Question 2) a) What is the principle of market basket approach used for calculating price indexes in India?. What are the main three price indexes used in the country? ( 3 marks) b) Prof Subbarao has joined the NIMS in 2017. His nominal salary was fixed at 82000 in the year 2017. He has been associated with NIMS for last 5 years and now in 2022 he draws a nominal salary of 189000. The CPI IW of 2017 is 219 (base-year 2001-01=100) and the CPI IW of 2022 ( base year 2001=100) is 330. Please let me know if inflation indexed wage is applicable to Prof Subbarao. Based on your calculation is he gaining or loosing due to price effect. (3 marks)() Please use the description in the graph (the names of the lines) and the names of the equilibrium points to convincedly write to your answer. I expect you to analyze your answer and it must be backed up by economic theory which we discussed in the class and match it with the graphical representation AE -Y PAEz PAE PAES Planned aggregate expenditure (PAE) Y3 YE Yz Actual aggregate expenditure (output or GDP. Y) The economy is in full employment equilibrium with output at YF at Q4 2021. Now examine few news and reports coming from the economic and financial markets from Q1 2022 Expected future income of all salaried workers are to be increased by the central government as a part of new wage bill in the coming quarters (Q1-Q4 2020)Expected profitability of core industries are likely to be achieving a 20% growth in the coming quarters (Q1 2022 to Q4 2022 and beyond) Ministry of Corporate affairs have planned to reduced the corporate taxes in the next quarter and 80% of firms will enjoy lower tax bracket from Q3,2022 Global growth is showing some green shoots and the trading partners GDP have increased the growth rate on average 4% from the last year Government is on a path of infrastructural spending spree and has commissioned 7 new express highway for a whooping 3600000 crores to be completed in next 6 quarters starting in Q1 2022. Trace the movement to the new equilibrium from the spending and producers' angle and explain the reason why producer might also end up in the new equilibrium. (Use the names of the curves/ line and the equilibrium points and bring the Keynesian cross aspect to answer how demand creators and producers converge to the new equilibrium) while you attempt the answer. (5 marks). i) Now adding price-levels into the above model we have derived aggregate demand. a) Carefully read the next paragraph and answer the following We are now in Q4 2017 with our equilibrium at a with Yl output and general price level at CPI =236 (point a). General Price Level CPI 300 GPL2 GPL1 CPI= 236 ADZ ADI AD? V3 Real GDP From Q1 2018, the government reduces its consumption expenditure citing poor tax collections in the previous quarters and its inability to borrow from market citing fiscal sustainability issues. The consumption demand and investment demand are also showing further slowdown from Q1 2018 and is expected to continue till Q3 2018. The inflation has been rising on account of food grains price increase and a fuel price increase where the CPI jumped from 236 in Q4 2017 to 300 in Q1 2018 and this trend in CPI is expected to continue for atleast for the next three quarters. The increased prices in the economy has affected the NX component in terms of export and import. How does these information play out in terms of an AD curve shift and movement along the curve? Use the names in the graphs and the equilibrium point names. (Hint: Answer how do we reach from point a (Q4 2017) to the final resting equilibrium possibly at the end of Q3 2018) (4 marks)