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business
managerial economics

Questions and Answers of Managerial Economics

Th e sum of the government expenditure multiplier and the tax multiplier will always be equal to unity.
Transfer payments are just the reverse of taxes or in other words they are negative taxes.
Th e action of the government relating to its expenditures, transfers and taxes is called the monetary policy.
Suppose the marginal propensity to consume is (i) 0.40, (ii) 0.50, (iii) 0.80, (iv) 1.0 and (v) 0.(a) Calculate the marginal propensity to save.(b) Calculate the value of the multiplier.(c) Using the
In an economy, the marginal propensity to consume is 0.75. Th e level of autonomous investment decreases by` 40 crore. Find(a) Th e change in the equilibrium level of income.(b) Th e change in
In an economy, the basic equations are as follows: the consumption function is C = 80 + 0.75Y and investment is⎯I = ` 100 crore. Find(a) Th e equilibrium level of income.(b) Th e equilibrium level
Find(a) Th e equilibrium level of income.(b) Th e equilibrium level of consumption.(c) Th e equilibrium level of saving.(d) Show that at the equilibrium level aggregate demand equals aggregate supply
In an economy, planned consumption is C = 50 + 0.60Y and planned investment is⎯I =
Find(a) Th e equilibrium level of income.(b) Th e equilibrium level of consumption.(c) Th e equilibrium level of saving.
If the consumption function is C = 70 + 0.8Y and investment is⎯I =
Analyse the eff ects of a change in investment on the equilibrium income or output?
Explain the working of the multiplier.
Give the algebraic explanation to the determination of equilibrium income and output in the Keynesian theory.
Discuss the saving–investment approach to the determination of the equilibrium income and output in the Keynesian theory.
Discuss the aggregate demand–aggregate supply approach to the determination of the equilibrium income and output in the Keynesian theory.
‘Th e multiplier has certain limitations, which may prevent it from working’. Comment.
What is the Paradox of Th rift ? Discuss.
‘As an identity saving is always equal to investment’. Comment.
Write a short note on the saving function?
Write a short note on the consumption function?
Th e larger is the marginal propensity to consume, the larger will be the multiplier.
Th e multiplier is the amount by which there is a change in autonomous investment when income or output increases by one unit.
In an economy, disequilibrium exists when aggregate demand is not equal to aggregate supply.
Th e APS is defi ned as the increase in the saving per unit of increase in the income.
Th e MPC is defi ned as the ratio of consumption to income for diff erent levels of income.
What are the criticisms leveled against the classical theory of employment, real wage rate and output? Discuss.
How are the equilibrium levels of employment, real wage rate and output determined in the classical theory?Explain.
How can the aggregate supply curve for labour be arrived at from the individual supply curve of labour?Discuss by throwing light on the trade-off between leisure and income.
In the classical theory, ‘the individual fi rms demand curve for labour can be summed up horizontally to arrive at aggregate demand curve for labour’. Elaborate.
What is the relationship between a stock and a fl ow? Explain with examples.
Write a short note on the production function in the classical theory.
What is Say’s law? Discuss in brief.
Diff erentiate between a partial equilibrium approach and a general equilibrium approach.
Distinguish between static and dynamic models.
Briefl y trace the origin of macroeconomics through its three stages.
While Marshall’s name is associated with general equilibrium analysis, partial equilibrium analysis is associated with the French economist, Leon Walrus.
Th e most famous tenet of Say’s law is ‘demand creates its own supply’.
Th e general opinion among the classical economists was that it was impossible to have a situation of full employment.
Static Models are those models that trace the changes that occur in the values of the diff erent variables over time.
While fl ow is a quantity, which is measured at a point in time, stock is a quantity measured over time.
‘A sum of all the diff erent expenditures will give the GDP by the expenditure method’. Which are these expenditures?Discuss.
(a) How is the real GDP measured?(b) How can we arrive at the other measures of income in the national income accounts from the Gross Domestic Product, namely, Gross National Product, Net National
Write short notes on the following:(a) GNP(b) GDP(c) Nominal GDP and real GDP(d) Personal income(e) Disposable personal income
Which are the three approaches to calculating the GDP? Discuss.
Write a short note on the GNP and the GDP bringing out the diff erence between the two national income aggregates. Is the GDP a perfect measure of economic activity? Discuss.
Diff erentiate between the GNP and the GDP? In the computation of the GDP, what is the treatment given to:(a) Inventories(b) Intermediate goods and(c) Goods not sold in the market
How is the GDP calculated by the expenditure approach? What are the diff erent components of expenditure?
How is the GDP calculated by the income approach? What are the diff erent components of income?
