Uint 4 Keynesian Economics (Numerical)

 Formula : 

1. Coefficient of Multiplier (K) = 1⁄1-MPC

                                    or,   (K)= 1/mps

                                     or, K ‍‍= Change in income / Change in investment

2. Marginal Propensity to Consume (MPC) = Change in Consumption/ Change in income

                                 or, MPC= 1-MPS

3. Y=C+I      (for Equilibrium level of income )  

  or Y= C+I+G when Government is involve

4. APC=  ^C⁄_Y

5. APS= S ⁄_Y

6. MPS= Change in saving / Change in income

7= Investement=Saving

8. Saving = Income - Consumption

9. MPC+MPS = 1

10.  when C is given as C= 200+0.5y  here 0.5 is MPC

11. When S is given as S = 200+0.5y  here 0.5 is MPS

Old is GOld Solution 2078/79

18. 2077 Q.N.10 Compelete the table : 

  Income                                 Consumption                        Saving 

     0                                                40                                        -

   100                                            120                                        -

   200                                            200                                        -

   300                                            280                                        -

   400                                            360                                        -

  500                                             440                                        -

Solution :

Income (Y)                            Consumption  (C)                      Saving = Y-C

     0                                                40                                               -40

   100                                            120                                               -20

   200                                            200                                                 0

   300                                            280                                                20

   400                                            360                                                40

  500                                             440                                                60

19. 2075 Q.N.3      The consumption function of an economy is given C = 60 + 0.8y where y is         national income. If the investment in a year equals to 65 crore, what will be the equilibrium level of national income.

Solution : 

  Consumption (C) = 60 + 0.8y 

    Investment (I) = 65 crore

We know, equilibrium level of national income is given by ;

 Income (y) = Consumption (C) + Investment (I)

y =  60 + 0.8y + 65

y - 0.8y = 65

    y = 65⁄0.2

    y = 325 Crore

Therefore, the equilibrium level of national income is 325 Crore.  

20. 2074 Q.N.3       Find out the rate of MPS & Multiplier when MPC is 0.75.

Solution : 

 MPC = 0.75

we know, 

MPS = 1 - MPC

        = 1- 0.75

   MPS     = 0.25

Again,

Multiplier (K) = 1⁄1-MPC       or, 1⁄MPS

                       = 1⁄0.25

                      =  4

Therefore, the rate of MPS is 0.25 &  Multiplier is 4.

21. 2074  Q.N. 10        Let in an economy, autonomous investment (Ia) = Rs 600 million and Consumption function (c) = 200 + 0.8y. Compute the equilibrium level of income & Consumption.

Solution :

Autonomous Investment (Ia) = Rs 600 million 

Consumption function (C) = 200 + 0.8y

we know, equilibrium level of income is given by 

y = C + Ia

or, y = 200 + 0.8y + 600

or, y - 0.8y = 800

or, 0.2y = 800

or, y = 800/0.2

y= 4000 million

now putting the value of y in C = 200 + 0.8y we get,

C = 200 + 0.8 * 4000

C = 200 + 3200

C= 3400

Therefore, equilibrium income is 4000 million & Consumption is 3400 million.

Descriptive question : 

37. 2077 Qn 15      let the consumption function & investment function in an economy are : 

c = 40 + 0.7y, I = 20

a. Compute the equilibrium income, consumption & investment.

b. What will be the new equilibrium income, consumption, investment when investment increases by Rs 5 million ? 

