Questions and Answers of Macroeconomics Canada In The Global Environment

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?
(b) What is the difference between Keynes’ own consumption function and one derived by the Keynesians?
3. (a) What is the meaning of the consumption function? Assume a hypothetical consumption function with MPC = 0.75 and present is graphically.
2. Explain the concept of aggregate demand.How is the Keynesian aggregate demand function different from the classical demand function based on the Say’s law?
1. Do you agree with the statement that Keynes derived his aggregate supply function by using classical production function. If yes, explain the derivation of the Keynesian aggregate supply function
(vii) a vast sector producing for self-consumption.
(vi) a vast non-monetised sector, and
(v) a small proportion of wage employment to the total,
(iv) low level of technology and technical know how,
(iii) low level of capital equipment,
(ii) a vast disguised unemployment,
(i) a predominant agricultural sector,
7. The supply of capital and technology are given.
6. All prices, including factor prices, remain constant.
5. In the business sector, there is no corporate savings or retained earnings. The total profit is distributed as dividend.
4. The two-sector economy is a closed economy—there is no foreign trade nor is there any external inflow or outflow.
3. Since there is no government and, therefore, there is no tax and no government expenditure.Even if some form of government exists, it does not tax and it does not spend.
(C) and aggregate investment demand (I). Thus, aggregate demand (AD) equals C + I.There is no leakage or injection.
2. In simple economy model, aggregate demand consists of (i) aggregate consumer demand
1. There are only two sectors in an economy, viz., (i) the households, and (ii) the business firms—there is no government and no foreign trade.
8. What was the reason for the collapse of the classical economic theories of employment and output?
7. Explain the classical model of employment and output determination. Is voluntary unemployment consistent with classical meaning of full employment? Show graphically the equilibrium of the labour
6. Suppose a production function is given as Q= 45L – 5L2. Find the MPPL function and derive MPPL curve. Derive labour demand curve assuming price (P) = 2.
5. Explain and illustrate graphically the classical theory of employment and output determination.
4. Explain briefly the postulates made by the classical economists. Do you agree with the postulates of the classical economics? Give reasons for your answer.

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