Institute of Rural Management Anand

Course Name: Macro Economics (Section A and B] Programme: PGDM-RM42 and FPM-RM20

Date: March 17, 2022 Term II Roll No.

End Terin Examination (Open Book)

'/
Duration of Exam: _2_Hrs _00_Min Weightage: _30_ percent Total Marks: 40 W,

|
QI: Macroland is a closed economy. The Economy is characterized by the following macroeconomic
identities: 15 marks
Consumption Function: 100+0,8YJ Where Yd is disposable income
Investment function: l=50-25i where i is the rate of interest
Government Expenditure and Taxes: G-T=50

■t
Nominal Money Supply Ms =600
Price Level =3
Demand for money: Md = Y-25i ytjoo

You are required to do the following:

. Derive the equations of the IS and LM curves.
_^2. Find the short-term macroeconomic equilibrium output and interest rates.
What is the effect of the rise in real Money supply by 100 on the equilibrium?
What is the effect of an increase in Government expenditure by 50 on the equilibrium assuming
J^JA.
Nominal money supply at 600 and price level at 3? z < Z- f 3 marks

Q2\ Can fiscal and monetary policies work harmoniously towards moving the economy at or closer to
•potential GDP? Reason out the same using the IS LM framework assuming a prevailing recessionary gap.
- ------ 5 marks

Q3: Macroland and Ecotopia are two neighbouring countries. Macroland has traditionally followed a
fixed exchange raie icgiinti. while Ecotopia has adopted a flexible exchange rate regime. Both these
countries lace perfect capital mobility. Currently both these countries are facing a recessionary gap, and
arc contemplating whether to go in for fiscal expansion, monetary expansion or a mix. They are consulting
you regarding the same.
What adv ice would you give the finance minister of each country? Reason out elaborately using graphical
analysis why your advice would be same or different, as the case may be. s marks

Page 1 of 2
Q4: State with reasons whether the following statements are true or false: 6 marks

1. Keynes conclusively proved that the classical economists were wrong regarding their views and
models of macroeconomy. marks .
2. Under flexible exchange rates and immobile capital, countries have more flexibility m
macroeconomic policy making (No graphs required) 3 marks

Q5: According to salary.com, the average salary for a software engineer level III (a higher-level position
jn sollware design and implementation) in the Silicon Valley area of California is_$ 108,244. However,
Google pays its level 111 software engineers an average salary^LSJ24,248.. Explain why Google would
pay a salary higher than the equilibrium salary for equivalent positions in the same area? Wha^^1 e
possible benefits of such a system? ’"‘

06- "Domestic Products lose competitive advantage when inflation increases in the home country.
Explain the sentence. ' *• '" ,?/ marks

P = U ■T |AVj