Business and Macroeconomic Policy — DU B.Com (P) Previous Year Question Papers

1. (a) What are Macroeconomic Variables? Describe the following intermediate variables: Money Supply, Fiscal deficit, and Foreign Direct Investment (FDI). (b) Explain circular flow of income in three sector models. (6) (c) The basic equations in an economy are given as: Consumption function as C = 400 + 0.75Y, Investment is I = 200. Find the equilibrium level of income and the equilibrium level of consumption. (a) Explain the difference between Stabilization Policy and Structural Policy. (b) Explain the AD-AS approach for determining Aggregate Demand and Equilibrium Output in a two-sector economy. (c) In an economy the following are given as: Derive the saving function and find the equilibrium level of output by equating the saving to the investment (6) 2. (a) For an economy, it is given that C=100 + 0.8 Ya, where C stands for consumption and Y, is the disposable income. I = 750 - 50 i, where I stands for Investment and i for the rate of interest. T= 0.25 Y, where I stands for Tax and Y stands for income. G = 850, where G stands for Government Expenditure. L= 0.2Y - 25i, where L stands for demand for real balances Real Money Supply = 500 (i) The Equation for IS and LM curves. (ii) Equilibrium level of income and the rate of interest. (ili) If the Government expenditure is increased by 100, determine the new equilibrium level of income. (iv) How much increase in money supplied is required to increase the equilibrium income by 250. (12) (b) Define and derive IS curve. (a) Consider the following model: C = 90 + 0.8 Yd, where C stands for consumption and Yd for disposable income. I = 150- 6i, where I stands for Investment and i for the rate of interest. G =40, where G stands for government expenditure. T = 50 where T stands for Tax (M/P) d = 0.2 Y - 4i, where (M/P) d represents the demand for real balances. Ms = 300, where M represents the nominal money supply P= 3, where P represents the price level. Find the following: (1) IS Curve and LM Curve equation (i1) Equilibrium Level of Income and Interest rate (i11) New equilibrium if G increases by 50 units (iv) Plot the equilibrium on a diagram (9) (b) Compare the effectiveness of monetary policy and fiscal policy in the case of (i) The Liquidity trap Range (i) The Classical Range. (9) 3. (a) Discuss the three main motives of demand for money- transactions motive, precautionary motive and speculative motive. (b) Explain that the supply of money depends on the monetary base and the money multiplier. (9) 3. (a) Discuss Tobin's portfolio approach. How does it explain the holding of a diversified portfolio by the individual? (9) (b) What are the Quantitative Instruments of Monetary Policy used by the RBI? Briefly explain any three of them. (9) 4. (a) Discuss the Social Costs of Inflation. (9) (b) How can the short run aggregate supply curve be derived show the different stages in the derivation with the help of Phillips Curve. (9) (a) Explain phenomenon of Stagflation with the help of Phillips Curve