Macroeconomic Models – Mumbai University Idol
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Macroeconomic Models

M.COM PART 1, MACROECONOMIC, Question Bank

Macroeconomics mumbai university m com important question with answer pdf download | Mumbai university IDOL

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  M.com Part 1 (Semester 2) MACROECONOMIC Most Important Question Bank for Current Exam   13.   Write a note on the collapse of the Phillips Curve Hypothesis. ANS: The Phillips Curve hypothesis was accepted as a cure to increase the level of employment and income in the sixties. It became a macroeconomic tool to explain the trade-off between inflation rate and unemployment rate. It suggested that policy makers could choose different combinations of unemployment inflation rates. Policy makers may choose low unemployment and high inflation if it is politically and economically expedient. However, the stable relationship between higher inflation and lower unemployment as seen in the sixties could not be replicated in the seventies and thereafter, particularly in the United States and Great Britain. It was seen that both inflation rate and unemployment rate had increased on numerous occasions and the tradeoff had thus disappeared. Further, there cannot be a long run trade-off between inflation and unemployment because in the long run the aggregate supply curve becomes vertical and any further expansion after the point of full employment is reached will only add to the price level without adding anything to income, employment and output. Thus, there is no permanent unemployment-inflation trade-off. Data obtained in the seventies and thereafter indicated a shift in the Phillips curve i.e. in various years, at a given rate of inflation, the Phillips curve either shifted to the left or to the right, indicating thereby that at times, given the inflation rate, unemployment rate has increased or decreased. The stable relationship between inflation rate and unemployment rate thus was proved to be nonexistent.   Causes of Shift in Phillips Curve The shifts in the Phillips curve according to Keynesians is due to adverse supply shocks experienced in the seventies in the form of unprecedented oil price hikes. Adverse supply shocks gave rise to the phenomenon of Stagflation and the breakdown of the Phillips curve hypothesis. The impact of adverse supply shocks on national product and the price level is depicted in Fig. 2.3. The original aggregate demand and supply curves AD0 and AS0 are in equilibrium at point E0. Accordingly, the price level P0 and national output Y0 is determined. The oil price hike initiated by the Oil and Petroleum Exporting Countries (OPEC) an oil cartel of oil producing Middle East countries contributed to the rise in cost of production of many goods and services in which oil is used as an input. Increase in the cost of production caused the aggregate supply curve to shift to the left in the upward direction, thereby causing the price level to rise along with a decrease in national output. Notice that the new aggregate supply curve AS1 now intersects the aggregate demand curve AD0 at point E1 and accordingly the new price level P1 is determined. However, at a higher price level P1, the national output has fallen to Y1 leading to rise in unemployment. Such a situation is explained in terms of stagflation where in both unemployment and price level increases. This new phenomenon experienced, particularly by the United States in the seventies and thereafter has caused the shift in the Phillips curve. Stagflation, thus, consigned the Phillips curve hypothesis to the pages of economic history.   https://ern.li/OP/axxluktum3x If you want exam most important question bank pdf then you have to pay per subject 100/- rupees only .  Contact 8652719712 / 8779537141        Telegram Group Mumbai Univeersity :- https://t.me/mumbaiuniversityidol Suraj Patel Education :- https://t.me/surajpateleducation   F.Y.J.C EXAM :- https://t.me/FYJCexam   S.Y.J.C EXAM :- https://t.me/SYJCexam   F.Y EXAM :- https://t.me/fyexam     S.Y EXAM :- https://t.me/syexam     T.Y EXAM :- https://t.me/tyexam     M.Com Part 1 EXAM :- https://t.me/McomPart1Exam   M.Com Part 2 EXAM :- https://t.me/McomPart2Exam M.A EXAM :- https://t.me/mastudentsexam  YouTube Channel  https://www.youtube.com/channel/UCv8JIY58xfWHUIXVu9wxNHw      

M.COM PART 1, MACROECONOMIC, Question Bank

M.com question paper mumbai university | Macroeconomics m.com semester 2 important question

