SUMMARY OF ATTEMPTS TIME TAKEN
1 30
hr min
12 Correct
13 Incorrect (Scored 12/12) Available time: 1 hr 30 min
(Scored -2/13)
TOTAL QUESTIONS
25
Section-wise Details
PART-A
MARKS SCORED
Score Percentage
ME MT All sec 30- 10 / 20 50
Nov
Total 10 / 20 50
SUMMARY OF ATTEMPTS TIME TAKEN
0 45
hr min
8 Incorrect
(Scored -2/8)
Available time: 0 hr 45 min
12 Correct
(Scored 12/12) TOTAL QUESTIONS
20
PART-B
MARKS SCORED
Score Percentage
ME MT All Sec 30- 0/5 0
Nov PArt-B
Total 0/5 0
SUMMARY OF ATTEMPTS TIME TAKEN
0 45
hr min
Available time: 0 hr 45 min
TOTAL QUESTIONS
5 Incorrect
5
(Scored 0/5)
Question-wise Details
PART-A
Question 1: Time: 32 Sec Marks: 1/ 1
Initially begin with high powered money H = 1000, cash reserve ratio (CRR) = 0.1 and the ratio of currency to deposit is 0.3. Now
the central bank increases the CRR to 0.15. The following statement is true
Options Response Answer
Money multiplier will increase
money multiplier will decrease
monetary base (high powered money)
will increase
None of the options are correct
Question 2: Time: 46 Sec Marks: 1/ 1
The following statement is true with respect to money stock
Options Response Answer
The central banks can more precisely
target the M3 (broad money)
The central banks can more precisely
target the M0 (money base)
Increase in repo rate increases
monetary base
All of the options are correct
Question 3: Time: 1 Min 23 Sec Marks: -0.25/ 1
Any point to the left of the IS - curve indicates a situation where
Options Response Answer
There is excess demand for goods and
services in the product market
There is excess supply of goods and
services in the product market
There is excess demand of money in
the money market
There is excess supply of money in the
money market
Question 4: Time: 3 Min 28 Sec Marks: 1/ 1
Suppose base year is t0. In the following year t1, the nominal GDP is lower than the real GDP in t1. Then the following statement
is definitely true
Options Response Answer
There is deflation in the economy
There is inflation in the economy
Real GDP growth is positive
Real GDP growth is negative
Question 5: Time: 27 Sec Marks: 1/ 1
According to the Baumol-Tobin model, the amount of money balances held should increase as
Options Response Answer
the interest rate increases
the level of income decreases
the cost of money transactions
increases
the cost of illiquidity decreases
Question 6: Time: 3 Min 15 Sec Marks: -0.25/ 1
A decrease in the income tax rate will
Options Response Answer
Decrease the slope of the LM curve
Increase the slope of the IS-curve
Lead to parallel leftward shift of IS
curve
Lead to parallel rightward shift of the IS-
curve
Question 7: Time: 44 Sec Marks: 1/ 1
If the Central bank wanted to spur growth, the most effective policies would be to
Options Response Answer
Sell government securities and raise
reserve requirements
Sell government securities and lower
reserve requirements
Buy government securities and lower
reserve requirements
Buy government securities and raise
reserve requirements
Question 8: Time: 1 Min 45 Sec Marks: -0.25/ 1
Presume that there is closed economy operating with a lump-sum tax system. If a change in lump-sum taxes by ∆TA = - 400
leads to a change in income by ∆Y = + 1,200, how large is the marginal propensity to save?
Options Response Answer
0.2
0.25
0.3
0.35
Question 9: Time: 43 Sec Marks: -0.25/ 1
If the statutory reserve ratio (CRR) is 0.2 and the ratio of currency to deposit is 0.3, what is the value of money multiplier? Excess
reserves are unknown.
Options Response Answer
2.6
2.4
2.2
Can not be determined.
Question 10: Time: 25 Sec Marks: 1/ 1
In the short run model, if AD falls,
Options Response Answer
Output falls & Price rises
There is no change in price & output
Output falls & there no change in price
Price falls & there is no change in
output
Question 11: Time: 3 Min 22 Sec Marks: 1/ 1
If G = 1500. BD = 150, C = 5000, S (private) = 1200, NX = -100, TR = 0, which of the following statements is correct?
