Macroeconomics for Business

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Q1. Discuss the nature and scope of Business Economics.

Q2. How does the study of Business Economics help a business
manager in decision-making? Illustrate your answer with the real
world examples.
Q3. What is the Opportunity Cost? How can it be calculated? What
are the precautions to be kept in view while using the Opportunity
Cost?

Case Study
Two Wheeler Industries in India
The two wheeler category is steadily moving from a discretionary
purchase to an essential purchase, especially among the burgeoning
Indian middle-class households. Better quality and durability, higher
fuel efficiency, new age styling, and features in conjunction with a slew
of new product launches and greater finance availability have been the
primary drivers of sales in the past years. India secures second-largest
position in two wheeler production. Apart from the discussed facts,
inadequacy and poor quality of public transport system in India have
pushed the demand of two wheelers. In India, the two-wheeler
industry is highly diversified in terms of presenting a versatile product
line. Two-wheeler manufacturers produce different economic models
for general public as well as some specific models to cater the different
needs of high-income group. Two-wheelers contain scooters, mopeds,
and motorcycles. Few years ago the market was dominated by scooter
segment, but scenario changed in 1998-1999 when motorcycles took
the edge and never looked back. Nowadays, Indian two-wheeler
industry is dominated by the motorcycle segment. Hero Honda, Bajaj,
TVS Motors, Kinetic Motors, and LML are some of the main players in
the Indian two-wheeler industry.
Demand of two-wheelers is increasing day-by-day. In the year 1990-
1991, the demand for the two-wheelers was 1.82 million units that
grew to 3.83 million units in the year 2000-2001. The projected
demand for the two-wheelers in the year 2014-2015 is estimated to
reach 16 million units. This is no doubt a rosy picture for the growth of
Indian two-wheeler industry. Table1 and Table2 present market
segmentation and product variation of two-wheelers in India,
respectively.
Table 1: Market segmentation for the two-wheeler industry in four
regions of the country
Market segmentation
Segment Share (%)
North 32
East 9
West 27
South 32

Table 2: Product wise market share for the two-wheeler industry in

India
Product Variation
Type Share (%)
Motorcycles 66
Scooters 22
Mopeds 11

Q1: Make a comprehensive analysis on two-wheeler demand in

India.

Assignment C

Q1: Which of the following events will defintely lead to an increase in the equilibrium
interest rate?
a. a decrease in the level of output (real GDP)
b. the purchase of government securities by the Bank of Canada
c. an increase in the level of out (real GDP) and an increase the money supply
d. the sale of government securities by the Bank of Canada

Q2: When economists refer to "tight" monetary policy, they mean that the Bank of
Canada is taking actions that will
a. increase the demand for money
b. decrease the demand for money
c. expand the supply of money
d. contract the supply of money

Q3: A increase in total production (real GDP) causes the demand for money to ___ and
the interest rate to___
a. increasse; increase
b. increase; decrease
c. decrease; decrease
d. decrease; increase

Q4: Which of the following actions is an example of expansionary fiscal policy

a. a decrease in welfare payments
b. a purchase of government securities in the open market
c. a decreasse in the Bank rate
d. a decrease in the corporate profits tax rate

Q5: The main cause of cyclical unemployement is that

a. firms engage in race, gender and sex discrimination in their hiring practices
b. some individuals do not have marketable job skills
c. the level of overall economic activity fluctuates
d. workers often voluntarily quit a job to look for a better job.

Q6: The aggregate demand (AE) curve would shift dawn if

a. government spending were increased
b. taxed were increased
c. the money supply were increased.
d. the interest rate decreased.

Q7: As the economy nears full capacity, the short-run aggregate supply curve
a. become flatter
b. becomes steeper
c. shifts to the right
d. shifts to the left

Q8: If the economy is operating at potential GDP, an increase in the money supply will
lead to
a. stagflation
b. structural inflation
c. demand-side inflation
d. supply-side inflation

Q9: The sale of government securities by the Bank of Canada is predicted to

a. decrease reserves of the chartered banks, and eventually lead to an expansion of the
money supply.
b. decrease reserves of the chartered banks, and eventually cause a contraction of the
money supply.
c. increase reserves of the chartered banks, and eventually cause a contractaction of the
money supply
d. all of these

Q10: How shortages are eliminated

a. lowering prices
b. equalising prices
c. raising prices
d. increasing demand

Q11: During wartime supplies are likely to be

a. reduced
b. increased
c. remain constant
d. none

Q12: Rising prices can be lowered through

a. rationing
b. increase in imports
c. decrease in export
d. all of these

Q13: Sugar was rationed in the year

a. 1917
b. 1918
c. 1920
d. 1921

Q14: Point system of ration was applied to

a. footwear
b. Clothing
c. Luxury Goods
d. All of these

Q15: The method to judge inflation rate is

a. Index No
b. rationing
c. Demand
d. Supply

Q16: Inflation means

a. Continuous rise in price
b. sudden rise
c. one time rise in price
d. none of these
Q17: Macro econoics is a study of
a. aggregates
b. firm
c. demand
d. income

Q18: With rise in prices

a. Value of money rise
b. value of money falls
c. remains same
d. none of these

Q19: Economics is
a. the study of the markets for stocks and bonds
b. the study of choice under conditions of scarcity
c. exclusively the study of business firms
d. fundamentally the same as sociology

Q20: Due to a scarcity of resources

a. every society must undertake central planning
b. the government must decide how to allocate available resources
c. some members of each society must live in poverty
d. every society must choose among competing uses of available resources.

