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macroeconomics canada in the global environment

Questions and Answers of Macroeconomics Canada In The Global Environment

(ii) Factors of production are homogeneous and perfectly divisible.
(i) All firms have a production function of Cobb-Douglas type.
Give reason for your answer.
11. The households with large accumulated wealth and a given income tend to spend more than those with the same income but no wealth. Do you agree with this statement?
10. What is ‘money illusion’? How does it affect the consumption of those suffering and not suffering from money illusion?
9. Is there any relationship between the present and future consumption? How does a consumer allocate his income between the present and the future consumption with a view to maximising his life-time
8. The interest rate affects saving and investment.Does it affect consumption also? What are the classical views in this regard?
7. The level of consumption is determined only by the level of income, be it absolute, relative or permanent. Do you agree with this statement?If not what other factors influence household
6. What significant contribution emerges from the post-Keynesian consumption theories?How would macroeconomic analysis be affected in the absence of the alternative theories of consumption?
5. Write a note on the merits and demerits of the Keynesian and post-Keynesian incomeconsumption hypotheses.
4. What is permanent income hypothesis of consumption behaviour? How is the permanent income hypothesis different from the absolute income hypothesis?
3. Describe the permanent income hypothesis.How is the permanent income measured?Examine it critically.
2. What is the main theme of the relative income hypothesis? What is meant by the‘ratchet effect’? What are the weaknesses of the relative income hypothesis?
1. Describe briefly the absolute income hypothesis.What are its main properties and weaknesses.
(c) What should be the level of government spending and the rate of tax if the government wanted to achieve fall employment level of income and have a balance budget, i.e., G + Tr = T.
(b) What is the budget surplus or deficit in the open economy at the full employment level of income [of] 600;
(a) Calculate the difference between the income of the closed economy and the open economy;
9. An economy is characterised by the following equations:C = 4 + 0.75Yd; Tr = 8; T = 0.2Y;G = 120; and I = 110 where C is consumption spending, Yd is personal disposable income, Tr is transfer
(e) The increase in the government spending required to ensure that the economy reaches the full employment level of income of Rs 1200.(DU, B.Com (H), 2003)
(d) By how much the equilibrium income changes if investment increases by Rs 50.
(c) Net exports (X – M) at equilibrium income,
(b) Consumption at equilibrium income,
Find : (a) The equilibrium level of income,
C = 150 + 0.75Yd Investment spending :I = 100 Government spending :G = 115 Tax : Tx = 20 + 0.20Y Transfer Payments :Tr = 40 Exports : X = 35 Imports : M = 15 + 0.1Y where Y and Yd are income and
8. *Suppose in an economy:Consumption function :
(iv) Trade balance at equilibrium level of income with DG = DT.
(iii) DG if financed totally by DT under condition (ii).
(ii) DG to increase equilibrium income by 16;
(i) The equilibrium level of income;
I = 35 X = 30 G = 25 M = 8 + 0.1Y T = 20
d) At equilibrium, does the economy have trade deficit or trade surplus and by how much?
(c) How much additional government expenditure will be required to increase the equilibrium level of national income by Rs 50?
(b) Find foreign trade multiplier.
(a) Find the national income at equilibrium.
6. *Suppose that an economy is in equilibrium at Y = C + I + G + GT + (X – M)where, C = 50 + b (Y – 50 – tY + GT)I = 100 G = 50 GT = 25 (transfer payments)X = 10 M = 5 + 0.1Y b = 0.8 t = 0.25
(c) Find equilibrium value of imports.
(b) Find reduced form of equilibrium equations, and
(b) Change in equilibrium income if G increases to 100 and I decreases to 100
Find (a) Equilibrium level of income, consumption and savings; and
11. Suppose a model is given as follows.C = 100 + 0.80 Yd (where Yd = Y – T )I = 150 G = 50 T = 20 + 0.25Y
10. What is balanced-budget multiplier? Assuming a theoretical model of an economy, prove that the balanced budget multiplier is always equal to unity.
(j)1 1 - b+--b 1 b= 1
(i) [1/(1 – b)] DG < [– b/(1 – b)] DT
(h) [1/(1 – b)] DG > [– b/(1 – b)] DT
(g) [1/ (1 – b)] DG = [– b/(1 – b)] DT
(f) The level of national income is not affected whether a tax is autonomous or income related because both are withdrawals from the income stream.
(e) Expenditure multiplier is one greater than the tax multiplier.
(d) Tax multiplier is one greater than the expenditure multiplier.
(c) An equal amount of transfer payment and tax reduction will have the same impact on the national income.