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 SEMESTER – II   MACROECONOMIC     10.   EQUILIBRIUM LEVEL OF EMPLOYMENT                                   OR Equilibrium Level of Employment and Real National Income. Increase in the level of Employment& Real National Income. Limitations of the Keynesian Theory of Employment ANS: The equilibrium level of employment and real national income is determined at the point of equality between the aggregate demand price and the supply price. Employment and real output continues to rise if demand price is greater than the supply price and stops at the point of equality. You will notice from Table 2.3 below that when four million workers are employed the AD price and the AS price are equal i.e., Rs.800 Billion. This point of equality is the point of Effective demand. If employment is increased beyond the point of effective demand, the aggregate demand price will fall below the supply price and the class of entrepreneurs will make losses.     The equilibrium level of employment and real national income or the point of effective demand can be diagrammatically shown as in Fig.2.3 below. Fig. 2.3: Equilibrium Level of Employment and Real National Income. In Fig. 2.3 above, the two curves ADP and ASP intersect each other at point ‘E’. Point ‘E’ is the point of effective demand. Corresponding to point ‘E’, point ‘R’ on the Y-axis indicates equilibrium receipts and point ‘N’ on the X-axis indicates equilibrium level of employment and real national income. However, point ‘E’ is only an under employment or less than full employment equilibrium as full employment level is indicated by point ‘F’ on the aggregate supply curve. Per Keynes, the economy achieves equilibrium at less than full employment level because the gap between income and consumption is not fully filled up by investment. Both investment and savings are made by two different classes. While savings are made by the household sector, investments are made by the class of entrepreneurs. Hence, investment cannot be equal to saving. If aggregate investment is less than aggregate savings, economy will operate at less than full employment level. Increase in the Level of Effective Demand and Employment Per Keynes, the aggregate supply function is constant in the short run because the productive capacity of the economy cannot be increased in the short period. However, the level of effective demand and employment can be increased by increasing the aggregate demand function. This is shown in Fig.2.4 below.   Fig. 2.4: Increase in the level of Employment& Real National Income. In Fig. 2.4 above, the aggregate demand price curve ADP1 intersects the aggregate supply price curve ASP at point E1 and ON1 level of employment is determined. When the aggregate demand is increased the ADP, curve shifts upwards and intersects the ASP curve at point E2 and a higher level of employment i.e. E2 is determined. It may be concluded that the level of employment in an economy can be increased if aggregate demand is increased. Aggregate demand can be increased if either investment demand or consumption demand increases.   Limitations of the Keynesian Theory of Employment The Keynesian theory of employment and real national income is criticized on the following grounds: 1. Relevant to Free Market Economy. The Keynesian theory is applicable only in free market capitalist economies which operate based on market mechanism. It is not relevant to other economic systems such as socialism where all economic decisions are taken by the government. It is also not relevant to a mixed economy where the role of the government is substantially large. 2. Keynesian Theory is Relevant to Depression. Keynes wrote his General Theory in 1936. Both Europe and America were caught in the great economic depression during the first half of the 20th century. Keynes prescribed increased Government expenditure to increase the level of effective demand under conditions of recession. However, the theory cannot be applied under the conditions of jobless growth when economy grows along with fall in employment and stagflation when prices rise but employment and output falls. 3. Keynesian Theory is not relevant to open Economies. Keynes did not consider the impact of international trade and investment on national economies. Keynes assumed a closed economy while writing his theory. 4. Keynesian Theory is not Relevant to UDCs. Keynes had dealt with the problem of the down-turn in business cycles and the resultant rise in unemployment. However, under developed countries face the problem of regular and disguised unemployment.  5. Keynesian Theory Ignores the Long Run Problems. Keynes sought solution to the short run macro-economic problems and went on to say that in the long run we are all dead. He thus ignored the long run problems of changes in the economic conditions.   Macroeconomics m.com semester 2  important question bank pdf m.com semester 2 Macroeconomics important question bank pdf macro economics m.com part 1 question papers with answers idol mcom sem 2 macro economics question paper with Answers mcom sem 2 macro economics question paper m.com question papers with answers pdf mumbai university mumbai university solved question papers download pdf m.com part 1 question papers with answers idol mumbai university question papers download pdf m.com question paper mumbai university mumbai university previous year question papers with solutions mumbai university old question papers mumbai university solved question papers download pdf macro economics If you want exam most important question bank pdf then you have to pay per subject 100/- rupees only .  Contact 8652719712 / 8779537141      Telegram Group Mumbai Univeersity :- https://t.me/mumbaiuniversityidol   Suraj Patel Education :- https://t.me/surajpateleducation     F.Y.J.C EXAM :- https://t.me/FYJCexam   S.Y.J.C EXAM :- https://t.me/SYJCexam   F.Y EXAM :- https://t.me/fyexam     S.Y EXAM :- https://t.me/syexam     T.Y EXAM :- https://t.me/tyexam     M.Com Part 1 EXAM :- https://t.me/McomPart1Exam   M.Com Part 2 EXAM :- https://t.me/McomPart2Exam M.A EXAM :- https://t.me/mastudentsexam  YouTube Channel  https://www.youtube.com/channel/UCv8JIY58xfWHUIXVu9wxNHw       Best Other MCQ   Webside www.mumbaiuniversityidol.com  All Subject MCQ Link   

