All India Management Association (AIMA) 2007 M.B.A Marketing Management Business Economics – II - Question Paper

Reserve Bank of India. It is neither a liability nor an asset to the RBI.
(c) Is not the ans because refinancing of NABARD loans constitutes assets of RBI.
(d) Is not the ans because increase in reserves of commercial banks increases the liabilities of RBI.
(e) Is not the ans because increase in net foreign exchange assets increases the assets of RBI.
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41. B The relationship ranging from aggregate savings(s) and income (Y) is known as the Saving function. < TOP >
42. A During recessions output and profits fall. < TOP >
43. D Money supply (Ms) = High-powered money (H) x {(1 + Cu)/(Cu + r)}
6000 = (2000 - 500) {(1 + 0.2)/(0.2 + r)
Or, r = 10%.
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44. E A well-developed financial system is vital for the smooth functioning of an economy. The financial development ratios such as Finance
Ratio, Financial Interrelation Ratio, New problems Ratio and Intermediation Ratio are indicators of financial development of a country.
(a) Is not the ans because Finance Ratio is an indicator of financial development of a country.
(b) Is not the ans because Financial Interrelation Ratio is an indicator of financial development of a country.
(c) Is not the ans because New problems Ratio is an indicator of financial development of a country.
(d) Is not the ans because Intermediation Ratio is an indicator of financial development of a country.
(e) Is the ans because Cost Benefit Ratio is not an indicator of financial development of a country.
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45. B High powered money = Monetary Liabilities of RBI + Government Money
Monetary liabilities of RBI = Financial Assets + Other Assets – Non-monetary liabilities
Non-monetary liabilities = Other non-monetary liabilities + Net worth
= 525 + 1,000 = 1,525 MUC
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45. B High powered money = Monetary Liabilities of RBI + Government Money
Monetary liabilities of RBI = Financial Assets + Other Assets – Non-monetary liabilities
Non-monetary liabilities = Other non-monetary liabilities + Net worth
= 525 + 1,000 = 1,525 MUC
Monetary liabilities = 24,000 + 100 – 1525 = 22,575 MUC
Government money = 125 MUC
High powered money (H) = 22,575 + 125 = 22,700 MUC
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46. D The period in the business cycle from a trough to peak is called as expansion. < TOP >
47. C Business cycle is the fluctuation in the level of economic activity which forms a regular trend < TOP >
48. C In Galloping inflation, people expect the price to increase and spend their money quickly so that they could consume to the maximum extent
possible.
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49. C Common market is a regional grouping of countries that levies common external duties on imports from nonmember countries, but which
eliminates tariffs, quotas and other miscellaneous government restrictions on trade among member countries
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50. D Personal Income = National Income – Undistributed corporate profit – corporate tax + Transfer payments
Personal Income = 1,377 – 28 – 75 + 302 = Rs.1,576 cr.
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51. D Disposable income = personal income – personal taxes = 20,000 – 1,275= Rs.18,725. < TOP >
52. A Net exports = Y – C – I –G = 5000 – (3,000 + 600 + 400) = 1,000 MUC < TOP >
53. C Money supply = High Powered money Money multiplier
22,800 = 5,700 m, where m= Money multiplier.
where Cu : currency-reserve ratio,
r : reserve-requirement ratio.
or, m =
or, 1+ Cu = 4Cu + 0.40
or, – 3Cu = –0.6
or, Cu = 0.20
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54. B Net factor income from abroad = NNP at market prices – NDP at market prices
= 275000 – 260000 = Rs.15,000 Cr
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55. E National income = NNP at factor cost
= NDP at factor cost + Net income from abroad
NDP at market prices – indirect taxes + subsidies + net factor income from abroad
33878 – 4272 + 708 + 112 = 30,426 MUC.
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56. D Savings function S = –20 + 0.30Yd
At equilibrium, S = I.
At Y=800, S = –20 + 0.30(800) = – 20 + 240 = 220 MUC.
So, the level of investment in the economy is 220 MUC.
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57. A C = five + 0.6Y
Then, S = –5 + 0.4Y
At equilibrium,
S =I
–5 + 0.4Y = 5
0.4Y=10
Y =25 MUC
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58. B Y = 200 + 0.80Y+500+200
Y = 900 + 0.8Y
0.2Y = 900
Y = 4,500MUC.
