Institute of Rural Management Anand

Course Name: Macroeconomic Perspectives Programme: PGDM-RM41, FPM-RM19

Date: 21st November, 2020 Term – II Roll No.______________________

Quiz 1 (Open Book)

Duration of Exam: 1 hour Weightage: 10 percent Total Marks: 30

1. Refer to the article titled “The First Tranche” featured in The Indian Express that
concerns the Editor’s views on the first tranche of the Rs 20 lakh crore economic
stimulus package announced by Prime Minister Narendra Modi on May 12, 2020.
Explain why the Editor opines that the collateral-free loans for MSMEs (amounting
to Rs 3 lakh crores) raise the spectre of Moral Hazard? (3 points)

2. Refer to the article titled “The economic case for universal healthcare” that featured
in mint. The author, Sumit Mishra, doubts the ability of the markets to deliver robust
healthcare to the society. What are the sources of market failure according to the
author?
While some of the solutions to correct the market failure come with their own
challenges, one of the solutions posited by the author involves conceiving well-
designed insurance policies to cope with the health risks. In your own words,
preferably through an example, explain how the problem of hidden information or
adverse selection manifests itself in the market for health insurance. Finally, what is
the author’s main solution to tackle the sub-optimal market of healthcare in India?
What according to you are some of the main challenges in implementing the
solution? (Hint: For the final part, think about Principle 3 of Economics – Marginal
effects are important/Rational people think at the margin) (2+3+1+2 points)

3. In the world of Zwift, there exists two kingdoms – Watopia and Innsbruck. Both
kingdoms specialize in production of only two goods – Bicycles and Turbo-Trainers.
Using the same amount of their respective potential factors of production, Watopia
and Innsbruck can manufacture Bicycles and Turbo-Trainers according to the
following production schedule.

Watopia Innsbruck
Bicycles Turbo-Trainers Bicycles Turbo-Trainers
0 600 0 400
100 300 50 150
200 0 80 0

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 a) Draw the production possibility frontiers of both Watopia and Innsbruck on the
same graph. Clearly mark the axes. (2 points)
b) Does either of Watopia or Innsbruck have an absolute advantage? If yes, which
one of the two? (2 points)
c) Which kingdom has the comparative advantage in – (i) Bicycles; (ii) Turbo-
Trainers (2 points)
d) Can there be a trade scenario where both kingdoms are better off engaging in
commerce with each other? If yes, what are the terms of trade? Display the
benefit of trade (if any) on the production possibility frontier. (4 points)

4. A school student faces difficulty during the last three months before his 12th board
examination in a couple of subjects (Macro and Rural Finance, let’s say). He went to
his teachers for advice and his teachers replied to him in the following ways: the
first teacher asked him to concentrate on the immediate weekend’s exam, while the
second teacher asked him to concentrate on the end board’s exam. Why did the
teachers advise the student in two distinct ways, even though it was the same
student? Can you apply the answer to this question in any macroeconomic issue?
(2+2 points)

5. It was announced that a Nobel prize-winning economist was going to visit IRMA and
a lecture was scheduled within a couple of hours. The students assembled in the
auditorium. When the laureate came, he happened to speak on Auction Theory and
some students started leaving the auditorium during the lecture. Why did the
students leave? (2 points)

6. True or false – In the context of the Indian economy, a 10% fall in investment has
the same impact on the GDP as a 10% fall in consumption. Justify your answer.
(Hint: You have an access to the Internet) (3 points)

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