M.COM PART 1, MACROECONOMIC, Question Bank

Macro economics m.com part 1 question papers with answers idol

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 SEMESTER – II MACROECONOMIC     5.   Explain the concept of purchasing power parity income ANS: The purchasing power parity theory of exchange rate determination was put forward by Professor Gustav Cassel of Sweden in the year 1920. There are two versions of the PPP theory known as the absolute and the relative versions. According to the absolute version, the exchange rate between two currencies should be equal to the ratio of the price indexes in the two countries. The formula for the absolute versions of the theory is as follows: RAB = PA/PB Here, RAB is the exchange rate between two countries A and B and ‘P’ refers to the price index. The absolute version is not used because it ignores transportation costs and other factors which hinder trade, non-traded goods, capital flows and real purchasing power. The relative version which is widely used by Economists can be illustrated as follows. Let us assume that India and the United States are on inconvertible paper standard and the domestic purchasing power of $1 in the US is equal to Rs.45 in India. The exchange rate would therefore be $1 = Rs.45. Assuming the price levels in both the countries to be constant, if the exchange rate moves to $1 = Rs.40, it would mean that less rupees are required to buy the same bundle of goods in India as compared to $1 in the US. It means that the US dollar is overvalued and the Indian Rupee is undervalued. Appreciation of the rupee will discourage exports and encourage imports in India. As a result, the demand for USD will increase and that of INR will fall till the PPP exchange rate is restored at $1 = Rs.45. Conversely, if the exchange rate moves to $1 = Rs.50, the INR is overvalued and the USD is undervalued. This will encourage exports and discourage imports till once again the PPP exchange rate is restored. According to the PPP theory, the exchange rate between two countries is determined at a point of equality between the respective purchasing powers of the two currencies. The PPP exchange rate is a moving par which changes with the changes in the price level. To calculate the equilibrium exchange rate under the relative version of the theory, the following formula is used: PA1 ∕ PA0                             R = R0 × ————— PB1∕ PB0 Where 0     =       base period, 1       =       period one, A&B =       Countries A and B. P       =       Price Index. R0     =       Exchange rate in the base period. Assuming the price index of Country ‘A’ (India) to be 100 in the base period and 300 in period one and that of United States to be 100 and 200 in the two periods respectively and the Original exchange rate to be Rs.40, the new PPP exchange rate would be as follows:                300∕ 100       300     100      3 R=40 × ————— = —— × —— = — = 1.5 = Rs.60 200 ∕ 100      100     200      2 Thus Rs.60/- or $1 = INR 60 will be the new PPP exchange rate. However, the PPP exchange rate will be modified by the cost of transporting goods including duties, insurance, banking and other charges. These costs are the limits within which the exchange rate can fluctuate given the demand supply situation. These limits are the ‘upper limit’ or the commodity export point and the ‘lower limit’ or the commodity import point. Critical Assessment of the PPP Exchange Rate Theory. The PPP theory is criticized on the following grounds: 1.  Price Indices of Two Countries are not comparable. The base year of indices in two countries may be different. The consumption basket may also be different. The PPP rate may not therefore give an accurate exchange rate based on the relative purchasing powers of any two currencies.  2.  Base Year is Indeterminate. The theory assumes that the balance of payments is in equilibrium in the base year. It is difficult to find the base year in which the balance of payment was in equilibrium.  3. Capital Mobility Influences the Price Level. The theory assumes that there is no capital mobility. The general price level does not affect items such as insurance, shipping, banking transactions etc. However, these items influence the exchange rate. 4. Changes in the Exchange Rate affects the General Price Level. When the exchange rate depreciates, the domestic price level is influenced by the rise in import prices. Demand for exports increases, thereby raising the price of export goods. Conversely, when the exchange rate appreciates, exports are affected and imports become cheaper, thus bringing about a fall in the price level. 5. Laissez Faire does not exist. The theory is based on the policy of laissez-faire. However, laissez faire does not exist. International trade is greatly influenced by restrictive and protective trade policies. Non-market forces therefore influence the exchange rate.  6. Elasticity of Reciprocal Demand influences Exchange Rates. According to Keynes, the theory neglects the influence of elasticity of reciprocal demand. The exchange rate is not only determined by relative prices but also by the elasticity of reciprocal demand between trading countries.  7. Changes in the Demand for Imports and Exports influence Exchange Rate. The exchange rate is not determined by purchasing power parity alone. The demand for imports and exports also influence exchange rate. If the demand for imports rise, purchasing power parity remaining constant, the exchange rate will rise and vice versa. Conclusion In spite of the limitations, the PPP exchange rate theory is widely used in development economics to ascertain the real level of development of an economy. The theory is therefore useful and PPP exchange rate is therefore a useful macroeconomic tool. Haberler in support of the theory says that, “While the price levels of different countries diverge, their price systems are nevertheless interrelated and interdependent, although the relation need not be that of equality. Moreover, supporters of the theory are quite right in contending that the exchanges can always be established at any desired level of appropriate changes in the volume of money.     NATIONAL INCOME CONCEPTS GNP, GDP & NDP A)  GROSS NATIONAL PRODUCT (GNP) The GNP is the most widely used measure of national income. It is the basic

