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cflllt?"ll6~~w~mwm~ctt1Jf~ Name of the Paper Intermediate ~J-0potl'<\e· ics-
II
I ~ ~ ~ ,tt ~I
Name of the Course B.A. (Hons.) Economics
Semester IV
Duration : 3 Hours
Maximum Marks : 75

.
Instructions for Candidates

1. Write your Roll No. on the top immediately on receipt

of this question paper.

2. This question paper is divided into two sections.

3. Answers may be written either in English or Hindi;
but the same medium should be used throughout the
paper.

ffl-!IT$~~

1. ~ ~-~ cfi' ~tr~~-~ f.tmft, ~ lR 3'1RI"

3lj~'llcfi ~ I

2. "6~~cn~~~t I
3. ~~-~cfiT~~m~M~'lro~~,~.
~~cfiT~~ttiRr~,
(2500) P.T.O.
 1452 11
1452 2
(b) The commitment to maintain a fixed exchange
SECTION A
rate makes the money supply stock endogenous.
m-a; (5)
Discuss.
Answer briefly any six of the following questions.
(5 marks each) (c) Suppose that the annual interest rate is 8% in
India and 6% in US. The spot rate of the dollar is
f.\H!R:!Rcia ~ ~ ~ W: ~ Cfi ~ ~I
Rs. 80/$land the three-month forward rate on the
(5 3t<fi ~)
dollar is Rs.80.80/$1 on an annual basis. What is
the value of the covered interest arbitrage margin?
1. Contrary to the contention of the economic historians
like Moses Abramowitz and Aleksander Gerschenkron Also discuss how covered interest arbitrage parity
that "backward" countries would tend to grow faster would be established. (5)
than the rich countries, many empirical studies ,,
including that by Baumol reveal that in a larger sample
('<ti} 1i°T PPP 3t{ ~ GU' Cfi ~&T PPP~ 1:R ~
of countries, the convergence hypothesis fails to hold.
What explanation would you offer for the same? ~-.UC~I 2021~~~ ~ 3t{ m«f
<fiT GDP ~ 125 3t{ 200 t, M ct1 .raRf ~
~ dblllflfck,irl 3t{ 31~¾\\;( i\.a:tl-1i;tii-1 ~ ~ sfa5R1cfit{f
~ 2010 = 100 Cfi ~ ct1 11{ t, ifw Cfi ~.
Cfi ~ wt fcfi "~" ~ 3liiR ~ ctt ~ ~ ~~ fctcfiffi
~ ~ ct1 ~ G{ 45 ~ /$ ~ isl<frtcfi( 72
~ tfi ~.~am~~~~~
~ 1:@T ~ t fcfi hif Cfi ~ ~ ~ ~, 3ffeRRuT qR'cti~HI
~/$ it 11{ t, 2010-2021. <fl.IT~~ still~

~ it ~ ti 31N ~ ~ <fl.IT ~15(\cfi(Oi ~? ~ ctif 1l1W1 ~ ~ t?

(~} ~ ~ ~ G{ ~ ~ ctl sifaiiliiti.cll ~ ~
2. Harrod's model is one of a knife-edge balance
between cumulative inflation and cumulative deflation. ~"cfil~~t1~<fi('1fl
Discuss with necessary algebra stating clearly the
assumptions of the model.
P.T.0 .

•
1452 10 1452 3

~ cfiT Gfqf ~ 1~1mRl 3m: M ~ cfi" ~

cfi" ~ ~ ~ 1W ij'flrfi{Of ~ ~ ~I ~ ~-~er@~~~~ t, ~ ctr UR1JIT3IT qTT ~
~ ~3IT cfil fg«\i:t{l ~ ~ ~ cfi" ~ qTT ~ ~ ~ ~ ~ iil'hil◄ifuta ~ Wl ~ cfR'1

~ ~ ~ t?
3. Critically examine Friedman and Phelps versions of
the 'fooling-model'.

