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Kenyatta University School Of Economics Eet: 101. Macro-Economics Theory 1. C.A.T 1 Question Paper

Kenyatta University School Of Economics Eet: 101. Macro-Economics Theory 1. C.A.T 1

Course:Bachelor Of Economics And Statistics

Institution: Kenyatta University question papers

Exam Year:2009

KENYATTA UNIVERSITY
SCHOOL OF ECONOMICS
EET: 101. MACRO-ECONOMICS THEORY 1.
CONTINUOUS ASSESSMENT TEST I
INSTRUCTIONS. Answer Both Questions.
Date: TUESDAY 3rd MARCH, 2009
QUESTION ONE
a. You are given the following information on national income.
Y=C+I+G+M
Where
C=48+0.80(Y-T)
I=1000
G=2500
X-M=500
T=8+0.4Y
(i) Compute the tax and investment multipliers and comment on their meaning. (5 marks)
(ii)Suppose that coefficient of acceleration is 2.5. Compute new levels of induced
investment if the original change was from 1000 to 1800. (5 marks)
b. With the help of diagrams briefly explain relative income theory of consumption and
highlight meaning of ratchet effect. (6 marks)

QUESTION TWO
a) The original cost of an asset is sh 2M and it is expected to bring a return of shillings
600,000 pa for 5 years and then it is scrapped. Give advice on whether to buy it or not.
Why? (4 marks)
b) Highlight five determinants of investments other than income. (5 marks)