Options Response Answer
I=1150
GDP=7550
Disposable income=6200
All the other options are correct
Question 12: Time: 1 Min 51 Sec Marks: -0.25/ 1
If we change the assumption that money supply is fixed but instead assume that the amount of money supplied increases as the
interest rate increases, then
Options Response Answer
The LM-curve will become flatter
The LM-curve will become steeper
The LM-curve will shift to the left
None of the options are correct
Question 13: Time: 42 Sec Marks: -0.25/ 1
If money demand becomes more income elastic, then the LM-curve will
Options Response Answer
Shift parallel to the right
Shift parallel to the left
Become steeper
Become flatter
Question 14: Time: 3 Min 7 Sec Marks: 1/ 1
Assume a closed economy model with no foreign trade. The consumption function is defined as 300 + 0.8 (YD), investment
function is defined as I = 300, G = 400, proportional tax rate t = 25 percent (0.25), Government transfers to households =250.
Presume that the economy is at its equilibrium level (there might have been/may be a similar data in some other question. You
may carry forward the intermediate step calculations). Calculate the government savings/fiscal deficit.
Options Response Answer
Fiscal surplus is 100
Fiscal deficit is 100
Fiscal surplus is 200
Fiscal deficit is 200
Question 15: Time: 3 Min 46 Sec Marks: 1/ 1
Presume that there are two closed economies, namely, A and B. Following parameters for both are countries are exactly the
same (autonomous part of consumption, mpc, I, G, and transfer payments). Both the countries are currently in equilibrium at their
respective full employment levels and have exactly the same GDP. The main difference between the two countries is their tax
system: where country A has a lump-sum tax system, while country B has a proportional income tax system. Despite these
differences, currently both the countries have zero fiscal deficit. A similar financial crisis in both the countries reduces the
investment demand by 100 units (in both A and B separately). The impact of the exactly the same shock to investment demand
will be such that:
Options Response Answer
Fiscal deficit in country A will increase
by a greater amount than the increase
in fiscal deficit of country B
GDP in country A will fall by a greater
amount than the fall in GDP in country B
Fall in GDP will be exactly the same in
both the countries
Rise in fiscal deficit will be exactly the
same in both the countries
Question 16: Time: 5 Min 11 Sec Marks: 1/ 1
Assume a closed economy model which is at the equilibrium with Y = 3000. The following equations describe the economy in a
macroeconomic model:
C = 200 + 0.75 YD Taxes = 450 (lump-sum)
Government transfers (TRo) = 250 Io = 400 Go = 300
A cyclone strikes the country (and its economy) reducing the output to Y = 2500. The cyclone is a short-run event,
and the aggregate demand continues to operate as mentioned in the above model. What will be change in the unplanned
inventory (UI) when the output declines to 2500?
Options Response Answer
Unplanned change in the inventories w
Unplanned change in the inventories w
Unplanned change in the inventories w
Unplanned change in the inventories w
Question 17: Time: 9 Min 51 Sec Marks: 1/ 1
Assume a closed economy model with no foreign trade. The consumption function is defined as 300 + 0.8 (YD), investment
function is defined as I = 300, G = 400, proportional tax rate t = 25 percent (0.25), Government transfers to households =250.
Presume that the economy is at its equilibrium level. Calculate the equilibrium level of household savings.
Options Response Answer
100
200
300
400
Question 18: Time: 49 Sec Marks: -0.25/ 1
In an IS-LM model, an increase in the personal income tax rate will
Options Response Answer
Lower consumption and the interest rate
but increase investment
Lower consumption and investment but
increase the interest rate
Increase aggregate money demand and
therefore cause interest rates to
increase
Increase the government expenditure
multiplier
Question 19: Time: 1 Min 58 Sec Marks: -0.25/ 1
Suppose GDP=5000, Consumption=3500, Saving (private)=400, Govt. purchases = 1200, Net exports = (-) 150, Transfer
payment=0. The following is true.