(11") ~ "ij'J'UR1JT Fl41#1tlflrfi('f ~ 'tfiwr y = Ko.4 L°-6

cfi" ~. ~ ~ cfiT ~ 20% ffl ll'{ ~ ~
· 4. Explain how a central bank that follows the Taylor
1tfa cfiT ~ ~ ~ ~ t, "!<"q~lij G\ ~ ~ ~
rule ~ill stabilize economic activity and achieve its
~ ~: 15% 3m: 5% cfi" W ~ ~ lJl t, <l'6 ~
target inflation rate in the medium run.
-~ ~ t
ffl ~ ~ ~ ~ qTTijfl"
~ ~ t? ~ ~ ~ ~ ~-~
... ~~M~cfif-q[wf~qf('fl~~~ ~

~cfiT~~cfitllf3m:llUl1f3fcffu~ffl~
1~1wZIRl ~ cfiT ~ cfitllfl
12. (a) Write a short note on absolute PPP and relative
PPP theory of exchange rates. The GDP Deflator
5. The asymmetries in the pace of adjustment in different
of United States and India are 125 and 200 in
2021 both calculated with the base year 20 IO= I 00. markets results in exchange rate overshooting.
The exchange rate of Indian Rupee to the dollar Disc.uss.
. changed from 45 Rs/$ to 72 Rs/$ during the period
from 2010 to 2021. Arc the currencies following ~ ~ ~ ij'fl41W1 ctr lffit ~ ~ cfi" qf{l,11Jf~M
relative purchasing power parity? (5) ~ ~ '1flcl{:/!_it·◄, mat t, ~ ~,

-P.T.O.
1452 4 1452 9

6. For a Hicks neutral production function Y= BK0.4L0·6, balanced growth path. How does the share of the
calculate multifactor productivity growth rate if output researchers in the economy affect the level of per
Y. capital K and labour L grow at 4%, 5% and 8% capita output? (5)
respectively? What is the link between total factor
productivity rate and the social infrastructure?

~ ~ ~ "Cli"wf Y= BK04L0·6 ~ ~, ~ Y,
~ K ~ ~ L sfi1ffl: 4%, 5% ~ 8% ~ lR ~~ (c) For a simple neoclassical production function
3ii<tl<:ifail ~ ~ ~ lTUAT ~? ~ cfiRcfi J~IGcfidl ~ Y = K0.4 L0·6, what is the steady state level of
• ijl'Jlfijicfi ~ ~ ~ ~ ~ ~ t? capital per worker when the level of savings rate
is 20%. The depreciation rate and growth in labour
7. What is a cyclically adjusted budget deficit? How can ;
is given as 15% and 5% respectively. What is the
it be used to judge the direction of fiscal policy? savings rate that maximises the steady state
consumption per worker? What is the capital-output
~ m ~ ij'ili.Jlfijia ~ 'cl1cT ~ t? (IIJ!chl~ll ~
ratio at this steady state? (5)
~Q~cfi"R~~~"3ffl~fclim~~
%?
(tfi°) AK ft~~~fctqim ~~lR~~
/

8. Under conditions of perfect capital mobility, fixed ~ • ~ ~ fcli" Plincffi1Rlcticl ~ iFr:rr ~ W ~

prices and flexible exchange rates, assess the
~ maT tr
effectiveness of fiscal policies.

