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IGNOU MACROECONOMIC ANALYSIS: MEC-002 December: 2017 Solved Question Paper
Note: Answer questions from each section as directed.
SECTION-I
Answer any two questions from this section in about 500 words each.
Q1. Consider the decentralised household problem in the Ramsey model. Derive the conditions for modified golden rule. Interpret the equation with the help of phase diagram.
Ans. There are two competitive factor markets which determine the wage rate (wt) and the interest rate or the rate of return on capital (rt) at each point of time.
There exist many identical competitive firms which hire in labour and capital from the households at the above mentioned wage rate and rental rate. Using labour and capital these firms produce the final output, using the same technology as the central planner. Competition ensures that the wage rate and the rental rate are equal to the respective marginal products of labour and capital at full employment, i.e., rt = f’ (k,) and
Each household maximises its welfare given as before by . Each household starts with a certain amount of capital stock and labour stock. Additionally households can borrow from one another. Let denote the per capita asset stock of an household at period t, which consists of the per capital stock owned by the household at period t minus the amount of debt (per capita) at period t. (If the household is a net lender, then b, would be negative). Arbitrage condition in the asset market ensures that physical capital and lending earns the same rate of return. Hence the per capita income of the household at period t is which the household spends on consumption and further asset accumulation. Thus the budget constraint faced by the household in per capita terms is given by:
The complete dynamic optimisation problem for the household can now be written in terms of the two time dependent variables per capita consumption (ct) and per capita asset stock (a,):
Maximise subject to given
Now, Refer to June-2017, Q.No.-3 CLICK
Q2. Briefly discuss the life cycle hypothesis and permanent income hypothesis of consumption.
Ans. Refer to Chapter-4, Q.No.-3, 4 CLICK
Q3. What is meant by steady state? Derive the condition for steady state in the Solow model. Does it imply maximum consumption in the economy?
Ans. Refer to Chapter-2, Q.No.-2 CLICK
Q4. Explain why there could be dynamic inefficiency in an economy according to the Over-lapping Generations (OLG) model.
Ans. Refer to Chapter-4, Q.No.-8 CLICK
SECTION-II
Answer any five questions from this section in about 250 words each.
Q5. Explain why there could be rigidities in the prices and wage rate.
Ans. Refer to Chapter-6, Q.No.-8 CLICK
Q6. Explain the phases of a business cycle. How does political business cycle theory explain the phases?
Ans. Refer to Chapter-5, Q.No.-1, 2 CLICK
Q7. What is meant by convergence in growth? How do endogenous growth models explain divergence in growth rates?
Ans. Refer to Chapter-2, Q.No.-5, 8 CLICK
Q8. What are the major issues on which Lucas criticises the Keynesian model? How relevant are these issues in the present scenario?
Ans. Refer to June-2011, Q.No.-9 and Refer to Chapter-3, Q.No.-4 CLICK
Q9. Discuss the implication of downward sloping Phillips curve. Why could the Phillips curve be vertical in the long run?
Ans. Refer to Chapter-6, Q.No.-4, 6 CLICK
Q10. Bring out the main features of search model of employment.
Ans. Refer to Chapter-6, Q.No.-7 CLICK
Q11. Explain why monetary policy is not effective in an economy with fixed exchange rate. Substantiate with appropriate diagram.
Ans. Refer to Chapter-7, Q.No.-13 CLICK
Q12. Write short notes on the following:
(a) Real business cycle
Ans. Refer to Chapter-5, Q.No.-3 CLICK
(b) Rational expectations hypothesis
Ans. Refer to Chapter-3, Q.No.-1 CLICK
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