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Introductory Macroeconomics – Old Question Paper 2007 | Semester: Fall

Introductory Macroeconomics | Old Question Paper Year: 2007 | Semester: Fall
Pokhara University

Exam 2007 Fall

1. a. Explain how circular flow diagram is useful in explaining the aggregate economic activities in the closed economy. [8]
b. Define autonomous and induced investment. Explain Marginal Efficiency of Capital. [7]

2. a. “Say’s law of market and quantity theory of money are the basic pillars of classical theory.” Explain. [8]
b. What is effective demand? What, according to Keynes, are the important factors causing high unemployment in the economy? [7]

3. Consider a three sector Keynesian economy with following behavioural equations:

C=20+0.5 Yd ; T=20; I=500 ; G=250
Where the symbols have their usual meanings: Find the equilibrium level of income, and government expenditure multiplier. What would be the equilibrium level of income if marginal propensity to consume (MPC) changes from 0.5 to 0.8? Does it also change the value of government expenditure multiplier?

4. What is meant by monetary policy? Explain the various objectives of monetary policy in developing countries like Nepal. What would be appropriate monetary policy to combat inflation? [15]

5. Using IS-LM model, explain what happens to the interest rate and income under the following circumstances.

a. The central bank increases money supply. [5]
b. The government increases government expenditures on goods and services. [5]
c. The government increases taxes. [5]

6. a. What is business cycle? Explain the important features of business cycles. [7]
b. What is meant by fiscal policy? How the instrument of fiscal policy is used to overcome inflation in an economy? [8]

7. Write short notes on (Any Two): [2×5=10]
a. Multiplier principle
b. Philips Curve
c. Marginal Propensity to Save (APS)

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