("{cf) 1850 ~ ~- ~ "1UJ ~ ~ 2022 "a<fi 8 ~ "a<fi

"T'f ~ 4ikl:incldl, ~ ~ ~ ~ ~ cm' ~
~ ~ ~ ~ ct\ '11•R1<61.II -~ ~ ~ ~ t,
~ ~ ~. <IIJ!fhl~ll ~ ~ ;r•M:lncla1
1 cfiT 3WMR

~I
~ ~ 'IN ~~ma a:ffeffi ~ f.ttnftf cfiR

P.T.O.
 1452 8 1452 5
(i) ~ ~ cfi1' J~l~.-f ct~~ ~ ~ ~
SECTION B
~'ffi"~<t'r~~t'ITmf~~ ffl ~
~?
Answer any three of the following questions.
(ii) ~ ct ffi\l ctr ¥RT ~ ct ~ ~ ~
( 15 marks each)
3ft{~~cfsficlif~qjzij!Gf~~
"'
f.:14.fR-:if{qa ~ t~~ m ct~ ~I
(15 3{qj" ~)

9. (a) The economy of Indus has been a witness to

~61!"~11i"ififfl~~cfit~~ continual increase in its primary deficits during

<tt ~~-mt? · the period from 1995·to 2000 adding to its stock
of public debt. However, its debt to GDP ratio

11. (a) Write a note on the process of perpetual over this period has been witness to a steady

growth under the AK model and discuss as to decline. What explanation would you offer for the

why this does not occur in the neoclassical Solow same? (7.5)
model. (5)
(b) In the literature on moral hazard, some economists
(b) The population of the world has increased steadily argue that depositor protection is not desirable.
since the mid-1850s to reach 8 · bi l lion as of Do you agree? Do you think that depositor
November 2022. Use the equation given below protection should go hand in hand with p;udential
to explain the role of population of the world regulation and supervision for a stable finan~ial
economy in determining per capita output along a system? (7.5)

P.T.O.
 1452 7
1452 6
(i) If the firm were to maintain the original
(rfi} ~ ctt ~ 1995 ~ 2000 ctt 3l9fu cfi mwr ~
level of output what should be the new
~l4iJif4cfi ~ cfi ~ cfi1 ~ ~ ~ ~ ~ marginal cost of production?
~ ~ rffer ~ ll<W ffl -%1 ~. ~ 3{qfu ~ W,fiT
(ii) Use the new demand and the new marginal
~-~ 3W@~fmrqz-i:nfwwt1 3lN
cost curves to compare the profit of the
~ ~ cfllT ~tsl)cfi{OI ~? firm when it produces the original output
with that ofthe profit when it. charges the
("{cf) ~ ~ -q"{ ~ ~, ~ 3i'4:ttl~l.fi cnT ~ -% Ffl original price.
iJl'llcfiffi3U ctl ~ ~ ~ i1_ cfllT 3lN ~ ~?
(iii) What is the maximum value for menu cost
cfllT 3lN cfi1 W@T t f<fl ~ ~ ~ ~ cfi ~ under which we could expect this firm to
iJl'llcfiffi611 ctt ~ fcl~cfi'!_Ol Fclf44'1'1 3ff"{ ffl~ cfi maintain its original output? (1.5+4+2)

~-~~~?
(cfi) clt~Fclcti o!:ffqR 'qsfi ~<i)o, cfi ~ ~ 3ff"{
10. (a) Examine the impact of a negative technology shock ~ cfi ~ -q"{ ~ .:icht<k'lcfi si1wflt<tl ~ cfi ~.
on the level of output and employment, as per the ~ "iJl'fq 'cfirl '4o ~ ~ Ffl '4o ~ '16~qoy ~ 'ij"
"'
real business cycle approach. Also show that this
~ ~ clsfi cfi ~-q"{ ~ ~ -%1
effect crucially depends on the slope of the labour
supply curve. (7.5)
("{cf) ~ ~ Ffl ~ ~ mmf 3ff"{ ~ mmf ;,, 3

(b) Assume that a price setting monopolist with no cfi ~ ~ ~ f.ruT<ur ~ P=l0-0.lY cfi-@"
fixed costs and MC=3 faces an original demand "'lnT ~ cnT ~ ~ -%1 ~ cfi ~. 'Jf1lT FRcfi<
curve of P= 10-0 .1 Y. Over a period of time, the P=8-0.08Y ~ ~ -%1
demand falls to P=8-0.08Y.
P.T.O.