Macroeconomics

Assignment A

1.    What do you understand by circular flow of income? Explain with the help of two sector model    

2.    Differentiate between static and dynamic multiplier.

    
3. Describe briefly the Absolute income hypothesis. What are its main properties?

4. Why does an increase in the interest cause a decline in the bond price? What are their effects on the demand for money?

    
5. What is meant by monetary policy? How does it differ from fiscal policy?    

6. Explain the current account and capital account transactions and their implications on the balance of payments of a country.

7. Define the IS curve. Derive it graphically and explain the relationship between the interest rate and income.

8. Distinguish between MEC and MEI. Illustrate graphically the relationship between MEC and MEI

Assignment B

Case Study
An Oil Crisis Provoked Policy Dilemma
The sudden increase in the price of crude oil by the OPEC countries has put India in a fix. To top it, the Finance Ministry which had increased the market price of LPG and SKO (kerosene) had to partially roll it back, the former by Rs 10 and the latter by Re 1 under political pressure. This means the burden on the Union Budget has increased on both grounds, one because of an increase in the oil price internationally and second, because of the subsidy on petroleum products. All of these will result in an additional burden of Rs 560 crore, a burden which is unbearable, given the present situation of the Central Government's deficit. The fiscal deficit stands at a figure of 5.6 per cent as against the target of 4.5 per cent. The situation by all standards is alarming. Some suggested that a temporary cut should be made in the import of crude oil, but this is a straight invitation to a supply shock inflation, such that not only the prices in the economy go up, but there is a shortfall in the supply of various products including LPG, SKO, HSD (diesel), etc., a situation totally avoidable by all means. A more plausible argument was put forward by some other people in the Finance Ministry, that of restructuring so that more emphasis is laid automatic stabilizers, various direct taxes like income tax, corporate tax, etc. The argument that was put forward was, the industry was out of recession and corporate income seemed to be on a pick. The export sector was also booming with a growth rate of 15 per cent. All these have a positive impact on the GDP growth rate (though the agricultural sector seemed to be pulling along without much growth in the services sector). The GDP at market price seemed to grow at an impressive rate of 7 per cent (whereas the GDP at factor cost was growing only at 6.25 per cent). All these make the industrial as well as the external sector, a good source of taxation; Ministry officials further said, in the face of a surging fiscal deficit, mainly due to interest repayment, the burden of government-increased taxation seems inevitable, and one is lucky that at least two sectors are doing well.
However, the officials seem to have missed one point: a direct tax like income or corporate tax, which moves proportionally with the rising income has a dampening effect on not only the overall industrial and corporate atmosphere, but the total effect is a multiple of the initial tax burden as it affects the investment multiplier value negatively. Taxing the export sector also creates a negative multiplier effect. People from the ministry seem to face a real dilemma. An increase in such proportional direct taxes make them instantaneously richer by Rs 9,000 to12,000 crore, but there is a risk of putting the country back on yet another industrial slowdown. However, allowing further deficit in the budget is also by no means desirable.
        
1. Discuss the kind of inflation the country might face if there is a shortage of crude oil in the economy. 
 
    
2. How does a direct proportional tax have a negative multiplier effect on the economy's level of income? 

Assignment C

Question No.  1    Marks - 10
National income is also called: Solve by www.solvezone.in contact for more details at 8882309876    

Options    
NNP at factor cost    
GNP at factor cost    
GDP at factor cost    
GDP at market price    

Question No.  2    Marks - 10
In a circular flow of income we have    

Options    
Production    
Distribution    
Disposition    
All of the above    

Question No.  3    Marks - 10
In a four sector economy national income is measured as    

Options    
Y=C+I+G+X-M    
Y=C+I+G-X-M    
Y=C+I+G+T    
Y=C+T+G+X-M    

Question No.  4    Marks - 10
In a two sector economy circular flow of income takes place between firms and    

Options    
Government    
Foreign sector    
Households    
Producers

Question No.  5    Marks - 10
Which of the following is not a final good?    

Options    
Chair    
Book    
Alumina    
Airplane

Question No.  6    Marks - 10
Autonomous investment is that investment which is:    

Options    
Induced by demand    
Made irrespective of demand and savings    
Equal to savings    
Equal to demand

Question No.  7    Marks - 10
Which of the following is not considered in calculation of national income?    

Options    
salary of employees of state electricity board    
Interest on bank deposits    
Dividend earn on share of any company    
Pension received by Govt. employees

Question No.  8    Marks - 10
Direct selling of Govt. securities by Central bank to general public is known as    

Options    
open market operations    
Selective credit control    
Indexation    
Statutory reserve ratio

Question No.  9    Marks - 10
A systematic record of a country’s external transactions over a period of one year is called    

Options    
Balance of Payments    
Balance of trade    
Foreign trade    
Export import difference

Question No.  10    Marks - 10
Difference in the value of export and import of good is called    

Options    
Balance of Payments    
Balance of trade    
Foreign trade    
Exchange rate

Question No.  11    Marks - 10
What is the nature of capital transaction?    

Options    
Flow    
Stock    
Both flow and stock    
None

Question No.  12    Marks - 10
Keynes multiplier is known as    

Options    
Fiscal Multiplier    
Accelerator    
Investment Multiplier    
Employment Multiplier

Question No.  13    Marks - 10
The Value of Multiplier is    

Options    
k =1/1-MPC    
k=1-MPC/1    
k=1/1-MPS    
k=1-MPS/1

Question No.  14    Marks - 10
What is the formula of Aggregate Consumption?    

