Principles of Macroeconomics — DU B.A. (Hons.) Business Economics (BBE) Previous Year Question Papers

1. (a) What is meant by aggregation? Why is aggregation important for macroeconomic analysis? (6) (b) Why is wage-price flexibility crucial to the idea of the invisible hand? (6) (c) “Might two economists agree about the effects of a particular economic policy but disagree about the desirability of implementing the policy.” Explain this statement. (6) 2. (a) Define private saving. How is private saving useful in an economy? What is the relationship between private saving and national saving? (9) (b) What precautions should be taken while calculating GDP through the value-added method? (9) 3. (a) Consider an economy that produces two goods, Wheat and computer. The following table shows the quantities produced and prices of the two goods in the base year and the current year: Goods Quantity in Base Year Price in Base Year Quantity in Current Y ear Price in Current Y ear (i) Nominal GDP in the current year (ii) Real GDP in the current year, using base year prices (iii) Percentage change in Real GDP from the base year to the current year (b) What are the determinants of desired national savings in an economy? 4. (a) Define user cost of capital and explain its components. (9) (b) Suppose an economy is described by the following functions – Consumption function: C = 500 + 0.5Yd Government Expenditure: G = 2000 Tax rate: t = 0.2 Transfers from government: TR = 200 (i) Equilibrium level of income and the multiplier in this model. (6) (ii) Suppose t increases to 0.25, what is the new equilibrium level of income? (3) 5. (a) What are automatic stabilizers? What is their importance in an economy? (b) Define budget Surplus. What does negative budget surplus mean? Explain using suitable diagram. (8) 6. (a) What is the impact of a contractionary open market operation in an economy? (9) (b) Consider a bond that promises to pay Rs. 100 after one year and answer the following questions- (i) Calculate the rate of interest if the price of the bond today is Rs. 75. (ii) If the rate of interest is 8%, calculate the price of the bond today. (iii) State the relationship between bond price and interest rate. 7. How do the demand and supply of Central Bank money determine the equilibrium interest rate in an economy with currency and checkable deposits? Explain using formal analysis and suitable diagram. (18) 8. Write short notes on any three of the following – (3×6=18) (i) GDP deflator (ii) Balanced budget multiplier (iii) Uses-of-saving identity (iv) Determinants of desired investment (v) Monetary aggregates (8 (Wage&price flexibility) 37ę24 E (Invisible hand) en Goods Quantity in Price in Quantity in Price in Base Year Base Year Current Year Current Year (Nomina| GDP) 3Ã{→ ş{ Şİ (Contractionary open market operation) (i) 84 {4}e (GDP deflator) (ii) y (Balaned budget multiplier) ş{ed (Uses-of-saving identity) (iv) ailea Ada di Aula (Determinants of desired investment) (v) 72c 744y (Monetary aggregates)