GRETSA UNIVERSITY - THIKA

UNIVERSITY EXAMINATIONS
JANUARY - APRIL 2017 SEMESTER

BACHELOR OF COMMERCE

COURSE CODE: ECON 201

COURSE TITLE: INTERMEDIATE MACRO ECONOMICS

DATE: 3 APRIL 2017 TIME: 3.00 PM – 6.00 PM

INSTRUCTIONS TO CANDIDATES

1. SECTION A IS COMPULSORY.
2. SECTION B: ANSWER ANY OTHER THREE QUESTIONS.
3. DO NOT WRITE ANYTHING ON THIS QUESTION PAPER AS IT WILL BE AN EXAM
IRREGULARITY.
4. ALL ROUGH WORK SHOULD BE AT THE BACK OF YOUR ANSWER BOOKLET AND
CROSSED OUT.

CAUTION: All exam rooms are under CCTV surveillance during the examination period.

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SECTION A

QUESTION ONE

a) Distinguish between Automatic and Discretionary Stabilization (4 MARKS)

b) In a bid to achieve economic growth, attain full employment and keep inflation in check,
the government uses two economic policy tools either in isolation or in combination.
Discuss these tools highlighting their impact on Inflation and Unemployment (8
MARKS)
c) Discuss the major hypothesis concerning the way income influences consumer spending
(12 MARKS)
d) Derive Fischer’s Equation. Explain how it differs from the equation of money and the
implication of this difference (8 MARKS)
e) Illustrate the Relative Income Hypothesis on a graph and clearly explain its variables
(8 MARKS)

SECTION B

QUESTION TWO

a) Say’s Law expresses that each level of supply results to a level of demand. However, Keynes
disagrees with some of this theory. Discuss Keynes criticism of Say’s Law (12 MARKS)
b) Discuss the aggregate demand curve. Derive its function and advance its assumptions
(8 MARKS)

QUESTION THREE

a) The classical school of thought advances that competition on both sides of the capital
markets results in an equilibrium. Use a graph to illustrate the equilibrium in the capital
market (12 MARKS)
b) Discuss Pigou’s suggestion to alleviate unemployment (8 MARKS)

QUESTION FOUR

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 a) Market conditions and trade between countries can result in currency gaining or losing
strength against foreign currencies. The central bank uses tools at its disposal to try to
stabilize the currency. Distinguish between currency revaluation and currency devaluation
(4 MARKS)
b) Define the Balance of Payment curve explaining its overall function (4 MARKS)

c) Various scholars tend to take varied views on the behavior of the aggregate economy.
Briefly explain the distinction between the various opposing macroeconomic views
(12 MARKS)

QUESTION FIVE

a) Illustrate the foreign exchange market using a well labelled graph for Kenyan currency (in
Kshs) and Ugandan currency (in Ugshs) assuming 30Ugshs selling at 1Ksh (8 MARKS)
b) A real disturbance takes place on the aggregate supply side of the classical model. Discuss
the variables it has an effect on (12 MARKS)

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