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D.O.E:17.05.2022 [Tuesdayl TIME 10:00AM-01:00PM

Instructions
Use fountain pen or ball point pen of blue or black ink only.
Answer in your own words as far as practicable.
Do not wite anything on the Question paper other than your Regn. No. in the slot provided
on the top of this
page

DO NOTATTEMPT EXTRA QUESTIONS

Section
Answer
any eight of the following questions: 8x2-16 Marks]
1. Explain the concept of labour augmenting technology
2 What is the role of money in Classical macroeconomic model?

3. What causes involuntary unemployment in Keynes model?

How does saving equal investment in Classical systern?

Capital-output ratio is a technological parameter Is the statement true or false?

Given the production function Y= F(at)LbOK] State the condition under which it will
exhibit labour augmenting technology?

What are the factors determine permanent income in Friedman's permanent income
hypothesis?

How does the ratio of consurmption and income behave in a cross-section data? how
does your answer change in the Long-run data?

How do you explain business cycle using RBC model?

10.What will happen to the saving behaviour of a net lender it rate of interes
clines
11.If the present market rate is 6% and the purchaser of bond expects the rate to drop to
4 percent, what is the expected capital
gain or loss for the purchaser?

Section-I

(1

Answer any four of the following questions

Using the Ando-ModigianY's life cycle hypothesis, derive the consumption path ofa
household which is maximizing the present value ot
consumption with inter-temporal
budget constraint. How do you explain the upward trend in the
consumption path?
5+3-8 Marks
2 Specifying the assumptions of the Harrod's model, derive the expression for the
growth rate of an economy. Explain the concept of instability in the Harrod's model?

I5+38 Marks

3. Derive the expression for the desired stock

of capital for a profit
under perfect competition. How does the maximising firm
desired stock depend on the permanent
income?

[5+3 8 Marks]

HOh
 5+3 8 Marks]

ASSUme that a country operates under the production function as; Y - F(KL) =KL
Does the production function have constant returns to scale? What is the per-worker
production function? Assuming no population growth with 10 percent saving rate and
5 percent
depreciation, find the steady state level of capital
(2+2+4 8 Marks]

5. Assume that the production function follows the

Cobb-Douglas pattern
Y) A(QKOL0 Derive the expression for Solow-residual or total factor
productivity growth What are the interpretations of the parameters a and B in the
production function?. Plot the TFP graph hypothetically using the following table,
3+243 8 Marks

Year
E
1980 3.6 12 12
1990 4.0 12 18
2000 3.2 13|05
2010135
2010 3.7 17 13
20720 3.6 17I12

6. Explain the concept of adjustment cost in investment theory. Derive thee

for Tobin's g for investment decision. What are the factors affect Tobin's q
therefore the investment in
(3+2+3=8 Marks

Section-
Answer any.two of the following questions
1 Using specific assumptions derive the steady-state conditions of the Solow growth
model. How does the steady-state condition change when depreciation of capital is
considered7. What is the impact of change in saving rate on steady-state conditions
in Solow growth
model
7+5+4H16 Marksl
2. Assume the following specification and empirical estimation of the Modigliani's
consumption function

C-K(PV
Where PV,= a+(1+(T-1)B)Y
where a,Value of the asset :Y, income generate from labour income

C0.75Y, +0.06a
How do you interpret intutively the relationship between present value of income and
Current consumption?

ASsuming Y Expected average future income B(Current income) and T 46

what is the increase of future income for an 100 rupees increase in present income?

How do you interpret the relationship with MPC with APC using the above
consumption function7 Does it saisfy the trend in short- un consumption function?

4t6t6 16 Marks)
 for investmet
are the factors affect Tobin's 9 and
for Tobin's q
therefore the in an economy
[3+2+3 8 Marks]

Section-1l

Answer any two of the following questions

1. Using specific assumptions derive the steady-state conditions of the Solow growth
model. How does the steady-state condition change when depreciation of capital is

considered?2 What is the impact of change in saving rate on steadysstate conditions

in Solow growth model?

17+5+4 16 Marks)
2 Assume the following specification and empirical estimation of the Modigliani's
consumption function

C,=K(PV)
Where PV,a,+(1+(T-1)BY
where a, = Value of the asset; Y income generate from labour income

C0.75Y+0.06a

i How do you interpret intuitively the relationship between present value of income and
current consumption?
ii. Assuming Y Expected average future income B(Current inconme) andT46
What is the increase of future income for an 100 rupees increase in present income?

. How do you interpret the relationship with MPC with APC using the above
consumption function? Does it satisfy the trend in short-run consumption function?

4+6+6- 16 Marks]

3. What are the motives of holding cash? How does expectation affects the speculative
motive of holding cash? Discuss in details the inventory-theoretic approach of
demand for money as proposed in Baumol and Tobin. 4+3+9 16
Marks]
4. What is the significance of multiplier in Keynes model ? Does the specification on
marginal propensityto consume affects the multiplier in Keynes model?. How do you
explain the phenomenon of involuntary unemployment' in Keynes model?. What is
Keynes argument on liquidity trap' ?
(1)

4+4+4+4= 16 Marks]