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Student Name: Marks Secured:

Roll No :
Practice End Term Examination
Macro Economic Analysis and Policy
Total Marks: 40 Duration: 60 Minutes

Important: Read the guidelines before attempting the answers


Guidelines
 The Question booklet has nine questions
 Illegible handwriting would invite negative marks equivalent to 25 per cent of the
marks allotted to the question.
 You will not allowed to borrow pens, scales, pencils etc. once the exam begins.
 There is no scope for any clarification in any of the questions in this
paper and so, please do not make such a request. Make assumptions if
needed, and state them clearly.
 Anyone who resorts to unfair practices as adjudged by the instructor /
invigilator will face the minimum penalty of zero marks in this segment
of evaluation. There will be no further warnings.
 Your answer should be within the specified space provided.
 Last 2 pages are for rough work.

Practice Quiz Questions

1. Explain what is going to be the likely impact on growth and inflation in the next 1 to 2
years when Government’s effort to improve governance lowers cost of doing business,
ceteris paribus. Use diagrams in the AD-AS framework
2. From 2009‐10 onwards, governance related issues and scams have been adversely
affected investments and the central bank pursued a tight monetary policy for the
next two years to curb inflation which is primarily supply led. What impact these
developments are likely to have on the macro economy. Please discuss using
diagrams in the AD‐AS framework to discuss. (3)

3. An increase in money supply by the central bank does not affect the government
budget surplus since this is a monetary policy change and not a fiscal policy change.”
Comment on this statement (4)
4. “A decrease in the income tax rate will increase consumer spending; therefore the
demand for money will go up and the LM-curve will shift to the right.” Comment on
this statement. (4)

5. Distinguish between crowding out in a closed economy versus an open economy with
flexible exchange rates?(4)

6. Trade policy is highly effective in a fixed exchange rate system where as completely
ineffective in a floating exchange rate system. Comment on this statement.(4)
7. While the current spike in inflation is largely due to supply side constraints as
admitted by RBI itself, and with growth faltering discernibly, what according to you
should be RBI’s stance in the forthcoming policy announcements scheduled in
December 2013 and January 2014?(6)

8. What fiscal and monetary policy measure would you suggest to improve the growth
of the Indian economy at its present juncture when it is facing high inflation and low
growth?(6)
9. Using diagrams in the AD‐AS framework explain how an economy which initially was
operating at the Natural rate of output again returns to the natural rate of output
through the self correcting mechanism of markets following a major exogenous
increase in government spending (6)

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