Solution, 

a)  c = 40 + 0.7y

 I = 20

For equilibrium income, 

y = c + I

or, y = 40 + 0.7y + 20

or, y - o.7y = 60

or, 0.3y = 60

or, y = 60/0.3 

y = 200 million

Again, for consumption, 

c = 40 + 0.7y

or c = 40 + 0.7*200               [ y = 200 million ]

or, c = 40 + 140 

c = 180 million

Again, For investment

I =  y - c

or I = 200 - 180

I = 20 million 

b) If investment increases by 5 million

New investment (I)new = 20 + 5 = 25 million

Now, new equilibrium income is given by

(y)new = (c) + (I)new

y = 40 + 0.7y + 25

0.3y = 65

(y)new = 65/0.3 = 216.67 million

  Again, for new consumption, 

(c)new = 40 + 0.7(y)new

= 40 + 0.7* 216.67

= 40 + 151.67

(c)new = 191.67 million

 

unit 3 Classical theory employment

 

Very short

1.     What is voluntary unemployment ?

Ans ; Voluntary unemployment is type of unemployment in which people are unemployed due to their choice or they are not working due to laziness or they are not interested to work.

2.     What is meant by distinguished unemployment ?

Ans : Distinguished unemployment is the situation in which the person seems to be employed but infact he is not employed. In this type of unemployment, the unemployment person is not visible or h/she is hidden. That’s why this type of unemployment is also called hidden unemployment.

 

3.     What are the various types of unemployment ?

Types of unemployment are as follows :

a.     Open unemployment

b.     Under unemployment

c.     Distinguished unemployment

d.     seasonal unemployment

 

Descriptive question answer :

4.     Explain the process of labour market equilibrium in relation to achieve full employment.

Ans : According to the classical theory of unemployment, other things remains the same, the wage rate flexibility assumes that, in the competitive market full employment is provided and full employment output is produced. Real wage rate is determined by the force of  demand and supply in the labour market. Demand for labour is negative function of real wage rate whereas of labour is positive function of real wage rate. The real wage rate is determined at the level where demand for labour and supply for labour are equal. This level also represent full employment equilibrium level. If there is some unemployment, lebours will compete for job and real wage rate falls. A fall wage rate lead to increase demand for lebours and decrease the supply of labour. This will remove unemployment. Thus, flexibility of real wage rate ensures the full employment.

According to the classical theory, unemployment is the result in rigidy of wage structure and interface of automatic working of the labour market. When government interfaces by recognizing the trade union, passing minimum wage legislation, labour will adopt monopolistic behavior, wage rate are pushed up which lead to unemployment. Only the flexibility under full competitive market ensure the full employment.

 

It can be described in the following figure :

In the figure S_L represents the aggregate supply curve for lebour & D_L represents the aggregate demand curve for labour. These curve intersect at the point E determining equilibrium wage rate at employment ON.

If real wage rate will maintain higher level (p/w)1 , supply of labour will exceed demand for labour by PQ at employment N,N2 which indicates amount of unemployment. Labour market being competitive, unemployment of labour will reduce wage rate to the original equilibrium level (p/w). This will remove unemployment.

On the other hand, when real wage rate is maintained lower at (p/w)2 , Demand for labour will exceed for supply for labour at RS. Which indicates the shortage of labour. The competition among lebour to hire lebour push the wage rate to original equilibrium level (p/w).

Unit-2 National income accounting (numerical)

 In terms of  market price : 

1. Gross Domestic Product at market price (GDP)

GDPmp= C+I+G+(x-m)

Where :

        C= Private consumption expenditure

        I= Domestic Investment

        G= Government expenditure

        x= value of Export

        m= value of Import 

  2. Net domestic product at mp (NDPmp)

            NDPmp= GDPmp-Depreciation

 3. GDPmp= p1Q1+P2Q2+P3Q3+....................+PnQn

     where , 

P= price & Q= quantity

4. National Domestic Product at mp (NDPmp)

 NDPmp= GDPmp+Net factor income from abroad

        5. Net National Product at mp (NNPmp)

            NNPmp= NDPmp-depreciation

In terms of Factor cost method : 

GDPfc= GDPmp-Net indirect tax 

        where,

                Net indirect tax= Indirect tax - subsidies

               NDPfc= GDPfc-depreciation

              GNPfc = NDPfc+ net factor income from abroad

               NNPfc= GNPfc-depreciation  

                or,

              NNPfc= NDPfc+ net factor income from abroad

                or,

            (NI)   NNPfc= GDPmp-depreciation-Net indirect tax

              NI= wages + salary + interest + Profit + rent + Net factor income from abroad + undistributed profit