Options Response Answer
Disposable income = 3900
Investment=450
Disposable income = 3900, Investment
=450
Investment =450, Disposable income =
1500
Question 20: Time: 55 Sec Marks: 1/ 1
Suppose you construct a new house, buy a car and purchase corporate bonds in a particular year. The following statement is true
with respect to national income accounts.
Options Response Answer
Consumption increases because of car
purchase
Investment increases because of house
construction
Investment increases because of bond
purchase
Consumption and investment increase
because of purchase of car and
construction of house.
PART-B
Question 1: Time: 10 Min 39 Sec Marks: 0/ 1
Suppose Firm A has the following sales and cost structure.
(All amounts are in Rupees)
Sales 1,00,000
Raw material cost 50000
Wages 10000
Rent 6000
Interest 4000
Firm A sells Rs.60,000 worth of goods to consumers and the balance to Firm B. Firm B further processes these goods and sells
for Rs.150,000 to the consumers.
Frim B’s sales and cost figures are as follows.
Sales 1,50,000
Purchases from firm A 40000
Wages 40000
Rent 7000
Interest 10000
(a)Compute the contribution to GDP of each of these firms separately using Income approach (1.5 marks)
(b)Compute the contribution to GDP of each of these firms separately using the production (value added) approach (1.5 mark)
(c) Suppose if firm B is not able to sell Rs.50,000 worth of goods in the current year, how will this affect GDP for the current year
and components of Aggregate demand in national income accounts. (1 mark)
Response:
Q1 (a) Contribution to GDP of each of the firms using Income approach
Firm A
Income = Raw Material + Wages + Rent + Interest + Profit
= 50000 + 10000 + 6000 +4000 + 30000
= 100000
Firm B = Wages + Rent + Interest + Profit
= 40000 + 7000 + 10000 + 53000
= 110000
Total Contribution = 210000
(b) Contribution to GDP using Value Added approach
Firm A - Sales of Firm A to the Consumers = Rs. 60,000
Firm B - Sales of Firm B to the Consumers = Rs.1,50,000
Total GDP = Rs. 2,10,000
(c) If firm B is not able to sell Rs. 50,000 worth of goods in the current year, GDP for the current year will decrease by 50,000.
Among the components of Aggregate Demand, the consumption will decrease by Rs. 50,0000.
Words : 140
Question 2: Time: 13 Min 54 Sec Marks: 0/ 1
The COVID-19 crisis has induced a recession in the economy of island X. Following are the current macroeconomic
aggregates/parameters of this economy, which is operating below the full employment output.
C = 200 + 0.75 YD TA = 0.2 Y
TR = 200 I = 350 G = 300
Where Y = GDP, C = consumption, YD= disposable income, TR = government transfers to households, I = investment, G
=direct government purchases.
a) If the government increases G to reach the equilibrium level of full-employment output at Y* = 3000, what would be the level
of new G? 1 mark
b) What would be the new level of fiscal deficit by following the policy option given under part a) 0.5 mark
c) Presume that instead of G, the government wants to reach Y* = 3000 by changing government transfer payments (TR). what
would be the level of new TR? 1 mark
d) What would be the new level of fiscal deficit by following the policy option given under part c) 0.5 mark
e) Presume that instead of increasing G or TR, the government wants to reach Y* = 3000 by reducing the tax rate, what would
be the level of the new tax rate? 1.5 marks
f) What would be the new level of fiscal deficit by following the policy option given under part e) 0.5 mark
Response:
Q2 (a) New Government Spending to reach equilibrium level of output
G = AD -(C + I cTR)*Multiplier
G= 3000 - (200 + 350 + 200*0.75)*2.5
= 1250
G =1250/2.5
= 500
Therefore new level of G is Rs. 500
b) BD = TA - TR - G
= 3000*.2 - 200 - 500
= - 100
Therefore new level of Fiscal Deficit is Rs. 100
c) New Level of TR = 466.6667 (((3000- (200+350+300)*2.5)/2.5)/0.75)
d) New level of Deficit = 600 - 466.67 -300
= - 166.67
Therefore, new level of Fiscal deficit is 166.67
e) New Tax Rate = 11.11%
f) Fiscal Deficit = 3000*11.11% - 200 -300
= - 166.67
Therefore new fiscal deficit is 166.67
Words : 119
Question 3: Time: 7 Min 52 Sec Marks: 0/ 1
Suppose you have the following data about Indian economy on Nov 16, 2016 at 7:59 pm (amount in Rs. Crores)
Reserve Money / Base Money / High Powered Money (M0 or H) 25000
Indian currency with general public inside the country (excluding that with banks & govt.) 5000
Indian currency held outside the country (by Indians who have travelled abroad for short-term
5000
work)
Deposits with commercial banks of which 80000
i) Demand Deposits 9000
ii) Time Deposits 71000
a) What is the money multiplier? (1 mark)
b) What is the reserves to deposit ratio? (1 mark)
Assume that the Central Bank demonetizes all high-denomination currency at 8 pm on Nov, 16 2016. Assume that the high
denomination currency is only held by Indians who have travelled abroad for short term work (they don’t hold low denomination
currency and no one inside the country holds high denomination currency).
