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Macro Economic Theory Question Paper

Macro Economic Theory

Course:

Exam Year:2011

The Keynesian theory of income determination advocates for aggregate demand (AD) and the aggregate supply (AS) in maintaining the equilibrium in the national income balance. Will the national income equilibrium always balance?

Define and explain money supply. The amount of money supply in the economy is determined by the central bank through the various monetary policy measures. Explain these measures.

Discuss the backward bending labour supply curve using a suitable diagram
Discuss the marginal analysis of the allocation of time to work. Be sure to clearly substantiate the income and substitution effects of wage changes.

Inflation refers to the persistent rise in the general price level over a fairly long period of time. Examine the causes of inflation with the aid of a clearly labelled diagram.
Discuss the Keynesian theory of demand for money and show whether it is relevant in the Kenya perspective

discuss the role of IS-LM curves in both monetary and fiscal policies.
The general equilibrium advocates for the IS-LM curves in explaining the equilibrium in both goods and money market. Explain how the IS and LM curves determine the equilibrium in both markets.

State whether the following statement are true, false or uncertain. Be sure to explain your answer.
Transaction demand for money depend on the rate of interest.
Investment multiplier for a closed economy is equal to one
Export multiplier in an open economy is equal to unity.
Phillips curve occurs when inflation rises and unemployment falls.
IS curve represents the equilibrium in the money market.

Macro Economic Theory Question Paper

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