KATHMANDU UNIVERSITY Marks Obtained:

BBA/BBIS
End-Semester Examination
February – June 2015 Session
August 2015

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. Why might a free market economy be more advantageous than a mixed economy?
a. Equality of income is encouraged.
b. In a mixed economy, governments use taxes which are inefficient.
c. Production is determined solely by consumer wishes.
d. Social costs are taken into consideration.

2. In 2072, earthquake caused severe damage to corn production. How would this be shown on a
aggregate demand and supply diagram for corn?

Aggregate supply Aggregate demand

No change Shift to right
Shift to left No change
Shift to left Shift to left
Shift to right Shift to left

3. A country has a proportional system of taxation. A person pays $500 tax when earnings are
$5000. How much tax will be paid if earnings rise to $12 000?
a. $12
b. $500
c. $1200
d. $7500

4. An Economics student described a typical developing country as having a large population, a

low GDP per head, a relatively large primary sector and an uneven income distribution. Which
of these features is not necessarily accurate?
a. A large population
b. A low GDP per head
c. An uneven income distribution
d. A relatively large primary sector
5. A country imports oil, which has risen in price and which is used for production and for
distribution. There has also been an increase in unemployment in the country. Businesses have
closed and total consumer demand has fallen. What is likely to happen to the balance of trade
and economic growth?

Balance of trade Economic growth

Improve likely to increase
Uncertain likely to decrease
Worsen likely to decrease
Worsen likely to increase

6. China has become South Africa’s largest trading partner. In 2013, 16 % of South Africa’s
imports came from China while 11% of its exports went to China. China is also investing in
infrastructure designed to help increase production in South Africa. What can be concluded
from this information?
a. China is investing more in South Africa than in other countries.
b. China’s GDP will grow more slowly than South Africa’s GDP.
c. GDP in South Africa is likely to rise.
d. South Africa imported a greater number of goods and services from China than it exported
to china.

7. In the measurement of the Nepal’s Retail Prices Index, a greater weight was given to bottled
water in 2013 than 2012. What does this change indicate?
a. Government statisticians checked the price change of a greater range of bottled water in
2013 than in 2012.
b. People spent a higher proportion of their total spending on bottled water in 2013 than in
2012.
c. The price of bottled water increased more in 2013 than in 2012.
d. There was an improvement in the quality of bottled water in 2013 compared with 2012.

8. Which of the following is NOT the part of M2?

a. Overnight Eurodollars
b. M1
c. Savings accounts
d. Credit cards

9. What action will cause excess reserves in the banking system?

a. The discount rate increases
b. Checking deposits increases
c. The fed sells treasure securities to bank
d. Income tax rates increases

10. A man gets married to his housemaid who has been cleaning his house for Rs 6000 per month
and she continues to do the same work after getting married. What will be its effect and GDP?
a. It will remain constant
b. it will increased by Rs 72000 per year
c. It will decreased by Rs 72000 per year
d. It will increased by Rs 36000 per year
 KATHMANDU UNIVERSITY
BBA and BBIS
End-Semester Examination
February – June 2015 Session
August 2015

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

YEAR :I SEMESTER : II
FULL MARKS : 40
SECTION “B”
[6 Q. × 4 = 24 Marks]
Attempt any SIX questions.

1. Show that multiplier depends upon MPC with example and complete the following table under
the given information.
Suppose that for a particular economy, MPS=1/4 and autonomous investment has just
increased by $2000.
Change in income Change in consumption Change in saving
Round 1 2000 - -
Round II 1500 - -
Round III - - -
All other rounds - - -
Total - - -

2. If you are teaching economics, how would you explain the command and market economic
system? Also justify, mixed economic system is better than command economic system.

3. Suppose the demand for money is L =0.2Y – 4i, the money supply is $200, and for a two sector
model, C = $100 + 0.80Y and I = $150.

a. Derive equation for IS and LM ; plot IS and LM

b. From the IS and LM equation, find output, the rate of interest, consumption and investment.

4. Suppose a baby boy trapped inside the broken house due to the massive disaster of earthquake.
He started to pray the god. God came and gave him Rs 50,000 magically. After the rescue from
house, he donated that money to prime minister’s relief fund. Explain how did it change the
money supply? What happened to investment and employment? Explain.

5. According to Kantipur National Daily, vegetable prices have witnessed a sharp rise in the
Kathmandu Valley with wholesale prices jumping up to 83 percent and retail prices up to 50
percent in the past month. It shows the veggie prices soar on demand – supply gap because
farmers are presently busy transplanting paddy, country’s main crop, and don’t have time for
vegetables. Which macro economic theory aptly explains this behavior?

6. Commercial banks are now required to hold a minimum paid up capital of Rs 8 billion from Rs
2 billion, according to the new monetary policy. They have to do it by the end of fiscal
year2016/17. Does this affect money supply? Explain. How central bank can achieve its
objectives like price stability, full employment etc on this situation?

7. Can an economy be faced with endless business cycles and still have its real GDP growth over
time? Explain your answer. Why a tax cut would have a greater stimulating impact on the
economy during a recession than during a boom?
 SECTION “C”
[2 Q. × 8 = 16 Marks]
Attempt any TWO questions.

8. In July 2015, it was reported that the Greece government cut basic interest rates in the hope of
stimulating a weak economy and also increase pump-priming. Assess the likely effects on the
economy of stimulating investment. Is this really helped to recover Greece’s economy?
Explain.

9. Compute (a)GNPMP (b)NNPMP and (C) NI by value added from the data given below:
a. Total amount of capital consumption allowance equals to Rs. 10,000 million
b. Government grants subsidies worth Rs. 200 million and realizes taxes worth Rs. 5,000
million
c. Industry X imports goods from China worth Rs. 2,000 million and sells to industry Y worth
Rs. 3,000 million
d. Industry Y sells goods to industry Z worth Rs. 2,000 million and to industry A worth Rs.
3,000 million
e. Industry B sells goods worth Rs. 4,000 million to industry A and worth Rs. 6,000 million to
industry C
f. Industry C sells goods worth Rs. 10,000 million to household and exports worth Rs. 2,000
million to India.
g. Industry C sells goods worth Rs. 8,000 to households and exports worth Rs. 3,000 to
Bhutan.

10. The value of multiplier and the value of MPC have positive relationship. Justify with the help
of suitable diagram of forward working and reverse working multiplier.
ANSWERS KEY
ECO 210 - Macroeconomics

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