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SARLA ANH, MODI / SCHOOL OF ECONOMCS
Academic Year: 2022-23
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Program: Bachelor of science aconomies) r'
Year:I
Subject: Principles of Macroeconomics C
Batch:2022-23/2`Ozi-2~2' r
Date: 17 December 2022 r
Time: loco an to 12.30 pin {
Made:50
Duntion:2aus) a
No. of pages:±
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Semester:I
FrivAL ERAMINATION 7 RE-EXAnmrATION ~
Instructions:
1) Question No. 1 is compulsory.
-
2) Out of remaining questions, attempt any 4 questions.
3) In all, five questions to be attempted.
4) All questions cany equal marks.
5) Answer to each new question to be started on a fresh page.
6) Figures in brackets on the right hand side indicate full marks.
7) Assume Suitable data if necessary.
Question No.1 is compulsory
Q1.
(A) With a cash/deposit ratio of 0.15 and reserve/deposit ratio of 0.1, the RBI aims to
increase money supply Ovll) by Rs.100,000, 000 qundred million) in the economy
throuch open market operations (OMO).
(i) Describe an OMO and the nature of OMO in this case that the RBI must
undertake to increase money supply.
(1.5)
(ii) Explain how this OMO can impact the real economy.
(1.5)
E=
0) Quarterly data for the hdian economy is given as follows (in lakhs of crores):
Table 1
2017-18
2016-2017
'
Q1
29.62
Q3
Q4
GVAatBasicPrice
29.74
30.39
• 32.27
31`.93
. 31.78
32.31
33.22
GDP
31.62
32.17
32.84
35.15
34.16
34.41
•35.00
37.42
Q3
Q4
y`3
Q1
Q2
r ,,.''
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(i)
Give two reasons why GDp may not be equal to the value offlna[ sales in an
economy.
(2)
(ii)
(With reference to Table 1) Computethe year-on-year GDp growth rate in Q2 of
2017-18.
(0.5)
(C) Given the following data for a small island economy:
Table 2 :
Good~ear
Potatoes
Bananas
2021
2020
.Price
Quantity
Price
Quantity
75
1000
90
1200
50
500
120
100
(i)
(With reference to Table 2) Calculate the inflation rate between 2020 and 202l
using the CPI.
(I)
(ii)
(With reference to Table 2) Calculate the inflationrate between 2020 and 202l
using the GDp deflator.
(1)
(iii)
(With reference to Table 2) Analyze three reasons for the difference between
the above two measures ofinflation.
(2.5)
Attempt any foul. out of five (Q2 to QO:
Q2.
(A)The Australian Goverrment has released the 2022-23 Federal Budget. The Budget
includes an additional $17.9 bimon in new commitments to infrastructure projects,
increasing the Goverrment's rolling 10-year infrastructure investment pipeline to
S120 billion. The Government will also provide $7.1 billion over 11 years from 2022-
23 to turbocharge regional economies including four key regional hubs across
Australia, which will deliver targeted and transformative investment opportunities
using existing Commonwealth programs. Illustrate through aggregate supply and
aggregate demand curves, and describe the effect of the following on output and
prices in the short-run and long-run.
(6)
a}) Cement prices rise again as cost pressures intensify. After rising to Rs. 390 per bag
over the past 12.months, domestic cement prices are set to clinb another Rs. 25-50
across regions in April as manufacturers start to pass on rising costs due to the RussiaUkraine conflict. A bigger impact of input cost hikes will be felt in the first two
•quarters of fiscal 2023. Examine through aggregate supply and aggregate demand
curves the cause of inflation in this case and its possible impact.
(4)
Q3.
(A)Post Covid hdian rupee seems to be descending at a significant rate compared to
dollar as demand for dollars is increasing. Illustrate this same through demand and
supply curves in foreign ckchange market and discuss its economic impact on Indian
rupee.
(5)
2/3
.
a}) Assume that Belgium curency @EF) trades at 4238.99 Iranian rials and Indian rupee
I
trades at 518.60 Iranianrials. Giventhis information:
(i) Find the nominal exchange rate between India and Belgium?
(2)
(ii) Assuming the real exchange rate as I, India experienced 15 per cent inflation and
Belgium experienced 10 per cent. What will be the impact of this shock on exchange
rate?
(3)
`Q4.
(A)A penny saved is a pemy earned may not hold always. nlustrate reasoning around
this phenomenon. Elaborate the circumstances when this may and may not hold? (5)
a}) Define in brief automatic stabilisers and de-stabilisers. nlustrate the role pkyed by
these automatic wheels with apecial reference to Indian economy in face of Covid-19
pandemic?
(5)
Q5.
(A)
Explain the basic equation of Cambridge approach to the quantry theory of
money demand.
(3)
a})
Explain the motives for holding money as per Keynes' liquidity preference theory
of money.
(3)
(q)
Vfi»:Ei on!e essendal sintlariiv and :ne essential differe=: bemreen the
Cambridge approach to the quntity theory of money (QTM) and Keynes'
liquidity preference theory of money.
(2.5)
a))
Suppose the coupon on a perpetual govelrment bond is $ 100 and the present
yield on the bond is 20%. What will be the capital gain or loss on the bond if
yields falls to l9%?
(1.5)
Q6.
(A)In Germany, tenants represent roughly half of all households, making many housing
expenditures directly observable in micro data. A study was conducted to observe the
relatouship between household consumption and population aging.. Study found
significant negative impacts of the retirement status on housing cousunptiqu which is
hard to reconcile with lifeicycle theory. Despite the lock-in nature of past housing
decisions, income reductions at retirement have additional - thouch small - effects on
housing. Evaluate Life-cycle consumption theory in thi; context and discuss possible
reasons why theory carmot possibly explain this consumer behavior in Gemany. (8)
a}) `The long-run data of United States suggests that there is a significant dedline in jobmatching efficiericy and experts are of the opinion that It may take substantial tine to
•
inprgve job-matching efficiency with job seekers'skills and increased mobilities over
time.' Identify the type of unemployment in this case and explain its impact on the
economy.
(2)