Brief Answer Questions:
[10 × 2 = 20]List the components of scope of macroeconomics.
What is disposable income?
List the long-run determinants of investment.
Let the autonomous investment I = Rs 240 million and consumption function C = 160 + 0.75Y. Compute the level of income and consumption expenditure.
Derive government expenditure multiplier.
State the essence of inflation.
Write any two differences between economic growth and economic development.
What is flexible exchange rate system?
Write the method of deficit financing.
What are the components of fiscal federalism?
Short Answer Questions: (Attempt any SIX Questions)
[6 × 5 = 30]How is national income computed by value added method? How does this method avoid the problem of double counting?
What is investment? Explain its types.
Consider the following structural equations in a four sector economy: C = 200 + 0.7(Y-T), T = 500 + 0.20Y, I = 100 billion, G = 500 billion, X = 100 billion, M = 15 + 0.1Y.
(i) Find the equilibrium level of income.
(ii) What will be the effect on equilibrium income when government expenditure increased by Rs 50 billion and tax rate decreased by 5%?
Consider the following schedule.
| Year | 2022 | 2023 | 2025 | |||
| Price | Quantity | Price | Quantity | Price | Quantity | |
| Goods X | 900 | 300 | 1000 | 350 | 1200 | 375 |
| Goods Y | 80 | 1,000 | 120 | 1300 | 140 | 1,700 |
Compute nominal GDP, real GDP, GDP deflator and rate of inflation.
Explain the prosperity phase of trade cycle.
Explain the process of labour market equilibrium in relation to achieve full employment.
Describe the determinants of financial inclusion.
Long Answer Questions: (Attempt any THREE Questions)
[3 × 10 = 30]Explain the concept and causes of cost-push inflation. How can it be controlled by monetary and fiscal policies?
What is balance of payment? Explain its components.
Suppose that Nepalese economy has realized following structural equations for the product and money markets in 2025: C = 300 + 0.8Yd (Yd = Y - T), T = 120 + 0.2Y, Mt = 0.7Y, Msp = 250 - 4200i, I = 350 - 4500i, G = Rs 400 billion, Ms = Rs 600 billion.
a. Compute equilibrium level of income and rate of interest.
b. Determine the new equilibrium situation when Nepal Rastra Bank decide to increase money supply by Rs 400 billion and Government of Nepal also increase planned expenditure by Rs 200 billion.
c. Analyze the effect of change in monetary and fiscal policy on national income and rate of interest.
Consider the following figures for national income accounts and answer the questions given below
| Description | Rs in Million |
| Government consumption | 2,000 |
| Net indirect business taxes | 2,956 |
| Imports | 6,160 |
| Government investment | 1,028 |
| Net fixed capital formation | 6,684 |
| Net receipts | -360 |
| Exports | 4,192 |
| Wages and salaries | 36,000 |
| Proprietor's income | 3,784 |
| Net interest | 1,056 |
| Consumption expenditure | 47,772 |
| Changes in stocks | -12 |
| Rent | 2,728 |
| Dividends | 1,836 |
| Employer's contribution to social security | 744 |
| Corporate profit | 8,236 |
| Current transfers from business and government | 12,000 |
| Current transfers from rest of the world | 728 |
| Capital consumption allowance | 2,832 |
| Social insurance payment | 4,000 |
| Personal direct tax | 1,652 |
a. Compute GNPmp by both income and expenditure method.
b. Compute personal disposable income.
Comprehensive Answer / Case / Situation Analysis Questions:
[20]Study the following macroeconomic situation of Nepal and answer the questions followed:
This case study examines two countries with different economic conditions. Country A represents a wealthy developed nation, while Country B represents poor and developing nation facing many economic challenges. Both countries are looking for investors, but they offer different opportunities and risks.
Country A has a total economy worth $2.5 trillion with 45 million people, and average income of $55,556 per year. This country has been stable for many decades and has strong government institutions. The people are well-educated, most of them speak English as a second language. It makes them easy to operate foreign business. Country B has comparatively low GDP, much smaller economy, worth only $180 billion despite having 38 million people. This means the average person earns only $4,737 per year. Though the country became independent 30 years ago, it is still building its government system.
Country A has good infrastructure that facilitates in businesses with strong communication network of the population got internet facilities with very high speeds. Electricity is available 24 hours a day throughout the country, and the country has smooth highways and large, modern ports. In contrast, Country B struggles with poor infrastructure. Only 35% of people have reliable internet access, electricity cuts happen almost daily. Many roads are in bad condition, and the country has only two small ports that get overcrowded, causing long delay.
Country A has a very advanced financial system with over 800 companies listed on the stock market and daily trading worth billions of dollars. Banks offer loans at low interest rates of 4-5% to good businesses. The central bank keeps inflation at low rate of at 2-3% per year. Country B's financial system is basic, with only 25 companies on the stock market, and some days, no trading happens at all. Banks charge high interest rates of 15-18%, and the central bank often prints too much money, causing inflation of 8-15% per year.
Country A follows smart economic policies with government debt at only 45% of the economy's size, corporate tax rates around 25%, and free trade agreements with several countries. The government invests heavily on education and research. Country B's government spends much more money than it collects, creating budget deficits of 8% per year. Government debt has increased to 85% of the economy's size, tax rates hiked to 40%, and trade policies changed frequently based on politics.
Looking at key economic indicators, Country A shows strong performance with 3-4% GDP growth, 4% unemployment, a balanced government budget, 2-3% interest rates, and $500 billion in foreign reserves. Country B shows weak performance with only 1-2% GDP growth, 18% unemployment, 8% budget deficit, 12-15% interest rates, and dangerously low foreign reserves of only $8 billion.
Foreign direct investment flows show a clear preference for Country A, which attracts about $150 billion per year from international companies because of the stable environment, skilled workforce, and good infrastructure. Country B receives much lower investment at only $5 billion per year as companies are scared away by poor infrastructure, political uncertainty, and currency instability.
Questions:
a. Identify the major issues in a given case.
b. Assess the demand-side and supply-side business environment for foreign direct investment by comparing the macroeconomic indicators, government policies(spending, taxes, trade rules), infrastructures, banking systems, and stock markets of these two countries.
c. If you were advising someone on establishing a new business venture, which country would you recommend by considering the costs, benefits, and risks of each country, and give specific reasons using examples from the case study?
[4+(5+5)+6]