Introductory Macroeconomics Old Question Paper 2014 Spring

1. a. “The various issues of macroeconomics are always concerned with economic expansion and contraction.” Explain. [7]
b. Draw the circular flow of income and expenditure in four sector economy. [8]

2. a. What is disposable income? How the national income be measured by income method? [7]
b. The table presents the price of a unit of aggregate output for year 2013 and 2014. Calculate Nominal GDP and Real GDP for year 2014. [8]

3. a. Explain briefly the classical theory of income and employment. [7]
b. Explain the various determinants of consumption. Suggest to raise marginal propensity to consume. [8]
4. a. Using IS-LM model explain the equilibrium interest rate and income under the following circumstances.
i. The Central Bank decreases money supply. [3]
ii. The Government increases taxes. [3]

b. Behavioural and Structural equations of an economy are given below:
C=100+b(Y-50-tY)
I=50, G=50, X=10, M=5+0.1 Y , b=0.8 and t=0.25.
where I, G, x, M, b and t have their usual meanings.
i. Find the equilibrium level of national income. [3]
ii. Find the foreign trade multiplier. [3]
iii. Find the equilibrium value of import. [3]

5. a. What are the leakages in multiplier? Explain. [7]
b. The rate of interest is at a point where the liquidity preference curve equals the supply of money curve”. Explain. [8]
OR
How equilibrium level of national income is determined by the equality of aggregate demand and aggregate supply in a three sector economy? Explain.

6. a. Define monetary policy. Discuss about the objectives of monetary policy in the developing countries like Nepal. [7]
b. “Inflation may seem natural and inevitable to a person, why is inflation a problem and what exactly are the cost that inflation imposes on a society? Explain. [8]

7. Write short notes on any two: [2×5=10]
a. Characteristics of Business Cycle
b. Macroeconomic Equilibrium
c. Effective Demand

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