ECONOMICS (Optional) K-1 HANDOUT by Mr.

SHYAM SUNDAR

1. Explain the major differences between the Classical and Keynesian Economics. (10
Marks, 2023)
2. “Under Rational Expectation Hypothesis, systematic monetary policy is ineffective.”
Explain the above statement using a suitable model. (20 Marks, 2023)
3. In the IS-LM framework, the effectiveness of monetary and fiscal policies depend on
the interest elasticity of investment. Explain. (15 Marks, 2023)
4. How important is speculative demand for money in achieving unemployment
equilibrium in the Keynesian model? Discuss. (!5 marks, 2023)
5. Discuss Friedman’s restatement of Quantity Theory of Money. Under what
conditions, it reduces to Classical QTM? Explain. (15 marks, 2023)

6. Discuss the concept of ‘liquidity trap’ in the liquidity preference model of interest. (10
marks, 2022)
7. In demand for money, what are the major differences between ‘transaction approach’
and ‘cash balance approach’? (10 marks, 2022)
8. IS curve is the locus of equilibrium points in the commodity market. What do the
points above and below the IS curve signify? (15 marks, 2022)
9. Compare the deposit multiplier with the money multiplier. Is there any impact on the
money multiplier arising out of massive use of credit and debit cards? Justify your
answer. (15 marks, 2022)
10. What will be the shape of the aggregate supply curve in the Classical and Keynesian
models? Give detailed explanation. (15 marks, 2022)
11. Explain the quantitative methods of credit control adopted by the central bank. (10
marks, 2022)
12. Examine the relationship between business cycle and changes in autonomous
expenditure. (10 marks, 2021)

13. Does government borrowing always crowd out the private investment? Illustrate. (10
marks, 2021)

VAJIRAM & RAVI 1

 14. The slope of IS schedule will be steeper if government reduces the rate of
proportional tax but will not change at allif government reduces the level of a lump-
sum tax. True or False? Explain.

15. State the difference in underlying expectations lead to differences in Keynesian and
Classical AS curve. (15 marks, 2021)

16. Apply the theory of liquidity preference to explain why an increase in money supply
lowers the interest rate. What does this explanation assume about the price level? (15
marks, 2021)
17. If the government raises taxes on labour income and interest income, explain how
potential GDP and economic growth are affected. (15 marks, 2021)

18. Explain how the weaknesses of Keynesian speculative demand for money have been
identified in Regressive Expectations model. (20 marks, 2021)

19. Derive short-run AS curve following Lucas, when expectations are not realised,
assuming that labour market clears. What will be its shape when expectations are
fulfilled? (10+5 marks, 2021)

20. Describe high powered theory of money supply in brief. State the assumptions made
in its construction. (8+7 marks, 2021)

21. Explain how equilibrium rate of interest and income are determined with the
interaction of both product and money markets (10 marks, 2020)
22. Distinguish between post-Keynesian approaches to horizontalist and structuralist
theory of endogenous money supply. (10 marks, 2020)
23. What do you mean by Tobin’s q theory of investment. How would you modify the
standard IS-LM functions in the presence of Tobin’s q? (15 marks, 2020)

VAJIRAM & RAVI 2