SVKM'S NNIMS

Anil Surendra Modi School of Commerce / School of Commerce r P6. I ,,.,I. DE,g`t?
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Academic Year: 2022-23

Program : BBA/BCom/B scFinai`c*£ Year:I Seine

Hons-
Subject: Macroeconomics Batch: 2022-25

Date: 2-7 /Mav / 2023 Time:uiB|qul;o±n2Hrs.

Marks: 50 No. of Pages: 6

Final Examination

Instructions: Candidates should read carefully the instructions printed on the question paper
and on the cover of the Answer Book, which is provided for their use.

Instructions:

Question number 1 is compulsory. Attempt any 8 out Of the rest.

Show your calculations clearly

Draw diagra[:I'ns were necessary

Scieritifie calculators are allowed

Question
The Government of India implemented a judicious mix of fiscal
and monetary policies to mitigate the negative impact of COVID-
19 on the economy. On May 12 2020, Goverrment announced

the Aatma Nirbhar Bharat Package (ANBP), a special economic

and comprehensive package of Rs 20 latch crores -equivalent to

10 per cent of India's GDP with an aim to encourage business,

Q.1
attract investments and strengthen the resolve for ` Make in (3+2+3+2)-
CLO-4, BL-4, 10
India'. Under the ANBP, the Government has implemented
BL-5
several measures, whicho inter-alia, include:

i. Relief measures for households such as in-kind (food; cooking

gas) and cash transfers to senior citizens, widows, disabled,

women Jan Dhan Account holders, farmers; insurance coverage

for workers in the healthcare sector; and wage increase for

Page 1 of 6
 MGNREGA workers and employment provision for migrant
workers

ii. Relief measures for MSMEs such as collateral-free lending

programme with 100 per cent credit guarantee, subordinate debt

for stressed MSMEs.

iii. Regulatory and compliance measures: postponing tax-filing and

other compliance deadlines, reduction in penalty interest rate for
overdue GST filings, faster clearing of Mshffi dues, amongst
others.

iv. Structural reforms announced as part of the ANBP, which, inter

alia, include deregulation of the agricultural sector, change in
definition of MSMEs, new PSU policy, commercialization of
coal mining, higher FDI limits in defence and space sector,
development of Industrial Land/ Land Bank.

On the monetary front, the Reserve Bank of India (RBI)

responded with a mix of conventional and unconventional
monetary and liquidity measures to mitigate the negative
economic fallout of COVID19. The policy rates were
significantly reduced and around Rs. 9.57 lakh crore or 4.7 per
cent of GDP was injected since February 2020 to enhance the
credit flow in the economy. RBI took several developmental and
regulatory policy measures to enhance liquidity support for
financial markets and other stakeholders, ease financial stress
caused by COVID-19 disruptions while strengthening credit
discipline, improve the flow of credit, deepen digital payment

systems and facilitate innovations across the financial sector by

leveraging on technology.

Use the IS-LM framework to answer the following questions:

(a) Explain the impact of the fiscal policy of the government on

interest rate and national income of India.

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 (b) Can the fiscal policy initiatives lead to crowding out effect? Explain

your answer.
(c) Do you think the crowding out effect was avoided by the policy
stance of RBI? Explain your answer.

(d) Post covid, Central Banks of many countries have increased interest
rates and reduced liquidity in their economies. Why have the Central

Banks changed their policy stance post covid?

(a) The contractionary effect of taxes is less than the expansionary

effect of government expenditure in a three sector Keynesian economy
with lump sum tax structure. Justify the above statement.

Q.2CLO-2,CL04,BL-4,BL-5 (b) In a four sector economy, if savings is less than investment, then
current account surplus may be maintained even if there is fiscal (2+2+1)-5
deficit. Do you agree with this statement? Justify your answer.

(c) Would GDP of an economy increase if the goverrment increases

government spending and funds that expenditure by an equivalent
increase in tax? Explain your answer.