Options    
Aggregate Consumption=C+mps    
Aggregate Consumption=C+mpc(Y)    
Aggregate Consumption=C+I    
Aggregate Consumption=C+S

Question No.  15    Marks - 10
What is the shape of MEC curve?    

Options    
Downward sloping    
Upward sloping    
‘U’ shaped    
Hyperbolic

Question No.  16    Marks - 10
The Permanent Income Hypothesis (PIH) decomposes measured total disposable income, y, into……………    

Options    
yp and yt    
yp and cp    
cp and ct    
yp and cp

Question No.  17    Marks - 10
Relative Income Hypothesis is given by which economist?    

Options    
Dusenberry    
Modgliani    
Pigou    
Fisher

Question No.  18    Marks - 10
Linear form of Consumption function can be expressed as follows    

Options    
c=f(Y)    
C=a+bY    
C=a+bI    
C=Y-S

Question No.  19    Marks - 10
The Chicago school has broadened the definition of money to include which components”    
Options    
currency, chequeable demand deposits, time deposits.    
currency, chequeable demand deposits    
Chequeable demand deposits, time deposits.    
Currency, time deposits.

Question No.  20    Marks - 10
Philips curve shows the relation between    

Options    
consumption and investment    
Income and consumption    
inflation and unemployment    
consumption unemployment

Question No.  21    Marks - 10
The formula for obtaining the present value (V), or the capitalized value, of a constant income stream is
Given by-    

Options    
V=R/i    
V=R*i    
V=i/R    
None

Question No.  22    Marks - 10
It is levied as a percentage of the total value of the imported commodity.    

Options    
Specific Duties    
Compound Duties    
Sliding Scale Duties    
Ad Valorem Tariff

Question No.  23    Marks - 10
The formula of Current account Balance is-    

Options    
CAB = X - M + NY + NCT    
CAB = X+ M + NY + NCT    
CAB = X - M - NY + NCT    
CAB = X - M + NY – NCT

Question No.  24    Marks - 10
The new framework of monetary policy known as 'Competition and Credit Control' was introduced in
which year-    

Options    
1990    
1980    
1971    
1950

Question No.  25    Marks - 10
A contractionary fiscal policy occurs when    

Options    
G<T    
G=T    
G>T    
None

Question No.  26    Marks - 10
Under this policy approach the target is to keep inflation, under a particular definition such as Consumer Price Index, within a desired range.    

Options    
Price level targeting    
Inflation targeting    
Monetary aggregates    
Gold Standard    

Question No.  27    Marks - 10
Which function of money removes the difficulty of double coincidence of wants?    

Options    
Medium of exchange    
Measure of value    
Standard of deferred payments    
All of the above

Question No.  28    Marks - 10
C + DD +OD=--------?    

Options    
M1    
M2    
M3    
M4

Question No.  29    Marks - 10
Barter system suffered from    

Options    
Lack of common measure of value    
Lack of double coincidence of wants    
Difficulty in storage of extra goods    
All of the above

Question No.  30    Marks - 10
The meaning of ‘fisc’ (in English) is –    

Options    
Inflation    
State treasury    
State Borrowing    
State Expenditure

Question No.  31    Marks - 10
A deflationary fiscal stance happens when the government runs a -    

Options    
neutral budget    
budget deficit    
budget surplus    
None    

Question No.  32    Marks - 10
The term "macroeconomics" was coined by which economist?    

Options    
Ragnar Frisch    
Alfred Marshall    
Samuelson    
Chamberlin

Question No.  33    Marks - 10
Which method is very suitable for the primary sector such as agriculture, industries etc.    

Options    
Expenditure method    
Income Method    
Product method    
All of the above

Question No.  34    Marks - 10
In which year Modigliani was awarded the Nobel Prize in economics    

Options    
1980    
1985    
1975    
1982

Question No.  35    Marks - 10
MEC stands for    

Options    
Maximum efficiency of capital    
Minimum efficiency of capital    
Marginal efficiency of capital    
Mild efficiency of capital

Question No.  36    Marks - 10
Who has classified the approaches to the definition of money under four categories?    

Options    
H.G. Johnson    
Keynes    
Fisher    
Marris

Question No.  37    Marks - 10
The Chicago approach of money was pioneered by –    

Options    
Robins    
Milton Friedman    
Schumpeter    
Boumal

Question No.  38    Marks - 10
Bank deposits include three kinds of deposits    

Options    
current account deposits, net deposits, time deposits.    
current account deposits, saving bank deposits, time deposits    
current account deposits, post office deposits, time deposits    
current account deposits, national deposits, time deposits

Question No.  39    Marks - 10
The income method of measuring national income is appropriate for the    

Options    
Tertiary and service sectors.    
Primary and secondary sector    
Primary and tertiary sector    
Secondary and tertiary sector    

Question No.  40    Marks - 10
Which formula of Net National Product at market price is correct?    

Options    
NNP mp=GDPmp-Depreciation    
NNP mp = GNP mp – Depreciation    
NNPmp=NNPfc-Depreciation    
None