JNU MA Economics Past Year Paper- 2012

[Darth Vader]

Question Nos. 22-26 are to be answered on the basis of the following information :

Consider a closed economy in,which aggregate output in short-run equilibrium is equal to
the level of effective demand. There are only two types of expenditure on goods and services---:
private consumption expenditure and expenditure by the government (G). Workers earn only
wage income and non-workers earn all remaining income. Non-workers only spend a fixed amount on consumption.Suppose to produce every rupee of final output, 0.005 labour-day is required and the wage for a working day is Rs.150.

The paper is given in a pdf format hence its difficult to copy the questions, so I'll provide link for these questions:
http://economicsentrance.weebly.com/uploads/1/1/0/5/1105777/ma-sss-2012.pdf

Really need help solving this, have no clue what to do whatsoever!

[Diksha]

I have the same doubt :/

[MI]

Hi Lord Vader, (:P)

Y= C(w) + C (nw) + G  ...(no other expenditure as given)

C(w)...consumption by worker ... ans so on

Rs.1 of Y will result in Rs. 0.75 of worker income and Rs. 0.25 of non worker income.

Q 22. Personal savings are given by = Y-C(w)-C(nw)

As there is no external sector G must be financed by personal savings. So equilibrium condition is given by

S=G (option A)

Q. 23  E (planned expenditure) = C(w) + C(nw) + G

As given C(w)= total income earned by workers = 3Y/4

For non workers C(nw) = C* .....(they spend fixed amount on consumption)
 
E= 3Y/4 + C* +G

in equilibrium E=Y

Delta Y = 4 x Delta G  ...(as Delta C* id zero)

Option C

Q.24  Similarly solving for equilibrium condition will give option B

E = 0.8(3Y/4) + C* + G

0.4 x delta Y= Delta G .....(Assuming Delta C* =0)


Q 25 Option D

As workers consume all their income balanced budget expansion will only shift expenditure from C(w) to G

Correct Answer is no change in income

Q 26 Option A

E= 0.8 (3Y/4 -T) +C* +G

Putting E= Y

0.4 x Y = G-0.8 x T

But Delta G = Delta T

so after differentiation

0.4Y=0.2G

Y= 0.5G
 

[maahi]

Rs.1 of Y will result in Rs. 0.75 of worker income and Rs. 0.25 of non worker income.
HOW DID U MAKE OUT THIS ?

[MI]

@mahi

According to last sentence of the para

(0.005 labor day/ unit output) * 150 Rs/ Daily = 0.75 Rs/ output for worker

Also, para says "non-workers earn rest of the income"

so Rs 0.25 for non workers for producing an unit of output.

Multiply this by Y.

[maahi]

YA THANKS

[laracroft]

for Q. 25 , shouldnt the answer be multiplier= 1?
Becoz, here we are taxing the workers and mpc=0.75.
now , since the equation become Y= 0.75 (Y-T) + G

the multiplier= 1-c/(1-c) = 1

???
 

[MI]

Hey Kawai,

MPC is not 0.75 but its 1 (As per question workers consume all their income)

And 0.75 is the workers' share of income.

[laracroft]

Hey MI

PLEASE explain this one to me.. Why would there be no change in income??
o.O

[MI]

E = c(3Y/4 - T) +C* +G

c= 1 as per question

in equilibrium,

Y/4 = - T + G +C*

Delta Y /4 = - Delta T + Delta G

As per balanced budget condition  Delta T = Delta G

Delta Y = 0

[Kawai]

Thanks .. :)

[Ayushya Kaul]

Thanks a lot MI :D (y)

[vandita24x7]

hi, MI, one thing dat is confusing me a lot is.. in Q.23 n Q24 if nonworkers r consuming a fixed amt of their income then in mathematical terms how r we allocating/showing the tax paid by them???