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Old Question Paper
Year: 2005 | Semester: Fall
Exam 2005 fall
1. a. “Microeconomic theory has its foundation in macroeconomic theory and macroeconomic theory has its foundation in microeconomic theory.” Justify this statement with suitable examples. 
b. Distinguish between GDP at market price and GDP at factor cost. Explain the income method of computing national income. 
2. Critically examine the classical theory of employment and output. 
3. a. Define investment. Distinguish between autonomous and induced investment. 
b. State and explain the Keynesian psychological law of consumption.
4. Suppose a structural model of the three sector economy is given as follows: [8+7]
C = 200+0.8 (Y-T)
I= 100, G=150 , T=50+ 0.2Y
a. national income equilibrium
b. tax multiplier
5. Using IS-LM model, explain what happens to the equilibrium interest rate and income under the following circumstances. [5×3]
a. The central bank increases money supply.
b. The government increases government expenditures on goods and services.
c. The government increases taxes.
6. a. What are the measures of inflation? Distinguish between consumer price index and the GDP deflator. 
b. What is monetary policy? Explain how the central bank uses the general instrument of monetary policy to overcome the problem of recession. [ 8]
7. Write short notes on: [5×2=10]
a. Fiscal policy
b. Circular flow diagram