FYUG Even Semester Exam, 2025 COMMERCE (2nd Semester) Macroeconomics (COMDSM-151)

Subject: Commerce

Paper Code: COMDSM-151

Full Marks: 70

Time: 3 Hours

UNIT-I

Question 1 (Answer any two) 2 x 2 = 4

(a) Define macroeconomics.

Solution:

Macroeconomics is the branch of economics that studies the behavior and performance of an economy as a whole. It focuses on aggregate changes such as unemployment, national income, GDP, and inflation.

(b) State the meaning of static economic analysis.

Solution: Static economic analysis refers to the study of economic variables at a particular point in time or in a state of equilibrium, where the element of time and the process of change are not considered.

(c) Mention two difficulties of estimating national income.

Solution:

  • Double Counting: The difficulty in distinguishing between final goods and intermediate goods.
  • Non-monetized Sector: In developing economies, many goods and services are exchanged through barter or consumed at home without entering the market.

Question 2 (Answer any one) 10

(a) Define variable. Make a distinction of:

(i) Dependent and Independent variable: An independent variable is the cause or input that changes on its own, while a dependent variable is the effect or outcome that changes in response to the independent variable.

(ii) Endogenous and Exogenous variable: Endogenous variables are determined within the economic model (e.g., price in a supply-demand model), whereas exogenous variables are determined outside the model (e.g., government policy or weather).

(iii) Stock and Flow variable: A stock variable is measured at a specific point in time (e.g., total wealth), while a flow variable is measured over a period of time (e.g., annual income).

OR

(b) Define national income. Write notes on GNP, NNP and NDP at factor cost and disposable income.

Solution: National Income is the total value of all final goods and services produced by a country in a year.

  • GNP (Gross National Product): Total market value of final goods produced by residents of a country, including net income from abroad.
  • NNP (Net National Product): GNP minus Depreciation.
  • NDP at Factor Cost: The total income earned by factors of production within domestic boundaries, calculated as NDP at market price minus indirect taxes plus subsidies.
  • Disposable Income: The amount of money households have available for spending and saving after income taxes have been accounted for.

UNIT-II

Question 3 (Answer any two) 2 x 2 = 4

(a) Mention Fisher's equation of exchange.

Solution:

MV = PT

Where M = Money Supply, V = Velocity of Money, P = Price Level, and T = Volume of Transactions.

(b) What do you mean by supply of money?

Solution: Money supply refers to the total stock of currency (coins and notes) and demand deposits held by the public at a specific point in time.

(c) Define Government budget.

Solution: A government budget is an annual financial statement showing item-wise estimates of expected revenue and anticipated expenditure during a fiscal year.

Question 4 (Answer any one) 10

(a) Define money. Discuss the various functions of money.

Solution: Money is anything that is generally accepted as a medium of exchange and a measure of value.

Primary Functions: Medium of Exchange and Measure of Value.

Secondary Functions: Standard of Deferred Payments and Store of Value.

OR

(b) What is deflation? Discuss the effects of deflation on the economy.

Solution: Deflation is a general decline in prices for goods and services, typically associated with a contraction in the supply of money and credit.

Effects: Reduced consumer spending (as people wait for lower prices), increased real value of debt, and potential business failures leading to unemployment.

UNIT-III

Question 5 (Answer any two) 2 x 2 = 4

(a) What is Phillips Curve?

Solution: The Phillips Curve is an economic concept stating that inflation and unemployment have a stable and inverse relationship.

(b) What is stagflation?

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

Question 6 (Answer any one) 10

(a) What is inflation? Discuss the cost-push and demand-pull theory of inflation.

Solution: Inflation is a persistent increase in the general price level of goods and services.

  • Demand-Pull Inflation: Occurs when the aggregate demand for goods and services exceeds aggregate supply ("too much money chasing too few goods").
  • Cost-Push Inflation: Occurs when the costs of production (like wages or raw materials) increase, causing producers to raise prices to maintain profit margins.

OR

(b) What is monetary policy? Discuss the various objectives of monetary policy.

Solution: Monetary policy is the process by which a central bank manages the supply of money and interest rates to achieve macroeconomic goals.

Objectives: Price stability, full employment, economic growth, and stability of foreign exchange rates.

UNIT-IV

Question 7 (Answer any two) 2 x 2 = 4

(a) Define aggregate demand.

Solution: Aggregate demand is the total amount of finished goods and services that consumers, businesses, government, and foreigners want to buy at a given price level.

(c) Define marginal efficiency of capital.

Solution: Marginal Efficiency of Capital (MEC) is the highest rate of return expected from an additional unit of a capital asset.

Question 8 (Answer any one) 10

(b) Define multiplier. Explain the working of multiplier along with its limitations.

Solution: The investment multiplier refers to the ratio of a change in national income to the initial change in investment.

k = 1 / (1 - MPC)

Working: When investment increases, it generates income for others, who spend a portion of it (based on MPC), creating further income in successive rounds.

Limitations: Availability of consumer goods, full employment level, and leakages like savings or imports.

UNIT-V

Question 9 (Answer any two) 2 x 2 = 4

(a) What is involuntary unemployment?

Solution: Involuntary unemployment occurs when people who are willing and able to work at the prevailing wage rate cannot find a job.

(c) Mention the phases of trade cycle.

Solution: The four phases are: Recovery, Prosperity (Boom), Recession, and Depression.

Question 10 (Answer any one) 10

(a) Discuss critically the Keynesian theory of employment.

Solution: Keynes argued that employment depends on Effective Demand, which is the point where Aggregate Demand Price equals Aggregate Supply Price.

Core Components: Consumption function, Investment function, and the role of the state in managing demand through fiscal policy.

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