KATHMANDU UNIVERSITY Marks Obtained:

BBA/BBIS
End-Semester Examination
February – June 2016 Session
July 2016

SUBJECT : ECO 210 - Macroeconomics TIME : 10 Min.

YEAR :I SEMESTER : II
FULL MARKS : 10

Examination Roll No: _______________________ Registration No: ___________________

SECTION “A”
[10 Q × 1 = 10 Marks]

Encircle the most appropriate answers from the given choices.

1. Which of the following best describes an open economy?

a. A national economy that doesn't interact economically with the rest of the world.
b. A national economy that has a stock market that is open to traders from anywhere in the
world.
c. A national economy that has extensive trading and financial relationships with other
national economies.
d. A national economy that has established diplomatic relations with most other national
economies.

2. What are the three approaches to measuring economic activity?

a. Cost, income, and expenditure approaches.
b. Product, income, and expenditure approaches.
c. Consumer, business, and government approaches.
d. Private, public, and international approaches.

3. When a person gets an increase in current income, what is likely to happen to consumption and
saving?
a. Consumption increases and saving increases.
b. Consumption increases and saving decreases.
c. Consumption decreases and saving increases.
d. Consumption decreases and saving decreases.

4. Last year, Hari earned a salary of NPR.250,000 and he spent NPR. 240,000, thus saving
NPR.10,000. At the end of the year, he received a bonus of NPR.10,000 and he spent
NPR.5,000 of it, saving the other NPR.5,000. What was his marginal propensity to consume?
a. 0.96
b. 0.50
c. 0.04
d. 0.02

5. What relation does the aggregate supply curve show?

a. The relation between the real interest rate and the aggregate amount of output that firms
supply.
b. The relation between the price level and the aggregate amount of output that firms supply.
c. The relation between the supply of goods by firms and the price of goods relative to the
price of nonmonetary assets.
d. The relation between the inflation rate and the unemployment rate.
6. Why do people keep currency in their pockets when bank deposits pay interest?
a. Because banks might steal your money.
b. Because currency is more liquid.
c. Because bank deposits lose value due to inflation.
d. Because bank deposits lose value due to changes in interest rates.

7. What does the Phillips curve explain?

a. A negative empirical relationship between bond prices and interest rates.
b. A negative empirical relationship between unemployment and output.
c. A negative empirical relationship between inflation and the real interest rate.
d. A negative empirical relationship between unemployment and inflation.

8. Which of the following best describes a typical business cycle?

a. Economic expansions are followed by economic contractions.
b. Inflation is followed by unemployment.
c. Trade surpluses are followed by trade deficits.
d. Stagflation is followed by inflationary economic growth.

9. What are the three main categories of government outlays?

a. Net interest payments, government investment, and government consumption expenditures.
b. Net government subsidies, the government deficit, and government purchases.
c. Government purchases, transfer payments, and net interest payments.
d. Government consumption expenditures, government investment, and transfer payments.

10. What do you call the provisions in the budget that cause government spending to rise or taxes
to fall without legislation when GDP falls?
a. Primary deficit enhancers.
b. Expansionary fiscal stimulus.
c. Non-political fiscal policy.
d. Automatic stabilizers.
 KATHMANDU UNIVERSITY
BBA and BBIS
End-Semester Examination
February – June 2016 Session
July 2016

SUBJECT : ECO 210 - Macroeconomics TIME : 2 Hrs. 50 Min.

YEAR :I SEMESTER : II
FULL MARKS : 40
For all questions show diagrams wherever possible to support your explanation.
SECTION “B”
[6 Q. × 4 = 24 Marks]
Attempt any SIX questions.

1. Assume an economy with no government and no foreign trade; calculate GDP for the following
output scenario. There are three firms, firm A is a mining company, firm B is a steel producer
and firm C is a car manufacturer. Last year, firm A sold NPR 100 million worth of iron ore to
frim B, firm B sold NPR 200 million worth of steel to firm C, and firm C sold NPR 500 million
worth of cars to general public of the same economy. If there is no change in inventories, no
taxes, and no other producer in the economy, what is the GDP? And explain how you derived
the computed GDP.

2. What effect does a temporary increase in government purchase- for example, to fight a war-
have on desired consumption and desired national saving, for a constant level of output?

3. Explain what happens to Nepalese Economy’s AD curve in the response to each of the
following exogenous changes:
a. a rise in optimism leads to higher investment.
b. the government decides to build some new schools.
c. there is recession in India.
d. consumers become cautious about the future and decide to save more.

Make graph to show the effects of each responses.

4. Who determines the nation’s money supply? Explain how the money supply could be expanded
or reduced in an economy in which all money is in the form of currency?

5. Can policymaker exploit the Phillips curve relationship by trading more inflation for less
unemployment in the short run and in long run? Explain both the classical and Keynesian point
of view.

6. Consumer expenditure on durable goods such as cars and furniture, as well as purchase of new
houses, fall much more than expenditure on nondurable goods and services during most
recessions. Why do you think such behavior is projected during recession?

7. In what ways is the government debt a potential burden on the future generation? Explain
briefly.
 SECTION “C”
[2 Q. × 8 = 16 Marks]
Attempt any TWO questions.

8. Recently there was news regarding providing relief funds to earthquake-affected victims. Most
of the leading newspaper highlighted that funds will be provided in two installments but it is
not possible without foreign aids. But the economists have been debating over the role of
foreign aid in the growth process of developing countries.As an economics student, present
your argument how the foreign aids distributed as relief for earthquake victims affect the
economic growth of Nepal.

9. An economy has a full-employment output of 6000. Government purchase, G, are 1200.

Desired consumption and desired investment are:

Cd=3600-2000r+0.10Y, and
Id=1200-4000r

Where Y is output and r is the real interest rate.

a. Find an equation relating desired national saving, Sd, to r and Y.
b. Using the market equilibrium condition. Find the real interest rate that clears the market.
Assume that output equals full-employment output.
c. Government purchases rise to 1440. How does this increase change the equation describing
desired national saving? Show the change graphically and what happens to the market
clearing real interest rate?

10. It is sometimes argued that economic growth that is “too rapid” will be associated with
inflation. Use AS-AD analysis to show how this statement might be true. Also when the claim
is made, what type of shock is implicitly assumed to be hitting the economy?
ANSWERS KEY
ECO 210 - Macroeconomics

1. C
2. B
3. A
4. B
5. B
6. B
7. D
8. A
9. C
10. D