Solved 2025: FYUG Even Semester Exam, 2025 ECONOMICS: ECOIDC-151

(a) Define circular flow.

Circular flow of income is an economic model that depicts how money and goods/services move through different sectors of the economy in a continuous loop.

(b) Who is regarded as the father of macroeconomics?

John Maynard Keynes is regarded as the father of macroeconomics

.

(c) What do you mean by four-sector economy?

A four-sector economy consists of Households, Firms, Government, and the Foreign Sector (rest of the world)

.

(d) Give two examples of flow variable.

Income

Investment

(e) Who is the author of "The General Theory of Employment, Interest and Money"?

John Maynard Keynes

.

Question 2 (Answer any one) 2 Marks

Option A: Limitations of Macroeconomics

Fallacy of Composition: What is true for an individual may not be true for the whole economy.

Heterogeneity of Units: Aggregates may hide disparities within different sectors of the economy.

Option B: Stock vs Flow Basis Stock Flow Meaning Measured at a specific point in time. Measured over a period of time. Example Wealth, Capital. Income, Investment.

Question 3 (Answer any one) 8 Marks

UNIT-II

Question 4 (Answer any four) 1 x 4 = 4 Marks

(a) Define national income.

National income is the total value of all final goods and services produced by a country's residents in a given financial year.

(b) Problem of double counting: Counting the value of a product more than once (at both intermediate and final stages) during national income estimation

.

(c) Net indirect tax: The difference between Indirect Taxes and Subsidies (NIT = Indirect Tax - Subsidies)

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(d) Disposable income: The amount of money that households have available for spending and saving after income taxes have been accounted for

.

Question 6 (Answer any one) 8 Marks

Option B: Circular Flow in a Two-Sector Economy

In a two-sector economy consisting of Households and Firms:

Households provide factor services (land, labor, capital) to firms.

Firms provide goods and services to households.

Money flows as factor payments from firms to households and as consumption expenditure from households back to firms.

UNIT-III

Question 7 (Answer any four) 1 x 4 = 4 Marks

(b) "Supply creates its own demand." Who said this? J.B. Say.

(d) Fisher's equation of exchange: MV = PT

.

(e) Invisible hand: Adam Smith's concept describing the self-regulating nature of the marketplace

.

Question 9 (Answer any one) 8 Marks

UNIT-IV

Question 10 (Answer any four) 1 x 4 = 4 Marks

Question 12 (Answer any one) 8 Marks

Option A: Keynesian Theory of Demand for Money

Keynes identified three motives for holding money:

Transaction Motive: For day-to-day transactions.

Precautionary Motive: For unforeseen contingencies.

Speculative Motive: To take advantage of future changes in interest rates.

UNIT-V

Question 15 (Answer any one) 8 Marks

Option A: Instruments of Monetary Policy

Bank Rate: The rate at which RBI lends to commercial banks.

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Open Market Operations (OMO): Buying and selling of government securities[span_35](end_span).

Cash Reserve Ratio (CRR): The percentage of deposits banks must keep with the RBI.

Statutory Liquidity Ratio (SLR): The percentage of deposits banks must maintain in liquid assets.

Exam Tips

For Unit-I, clarify the difference between real flow and money flow with a diagram.

In Unit-IV, remember the multiplier formula: K = 1 / (1 - MPC) or K = 1 / MPS.

Common Mistakes

Confusing Stock and Flow variables; Stock is static, Flow is dynamic.

Thinking MPC and the Multiplier have an inverse relationship; it is actually direct.

Important Formulas

Multiplier (K) = ΔY / ΔI = 1 / MPS

Fisher's Equation: MV = PT

Net Indirect Tax = Indirect Tax - Subsidies

Answer Presentation Strategy: Use clear diagrams for circular flow and Keynesian demand for money to secure full marks in 8-mark questions.