Fall 2015 Macroeconomics

This is the question set along with the answers of Fall 2015 Macroeconomics which was taken by the Pokhara University (PU).

POKHARA UNIVERSITY

Fall 2015 Macroeconomics

1. a) Define macroeconomics. Discuss the various uses of macroeconomics.

b) Three sector Model consists of household, business and government sector. Explain the circular flow of income and expenditure between and among these sectors.

2.        a) Define nominal and real GDP. Illustrate with an example how real GDP is calculated from a nominal GDP.

b) What do you mean by the problem of double-counting in national income accounting? What method is used to deal with this problem? Explain with example.

3.       a) What is effective demand? How employment is determined according to Keynes? Illustrate with a diagram.

b) What is the consumption function? What are the measures to raise the propensity to consume?

4. Suppose a model is given as follows:

C= 200+0.0Yd (where Yd= disposable income), I=200, G=150, T=20+0.1Y.

a) Equilibrium level of income and saving.

b) Change in equilibrium income if G increases by 100 and tax rate are increased by 5 percentage point.

c) Compute the tax multiplier and government expenditure multiplier the result.

5. Explain the Keynesian liquidity preference theory of interest.

OR

Illustrate the demand-pull inflation and explain the various cause of demand-pull inflation with respect to Nepal.

b) For the economy with the following speciation’s:

C=200+0.08Yd, I=200-1020i, G= 100, T=100, Mi= 0.5Y, Msp=100-2500i, Ms=250billion

Where, Yd= Y-T, Y income, i interest rate.

6. a) What is the inflationary gap? Illustrate cost-push inflation with a diagram.

b) What is fiscal policy? Discuss the tools of fiscal policy.

7. Write short notes on any two:

a) Marginal efficiency of capital

b) Macroeconomic equilibrium

c) Phases of the business cycle.