FYUG Even Semester Exam, 2024
COMMERCE (2nd Semester)
Macroeconomics (COMDSM-151T)

Paper Code: COMDSM-151T | Full Marks: 70 | Time: 3 Hours

SECTION-A: Short Answer Type

Answer any ten questions. (10 x 2 = 20 Marks)

Question 1

[2 Marks]

Make a distinction between dependent and independent variables.

Question 2

[2 Marks]

What are the different methods of computation of national income?

Question 3

[2 Marks]

Make a distinction between Gross National Product and Net National Product.

Gross National Product (GNP) is the total value of all finished goods and services produced by a country's residents in a given period. Net National Product (NNP) is GNP minus depreciation (consumption of fixed capital).

NNP = GNP - Depreciation

Question 4

[2 Marks]

Give the meaning of money supply.

Money supply refers to the total stock of money (currency plus demand deposits) circulating in an economy at a particular point in time.

Question 5

[2 Marks]

What is monetary policy?

Monetary policy is the process by which the central bank of a country controls the supply of money, often targeting an inflation rate or interest rate to ensure price stability and trust in the currency.

Question 6

[2 Marks]

Define budget.

A budget is a formal statement of estimated receipts and expenditures of the government over a specified future period, usually one financial year.

Question 7

[2 Marks]

Define demand-pull inflation.

Demand-pull inflation occurs when the total demand for goods and services in an economy exceeds the total supply, "pulling" prices upward.

Question 8

[2 Marks]

What is Phillips curve?

The Phillips curve is an economic concept developed by A.W. Phillips stating that inflation and unemployment have a stable and inverse relationship.

Question 9

[2 Marks]

What is stagflation?

Stagflation is an economic condition characterized by slow economic growth and relatively high unemployment (stagnation) accompanied by rising prices (inflation).

Question 10

[2 Marks]

What is aggregate demand?

Aggregate demand (AD) is the total demand for final goods and services in an economy at a given time and price level.

Question 11

[2 Marks]

What is marginal propensity to save?

The Marginal Propensity to Save (MPS) is the fraction of an increase in income that is saved rather than spent on consumption.

MPS = Change in Saving / Change in Income

Question 12

[2 Marks]

Define autonomous investment.

Autonomous investment is the level of investment that is independent of the level of income or output in the economy, usually made by the government for social welfare.

Question 13

[2 Marks]

Define full employment.

Full employment is an economic situation where all available labor resources are being used in the most efficient way possible, representing the highest amount of skilled and unskilled labor that can be employed within an economy at any given time.

Question 14

[2 Marks]

What is natural rate of unemployment?

The natural rate of unemployment is the minimum unemployment rate resulting from real or voluntary economic forces (frictional and structural unemployment) when the labor market is in equilibrium.

Question 15

[2 Marks]

Mention two anti-cyclical measures.

  • Fiscal measures (e.g., changing taxes or government spending).
  • Monetary measures (e.g., adjusting interest rates or open market operations).

SECTION-B: Descriptive Answer Type

Answer any five questions. (5 x 10 = 50 Marks)

Question 17

[2 + 8 = 10 Marks]

Define national income. Discuss the difficulties involved in the computation of national income.

Definition: National income is the total value of all final goods and services produced by a country during a financial year.

Difficulties in Computation:

  • Double Counting: The risk of including the value of intermediate goods multiple times instead of just the final product.
  • Non-Monetized Sector: In developing nations, many transactions (like barter or household work) do not enter the market, making them hard to value.
  • Lack of Adequate Data: Inaccurate or incomplete statistical records, especially in the unorganized sector.
  • Inventory Adjustments: Difficulties in valuing changes in stock/unsold goods.
  • Depreciation: Calculating the exact wear and tear of capital assets is subjective and varies by accounting method.

Question 19

[2 + 8 = 10 Marks]

What is fiscal policy? Discuss the various objectives of fiscal policy.

Fiscal Policy: It is the use of government spending and taxation to influence the economy.

Objectives:

  1. Economic Growth: Mobilizing resources for investment in infrastructure and productive sectors.
  2. Price Stability: Controlling inflation by reducing government expenditure or increasing taxes during boom periods.
  3. Full Employment: Increasing aggregate demand through public works to create jobs.
  4. Reduction of Inequality: Using progressive taxation to redistribute wealth from the rich to the poor.
  5. Resource Allocation: Directing investment into socially desirable sectors through subsidies and tax incentives.

Question 20

[2 + 8 = 10 Marks]

What is inflation? Discuss the effects of inflation on the economy.

Inflation: A sustained increase in the general price level of goods and services in an economy over a period of time.

Effects of Inflation:

  • Redistribution of Wealth: Debtors gain while creditors lose; fixed-income earners see their purchasing power decline.
  • Investment: High inflation creates uncertainty, which can discourage long-term investment.
  • Savings: The real value of money savings decreases, discouraging people from saving.
  • Balance of Payments: Domestic goods become expensive for foreigners, reducing exports and potentially causing a trade deficit.
  • Social Unrest: Rising costs of living can lead to labor strikes and political instability.

Question 23

[5 + 5 = 10 Marks]

Write short notes on: (a) Multiplier (b) Accelerator

(a) Multiplier: The investment multiplier refers to the ratio of change in national income to the initial change in investment. If an initial investment of 100 leads to an income increase of 500, the multiplier is 5.

K = 1 / (1 - MPC)

(b) Accelerator: The principle of the accelerator states that a change in the rate of consumption (demand) leads to a proportional change in the level of investment. It explains how changes in output affect the demand for capital goods.

Question 25

[2 + 3 + 5 = 10 Marks]

What is trade cycle? What are its features? Discuss the various stages of trade cycle.

Trade Cycle: It refers to the periodic fluctuations in economic activity (like production and employment) that an economy experiences over time.

Features:

  • Periodic: Occurs at regular intervals but not with fixed duration.
  • Cumulative: Movement in one direction tends to reinforce itself.
  • Synchronized: Affects almost all sectors of the economy simultaneously.

Stages:

  1. Recovery (Revival): Low economic activity begins to rise; demand starts increasing.
  2. Prosperity (Boom): Maximum output, high employment, and rising prices.
  3. Recession: The peak is passed; demand and prices start falling.
  4. Depression (Trough): Economic activity is at its lowest; high unemployment and low production.

Exam Success Toolkit

Exam Tips

  • For Macroeconomics, always use **Diagrams** for concepts like the Trade Cycle or Phillips Curve to secure full marks.
  • In National Income questions, differentiate clearly between **Gross** and **Net** concepts.

Important Formulas List

  • Multiplier (K) = 1 / MPS
  • Money Supply (M) = C + D
  • Real Income = (Nominal Income / Price Index) x 100

Answer Presentation Strategy

Start each descriptive answer with a clear definition. Use numbered lists for stages and bullet points for features/limitations to improve readability for the examiner.