Q. 1
Attempt any four parts (about 100 words each)
1)
2)
3)
4)
5)
6)
Q. 2
(2 X 4 = 8)
Explain Open market operations.
Draw a simplified flow diagram for a closed economy.
Distinguish between personal Income and disposable income.
Given NNP at market prices, what adjustments will you make and why to get NI at factor cost?
Discuss briefly the determinants of Effective Demand.
Differentiate between Average Propensity to Consume and Marginal Propensity to Consume
Attempt any four parts (about 100 words each)
(2 X 4 = 8)
1) Differentiate between Micro and Macro equilibrium.
2) Which of the following activities/ transactions are included in the national income and why?
1. A father teaching his son
2. A maid servant’s work in her employer’s house
3) If C = 100 + .75Y
Find the value of multiplier.
4). India’s GNP (PPP) is around one-fourth of that of the United States of America. Thus,
(a) India possesses about 26 percent of the United States material well being.
(b) Economic welfare of the Indian people is about 25 percent of that of people living in the
United States.
Comment on the above observations.
5). Differentiate between cost push inflation and demand pull inflation.
6). Point out one major limitation of the monetary policy of India.
Q. 3
Attempt any two parts (about 150-200 words each)
(4 X 2 = 8)
1). Suppose the MPC for India as a whole is roughly 0.90. Discuss what this means. What is your
personal MPC at this stage in your life? How might that change by the time you are your parents
age?.
2). Distinguish between quantitative and qualitative measures of monetary control. Under what
conditions are the qualitative controls preferred to quantitative controls?
3).Discuss the following statements:
(a) The Phillips curve implies that when unemployment is high inflation is low and vice versa.
Therefore, we may experience either high inflation or high unemployment, but we will never
experience both together.
(b) As long as we do not mind having high inflation, we can achieve as low a level of unemployment
as we want. All we have to do is increase the demand for goods and services by using , for example
expansionary fiscal policy.
Q. 4
Attempt any two parts (about 150-200 words each)
(4 X 2 = 8)
1) What is a multiplier? Explain how an additional Investment multiplies itself to contribute to
the National Income. Draw a diagram to show that ▲Y>▲I, when MPC >0.
2) Suppose the Happyland economy has the following national accounting data:
Personal Consumption- 19,500
Net Exports of good & services- 0
Net Domestic Savings- 9,750
Retained profit-
Capital consumption-
Corporate tax-
1,950
Govt. consumption
7,800
Indirect taxes net of
households-
3,900
Personal(direct) taxes- 4,875
subsidies-
2,730
Net factor income from
Wages of employees-
5,070
Govt. transfer payments to
expenditure-
abroad-
975
Interest payments-
0
26,000
Find the values of the following national aggregates in Happyland:
Gross national product at market price
Gross domestic investment
Personal savings
3). “True Inflation begins only after the level of full employment”. Explain
3,900
Q. 1
Attempt any four parts (about 100 words each)
(2 X 4 = 8)
7) Differentiate between Stock & Flows.
8) Which of the following activities/ transactions are included in the national income and why?
1. A father teaching his son
2. A maid servant’s work in her employer’s house
9) If a chicken is born, the per capita GDP goes up but if a child is born, the per capita GDP goes
down. How?
10) GDP is a misleading measure of material well being. Is this true?
11) Explain why national income and gross domestic product would be essentially equal if there
were no depreciation
12) With the help of diagram explain the concept of social accounting in a closed economy.
Q. 2
Attempt any four parts (about 100 words each)
(2 X 4 = 8)
4) Differentiate between stable and Instable equilibrium.
5) Discuss the determinants of Investment.
6) “Saving is a function of Income” .Discuss
7) If mpc is 0.68, what will be the value of K (multiplier)?
8) Differentiate between APS and MPS.
9) Explain reverse repo rate.
Q. 3
Attempt any two parts (about 150-200 words each)
(4 X 2 = 8)
1) From the following data, construct an expenditure schedule on a piece of graph paper. Then use
the income – expenditure (45 degree line) diagram to determine the equilibrium level of GDP.
Income
Consumption
Investment
Government
Net
Purchases
Exports
$3,600
$3,220
$240
$120
$40
3,700
3,310
240
120
40
3,800
3,400
240
120
40
3,900
3,490
240
120
40
4,000
3,580
240
120
40
Now suppose investment spending rises to $260, and the price level is fixed. By how much will
equilibrium GDP equilibrium increase? Derive the answer both numerically and graphically.
2) Discuss Phillips’ curve.
3) Explain the following Statements:
(a) Marginal Propensity to consume is less than 1
(b) Saving is a function of Income and not rate of interest
(c) Investment is a function of Marginal Efficiency of Capital
Q. 4
Attempt any two parts (about 150-200 words each)
(4 X 2 = 8)
1) Fredonia has the following consumption function:
C= 100+ 0.8 DI
Firms in Fredonia always invest $ 700 and net exports are 0, initially. The government budget is balanced
with spending and taxes both equal to $500.
a) Find the equilibrium level of GDP.
b) How much is saved? Is saving equal to investment?
2) . Discuss the reasons for holding money in the Keynesian system. Also discuss how Keynesian
theory of Demand for money is different from the classical theory.
3). “ The multiplier depends ultimately on a psychological factor whereas the accelerator is based
on technological factors”. Explain