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59. D Income (Y) = Consumption(C) + Savings(S)
change in Income ( Y) = change in Consumption ( C) + change in Savings( S)
Dividing both sides by Y we get
change in Income ( Y)/ change in Income ( Y)/ = change in Consumption ( C)/ change in Income ( Y)/ + change in Savings( S)/
change in Income ( Y)
Where C/ Y = MPC
Where S/ Y = MPS
MPC+MPS=1
MPC = = 0.56
MPS = 1–MPC = one – 0.56 = 0.44
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60. E Consumption function = 2000 + 0.80Yd
When C = Yd
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60. E Consumption function = 2000 + 0.80Yd
When C = Yd
Yd – 0.80 Yd = 2000
Yd = 10,000MUC.
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61. D If the real GDP is 5% and the inflation rate is 3%, it means that nominal GDP must be 8% Nominal GDP = real GDP + inflation is a good
approximation.
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62. A Intermediation Ratio = Secondary issues/New problems
Or, secondary problems = Intermediation ratio x New problems = 0.7 30,000 = 21,000 MUC
Total problems = New problems + Secondary problems = 30,000 + 21000 = 51,000 MUC
Financial Interrelations Ratio = Total issues/Net Physical Capital Formation (NPCF)
= 51000 / 40000 = 1.275
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63. C Ms = High-powered money x {(1 + Cu)/(Cu + r)}; where High powered money = monetary liabilities of the central bank + government
money.
Ms = H. m
where m= Money multiplier.
Where Cu : currency-reserve ratio,
r : reserve-requirement ratio.
M= 1.20 /0.25 = 4.80
When foreign exchange reserves of the country decline by Rs.300 MUC, the monetary liabilities also fall by 300 MUC. Thus, money supply
decline by 4.8 x 300 =1,440 MUC.
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64. A Capital inflows – capital outflows = 6,800– 4,386 = 2,414 MUC (Surplus). < TOP >
65. A
Velocity of money =
Total expenditure = C + I + G = 4000+1360+1120 = 6,480
Money supply = 6480/5= Rs1,296 cr.
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66. C If Yd is zero, consumption is Rs. 2,500, which is autonomous consumption. This consumption is financed by dissavings or borrowing.
Hence dissavings are Rs.2,500.
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67. A Money multiplier = where Cu : currency-reserve ratio,
r : reserve-requirement ratio.
= = 6.875
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68. A change in foreign exchange reserves = Current account balance + Capital account balance = – 3000 + 7000 = 4000 MUC.
So, the foreign exchange reserves of the country will increase by 4,000 MUC.
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69. B The purchase of government bonds is not considered investment. Because it is a transfer of ownership from 1 to a different. < TOP >
70. C The growth in a country's capital stock depends on current and future savings. < TOP >
71. A The ultimate goal of monetary policy is to achieve economic growth with stable prices. < TOP >
72. B The ‘investment multiplier’ explains the change in national product due to change in investment expenditure. < TOP >
73. D According to classical economist, aggregate supply curve is a vertical straight line. Hence it is unrelated to the price level. < TOP >
74. D (a) During a boom bank reserves will be high as the bank credit is high to support the increased economic activity
(b) Wage rate will be high as demand for labor increase during the boom phase
(c) As the economic activity increase during the boom bank credit also increases
(d) During a boom demand increased at a faster rate and inventories tend to be low. All other variables tend to increase during a boom.
(e) Cost of production will be high as demand for factors of production will be relatively high during the boom phase.
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75. D Keeping the supply of loanable funds at the identical level increase in government borrowings increase the demand for loanable funds and put
upward pressure on the rate of interest.
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76. A Balance of Trade (BoT) = Merchandise exports – Merchandise imports
= 18,000 – 25,000 = –7,000 MUC i.e. deficit of 7,000 MUC.
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77. C Money Supply = Net bank credit to Government + Bank credit to commercial sector + Net foreign exchange assets of the banking sector –
Net non-monetary liabilities of the banking sector +Government money = 2000+3000+2200-1200+500 = Rs.6,500 billion.
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Earning:   Approval pending.