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Introductory Macroeconomics – Old Question Paper 2010 | Semester: Fall

questionIntroductory Macroeconomics
Old Question Paper
Year: 2010 | Semester: Fall
Pokhara University


Exam 2010 Fall

1. a. What is meant by withdrawal and injections? How do they affect the size of circular of income and expenditure in an economy? [8]
b. Calculate GDP at mark price from the following data: [7]

ParticularsRs. Crores
Interest paiod by firms2
Dividends paid4
Net factor income received from abroad6
Retained earnings of the firms6
Wages and salaries100
Provision for pension10
Social security contribution by employees5
Corporate profit tax8
Rent on land paid by firms5
Mixed income of self employed150
Indirect taxes30
Consumption of fixed capital25

2. a. Summarize the classical model of output and employment. [5]
b. Explain the principle of effective demand and show its importance in income. [10]

3. a. Explain and illustrate diagrammatically the concept of multiplier. What are the leakages that may occur in the operation of multiplier in an economy? [8]
b. Given the data of the disposable income (Yd) and amount of consumption at the initial level of income (Rs. 100). Assuming that marginal propensity to consume is 50 per cent, complete the following table: [7]

Rs 100Rs 150     
Rs 200      
Rs 300      
Rs 400      
Rs 500      
Rs 600      

4. a. The following data are given for an economy [4+4]

Consumption, C=40+0.75Yd
Investment, I=140-10i
Government expenditure, G=100
Lump sum tax, T=80
Money demand, Md=0.2Y -5i
Money supply, Ms=85
(i is interest rate, other figures In Rs. crores)
i. Find out the equilibrium income and interest rate
ii. Suppose the government increases its expenditure on education and health services by Rs. 65 crores, what would be its effect on equilibrium income and interest rate?

b. “If all people in a society decide to save more, they may actually fail to do so, but nevertheless reduce their consumption”. Explains. [7]

5. Examine critically the Keynesian Liquidity Preference Theory of Interest. [15]

6. What is inflation? What are the costs of inflation? What might be the suitable policy for Nepal to control high rate of inflation? [15]

7. Write short notes on: (Any Two) [5×2=10]

a. Consumer price index
b. Phases of Trade Cycle
c. Instruments of monetary policy

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