Q21: In every economic system, scarcity imposes limitations on

a. households, business firms, governments, and the nation as a whole
b. households and business firms, but not governments
c. local and state governments, but not the federal govern
d. None of these

Q22: The three groups of decision makers in the economy are

a. households, business firms, and banks
b. households, business firms, and governments
c. business firms, governments and banks
d. business firms, bank and foreign traders.

Q23: The period of the business cycle in which real GDP is increasing is called the
a. expansion
b. peak
c. recession
d. trough

Q24: A type of unemployement in which workers are in-between jobs or are searching
for new and better jobs is called___ unemployment
a. frictional
b. cyclical
c. structural
d. turnover

Q25: Which of the following would cause the aggregate demand curve to shift to the
right
a. an increase in purchases by the federal government
b. an increase in real interest rates
c. an appreciation of the american dollar
d. a decrease in the money supply

Q26: Which of the following statements is correct

a. Real GDP is the total market value of the final goods and services produced in
America for sale in a year valued in the prices of 1992
b. Your buying stock in the stock market is an example of investment spending
c. Potential Real GDP is always greater than Equilibrium Real GDP
d. Social security and welfare are examples of spending on infrastructure.

Q27: Assume that an economy begins in macroeconomics equilibrium. Then, taxes are
significantly decreased. As a result of this change.
a. there is expansion and inflation in the US
b. there is recession and deflation in the US
c. there is stagflation in the US
d. there is expansion and deflation in the US

Q28: A large increase in oil prices, such as the ones occuring in 1973 and 1979, will
cause
a. inflation and expansion
b. inflation and recession
c. recession and disinflation
d. expansion and deflation

Q29: From 1990 to 1995, the U.S. economy was in a recessionary gap. According to the
classical economics, which of the following have occured?
a. wages should have fallen which would cause more workers to be hired
b. prices should have fallen which would increase consumer spending
c. interest rates should have fallen which would increase consumer and investment
spending
d. all of the above should have occured

Q30: Which of the following statement is/are true about the classical quantity theory of
money?
a. The equation of exchange is MV=PQ
b. The classical economists assumed that V would rise when real interest rates rise
c. The classical economists concluded that increases in the money supply cause increases
in real GDP and nothing else.
d. All of these above
Q31: Which of the following would cause consumption to rise?
a. the GDP Deflator rises
b. a greater proportion of the population is between age 20 and 30
c. transitory income increases
d. income is taken from poor people and given to rich people.

Q32: Which of the following would cause business investments spending to rise
a. an increase in real interest rates from 5% to 8%
b. a decrese in the corporate profits tax rate from 48% to 34%
c. a reduction of the investment tax credit from 10% to 2%
d. sales falling in relation to capacity from 90% to 60%

Q33: Assume that net exports increase by $1 billion. Equilibrium Real GDP will rise by
more than $1 billion. Explain why. (i.e. why is there a multiplier?)
a. an increse in net exports appreciates the dollar causing a further increse is net exports
b. an increase in net exports causes an increase in tax revenues which increase
government spending
c. an increase in net exports increases income causing an increase in induced
consumption
d. an increase in net exports cause an increase in the money supply

Q34: The largest transfer in the federal budget is

a. defense
b. education
c. social security
d. welfare

Q35: The largest tax collected at the federal government level is the
a. income tax
b. sales tax
c. property tax
d. social security tax

Q36: A person had an income of $20,000 last year and paid $10,000 in tax. This year, the
person had an income of $100,000 and paid $30,000 in tax. The person's marginal tax
rate is
a. 25%
b. 30%
c. 50%
d. 100%

Q37: Assume that Equilibrium GDP is $4,000 billion. Potential GDP is $5,000 billion.
The marginal propensity to consume 4/5(0.8). By how much and in what direction should
government purchases be changed?
a. increase by $1,000 billion
b. increase by $100 billion
c. decrease by $1000 billion
d. increase by $200 billion

Q38: Using the numbers in question 31, by how much should taxes be changed
a. increased by $1,000 billion
b. decreased by $1,000 billion
c. decreased by $200 billion
d. decreased by $250 billion

Q39: If the interest rate falls, then

a. bond prices will remain the same
b. bond prices will rise
c. bond prices will fall
d. None of these

Q40: If the quantity of money demanded is less than the quantity of money supplied, then
the interest rate will
a. either increase or decrease, depending on the amount of excess demand
b. increase
c. decrease
d. not change