Question One

Read the case given below carefully and answer the questions that follow. Survival Sumata walks slowly with his head bowed and although his eyes are open he is seeing nothing in particular. He is deep in thought, indeed worried. The setting sun doesn't appeal to him anymore like it used to do perhaps four years ago. Today, he is thinking about his family and how they will survive the biting economic hardship. His days' toiling only earned him three hundred Kenya shillings, but of what use is this amount to a family of six? Yesterday, his wife told him a packet of his popular Jogoo maize flour brand was retailing at Kenya shillings two hundred and sixteen, an unprecedented price. One litre of cooking oil was retailing at four hundred shillings, way above his meagre daily earnings. He has often heard of 'hand to mouth' living but he considers his state to be much worse than this. His eldest daughter, Saika, is six months pregnant. He has not had the courage to ask Saika who put her on such a tricky path but where would such courage come from yet this young lass was single handedly taking care of the entire Sumata family of six for the better part of 2021! At the time, Mrs. Sumata was bedridden after suffering Covid19 infection that was exacerbated by her asthmatic history. Things were not always this way. Before the advent of covid19, Sumata had what he considered a well-paying job. He was able to support his family comfortably and did not need to be assisted by his children save perhaps by his wife who would walk from Kanungaga settlement to Lavington to do house chores for the rich and earn at least four hundred shillings every day. Sumata remembers June of 2020 vividly, for that is the month Makanga Construction limited laid him off. The little savings he had and his severance dues ran out by mid-April 2021. He had to humble himself and take up whatever odd jobs came his way from May 2021. His daughter Saika was aware of what the family was going through and especially after her mother Page 2 of 3 contracted covid19 and instead of just waiting for a miracle, she decided to step in and help...in any case she had just sat for her KCSE exams. Father and daughter have been doing well in taking care of the family but year 2022 has been something else...what with prices of most basic commodities going up every other day! Lately, Sumata has been thinking that the government should come up with 'screaming bays' something like the smoking zones found in Nairobi CBD. Perhaps men suffering insurmountable stress like him would regularly visit such 'screaming bays' to scream their hearts out and maybe this will help reduce the current debilitating stress.

Required:

a) Describe three macroeconomic problems that this case embodies. (6 marks)

b) From this case but without limiting yourself to the same, explain the causes of the problems described in (a) above in the Kenyan economy over the last three years (2019- 2022). (6 marks)

c) Examine the consequences of the problems described in (a) above and suggest corrective remedial measures both in the short run and in the long run given Kenya's current economic situation. (8 marks)

Question Two

Critically examine Keynesian Liquidity preference theory as it relates to modern economies bringing out clearly the key determinants of demand for money. (10 marks)