Section - A

1. Answer the following questions in about 100 words each:

Marks: 5 × 6 = 30

(a) What is the main difference between Mercantilists and Physiocrats with regard to the sources of wealth of a nation?

(Comment for solution.)

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(b) State the major components of official foreign reserve assets.

(Comment for solution.)

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(c) List out the major conditions that must be satisfied for the take-off of an economy according to W. W. Rostow.

(Comment for solution.)

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(d) State two shortcomings of the Lorenz curve as a representation of the degree of inequality.

(Comment for solution.)

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(e) GDP is an important measure of economic power of a nation but GDP not reflect its well being. Why ?

(Comment for solution.)

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(f) Portray the different forms of efficient market hypotheses in equity markets.

(Comment for solution.)

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Section - B

Answer any six of the following questions in about 200 words each:

Marks: 15 × 6 = 90

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2. What is financial repression ? How does it affect investment in the economy ?

(Comment for solution.)

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3. State the Stolper-Samuelson theorem. Elucidate the logic of free trade underlined in the theorem.

(Comment for solution.)

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4. Briefly explain the determination of the interest rate in the economy through the loanable funds theory.

(Comment for solution.)

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5. Why is the long-run Phillips curve steeper than the short-run Phillips curve in an economy ?

(Comment for solution.)

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6. Describe the following measures of inequality:
(i) the range
(ii) the Kuznets ratio
(iii) the Gini coefficient.
Point out the shortcomings between Kuznets ratio and Gini coefficient.

(Comment for solution.)

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7. What are the elements of structural change models of economic development that emphasize the transition from subsistence agriculture to modern manufacturing and service economies ?

(Comment for solution.)

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8. How would you explain a neat 'jobless growth' in a developing economy despite high rate of inflation and economic growth ? Discuss.

(Comment for solution.)

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Section - C

Any four of the following questions in about 200 words each:

Marks: 20 × 4 = 80

9. Suppose two countries form a free trade area and also decide on imposing a common tariff on their trade with the rest of world. Demonstrate whether such a preferntial trade agreement raises or lowers economic welfare.

(Comment for solution.)

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10. Why did Solow argue that the capital-output ratio of the Harrod-Domar model is endogenous ? Elaborate the steady state of the Solow growth model.

(Comment for solution.)

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11. Consider an open economy that is subject a capital inflow due to a decline in interest rates abroad. The monetary authority absorbs the inflows as foreign exchange reserves. With the aid of a diagram compare the impact of it on the current account if the monetary authority sterilizes and does not sterilize the inflows. [Assume that the prices are predetermined in the short-period.]

(Comment for solution.)

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12. Keynes referred to the speculative motive for holding money as "the object of securing profit from knowing better than the (bond) market what the future will bring forth" How does it differ from Tobin's formalization of the speculative demand for money.

(Comment for solution.)

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13. What is the net welfare loss due to the imposition of an export subsidy on a good ? Demonstrate the impact of export subsidy on welfare with the aid of a diagram.

(Comment for solution.)

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