(b) An equal amount of expenditure and autonomous tax will leave the equilibrium level of the national income unaffected.
(a) An expenditure is an injection into the economy and a tax is a withdrawal.
9. *Which of the following statements are correct?
8. Define government expenditure and tax multiplier.Suppose a consumption function is given as C = a + bYd and I, G and T are given.Derive G and T multiplier.
7. An economy is in equilibrium at Rs 1000 billion with an MPS of 20%. Suppose it plans to raise the level of its income to Rs. 1100 billion. What amount of the government expenditure or,
(e) Government taxes Rs 25 and spends Rs 20
(d) Government taxes Rs. 20 and spends Rs. 25; and
(c) Government taxes Rs 20 and spends total tax revenue;
(b) Government spends Rs 20 without taxing peoples income;
(a) Government taxes Rs 20 and does not spend it,
6. In a two-sector model economy, equilibrium Y = Rs 400 with C = Rs 50 + 0.75Y and I = Rs 50. Add government sector to the economy and find change in equilibrium income assuming:
5. Suppose behavioural and structural equations are given as in Question 4. What DG will you suggest for increasing national income by 500.
(c) Find national income equilibrium if T =T + t Yd.
(a) Expenditure multiplier and DY if DG =50,(b) Tax multiplier,
4. *Suppose structural model of an economy is given as follows.C = 100 + 0.80 Yd Yd = Y – T I = 100 G = 100 T = 100 Find the following.
3. What is a transfer payment? Assuming behavioural equations in Question 1 and a transfer payment of Rs 50, find (a) equilibrium equation, and (b) transfer payment multiplier.
(iii) Find equilibrium values for each endogenous variable.
(ii) Derive reduced form of endogenous variables.
(i) Name the endogenous and exogenous variables.
2. *Suppose behavioural and structural equations for an economy are given as follows.C = 50 + 0.80 Yd Yd = Y – T I = 50 G = 50 T = 50
1. What additional variables are added when two-sector model is converted into a threesector model? How do these variables affect national income?
iii) It makes transfer payments in the form of pensions and subsidies
(ii) It spends money on buying factor services from the household sector and goods and services from the private business sector; and
(i) It imposes only direct taxes on the households;
19. What is meant by ‘paradox of thrift’? Explain and illustrate that if all the households become thrifty, i.e., they reduce consumption and increase saving, then the level of national income
18. What are the conditions that prevent the application of the multiplier theory to the less developed countries?. Give your answer in the light of the conditions prevailing in the Indian economy.
17. The less developed countries have in general a high marginal propensity to consume than the developed countries. This implies that a given investment will add more income to the total in the less
16. Distinguish between the static multiplier and the dynamic multiplier. Suppose C = a + bY and investment (I ) is given. Assuming MPC= 0.8 and D I = 50, work out the multiplier by the static and
15. *A two-sector economy has a total income of Rs 150 billion and its overall MPC is worked out to be 66.67%. How much does this country need to invest once for all to increase its total income by
(a) the saving function, and(b) the consumption function.
14. *The multiplier for a two-sector economy is computed to be 4. Derive the following.
Work out (a) the saving function, (b) the multiplier, and (c) D Y through the dynamic multiplier.
Produce the basic model of the multiplier assuming a DI.13. Suppose(a) C = 100 + 0.75Y,(b) I = 100, and(c) D I = 50.
(c) investment is given at I.
(b) D C = bD Y, and
(a) C = a + bY;
12. Suppose in a two-sector economy
11. What is a multiplier? Explain how an additional investment multiplies itself to contribute to the national income. Draw a diagram to show that DY > DI when MPC > 0.
. What is meant by the equilibrium level of national income? Why is the equilibrium level of income and output supposed to be stable where AD = AS?
9.* Suppose structural equations of an economy are given as follows.Y = C + I C = 100 + 0.75Y, and I = 100 Find the equilibrium values for Y and C.
C = 50 + 0.8Y, and I = 50.
8.* Suppose consumption function and investment in a two-sector economy are given as:
7. Suppose a consumption function is given as C = 100 + 0.8Y and stock of capital is fixed at Rs 200. Based on this information, draw an aggregate demand function.
(b) DC/DY + DS /DY = 1
(a) S = (1 –b) Y – a; and
6. Assuming a consumption function, prove the following.
5. Suppose a consumption function is given as C = a + bY. Derive a saving function from this consumption function.
(c) The condition that 0 < MPC < 1 holds always.
(b) DC/DY varies with increase in income in Keynes’s original consumption function,
(a) Keynes assumed a constant MPC,
4. Which of the following statements is correct?

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