ISI 2017 key

[Asd1995]

Sir, reference to the answer key posted here above your comment, it says that increase in interest rates decrease savings. I've found a lot of data as well as articles online that say otherwise.

1. gifre.org/library/upload/volume/1-7-EFFECT-vol-3-3-gjcmp.pdf
 Case study to support my point

2. Berkley lecture slides, conclude that effect is overall ambigioous but mostly is positive correlatioin between the two
http://eml.berkeley.edu/~webfac/wood/e100b_f08/consumption.pdf

Kindly clarify.

Someone else can also give their opinion.

[dirt314]

Are you talking about the 14th question here?

[Asd1995]

yes

[happy]

everyting is same, except 11, 14, and 29

11 -
y= c + i + g
y = c(y- ty -t0) + i + g
y = c(y - ty - t0) + t0   (g = t0 and i = 0)
(1 -c(1-t))y=(1-c)t0
y=(1-c)/1-c(1-t) t0

ans. c    (all the values are in deviation form)

14. expansionary fiscal policy lead to crowding out of investment  unless LM curve is horizontal.
     and in equilibrium saving equal investment.

   and govt saving equal to   T - G, which reduces as G increases.

so ans c


     

[Asd1995]

11 is controversial, so I won't comment anyways I have it wrong.

14 Did you not read the above comment and links? Savings equal investment only in a closed economy. Otherwise there are variables like govt. expenditure and exports which adjust themselves. I still think answer is b based on the links I've given.

29. Amit Sir has already answered it on this thread itself.

[happy]

Reason for 29

consider the following combination
(0, 2/3), (1,1/3)   it lies on the line (0,1/2), (0,1) but it can't achieve in competitive equilibrium, because

px + y = p   for A  => p =2/3
px + y = 1   for B  => p =2/3 also satisfies this equation

But  MUX for A/ MUY for A = 1/2  < p => A should consume only Y =>(0, 2/3), (1,1/3) can't be consumed in competitive equilibrium

 

[Akki]

Heyy...
I am pretty sure here..
Contractionary fiscal policy increases savings in both open and closed economy. To compensate for the decrease in output  we need to increase money supply (expansionary monetary policy). So, ans is c.
SOURCE: Abel and Bernanke 7th edition

[dirt314]

Yes bro I totally agree on this. There's no way (c) can be the right answer. It has to be (b).

[happy]

Expansionary Fiscal Policy (IS Curve Shifted to the right) and Contractionary Monetary Policy (LM curve shifted to the left) => Net Effect interest rate increases => Investment decreases (I = I bar - bi)

Contractionary Fiscal Policy (IS Curve Shifted to the left) and Expansionary Monetary Policy (LM curve shifted to the right) => Net Effect interest rate decreases=> Investment increases (I = I bar - bi)

National Saving(NS) = Private Saving + Govt Saving
NS = (GDP + NFIA + TR + INT - T) + (T - TR -INT)

NS = I + NX + NFIA
NS = I + CA

d(NS) = d(I) + d(CA)   ------(1)

For CLOSED ECONOMY (CA = 0)
d(NS) = d(I) , so option c is correct

For OPEN ECONOMY
E(Nominal Exchange rate) and Interest Rate (i) are negatively related.

 i increased => E decreases => Exchange rate Appreciate => CA surplus decreases
 and
 i decreases => CA surplus increases (by the same logic)

-------------------------------------------------------------------------------------------------------------

Option (b) => interest rate increase => Investment and CA decreases => NS decreases
Option (c) => interest rate decreases =>Investment and CA increases => NS increases    
      (From equ. (1) and above logic)


So Option (c) is correct it increases National Saving (NS)

[Asd1995]

I've put up real world data to support this doesn't leave much to the imagination :p

[dirt314]

All the best to all of you who made it. Congratulations :)

[Halflife]

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[divyagarg896]

The answer to 20 should be B. The graph approaches a constant value when x tends to infinity. We can find out the derivative of this function and using Sandwich theorem that tends to 0, as x tends to infinity. So sin(logx) should converge as x goes to infinity. i think.

[Asd1995]

Can you tell me what value it converges to?

[divyagarg896]

Some value between -0.5 and -1. I got this after checking the graph of sin(logx)

[Asd1995]

You're wrong, the value of the function remains finite but it does not converge, it keeps oscillating between -1 and 1, and the frequency of those oscillations tends to become quite large as x approaches infinity, so there's no point that it converges to. Check the answer key posted by Amit sir for further clarification.

[divyagarg896]

Can you share the link to Amit Sir's key to ISI 2017?

[Asd1995]

http://discussion-forum.2150183.n2.nabble.com/ISI-2017-Exam-Paper-and-Answer-Key-td7605289.html