How is the GDP calculated by the output approach? What are the diff erent stages?
What is personal income? How can one arrive at the personal income from the national income?
Th ree approaches to calculating the GDP are the output approach, the income approach and the expenditure approach.
Personal income is perhaps one of the most important macroeconomic variables and one of the best measures to judge an economy’s performance.
Disposable personal income is the amount, which is actually available to the households and to the noncorporate business aft er they have fulfi lled their tax obligations to the government.
Personal income is the income received by households and the non-corporate businesses.
GDP is a measure of the value of goods and services, which the nationals or residents of the country produce regardless of where they are located.
‘Th e grand utility possibility curve is an envelope of the utility possibility curves’. Comment.
‘For a general equilibrium of production and exchange to exist, it is necessary that the slope of the production possibility frontier is equal to the slope of the indiff erence curve’. Comment.
How does a fi rm reach the general equilibrium of consumption?
How does a fi rm reach the general equilibrium of production?
Show how a fi rm reaches a general equilibrium of production in a two goods economy with the help of the Edgeworth box diagram.
‘Th e utility possibility frontier depicts the diff erent combinations of utility of the two goods x and y that are received by the consumers when the economy is in a general equilibrium of
Analyse the conditions under which the general equilibrium model results in an optimal solution.
Show how a fi rm reaches a general equilibrium of consumption in case of two consumers, with the help of the Edgeworth box diagram.
How can one derive the production possibility frontier from the contract curve of production?
What is a general equilibrium analysis?
Each point on the contract curve of production is an ineffi cient allocation of the inputs.
By mapping the contract curve of production given in the input space to the output space, one can derive the production possibility frontier.
Th e locus of points of tangencies of the isoquants is called the contract curve of consumption.
Th e general equilibrium of production in a two goods economy can be depicted with the help of the Edgeworth box diagram.
Under a general analysis, all the markets and the decision-making units in the economy are in a simultaneous equilibrium.
Analyse the dynamic theory of profi ts given by J. B. Clark.
Explain the Ricardian theory of rent.
Derive the fi rm’s demand curve for labour, when there are many variable factors. Briefl y discuss the substitution eff ect, output eff ect and the profi t maximizing eff ect.
What are the two conditions that a profi t maximizing fi rm will satisfy in deciding about its demand for labour?
‘According to the marginal productivity theory, the VMPL = MRPL is the fi rm’s demand curve for labour, when labour is the single variable factor’. Comment.
What are the three motives for holding money in Keynes’s theory? Discuss.
Discuss the classical theory of the determination of the rate of interest.
Write short notes on(a) Transfer earnings(b) Economic rent
Is the individual fi rm’s supply of labour curve backward bending? Explain.
Briefl y discuss the theories of wage determination.
When the supply of a factor is perfectly elastic, the entire payment made to the factor is economic rent.
Transfer earnings are the amount that the factor should earn if it has to remain in its present use. It is also called the reservation price or the opportunity cost.
Under perfect competition, the wage rate equals the value of the marginal product.
Th e market supply of labour is backward bending.
Th e marginal productivity theory was formulated by J. B. Clark to explain the determination of the price of the good.
How does a fi rm make its decision to invest when there exists uncertainty? Explain using the maximin decision criterion and the minimax regret criterion.
How does a fi rm make its decision to invest under risk? Discuss with the help of the(a) Payoff matrix method(b) Risk-adjusted discount rate method
Discuss any two criteria used to evaluate the profi tability of projects under the conditions of certainty.
How does a fi rm determine its optimum level of capital? Discuss.
What are the steps involved in capital budgeting? Discuss.
Discuss the following concepts:(a) Certainty(b) Risk(c) Uncertainty
Analyse the various sources of capital to a fi rm?
What is the internal rate of return method? Discuss.
What is the signifi cance of capital budgeting? Discuss.
What is capital budgeting?
Risk is a situation, where there exists more than one outcome to an investment decision and the investor is not aware of the probability of each outcome.
Certainty is a situation, where there exists only one outcome to an investment decision and the investor is aware of that outcome.
Th e fi rm will determine its optimum stock of capital by producing at the level, where the marginal revenue productivity of capital equals the marginal cost of capital.
Capital budgeting can decrease the value of a fi rm.
Capital budgeting is the process, which involves the planning of the capital expenditures in the various investment projects.

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