UNIVERSITY EXAMINATIONS 2013/2014 ACADEMIC YEAR

INSTITUTIONAL BASED

UNIVERSITY EXAMINATIONS 2010/2011 ACADEMIC YEAR

1ST YEAR SEMESTER EXAMINATION FOR THE DEGREE OF

BACHELOR OF SCIENCE IN AGRICULTURAL EDUCATION AND

EXTENSION

COURSE CODE/TITLE: AEC102: ELEMENTS OF MACRO-

ECONOMICS

END OF SESSION III DURATION: 3 HRS

DAY/TIME: TUESAY 8.00AM – 11.00AM DATE 03.12.2013-KA

Instructions.
i). Answer all the questions
ii). All drawings should be clearly labeled and in pencil.

Question One
a)With the help of a diagram explain the circular flow of income and expenditure 8mks
b)With examples, explain the causes of unemployment 6mks

c)What are the policies that can be used to curb unemployment in Kenya 6mks

d) Discuss the Keynesian theory of demand for money 5mks

Question Two

a) Identify any three approaches to measuring gross domestic product (GDP) 3mks
b) Distinguish between:

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 i. Gross Domestic Product (GDP) and Gross National product (GNP) 2mks
ii. Relation between Real GDP and Nominal GDP 2mks
c) What are the major limitations of using GDP as a measure of society’s welfare 8mks

Question three

a) Differentiate between the terms inflation and deflation? 2mks

b) State any two methods of measuring inflation 2mks
c) Identify and explain any two types of inflation. 6mks
d) Explain any two undesired effects of inflation. 4mks
e) State one positive effect of inflation. 1mk

Question four

a) State the definition of private savings and government saving, and use the following
accounting identity to relate I and S:
Y≡C+I+G 4mks
b) consider the following consumption and investment functions: C = 50+.6(Y-T) and
I = 50-i. Solve for i and draw aggregate investment in the (i,Y) space. 6mks

c)Money demand is given by

d -i d
M =PYe ⇒ lnM =lnP+lnY-i
Explain in words why money demand depends positively on the price level and
aggregate output, and negatively on the interest rate. 5mks

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