & SOCI)
DAY/DATE: WEDNESDAY 8/8/2012 8.30 A.M. - 10.30 A.M.
INSTRUCTIONS:

Answer question one and any other two questions.
Do not write on the question paper.

1. (a) Distinguish between the following terms as used in macroeconomic analysis:

(i) Microeconomics and macroeconomics [2 marks]
(ii) Structural unemployment and cyclical unemployment. [2 marks]
(iii) Multiplier and acceleration principle. [2marks]
(iv) Theory of absolute advantage and theory of comparative advantage.
[2 marks]
(v) Disinflation and open inflation. [2 marks]

(b) The table below represents estimated national income values for hypothetical economy X in million of shillings.

Gross National Produce (at market prices) = 389.2
Depreciation allowance = 47.0
Indirect taxes less subsidies = 42.4
Business taxes = 11.4
Personal income taxes = 66.3
Government transfers = 59.3
Retained profits = 13.0

Based on the information provided, calculate the Net National Product at market price, the Net National Income (at factor cost), Personal Income and the disposable income for this economy. [8 marks]

(c) Explain the term per capita income and show its usefulness. Explain whether it’s a good or a bad measure for material wellbeing of people in an economy.
[7 marks]

(d) Explain the factors that are likely to determine the level of investment in your country. [5 marks]

2. Most developing countries especially the Sub-Saharan Africa countries including Kenya are facing the problem of unemployment and general increase in price levels.

(a) Discuss the main cause of unemployment. [6 marks]

(b) Suggest the possible measures that you would implement to contain unemployment problem in your country. [8 marks]

(c) Discuss the economic effects of high rate of inflation in your country. [6 marks]

3. You are given the following information about the commodity and money markets
of a closed economy without government.

The commodity market

C = 50 + Y

Investment function

I = 790 – 21r

The money market
Precautionary and Transaction demand for money

MDT = Y

Speculative demand for money

MDS = 1200 – 18r

Money supply

MS = 1250

(a) (i) Determine the equilibrium level of income and interest rate for this
economy. [5 marks]

(ii) Using a well labeled diagram, illustrate the equilibrium condition in
part (i) above. [3 marks]

(b) Explain the three motives for holding money according to the Keynesian
view point. [6 marks]

(c) Money as a medium of exchange need to have properties. Explain. [6 marks]

4. You are given the following economic model.

C = 100 + 0.8YD
I = 200
G = 100
GT = 50
T = 100 + 0.2Y
X = 20
M = 10 + 0.1Y

(a) Find the equilibrium national income. [6 marks]

(b) By how much will equilibrium income change if investment increase by 50?
[2 marks]

(c) Discuss the four major macroeconomic policy objectives outlining how conflicts may arise when the government simultaneously seeks to attain all the policy objectives.
[10 marks]

(d) Distinguish between the terms leakage and injections as used in macroeconomics.
[2 marks]

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Econ 121: Principles Of Macroeconomics Question Paper

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