Section A

1. Bring out the salient features of the Solow Model. In what respects the golden rule is different from the steady state growth rate? (Your answer should include the assumptions, important equations, appropriate diagrams and its interpretation).

2. Consider the overlapping generations model where each member lives for two time periods ‘t’ and (t+1). Assume that individuals work in time period ‘t’ and earn wage income, while they do not work in time period (t+1) and survive on interest income. Explain the impact of an increase in interest rate on consumption during time period ‘t’.

Section B

3. Interpret the IS and the LM curves. What policy implications do they have?

3. Bring out the reasons for rigidity in price and wage rate. What implications do they have?

4. Explain in brief, the decentralized household problem in the Ramsey model.

5. Critically evaluate the endogenous growth theory.

6. What is meant by business cycle? How does the political business cycle model explain it?

7. Write short notes on the following.

a) Ineffectiveness of fiscal policy under flexible exchange rate

b) Lucas Critique