c) What is the new Reserve money (H) as a result of Demonetization at 8:01 pm on 16th Nov, 2016? (1 mark)
d) What is the new multiplier at 8:01 pm on 16th Nov, 2016? (1 mark)
Response:
a) Money Multiplier = (1+CD)/(CD+CR)
= (1+0.125)/(0.125+0.1875)
= 3.6
b) Reserves to Deposit Ratio
H= CU + R
R= 15000 (25000 - 10000)
Reserves to deposit ratio = 15000/80000
= 0.1875
c) New reserve money = CU + R
=0+15000
Therefore, new Reserve Money is Rs. 15000
d) Multiplier = (1+CD)/(CD+CR)
= (1+0)/(0+0.1875)
= 5.333
Words : 55
Question 4: Time: 6 Min 58 Sec Marks: 0/ 1
a)Assume that the price of a breakfast in 2010 was Rs 100 (which is representative of the average price levels in 2010). Assume
that India’s real GDP in 2010 was 100 lac crores.
In 2020 the price of the same breakfast is Rs 200 and India’s real GDP is 200 lac crores. If interest rates haven’t changed much
in the ten years what is the growth in money supply between 2010-2020? [1 mark]
b)If the interest rate has gone up during this period, then would the change in money supply during the 10 years be larger,
smaller, or the same as in option a). Explain why? (1 mark)
Response:
Q4 (a) Since the real GDP has increased by 100 lac crores as a resulted inflation adjusted wealth of people have increased, this
would have caused the interest rates to increase however since the interest rates havent changed much in ten years. Therefore
the money supply would have grown by 300% i.e 300 lac crores (200 crore units * 200 price - 100 crores) to accomodate the
increase in the wealth thereby keeping the interest rates unchanged.
Q4 (b) If the interest rates had gone up during this period then the change in money supply would be lower than that mentioned
above. Due to the reduced money supply versus an increase in income the interest rates would have gone up.
Words : 120
Question 5: Time: 5 Min 37 Sec Marks: 0/ 1
There is no need to draw graphs
a) Explain why IS-curve is negatively sloped when consumption is a positive function of disposable income and investment is
inversely related to the rate of interest? (1 Mark)
b) Explain how the IS -curve will be affected when consumption is a positive function of disposable income and the interest-
elasticity of the investment function is zero? (1 Mark)
c) Explain how the IS-curve will be affected when consumption is a positive function of disposable income but both consumption
and investment are inversely related to the rate of interest? (1.5 Mark)
d) Explain how the IS-curve will be affected when consumption is a positive function of disposable income, investment is
inversely related to the rate of interest and positively related to real income? (1.5 Mark)
Response:
Q5 (a) IS curve is negatively sloped since as the interest rates decline the Investments increase which results in a higher income
and Aggregate Demand.
(b) If the interest elasticity of the Investment function is zero then the IS curve would be perfectly inelastic. Hence at all levels of
Interest the Demand would be the same.
(c) The IS curve would be a flat downward sloping curve if both consumption and investments are inversely related to the rate of
interest
(d) The IS curve would be a steep downward sloping curve.
Words : 91
Test Log
