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Econ 222

The document is an examination paper for ECON 222: Intermediate Macroeconomics at Chuka University, detailing the structure, instructions, and questions for students. It includes various economic equations and concepts such as IS and LM equations, natural rate of unemployment, savings equations, monetary disturbances, paradox of thrift, and theories of consumption. Students are required to answer question one and any two additional questions within a two-hour timeframe.

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48 views2 pages

Econ 222

The document is an examination paper for ECON 222: Intermediate Macroeconomics at Chuka University, detailing the structure, instructions, and questions for students. It includes various economic equations and concepts such as IS and LM equations, natural rate of unemployment, savings equations, monetary disturbances, paradox of thrift, and theories of consumption. Students are required to answer question one and any two additional questions within a two-hour timeframe.

Uploaded by

wachiyekennedy0001
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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ECON 222

CHUKA UNIVERSITY

UNIVERSITY EXAMINATIONS

CHUKA AND EMBU CAMPUSES

EXAMINATION FOR THE AWARD OF DEGREE OF BACHELOR OF ECONOMICS

ECON 222: INTERMEDIATE MACROECONOMICS

STREAMS: TIME: 2 HOURS

DAY/DATE: FRIDAY 06/12/2019 2.30 P.M. – 4.30 P.M.

INSTRUCTIONS:
 Answer question ONE and any other TWO.

QUESTION ONE

(a) The following equation describes a certain economy.

𝐶 = 400 + 0.75𝑌 𝑑
𝐼 = 200 − 100𝑟
𝑇 = 70 + 0.2𝑌
𝐺 = 100
𝑋 = 10
𝑀 = 150 + 0.6𝑌
𝑀𝑆 = 4000
𝑀𝐷𝑆 = 1200 − 18𝑟
1
𝑀𝐷𝑌 = 8 𝑌

(i) Derive the IS and LM equations. (6 marks)

(ii) Rud the equilibrium income and interest rates in the two markets. (4 marks)

(iii) Calculate 𝐶 𝑒 , 𝑇 𝑒 , 𝐼 𝑒 and 𝑁 𝑒 (8 marks)

(b) The natural rate of unemployment cannot be eliminated permanently by means of


expansion of any policy. Use diagram to explain this statement. (8 marks)

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ECON 222

(c) Savings is the difference between disposable income and consumption. Using a well
labelled diagram, present the savings equation. (4 marks)

QUESTION TWO

(a) With aid of a well-labelled diagram, discuss the monetary disturbance in the classical
model with decrease in income velocity. (8 marks)

(b) Discuss in detail the concept of paradox of thrift with aid of a diagram. (6 marks)

(c) Proof that MPS + MPC = 1. (6 marks)

QUESTION THREE

(a) Given that

𝐶 = 𝛼 + 𝑃𝑌
𝐼 = 𝐼𝑜
𝑌 =𝐶+𝐼
Derive the multiplier, hence, suppose that autonomous investment Io increases by ∆𝐼.
Derive the investment multiplier.

(b) A good tax system should distribute the tax burden as equitably as possible. Discuss two
types of such equity. (4 marks)

(c) Discuss the following theories of consumption.

(i) Permanent income hypothesis


(ii) Ratchet effect (5 marks)

QUESTION FOUR

(a) Briefly discuss the criticisms of classical pillars of macroeconomics. (10 marks)

(b) Critically examine the accelerator theory of investment. (6 marks)

(c) Discuss the role of public sector in an economy. (4 marks)


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