Advanced Macro Economics:

YEAR 2020

  1. Explain how equilibrium rate of interest is and income are determined with the interactions of both product and money market.
  2. Distinguish between post Keynesian approaches to horizontal list and

structuralist theory of endogenous money supply.

  1. Show that systematic monetary and fiscal policies are ineffective in controlling output and price level.
  2. You are given data on the following variables in an economy

Government spending =300

Planned investment =200

Net Exports =50

Autonomous taxes =250

Income tax =0.1

Marginal propensity to consume= 0.5

  1. Consumption (c) is 600 when income (Y) is equal to 1500. Solve for autonomous consumption.
  2. Solve for the equilibrium level of output denoted (respectively by 𝑌∗ and 𝑌∗ ) in 𝑤𝑤𝑜the two scenarios- presence and absence of income tax in the economy.

iii. Sorry for the change in net Exports that would bring the equilibrium output level inthe economy with the income tax to the level of 𝑌𝑤∗ that you found in (ii).

Specifyboth the magnitude and sign of the change.

  1. In the context of a developing economy do you think that fiscal policy is more effective thanmonetary policy? Give reasons in support of your answer.
  2. In an economy the government is trying to boost the local economy by a massiveadvertisement “buy local-local is best”.
  3. a) Assuming that the public tend to be persuaded by the campaign what effect mightthis have on Economy’s multiplier?
  4. b) Critics argue that this is unfair and leads to distortions in free trade. Examine howthe economy performs here under flexible exchange rate system.


YEAR 2019

  1. Show that in a simple Keynesian Model, equal expansion in tax and government expenditure does not always lead to balanced budget theorem.
  2. What are the obstacles to international macro-economic policy coordination? Discuss.
  3. In the contemporary world, many countries are not following Kuznets’ pattern of structural change. Give reasons.
  4. Keynesian demand for money is one of the key concepts of Keynesian Theory of unemployment. Illustrate.
  5. The following data are given for an economy:

Consumption function, C = 250 + 0.5(Y – T) – 500r

Investment function, I = 250 – 500r

Real money demand function, L/P = 0.5Y – 500r Nominal money supply, M = 7650

Price level, P = 17

Tax = T = Government Expenditure = G = 200

Here, Y = Real income, r = Real rate of interest, L = Nominal money demand, P = Price level.

  1. Find the equations for IS and LM curves, and solve for Y and r
  2. Find out the multiplier formula for money supply change and then calculate thechange in output if money supply changes by 51.


YEAR 2018

  1. Using the IS-LM model, show how expected deflation may cause equilibrium output to remain at less than full-employment level.
  2. Is stagflation a logical outcome of Keynesian orthodoxy? Give reasons for your answer.
  3. In the simple Keynesian model, if consumption and investment are both functions of income, how would the multiplier be affected?
  4. What is hysteresis? Explain the impact of hysteresis in Gradualist Monetarist and Electic Keynesian frameworks.
  5. How will you derive the real aggregate demand curve using the New Classical Theory?

YEAR 2017

  1. Show that in the complete Keynesian Model only fiscal policy is effective during a period of depression.
  2. Explain the difference between the assumptions of new Classical and the new Keynesian approaches in managing individuals and Markets.
  3. Show that full employment is the logical conclusion of the classical macro model.
  4. Explain how the equilibrium employment and real wage would change in a typically classical model if, in the event of increase in supply of labour, money wage becomes rigid.
  5. Explain the Keynesian and Classical extreme monetary assumptions for showing their effects on the slope of the LM curve.

YEAR 2016

  1. What are the fiscal and monetary implications of vertical IS and vertical LM curves?
  2. “The advent of New Classical Macroeconomics has tended to upset the applecart of Keynesian and to a great extent, that of the Monetarists.” Discuss.
  3. Distinguish between Monetarist and Neo-Keynesian approaches to expectation-augmented Phillips curve.

YEAR 2015

  1. State Okun’s law and find out the expectations-augmented Phillips curve.
  2. “Under rational expectations hypothesis, systematic monetary policy will be ineffective.” Explain this statement using a suitable model.
  3. Show that liquidity preference is neither necessary nor sufficient for the existence of involuntary unemployment in Keynesian system.
  4. Explain the meaning and significance of money illusion on the part of workers in the Keynesian theory of employment.