JNU ECOM 2010 QUES 51-61

[Arushi :))]

QUES 51

Answer-d
QUES 52
The rate of interest is :
a. a flow variable
b. a stock variable
c. the ratio of a flow variable to a stock variable
d. the ratio of a stock variable to a flow variable
Answer-b

Answer
53-a
54-b
QUES55
Suppose the difference between the transactions velocity and the income velocity of circulation of money in an economy is 5 and the money value of total transactions is 6 times the money value of aggregate income. If the quantity of money in circulation is 1000 currency units, then the money value of aggregate income in currency units is :
a.1000
b.1200
c.1500
d.1800
Answer-a
QUES 56
Suppose an asset provides returns of Rs 315 after one year, Rs 661.50 after two years and Rs 1389.15 after three years & nothing thereafter.If interest is compounded yearly and the rate of interest is 5% per annum, what is the present discounted value of the asset?
a. Rs 2,050
b. Rs 2,100
c. Rs 2,200
d. Rs 2,250
Answer-b
QUES 57
Suppose a plant can be used to produce in a day x units of product 1 and y units of product 2 where
y=(32-5x)/(10-x), where 32/5 <,= x >,=0 ( weak inequality ). If the unit price of product 1 is twice of the unit price of product 2, then to maximize total revenue the number of units of x the plant should be used to produce in a day is:
a. 4
b. 5
c. 6
d. 6.4
Answer-d
The next four questions 58-61 are based on the following :
Suppose, in equilibrium, aggregate income (in units of money per year) in an economy Y=C + I, where investment expenditure ( in units of money per year ) I = 1000 and aggregate consumption expenditure(in units of money per year) C satisfies the following:
(i) C is a function of current disposable income in the economy :Yd
(ii) If Yd = 0, then C = 500
(iii) Marginal propensity to save out of Yd is constant in the economy and equal to 30%
Suppose the government collects direct tax revenues equal to 15% of Y and makes direct payments equal to 750 units of money per year.
QUES 58
What is the value of Investment Multiplier in the economy?
a. Between 1.9 & 2.1
b. Between 2.1 & 2.3
c. Between 2.3 & 2.5
d. More than 2.5
Answer-c
QUES 59
What is the equilibrium value of Y in the economy?
a. Between 3250 & 3750
b. Between 3750 & 4250
c. Between 4250 & 4750
d. Between 4750 & 5250
Answer-d

Answer
60-c
61-a

[Arushi :))]

Please confirm the answers..
i am not sure about 51,54, 55

[The Villain]

Answer of 52 is a
int rate cannot be measured at a point of time

[E A Ibrahim]

I get option (b) as answer for 59th question. The way I worked out is illustrated as below. Please comment, if there is any problem in my approach.

I=1000
C= c(Y-T+Tr)
  = 0.7(Y-0.15Y+750)
  = 0.595Y+525

Y= C+I
 = 0.595Y+525+1000
0.405Y=1525

Y=3765.3775, which lies between 3750 and 4250

[Arushi :))]

hi Ibrahim.
You have done a silly mistake here. Its given that when Yd is 0 then consumption is 500.
So the consumption function would be Y = 500+ c(Y-T+Tr)
Rest is correct
In the end what we get is
Y= 2025+ 0.595Y
which will give the Y= 5000.
Hence the answer is part D

[bhavya jain]

I think, ans to 54) d
since gdp def=gdp at current prices(nominal gdp)/ gdp at constant prices(real gdp)*100
gdp at current prices=110*1000/100=1100

[E A Ibrahim]

Thank you, Arushi.
I really forgot about the autonomous consumption component.

[Arushi :))]

thanks bhavya..:)
i mistakenly took Real GDP in the numerator
thankyou

[xyz]

Hey Arushi!! Can you please explain the solution of Q. 55??

[Arushi :))]

Okay. For ques 55.
we have to use the equation MV=PY
For the transactions velocity of money , we have to include value of all the goods - intermediate, final goods
However for the Income velocity of money, only the value of final goods is included.
So that way we get two equations
i) M x transactions velocity of money = value of all goods
ii) M x income velocity of money = value of aggregate income
Vt-Vm = 5
=> Vt= 5+Vm
Let the value of aggregate income be X.
value of total transactions = 6X
M x (5+Vm) = 6X
M x Vm= X
Dividing the first equation by second:
(5+Vm)/Vm=6
=> 5Vm= 5
Therefore, Vm =1
M = 1000, n from equation (ii) we get value of aggregate income = 1x 1000 = 1000
Hence, part a

[xyz]

Okay!! Thankyou so much!! :D

[Anjali]

Arushi why have you taken interest rate as a stock variable ? Shouldn't it be flow ? And how did you solve 51 ? Sure of its answer ?

[kangkan]

hi..is there a formal way of doing 52?

[Anjali]

I guess common sense should work here. Like , interest rate is not valued at a particular point of time , it is rather calculated for a given time frame. Iam really in doubt that why arushi has marked it as b

[Noel]

It should be b for 51

[Anjali]

Whats the logic behind it noel ?

[Noel]

x<y+€
x-y<€ for all €>0
this condition definitely holds true for all x<y
also if x=y then
x-y=0<€ for all €>0
from both these cases we see that x=<y
but x can't be greater than y for if x>y then x-y>0
let x-y=k where k>0
choose €=k/2>0
hence x-y>€
which is a contradiction so
x=<y

[Arushi :))]

@ noel
b is wrong by contradiction,
let x be 5 and y+€ = 5.04
Then it could well be the case that y is = 4.99 and € is 0.05
And that doesn't imply that x <,= y !
Only for d , there cant be a contradiction,
x<0< y
implies x is always negative and y is positive and greater than x .
So whatever € > 0 is added to y it will always be greater than x

[Noel]

Well you've restricted the value of € to 0.05 whereas the question says that the inequality should hold for all €>0
in the example that you gave
y=4.99 now take €=0.001 which gives
y+€<x
it certainly cant be d because let x=y=1 now whatever be the value of €>0
x<y+€

[Arushi :))]

But d says x<0<y
zero lies between these two numbers and this means x is negative and y is positive,
so for all € > 0 this will hold !!
However, in all the other cases if we take both x and y positive , it doesn't imply anything with surity,