TRIBHUVAN UNIVERSITY

                                FACULTY OF MANAGEMENT             FULL MARKS=60

                                      OFFICE OF THE DEAN                     TIME= 3HRS

                                                 2014

BBA/ Second Semester/ ECO 202: Macro Economics

    Candidates are required to give their answers in their own words as far as practicable

Attempt ALL questions

                                                  Group “A”

Brief Answer Questions:                                                                   1*10=10

1.     Write any two differences between nominal GDP and real GDP.

2.     What does MPS=0.3 mean?

3.     Derive the balanced budget multiplier.

4.     State the cause of structural unemployment faced by Nepalese economy.

5.     What are the core values of economic development?

6.     Let, government expenditure = Rs 300 million, tax function, T=40+0.2Y, private investment, I=Rs 100 million, income = RS 2000 million. State the nature of budget.

7.     Prepare a list of causes of market failure.

8.     Transfer payments are included in personal income. Why?

9.     What is meant by marginal efficiency of capital?

10.                        What are the forms of globalization?

Short Answer Questions:                                                                      5*6=30

11.                        What is macroeconomics? Explain its significance in examining nature of business environment.

12.                        Explain the process of computing GDP by value added method with suitable example. Does this method avoid double counting?

13.                        ‘People have a tendency of spending smaller proportion of increased income on consumption’. Explain this statement with hypothetical consumption schedule.

14.                        What is Four Sector Economy? How the national income is determined under it?

15.                        Explain the principle of demand pull inflation. How does it differ from cost push inflation?

16.                        What is balance of payments? Explain its components.

Comprehensive Answer Questions                                                 10*2=20

17.                        (a) let, the structural equations for the product market and money market in the Nepalese economy for 2013 were given as follows:

C=200+0.75(Y-T), T=160+0.2Y, M_sp=200-2500i, M_t=0.5Y, I=400-2000i, G=RS 400 billion, M_s= Rs 600 billion.

a)     Compute equilibrium output and rate of interest.                          (2)

b)    It is realized that Nepalese economy is trapped in inflation. In order to remove inflation, government of Nepal (GON) has implemented restrictive fiscal policy and decreased its planned expenditure by Rs 200 billion. NRB has also supported to GON and decreased money supply by Rs 200 billion. What will be the simultaneous effect on equilibrium output and rate of interest?                                                             (3)

(b) Consider the following data for national accounts (Rs in billion) and compute NNP_mp  by both income and expenditure method.     (2.5+2.5)

Rental income=792,business interest payments=2046, corporate income=6177, capital consumption allowance=2124, indirect business taxes=2517, dividends=1377, social security contributions=3000 , current transfers=9546, personal taxes =1239, proprietors income=2838, wages and salaries=27000, government investment=921, addition to stocks=-9, private consumption expenditure=35829, exports=3144, employers contribution to social security=558, government consumption=1350, receipts from rest of the world=200, net fixed capital formation=5013, imports=4620, subsidies=300, payments to rest of the world=400.

18.                        Business cycles refer to oscillations in aggregate economic activities, particularly in employment, output, income, price, profits, etc, which occur periodically with certain regularity. It is characterized by alteration of economic expansion and contraction in economic activity. The process of fluctuation is of a cumulative self reinforcing nature. The need of recession is cultivated by prosperity itself. A recession, once started tends to build upon itself much as forest fire, once under way, tends to create its own draft and given internal impetus to its destructive ability. Similarly, when business fluctuations occur in a country, it will be spread in world economy. At the moment of recession, central bank and government alert themselves and try to maintain coordination is implementing policy instruments (ie monetary and fiscal instruments). In this reference, answer the following questions:

a)     Explain the factors responsible for ending prosperity.                      (2)

b)    How does economic recession affect the domestic economy? How are the effects of recession spread in foreign markets (or economy)?     (4)

c)     What types of monetary and fiscal measures would you follow to remove recession? Explain.                                                                          (4)