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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