Considering the following data of a four-sector economy:C=150+0.75Yd

I - 200
G-80
T -20 + 0.1Y

X -150
Q.3CLO-2,BL-3
M -30 + 0.2Y
(1+1+3)-5
Transfer payment (Tr) = 40(a)Findtheequilibriumlevel of output.(b)Findtheamountofsavingsthattheeconomy would have at the

equilibrium level of output.

 (c) Calculate the budget deficit/surplus of the government at the
equilibrium level of output obtained from part (a). What will happen to

govemment' s budget deficit/surplus if Transfer payment decreases by

20 and government spending increases by 30? Show your calculation.

(a) `At a very low rate of interest, the money demand curve for
speculative purpose is perfectly elastic and monetary policy is

ineffective in reducing interest rate. ' Explain.a)Ifthevelocityofmoneyincreases,whatwould happen to transactions

Q.4
(2+2+1)-5
CLO-3, BL-4,BL-5 demand for money? Explain using a suitable diagram.(c)Incontinuationtoyouranswerinpart(b),whatwill happen to interest

rate if the central bank doesn't change the level of money supply?
Explain.

(a) Consider an economy with multiple banks. Assuming currency

deposit ratio to be zero and reserve ratio to be 0.05, explain the process

of credit creation when a bank receives 10,000 as primary deposit. By

how much would the money supply increase?a))Incontinuationtotheabovequestion,now the economy has a
Q.5CLO-3,BL-3
(3+2)-5

currency deposit ratio equal to 0.4. In this case, by how much the

primary deposit with the bank should have increased to ensure that the
increase in money supply is the amount that you have obtained in part

(a)? Show your working.

An Economy is described by the following Equations:C-100+0.6(Yd)I-220-10rG-100

Q.6CLO-4,BL-3 (2+1+2)-5

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 T -100Mstp-110

Mdff = 0.2Y -5r(a)Findtheequation of the IS and LM curves.

(b) Calculate the equilibrium levels of income and interest rate.

(c) Calculate the amount of crowding out if G increases from 100 to

200.

(a) South Africa has high number of unemployed workers with stable
inflation rate. However, strong labour union has pushed up the wages
in recent years. Explain with a suitable diagram, what would happen to
inflation and GDP of South Africa in this case.a)Incontinuationtotheabovequestion,assume that the government

Q.7CLO-3,BL-4,
(2+1+2)-5
BL-5 in South ALfrica has taken restrictive fiscal policy. What would happen
to inflation and GDP of South Africa in this case?(c)Usingasuitablediagram,explaintherelationbetween inflation and

unemployment with the help of Phillips curve?

(a) India's imports of crude oil from Russia soared to a record 16

barrels per day in February and is now higher than the combined
imports from Iraq and Saudi Arabia. Assuming that the transactions are
in US dollars, draw a diagram and explain what will happen to the
value of rupee relative to US dollars in a flexible exchange rate

system?(b)Ifan economy having a fixed exchange rate system has a deficit in

Q.8CLO-5,BL-4
(2+3)-5

its balance of payment, then how can an expenditure switching policy

be used to improve its balance of payments? Explain the condition
under which the expenditure switching policy will improve its balance

of payments?

Q.9 During 1990-92, Finland fell into serious difficulties. The collapse of
CLO-5, BL-4,BL-5 5
exports to the Soviet Union and a dramatic fall in the prices of pulp and
 paper export items led to both recession and a current account deficit.
Finland had perfect capital mobility and a fixed exchange rate regime.RecommendasuitablepolicythatwouldreviveFinland'seconomy.

Explain using a suitable diagram, the impact of your recommended

policy on GDP and balance of payments ofFinland.

(a) Depict the Circular flow of Income for a four-sector economy by
drawing a suitable diagram. Discuss the effect on circular flow of
income in case of trade deficit.(b)Fromthefollowingdata,calculate the national income by value

added method.

(Rs. Incrores)

Q.10CLO-lBL-3 Value of output (3+2)-5

Primary Sector 1000
Secondary Sector 1150

Tertiary Sector 850

Intermediate Consumption of
Primary Sector 150
Secondary Sector 200
Tertiary Sector 200
Net factor income from abroad(NFIA) 80
Consumption of fixed
capital(depreciation) 60
Net Indirect taxes 40

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