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ECONOMICS-PART 02
Introduction to Economy, Market Operation, Theory of Firm, National
Income, Marco Economy Money and Banking and Public Economy
SUB SECTION A
1.
a. What are the reasons for every society to make choices? Explain the basic choices
which every society has to face.
(04 Marks)
Food
30
28
24
18
10
0
2.
a. The following informations are given to you about demand and supply of oranges.
Demand Equation Qd
Supply Equation Qs
= 24 -2P
= 2P
Qs= 12 + 4P
(4 marks)
5.
a. The following data of a macro economy are given to you. All the figures are in Rs.
Million
The output of Agricultural Sector
8000
The output of Industrial Sector
2000
The output of services Sector
12000
Value of inputs in agricultural sector
200
Value of inputs in industrial sector
10000
Gross domestic fixed capital formation 4000
Inventories
2000
Government purchases
4600
Private consumption
10000
Import of goods and services
3200
Export of goods and services
4000
Receipts of foreign factor income
800
Payments for foreign factor
900
Net fixed capital formation
3800
Net foreign transfers
2000
Using relevant data, compute
i. Gross Domestic production.
ii. Gross National production.
iii. Disposable National income
iv. Current account balance of B.O.P.
v. National Saving
(02 x 5 = 10 Marks)
SUB SECTION B
6.
a. You are given the following informations.
Consumption C = 40 + 0.6 yd
Investment I = 150
Government Expenditure G = 200
Exports X = 70
Imports M = 44 + 0. 28y
Transfer Payments Tr = 40
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Taxes T = 0.2Y
Using the above data, Compute,
i.
Macro economic equilibrium
ii.
Trade balance in equilibrium
iii. Budget deficit or surplus
iv.
Government investment multiplier.
v.
If government reduces tax rate by 5% compute the macro economic equilibrium
(03 Marks each part 03x05 =15)
b. What are the stages of business cycle? Explain briefly using a diagram.(03 Marks)
c. Savings always equals to the Investment. Do you agree? Explain with reasons. .
(02 Marks)
7.
a. The following informations of public finance are given to you( All figures are in the
billion)
Non tax
500
Tax revenue
2000
Transfer Payments
850
Interest Payments
900
Payments for goods and services
1000
Capital expenditure and net lending 250
Foreign Loans
150
Loans from CBSL
50
Loans from commercial banks
200
Loans from non banking sources
100
Using the relevant data, compute,
i.
Current account balance
(02 Marks)
ii. Overall balance
(02 Marks)
iii. Primary account balance
(02 Marks)
iv.
Financing the overall balance
(02 Marks)
v.
Inflationary impact of financing the budget
(03 Marks)
b. Explain the following cannons of taxation
i.
Equity
(02 Marks)
ii. Neutrality
(02 Marks)
c. What are the new taxes introduced in the interim budget?
(01 Marks)
d. Explain the difference between Net Cash Deficit and Primary account Balance
(04 Marks)
8.
a.
b.
c.
d.
e.
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9.
a. Assume a competitive commercial banking system operates at a statutory ratio of
20holds Rs. 2000 million of demand deposits and has created loans amounted to Rs.
1600 million' In addition to this, the general public of this economy in which the
banking system operates, possesses coins and notes amounted to Rs. 800 million,
Using relevant data, answer the following questions
i.
Draw the balance sheet of the banking system assuming that it has only demand
deposits, required reserve amount & loans
(3 marks)
ii. Compute the narrow money supply (M1) of the economy.
(4 marks)
iii. Assume that the general public withdraws Rs. 200 million from the banking systemto
increase their holdings of coins & notes. Construct the new balance sheet of the
banking system.
(4 marks)
iv.
What will be the value of the narrow money supply (M1) after all these adjustments?
(4 marks)
b. Explain the difference between Underlying inflation and headline inflation(3 marks)
c. Why dont you consider credit card as money? Explain
(2 marks)
10.
a. Modern Sri Lankan monetary policy is known as a monetary policy framework of
inflation targeting. How do you explain this new trend using monetary policy tools,
operating target, intermediate target & ultimate targets of the current monetary
policy?
(4 marks)
b. How does the central bank of Sri Lanka introduce Reserve money to the Sri Lankan
economy?
(3 marks)
c. What do you meant by near money? What are the main components included in M4?
(4 marks)
d. How does the money supply change impact on aggregate demand? Explain. (4 marks)
e. Explain the differences between new and previous interest rate corridor? (3 marks)
f. What is the importance of new interest rate corridor?
(2 marks)
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