BBM 2nd Semester
Macroeconomics for Business Board Question Paper 2023

State the scope of macroeconomics.

Differentiate money flow and real flow.

What are the determinants of financial inclusion?

State the condition for labour market equilibrium according to classical economists.

List out the types of exchange rate.

Let the autonomous investment I = Rs 80 million and consumption function C = 280 + 0.6Y. Compute the level of income and consumption.

What are the costs of unemployment?

Prove that the sum of MPC and MPS equal to unity.

Let, the GDP deflator for 2023 = 525 and GDP deflator for 2023 = 675. What will be the rate of inflation?

What are the forms of globalization?

How is GDP computed by value added method? In what respect this method differ from final product method?

"An attempt to increase in saving would actually lead to decrease in both income and saving." Elucidate this statement with suitable example.

Consider the following consumption schedule and answer the following questions.

How national income is determined under two sector economy?

How do business firms use macroeconomic concepts and theories to assess economic environment? Explain.

Differentiate economic growth and economic development.

Let, structural equation of Nepalese economy: C = 400 + 0.8Yd , T = Rs 80 million, I = 300 – 3000i, M_t = 0.5Y, M_sp = 300 – 500i, G = Rs 300 million and Ms = Rs 600 million.

Calculate equilibrium rate of interest (i) and output (Y).

Explain the Principle of demand-pull inflation. How can it be removed by monetary policy?

What is trade cycle? Explain the different phases of trade cycle.

a) Derive tax multiplier.
b) Let, structural equation of Nepalese economy: C = 200 + 0.7Yd, (Yd = Y-T), T = 500 + 0.20Y, I = Rs 200 million, G = Rs 400 million, X = Rs 100 million, M = 50 + 0.1Y.
   i. Find the equilibrium level of income.
   ii. What will be the effect on equilibrium income when government expenditure increase by Rs 100 million and tax rate decreased by 10%.

Consider the following figures for national income accounts and answer the questions given below

Read the following case carefully and answer the questions that follow:

Government holds key responsibilities of assuring the availability of infrastructures, social amenities, peace, security, and stability without compromising macroeconomic balance and debt sustainability. Upholding the role of supporter, facilitator, and caretaker, it needs to invest in social overhead capital to support developmental goals and simultaneously finance the recurrent expenditure. The capacity of the government to spend on recurrent and capital expenditures depends upon the amount of revenue it generates. Government revenue is a matter of concern for policymakers. Government revenue is more crucial in developing countries as they need a plethora of funds for developmental activities. Developing countries will need to rely substantially on domestic revenue mobilization as excessive reliance on foreign financing may in the long run lead to problems of debt. Revenue mobilization in Nepal has remained satisfactory so far. Government revenue to GDP ratio also increased from 14.6 percent in 2009/10 to 24.2 percent in 2021/22. The major sources of revenues are expected to accrue from taxes on income, capital gains and profits which are a direct tax on entities (24%), VAT (26%), taxes on foreign trade of which import taxes (and duties) comprise the majority (23%) and excise duty (15%). These four tax categories consisting of direct and indirect taxes constitute more than 87% of the revenues received.

Projected expenditures are expected to be NPR 1647.6 billion in current fiscal year, while domestic revenues as described above from different taxes and other revenues amounts to NPR 1,024.9 billion – 62% of expenditures. Therefore, there remains a financing gap (deficit) of NPR 622.7 (38% of projected expenditures) that must be financially managed through internal (domestic) loans from banks and the private sector, as well as external loans and external grants from bilateral and multilateral partners. The proposed budget plans to finance this deficit primarily through loans: foreign loans from multilateral and bilateral partners (50%), domestic loans (40%) & foreign grants from multilateral and bilateral partners (10%). However, government revenue is not enough to cover government expenditures. The increasing budget deficit has raised serious concerns in Nepal. Historically, development activities are financed through foreign aid as government revenue is just sufficient to cover the recurrent expenditure. The inadequacy of government revenue even to cover recurrent expenditures pose a threat to macroeconomic stability. It is essential to tame the widening budget deficit by adopting measures to strengthen the revenue base. Different factors affect revenue collection in the economy, such as nominal GDP, imports, exchange rate, foreign aid etc.

Questions:

a. Describe the role of government in a developing economy.
b. Explain the major sources of government revenue in Nepal.
c. What are the causes for increase in financing gap in Nepal?
d. What are the major difficulties for revenue mobilization in Nepal and which methods the government of Nepal can follow to fulfill the financing gap? Which methods of fiscal policy do you suggest to overcome for this problem? Explain.