# Introductory Macroeconomics – Old Question Paper 2014 | Semester: Fall

## Introductory Macroeconomics BBA | BBA-BI | BBA-TT | BCIS | BHCM Old Question Paper Year: 2014 | Semester: Fall Pokhara University

Exam 2014 Fall

1. a. Why is macroeconomics called a policy science? Explain the main issues that are focused in macroeconomics study. [7]
b. Show the circular flow of income and expenditure in an open economy. [8]

2. a. Define real GDP. How do you differentiate between GDP at factor cost and GDP at market price? [8]
b. Calculate national and personal income from the following information:

 Items Amount in Rs. Millions Household expenditure on consumption of goods 100 Investment expenditure 50 Government expenditure 60 Income from abroad 150 Depreciation 10% of GDP Indirect taxes 70 Subsidies 10 Payment to abroad 30 Import 10 Export 80

3. a. Explain the summary model of classical theory of output and employment with appropriate diagrams. [8]
b. Explain the effective demand theory of determination of employment. [7]

4. a. Define marginal propensity to consume. Illustrate the basic premises of the psychological law of consumption. [8]
OR
Explain the process of determining equilibrium rate of interest under Liquidity Preference Theory of Interest.

b. Illustrate and explain that what happens in general equilibrium under IS-LM framework: [7]
i. If government expenditure increases but demand for and supply of money remain constant
ii. If money supply increases but investment and saving remaining same.

5. Suppose a model is given as follows:
C=100 +0.75Yd;(where Yd = disposable income)
I= 250 million, G= 100 million and T= 100 million
Find
a. Equilibrium level of income and saving. [5]
b. Change in equilibrium income if G increases to 200 and I decreases to 150 million. [5]
c. Balance budget multiplier. [5]

6. a. Consider a two sector model with following equations. [8]
C=20 +0.5Y, I=200-2000i,
Mt =0.5Y, Msp = 105-1500i

Find
i. IS and LM functions
ii. Equilibrium income and interest
b. Define monetary policy. Explain the objectives of monetary policy in developing countries. [7]

7. Write short notes on any two: [2×5=10]
a. Marginal efficiency of capital
b. Philip’s curve