SVKM’s NMIMS

Anil Surendra Modi School of Commerce

Programme: BBA, BSc(F), Bcom (H Semester: II

Academic Year: 2020-21
Subject: Macro Economics Marks: 50

Final Examination Duration: - 2 Hrs

Instructions:
1. There are two Sections of the question paper.
2. Section A is of 10 marks and has got MCQs .
3. Section B is of 40 marks. It has got 8 questions of 5 marks each. All 8 questions
are compulsory.

Section A (10 marks)

1. You are given the following data for an economy: Consumption C=20+0.8 Yd, I=50,
G=20, T=10. Find equilibrium level of income (1mark)
a) 600
b) 250
c) 410

2. If C=100+0.8(Y-T), I=200, T=25+0.1Y, G=100, what is the government expenditure

multiplier and investment multiplier? (1mark)

a) 5, 3.57
b) 3.57, 5
c) 3.57, 3.57

3. If C=100+0.8Yd, I=150, T=20+0.25Y, G=50, at what value of Y, will the economy be

in equilibrium? (1mark)

a) 2000
b) 1500
c) 710
4. A two sector economy has a total income of 150 billion and MPC is 2/3. How
much does this country need to invest once for all, to increase its total income by
100 percent. (1mark)

a) 100 billion
b) 50 billion
c) 200 billion

5. Suppose the basic functions in an economy are as follows: C =130 +0.80Yd, I=

160, T= 150, G = 150, net X =150 - 0.05Y. Find the equilibrium level of income
and the net exports. (2marks)
a) 1880, 56
b) 1880, 54
c) 1920, 54

Using the following data, solve Question no. 6 to Question no. 8.

Consumption C 40+0.75(Y-80)
Investment I 140-10i (i= interest rate)
Government Expenditure G 100
Money demand Md 0.2Y-5i
Money Supply Ms 85

6. What is the IS curve equation? (1mark)

a) Y=880-40i
b) Y=800-40i
c) Y=880-20i
d) Y=860-30i

7.What is the LM curve equation? (1mark)

a) Y=435+20i
b) Y=405+10i
c) Y=425+25i
d) Y=445+25i

8.What is the rate of interest and the level of income that gives simultaneous
equilibrium in the Goods market and the Money market? (2mark)
a) Y=900 and i=10%
b) Y=800 and i=20%
c) Y=700 and i=11%
d) Y=600 and i=7%
 Section B (40 marks)

Section B is of 40 marks. It has got 8 questions of 5 marks each. All 8 questions are
compulsory. Write to the point answers.

Q1. Q1. a) ‘If the government increases its expenditure exactly same as the increase in tax
collection, there is no positive impact on National Income’. Do you agree with this
statement? Explain your answer. (3 marks)

b) Suppose investment increases by same amount in a closed economy and in an open

economy. In which economy will there be a higher multiplier effect? Why? (2marks

Q2. a) Unlike the classical economists who recognised only the medium of exchange
function of money, Keynes emphasised the store of value function of money as well.
Elaborate. (3 marks)
b) How does changes in transaction demand for money affect the rate of interest in an
economy? Explain your answer. (2 marks)

Q3. a) In an economy, the currency-deposit ratio is 0.6, reserve-deposit ratio is 0.2, and the
monetary base is 100 billion. What is the level of money supply? (2 marks)

b) For an economy if the cash to demand deposit ratio tends to rise due to preference of
citizens of holding greater proportion of money in their hand, what will be the impact on
money supply in the economy. What could be the likely policy action to counter this so as to
maintain the money multiplier in the economy? (2+1= 3 marks)

Q4. In March 2020, India announced a Rs 1.7-lakh-crore relief package to take care of poor,
workers and those who needed immediate help amid a lockdown to combat the coronavirus
pandemic. The Pradhan Mantri Garib Kalyan Scheme, which covered 80 crore poor people,
included cash transfers and food security, Finance Minister Nirmala Sitharaman had said at a
press meet in New Delhi. The scheme also focused on giving payments to different sections
of the society directly into their bank accounts. This covered farmers, workers under the
Mahatma Gandhi National Rural Employment Guarantee Scheme, widow pensioners,
disabled, women with Jan Dhan accounts, women running self-help groups, beneficiaries of
the Employees’ Provident Fund Organisation and construction workers.
a) Using the information given in the caselet and the diagram above, explain what is likely to
happen in the economy due to the Rs 1.7-lakh-crore relief package announced by the
Government of India in March, 2020. (2 marks)
b) Using the diagram above, explain why does income or output increase from OY1 to OY3
instead of OY1 to OY2? Can this be prevented? If yes, explain how. (3 marks)

Q5.

a) With reference to the above, what phenomena can we explain with the help of the
diagram. Discuss the relevant concept and explain the diagram. (2 marks)
b) Write a note on short run Phillips Curve. (3 marks)
Q6. Four days after US President Donald Trump threatened to impose 10% tariffs on $300
billion in Chinese imports, China decided to let its currency yuan fall to an eleven-year low
below 7 per dollar on Monday. This is not the first time China has resorted to currency
devaluation. In 2015, People's Bank of China devalued its currency to its lowest rate against
the US dollar in three years.
Explain how the devaluation of currency may help improve China’s balance of payment. If
the elasticity of demand for import for China is o.6 and the elasticity of demand for exports is
0.9, do you think China’s BOP situation will improve because of devaluation? Explain your
answer. (5 marks)

Q7. After a long period of strict financial regulations that limited credit expansion of commercial
banks, starting from the beginning of 1990s, the Thai government had decided to accommodate a
policy of financial market deregulation and capital account liberalization. Along with perfect
capital mobility, Thai currency was fixed to a basket of world dominant currencies especially US
dollars. Since early 1990s, Thai economy had attracted massive volumes of capital inflow from
aboard due to its accommodating economic policies, goal, healthy-looking conditions, and stable
nominal exchange rate. Unfortunately, the golden years did not last long. Starting from the year
1995, Thailand’s economic growth became much slow down due to a number of factors such as
the contraction in the real estate sector and the emergence of China as an intimidating competitor
in international trade. To boost economic growth, the policy measure that was taken is depicted
in the following diagram:

Where if is the world interest rate, and BP stands for Balance of Payments.

From the diagram, identify the policy adopted by Thai economy. Explain whether the policy
depicted in the above diagram will increase Thai economy’s GDP and hence boost economic
growth. If not, what policy recommendation would you give to the Thai government to fight this
recession? Explain your answer. (5 marks)
Q8. “On Tuesday, the National Statistical Office (NSO) released the first advance estimates
of the national income that projected growth in India’s GDP at market prices for 2019-20 at
4.98% in “real” terms. But even more significant was the estimated growth of 7.53% in
“nominal” terms.
a) Briefly explain why nominal growth rate is higher than real growth rate? (1mark)

b) From the following data, calculate national income by Income Method and expenditure
method. (4 marks)
(INR crores)
Government final consumption expenditure 1000
Profits 700
Net Indirect taxes 110
Private final consumption expenditure 1500
Net Exports -20
Compensation to employees 1200
Rent 200
Interest 270
Net factor Income from abroad 30
Mixed income of self employed 600
Gross domestic capital formation 700
Net domestic capital formation 600