  Personal income (PI) = National income- undistributed corporate profit-Social security contribution + Transfer payment- corporate income

         Disposable income (DI) = PI-Personal direct taxes

         Personal saving = DI - expenditure 

          GDP deflector = Nominal GDP/Real GDP *100

             

Solution of BBS Second year

 

 

Unit-2 National income accounting (Theory)

 

 very short questions ;

1.    Prepare a list of gross domestic investment.

a.     Business fixed investment

b.    Net foreign investment

c.     Residential investment

2.    Transfer payment are excluded from GDP. Why ?

Ans : Transfer payment are excluded from GDP because transfer payment do not include the production of goods and services. GDP always calculated the value of all final goods and services produced in the territory of a country within a specific period of time.

Descriptive question answers :

3.    Explain the circular flow of income & expenditure of the two sector economy.

Ans : Two sector economy consists of only two sectors i.e, Household and Business. It is the most simplified model in which the product and money flow from the government and business are ignored. Obviously it is unrealistic model. In other words, this kind of economy cannot be found in the real world. This is also known as the two sector closed economy.

 

Assumption :

a.     It consists of two sectors : Household & Business

b.    All the income are spent on consumption : there is no saving

c.     There is no government & foreign trade

d.    Household are the owner of the factor of production or factor of production are supplied by only household.

e.    Producer purchases factor of production from household.

 

On the basis of the assumptions circular flow of income and expenditure can be shown in the given figure :

 

 

 

In the above figure shows the circular flow of income and expenditure in the two sector economy. In the upper half of the figure represents the factor market and lower half of the figure shows the commodity market. Both the market generates the two kind of flow : real or product flow & money flow.

In the upper half of the figure shows the factor of production from household to the business sector. This is the real flow or factor flow which flows reverse flow that is factor income in the form of wage, rent, profit and interest from business sector to household sector. Since factor income are paid in the form of money, the flow of factor income represents money flow. From the figure it is clear that the factor service and money flows in opposite direction.

In the lower half of figure shows the commodity market in which the goods and services produced by business sector flows from business sector to households sector and the payment made by households sector flows from households sector to businesses sector. It is clear that the real (goods ) & money flows in the commodity market also flows in the opposite direction.

When we combine the goods and money flow in the goods market and money market, we get the regular circulation flow of income and expenditure. It is also clear that income and expenditure flow are equal.

Solution of BBS Second year

Unit-1 Introduction to macroeconomics (branch of economy which deals economy as a whole )

1.    What is the difference between stock & flow ?

Ans :  The economic aggregates used in macroeconomics are called macroeconomics variables.

a.     Stock variables : The macroeconomic variables which are measured at a point of time are called stock variables. Stock of a capital in a country, the number of employed persons, money supply, total saving etc. are measured at point of time.

b.    Flow variables : The macroeconomic variables which are measurable only in terms of specific period of time is called flow variables. National income, total consumption, total saving, total investment, total import, total export are examples of flow variables.

2.    What are the uses of macroeconomics ?

Ans : Following are the uses of macroeconomics :

a.     Helpful to understand the working of the economy.

b.    Helpful in formulating economic policy

c.     Helpful in international comparisons

d.    Evaluate the performance of the economy.

3.    Macro economics is the study of aggregates. Give reasons.

Ans: Because it focus on the overall economy rather than individual. This is because it aims to understand and analyze the behavior and performance of an entire economy as a whole. such as GDP, inflation rate, and national income.

4.    Point out the scope of macroeconomics.

Ans:  followings are the scopes of macroeconomics :

a.     Theory of national income.

b.    Theory of employment

c.     Theory of money

d.    Theory of economics growth

5.    Define macro dynamics.

Ans: macro dynamics refers to the overall behavior and interplay of aggregate economic, political, social and environmental factors that influence the functioning and development of entire system. 

Solution of BBS Second year

First term Examination-2080 class 5 science

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