jnu 2011

[lovekesh]

I think problem lies in assuming Y=32000. I don't remember what was Y when I was 4000 and we had to find unemployment. Can you tell me what was that value.

[ritu]

24000
nd lovekesh i havent assumed that y=32000.....its the full employmt real output....

[ritu]

if its wrong pls can u tell me how to do q 21....pls tell me the steps....pls

[anon_econ]

"now since at I=7000,we have already reached full employment"
how r u getting this?

[ritu]

see
PY=C+I
 i wil;l find the level of investment beyond which if i increase I,only p will increase and not y....
such level of nominal income is :
we already have this equation:0.4PY=1000+0.2W+I
put p=5/6,y=32000,W=20000 u will get I=5666.67
so if I is beyond 5666.7 ,it will be full employment of labor so only p rises and y stays same...nd 7000>5666.67
so we have crossed full employmtnt frontier....this is wot i thought

[anon_econ]

p=5/6 if Y<32000. If Y=32000 P>=5/6. ye nahi diya hai question mein??

[lovekesh]

i got the answer for 21. here it goes.
The multiplier for Investment was 4. So, an increase in 3000 will increase PY by 12000. At 4000 level PY was 20000. So an increase in 3000 will increase it by 12000.
Final PY= 32000
Y=32000
P=1
Change in p = 1/6
Answer comes and 20% increase.

[Amit Goyal]

JNU16-22.png

[aditi5000]

Thank you Sir for putting an end to this hotly debated set of questions... whew!!

[anon_econ]

Thank u

[anon_econ]

my doubt is still not cleared  
we got PY=4(1000+I) on the assumption that Y<full employment level of output (that's y v could make the substitution for P). now in question 21 how can we say PY=32000 when I=7000?? Aren't we using the relation which was derived on the very assumption that Y does not exceed 32000????
<smiley image="anim_confused.gif"/>

[Amit Goyal]

Hi Vasudha, :-) Here we go.

Lets proceed by way of contradiction. Suppose at I = 7000, we have less than full employment, then PY = 4(1000 + I) = 32000 (by steps in problems (2) and (3)). This would mean W = 24000. And w = 10 gives us employment, L = 2400. But this exceeds L* = 2000. Hence our assumption is wrong that we have less than full employment at I = 7000. Thus, we have full employment at I  = 7000.

[anon_econ]

Aah ok. Thank u sir!  

[anon_econ]

Umm. U will probably kill me now. But I have another doubt. I got why Y is 32000 but we need PY=32000 to get P=1, right? Now from where does PY=32000 come?

[Amit Goyal]

No Problem Vasudha :-)
Now Y = 32000
1000 + 7000 + 0.8W + 0.6R = PY
W + R = PY
W = wL* = 20000
Solving the above system, we get
W = 20000
Y = 32000
R = 32000P -20000 (using  W + R = PY, W = 20000 and Y = 32000)
24000 + 0.6R = 32000P (using 1000 + 7000 + 0.8W + 0.6R = PY, W = 20000 and Y = 32000)
Solve for R and P.
This gives R = 10000.
So, P = 30000/32000 = 15/16.
(I guess I made some calculation error earlier when I said P = 1)
Answer to 21 is 12.5% (thats not in the option)

[anon_econ]

Oh ok. Thanks once again. Ritu will be thrilled bcoz that's the answer she was getting :)

[ritu]

thank u sooooo much sir.....that was a great respite:)
@vasudha:P:P

[Chocolate Frog]

So, when I = 4000, R = PY/4

When I = 7000, R = PY/3

Share of non-wage income increases by (1/3) - (1/4) = (1/12), which is not in the options!

...and the question continues to baffle.

[aditi5000]

Sir, two doubts in this set of questions:
1. Your initial answer of 20% increase in price makes complete sense..
When I = 7000, PY = 4(1000+7000) = 32000
this means we are at full employment level so we can directly jump to L=L*=2000
Thus, Y/L=16 => Y =32000
Thus solving PY = 32000, we get P = 1 and so, increase in price = 1-0.833/0.833 = 20%

2. In question 22, the consumption function as provided in the paper has changed from C=1000+.8W+.6R to
C=1200+.8W+.6R. Other variables are same. The answer you got of 1/8 seems to be for the old situation. Or maybe my paper has a misprint!!
I solved the revised situation anyway and got the following result -
at I=4000, R = 1/4 share i.e. 5200/20800 and
with I=7000, R=8200 and thus W=24600, L=2460 which is > 2000 ... That means Y has to be capped at 32000. So, R's share = 8200/32000 = 1/4 share
So the answer should be option A - no change...

Please clarify both these problems... Thank you in advance...

[aditi5000]

Any thoughts anyone...? Does my paper have a misprint... Someone please confirm... Thank you...