Macroeconomics: Assignment 2
1. What are the four components of aggregate expenditure? Which one is the largest? Which one is the most volatile?
2. Draw a consumption function, and discuss its characteristics.
3. Disposable income and consumption expenditure (in billion dollars) of a country are given below:
Disposable income (Yd)
a) Find APC and APS at Yd = $5000 billion.
b) Find MPC.
c) Find autonomous consumption.
d) What will be the equation of the consumption function?
e) What will be the consumption at Yd =$10000 billion?
4. Discuss the determinants, other than disposable income, that determine consumption.
5. Discuss the permanent income hypothesis.
6. Account for the low saving rate of Americans compared to people of other countries of the world. What are the consequences of low saving rate for a country?
7. Distinguish between proprietorship, partnership and corporation.
8. Distinguish between:-
a) Stocks and bonds
b) Preferred stocks and common stocks
c) Capitalization and market capitalization.
9. A corporation has $ 200 million in bonds, $ 100 million in preferred stocks, and $ 300 million in common stocks.
a) What is this company’s capitalization?
b) What is this company’s market capitalization?
c) How much would it take to control this company, theoretically, and practically?
10. Discuss the major sources of revenue and heads of expenditure of the U.S. federal government.
11. Distinguish between:-
a) Discretionary and non-discretionary expenditures.
b) Taxes and Subsidies
c) Direct and indirect taxes
d) Progressive, proportional and regressive taxes
e) Fiscal deficit and surplus
f) Fiscal deficit and public debt
12. If you earn $50,000 and pay $ 10,000 in taxes, what is your average tax rate? Suppose your income increases to $ 60,000 and taxes increase to $ 12,500, what will be your average and marginal tax rates?
13. Discuss the role of government in a mixed economy like U.S.A.
14. On the capital market of an economy, what will be the effect of the following:- (show with diagrams)
a) An increase in taxes (T)
b) Tax cut
c) An increase in government expenditures (G)
d) A decrease in G
e) A balanced budget increase in T and G
f) A balanced budget decrease in T and G.
15. Distinguish between (a) an open economy and a closed economy; (b) trade deficit and trade surplus.
16. What is the basis of international trade?
17. Derive the basic trade identity.
18. What is exchange rate? Distinguish between appreciation and depreciation of a currency. How are exchange rates determined?
19. Is there any relationship between fiscal deficit and trade deficit? Account for the same, using a diagram.
20. What is GDP? Distinguish between GDP, GNP, NDP, NNP and Green GDP. How good is GDP as a measure of standard of living of people of a country? Give reasons for your answer.
21. Nominal GDP of a country for different years, and corresponding GDP Deflators are given below:-
Fill in the gaps in the above table, and find the average annual economic growth rates over
(a) 2007-2013 and (b) 2011-2013.
22. Expenditures and revenue of different sectors of an economy are given below:-
Expenditures (Million $)
Revenue (Million $)
Purchase of wheat 300
Purchase of flour 600
Find GDP using (i) the final goods approach (ii) the value added approach and (iii) the income approach