M.COM PART 1, MACROECONOMIC, Question Bank

M.com 2nd sem Economics importance question papers with answers mumbai university

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  M.Com SEMESTER – II MACROECONOMIC   1.   Q.3. Explain the concept of National Income Deflator. ANS: When we divide nominal national income by real national income, we obtain the national income deflator. The real national income can be calculated by dividing nominal national income by the national income deflator. The national income deflator for various years given is given in Table 1.5.   You may notice from Table 1.5 that when we divide the nominal national income by the real income, we can obtain national income deflator. However, to find out the real national income one needs the price index of the relevant years. Once, we have the current year price index number, we can find out the national income of the current year by dividing the nominal national income of the current year by the current year price index and multiply the quotient by hundred. Alternatively, the national income deflator can be found by dividing the current year price index by the base year price index. Since the base year price index is always hundred, the national income deflator can be simply found by moving the decimal points by two digits to the left. For instance, the wholesale price index in the year 2015-16 divided by 100 would give the national income deflator as 1.2206. You may notice that we have simply shifted the decimal point by two digits to the left. Now when we divide the nominal national income or the national income at current prices by the national income deflator, we can obtain the real national income. For example, Rs.121.62 Trillion divided by 1.2206 will give us Rs.99.63 Trillion which is the real national income for the year 2015-16.     If you want exam most important question bank pdf then you have to pay per subject 100/- rupees only .  Contact 8652719712 / 8779537141      Telegram Group Mumbai Univeersity :- https://t.me/mumbaiuniversityidol     Suraj Patel Education :- https://t.me/surajpateleducation       F.Y.J.C EXAM :- https://t.me/FYJCexam     S.Y.J.C EXAM :- https://t.me/SYJCexam     F.Y EXAM :- https://t.me/fyexam       S.Y EXAM :- https://t.me/syexam       T.Y EXAM :- https://t.me/tyexam       M.Com Part 1 EXAM :- https://t.me/McomPart1Exam     M.Com Part 2 EXAM :- https://t.me/McomPart2Exam M.A EXAM :- https://t.me/mastudentsexam    YouTube Channel  https://www.youtube.com/channel/UCv8JIY58xfWHUIXVu9wxNHw     Best Other MCQ   Webside www.mumbaiuniversityidol.com  All Subject MCQ Link       

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