IMI

.MANAGEMENT NSTITUTE

NTERNATIONESWAR
Post Graduate Diploma in Management (2022-24)
MID-TERM EXAMINATION Term II, November, 2022

EC-502 - Macroeconomic Theory & Policy (METP)

Max Marks: 40

Time: 1.5 Hours

Weightage: 20%

Instructions:
1. Closed Book
2. All Questions are compulsory

PART-A
(5x4-20 Marks]

1. Explain the implications of speculative demand for money in economy'sequilibrium and

its interaction with nominal rates of interest. In today's technology driven secondary stock
markets, evaluate its importance on determination of national income.
2. Explain the determinants of levels of Investments in an economy. Explain the conditions
which create conducive environment for investments in an economy. Do you think that
the recent increase in repo rate to 5.9 % will crowd out investments in Indian economy?
Explain.

3. Explain the classical thought on National income determination. How do they differ
from Keynesians thought? Doyou think that lack of flexibility in real wage rates can
raise national income and employment? Explain.
4. Explain the Multiplier effect. What are the variables which influence the Multiplier
value? How does it influence the IS curve. Explain with an example.

5. Explain Recessionary phase in a Business Cycle. How can the policy makers help an
economy to get out of recessionary phase? Do you think the recent reduction in sales of
automobile industry is any indication of impending recessionary phase for Indian
economy? Explain.

1
 PART-B

6. A country has estimated the following functions for its macro

economy:
The Consumption function is given as:
The C=3S0+0.8Yd
Investment function is given as: I =250-6i
Prevailing Tax rate in the economy isl6 per cent
Government Expenditure is to the
Subsidies provided in the economytune of 250
are to the tune of 180
Exports from the economy stand at 130
Propensity to Import is estimated to be 12 per cent
Nominal Supply of Money by
Price level is given as: P=2.1 the Central Bank is Ms=500
Demand for money function is estimated L-0.2 Y-4i
as:
CayCalculate the equilibrium levels of income and the
rate of interest in the
b) Suppose economy.
government
20. If this additional expenditure increases by 60 and government
price level of2.1. Findexpenditure causes an
out new equilibriumnincrease in price level totransfers
2.3
increases by
level of income and interest. from the existing
, (cY Calculate the
(d)
increase/decrease of private investments in the
economy
Calculate the extent of crowding out effect- in
terms of potential loss of
(e) Calculate the
extent of increase in nominal income.
money supply to negate the
crowding out effect
Term -II (ECO -502) [7+5+2+3+3=20 Marks]
2022-24