Macroeconomics Model Question-1

Level:-BBA-BI, 2nd sem.                                        Full Marks -100

Faculty:-Management                                              Pass Marks -40

Sub:-Introductory Macroeconomics                  Time:-3 : 00 hrs.

Candidates are required to give their answers in their own words as far as practicable. The figures in the margin indicate full marks.          

Attempt All Questions

Section – A

Answer the following questions briefly.                      (10 x2 =20)

1. Write any two differences between micro and macroeconomics.

2. What is economic growth?

3. Given the disposable income (Yd)=Rs.500 million and saving (S)=Rs150 million, find the consumption expenditure (C).

4. What do you mean by involuntary unemployment?

5. Given the initial consumption expenditure C=Rs.300 million at income level Y=Rs.400 million. When income increases up to Y=Rs.500 million, consumption exp. also increases to C=Rs.350 million. Now find out the change in consumption exp. and income level and also calculate marginal propensity to consume (mpc).

6. Given the consumption expenditure C=Rs.500 million, autonomous expenditure a=Rs.40 million and marginal propensity to consume b=0.8, find the level of income.

7. What are the main phases of trade cycle?

8. What do you mean by inflation?

9. What monetary policy measures can be adopted to check a recessionary tendency of an economy?

10. Write any four causes of leftward shift of AD curve.

Section – B

Answer any six questions.                                             (6 x10 = 60)

11. What is macroeconomics? Explain the various issues of macroeconomics.

12. Construct a diagram of circular flow of income and expenditure of a three sector-closed economy and explain the linkages of household, business and government sectors.

13. Summarize the methods of estimating national income? Explain the various difficulties of measuring national income in developing countries like Nepal.

14. What is effective demand? Explain with diagram how employment is determined under the principle of effective demand.

15. What do you mean by Keynes’s psychological law of consumption? Explain the measures to raise the propensity to consume.

16. Consider the three sector economy with the following behavioural equations where symbols have their usual meaning.

C = 1000 + 0.75Yd

T = 3000

I = 2000

G = 10,000

a. Find equilibrium level of income.

b. Calculate government expenditure multiplier.

c. What will be the equilibrium level of income if tax function is T = 3000 + 0.2Y.

17. Suppose structural models of the product and money market are given as–

Product market model, C = 100 + 0.75( Y – T )

I =200 – 200i, G = Rs. 100 crores and T= 0.20 Y

Money market model, Mt = 0.5Y , Msp = 100 – 2500i

Ms = Rs. 200 crores

a. Find the equilibrium value of income and interest rate.

b. What will happen to the rate of interest and income level when govt. expenditure increases by Rs, 50 crores and at the same time, money supply falls by Rs. 20 crores ?

18. Using IS-LM model, explain with diagram what will happen to interest rate and income level in Nepalese economy under the following circumstances.

a. The Nepal Rastra Bank (NRB) increases money supply while the govt. of Nepal keeps its expenditure and tax constant.

b. The govt. of Nepal increases its expenditure but keeps the tax constant while NRB also keeps money supply constant.

c. NRB and govt. of Nepal both simultaneously increase money supply and tax with constant government expenditure.

Section – C

19. Read the given case and answer the question that are following in an analysing way                                         (4 x 5 =20)

Suppose, Nepalese economy is in short run equilibrium (at less than full employment level of output or potential GDP) but a wave of pessimism overtakes the economy. The cause might be the formation of a left electoral alliance by the CPN-UML and the CPN-Maoist Centre with an eye on the upcoming parliamentary and provincial Assembly elections besides eventual unification. It has started to create political polarisations in Nepalese politics and a rumour has also spread that there will be sever political instability before and after the upcoming polls in Nepal. Because of this event, many people have lost future confidence and have changed their spending plans. Households has cut back on their expenditure and delayed major purchases. The firms have also postponed buying new equipments. It has also been speculated that the firms would experience an increase in their cost of production due to political instability after the polls. However, some Nepalese economists say, “Political polarisation will favour Nepalese economy in future by maintaining political stability with a parliamentary full majority government in Nepal.”

Now using AD and AS concept, answer the following questions in an analysing way.

a. What happens to the price level and output (GDP) in the short run when households cut back their spending? Illustrate with figure.

b. What will happen to the equilibrium if firms experience increase in cost of production?

c. What economic fluctuations either recessionary or expansionary may the economy face in the short-run until both the future confidence and production costs are normalized?

d. What happens to the price level and equilibrium output (GDP) if the political polarizations will really favor the Nepalese economy? Explain with figure.

The End