JNU doubts

[SoniaKapoor]

Q1 In an economy where all commodities are produced with labour alone,0.5 unit of labour is required to produce a commodity A and 1 unit of labour is required to produce commodity B.If the international price of B is 2.5 units of A and if the total amount of labour in economy is 100 units , how much commodities will economy produce?
a 200 units of A,0 unit of B
b 57.14 units of A and 71.04 units of B
c 71.04 units of A and 57.14 units of B
d 0 unit of A and 100 units of B


Q2 Which of the following is true for government budget?
a the revenue deficit is always less than budget deficit
b the revenue deficit is always less than or equal to budget deficit
c the revenue deficit is always greater than or equal to budget deficit
d none of d above

Q3 In the IS LM model if economy is at liquidity trap  and aggregate investment expenditure is unaffected by current income ,a rise in government expenditure(other things equal) would lead to rise in equilibrium value of
a dd for money
b rate of interest
c aggregate savings
d aggregate investment

[bhavya jain]

I am getting the following ans-
1)c
2)a
3)a

[Atika Gupta]

Hi,

I think answer for question3 should be c- aggregate savings.
This is bcz increase in govt. exp will shift IS rightwards leading to increase in eqbm level of income. As demand for money is perfectly elastic under liquidity trap, an increase in money demand due to higher Y at same roi would mean extension of the horizontal line. And with money supply unchanged, equilibrium will remain same. Thus, there will be no change in the equilibrium value of money demand. Now  IS curve is a locus of points showing S=I+G. So when G increases, to restore eqbm in goods market savings must increase. Hence, aggregate savings will increase in equilibrium.

[The Villain]

@Bhavya how did u solve quest 1??

[SoniaKapoor]

thanxxx bhavya and atika.
I still have confusion over quest 3....somebody pls help

[mrittik]

ans of q-1 is d.