Introductory Macroeconomics Old Question Paper Year: 2013 | Semester: Fall
Exam 2013 Fall
1. a. What is macroeconomics? How is macroeconomics different from microeconomics? Discuss.
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. 
2. a. Consider that an economy produces two goods A and B in the years 2010 and as follows:
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. 
3. a. State principle of effective demand. Explain diagrammatically how effective demand is determined. 
b. What is the marginal propensity to consume? Explain how marginal propensity to consume differs from the average propensity to consume. 
4. a. Suppose that the economy is in equilibrium at 
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. 
5. a. What is a multiplier effect? Explain and derive investment multiplier in a simple two-sector economy. 
b. State and explain Keynes’s liquidity preference theory of interest. 
6. a. Suppose the followings functions are given as 
C=100+0.8Yd Mt = 0.5 Y
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. 
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