MAASAI MARA UNIVERSITY
SCHOOL OF BUSINESS AND ECONOMICS
DEPARTMENT OF ECONOMICS
ARE 302: INTERMEDIATE MACRO-ECONOMICS
ACADEMIC YEAR 2014/15
SEMESTER: MAY-AUG’2015
Instructions
Question ONE is compulsory
Answer Any other THREE questions
QUESTION ONE
(a) (i) The GDP deflator is a widely based price index that is frequently
used to measure inflation. Explain any two types of price indexes
used to measure inflation. (2mks)
(ii) What is the distinction between the GDP deflator and the measures
of inflation? (3mks)
(b) Suppose behavioral and structural equations for an economy are given as follows.
C=50+0.80Yd
Yd=Y-T
I=G=T=50
(i) Name the endogenous and exogenous variables. (5mks)
(ii) Find equilibrium values for each endogenous variable. (6mks)
(iii) Find the expenditure multiplier and ΔY if ΔG=25. (2mks)
(iv) What ΔG will you suggest for increasing national income by 250?
(1mk)
( c) (i) Using the MPS model explain the concepts of consumption and
consumer expenditure. (4mks)
(ii) What is q-theory of investment? (2mks)
QUESTION TWO
(a) (i) Property income influences consumption function just as the wage
income. Explain the effect of property income in the consumption
function. (3mks)
(ii) Discuss the Ando-Modigliani consumption theory. (4mks)
(b)(i) Explain the development of regressive expectations model of
liquidity preference. (4mks)
(ii) Discuss the relationship between investment demand and output growth.
(4mks)
QUESTION THREE
(a) Discuss the effectiveness of monetary policy and fiscal policy on the aggregate demand. (6mks)
(b) (i) Explain the mechanism of monetary expansion. (3mks)
(ii) Discuss the balance of payments adjustments and the LM curve.
(6mks)
QUESTION FOUR
(a) Explain the effect of a change in domestic price level on the current account. (7mks)
(b) Discuss the effects of inflation on output and employment. (8mks)
QUESTION FIVE
(a) Explain the stylized facts of economic growth. (4mks)
(b) State the basic assumptions of one-sector growth models. (3mks)
(c)Discuss the Harrod-Domar condition for equilibrium growth. (8mks)
