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Introductory Macroeconomics – Old Question Paper 2013 | Semester: Fall

Introductory Macroeconomics Old Question Paper Year: 2013 | Semester: Fall

Exam 2013 Fall

1. a. What is macroeconomics? How is macroeconomics different from microeconomics? Discuss.[8]
b. What is circular flow of income model? Explain the importance of the circular flow of income model in explaining economic activities in a three-sector economy. [7]

2. a. Consider that an economy produces two goods A and B in the years 2010 and as follows:

2010 2011
Price Quantity Price Quantity
Good A $60 1800 $62 2000
Good B $200 384 $204 400

Assuming 2010 as the base year, find:
i. Nominal GDP and Real GDP for 2010 and 2011.
ii. Inflation rate.

b. State and explain the quantity theory of money based on the classical approach. [7]

3. a. State principle of effective demand. Explain diagrammatically how effective demand is determined. [8]
b. What is the marginal propensity to consume? Explain how marginal propensity to consume differs from the average propensity to consume. [7]

4. a. Suppose that the economy is in equilibrium at [8]
Y=C+I+G+(X-M), where C=100+0.7(Y-T)
I=100 ,G=70,X=20 ,T=30 and M=10+0.2Y

i. Find out the equilibrium level of national income (Y).
ii. Determine foreign trade multiplier (fm).
b. Discuss the investment function along with the relationship between MEC and MEI. [7]

5. a. What is a multiplier effect? Explain and derive investment multiplier in a simple two-sector economy. [7]
b. State and explain Keynes’s liquidity preference theory of interest. [8]

6. a. Suppose the followings functions are given as [7]
C=100+0.8Yd Mt = 0.5 Y
T=20 Msp=100-50i
I=100-30i Ms=150
Where symbols have their usual meaning, this information determines the equilibrium level of income (Y) and interest rate (i) under the framework of the IS-LM model.
b. Define the Aggregate Demand Curve through the concept of macroeconomic equilibrium. [8]

7. Write shorts notes on any two: [2×5=10]
a. Demand-pull inflation
b. Instrument of monetary policy
c. Different stages of the business cycle with diagram


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