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managerial economics
Managerial Economics 8th Edition D N DWIVEDI - Solutions
How far does free trade lead to complete equalization of factor rewards?How do you then explain wide divergences in incomes in the world?
Compare and contrast the meaning of comparative advantage in the Ricardian and Heckscher-Ohlin Trade Models. Give your comments on attempts made at empirically testing of the two theories.
Using the Heckscher-Ohlin model of trade, show that free trade is better than no trade. In this context, derive also a graphical measure of gains from trade.
Show that international trade extends a country’s consumption possibility beyond its production possibility frontiers.
(a) Show that in a two country, two commodity and two factor world, trade can take place even if factor endowments in the two countries are identical.(b) Under what conditions are factor prices equalized even if the factor endowments are different?
How does international trade result in commodity and factor-price equalization in the trading countries?
Compare the classical and general equilibrium theory of international trade.
What is the factor price equalization theorem? What are the necessary conditions for this theorem to be valid?
State and explain the Heckscher-Ohlin theorems. Under what conditions do they hold?
Explain the comparative advantage theory of trade. How does it show an improvement over the absolute advantage theory? What are its shortcomings?
What is the basis of international trade according to the classical theory of trade? Can there be trade between nations even if one of them has absolute advantage in all the goods?
What aspects of foreign trade need to be taken into account by the business managers?
What are the managerial implications of changing business environment of the world for the managers of MNCs?
What consequences of globalization are obvious in the world economy? Is India not losing its managerial manpower to foreign countries?
What is meant by globalization? What factors have contributed to globalization? Has India benefited or lost due to globalization?
In what sense is the global business environment changing? What factors are responsible for the change in global business environment?
What are the fiscal measures of controlling inflation? Are they more effective than monetary measures in controlling inflation?
Explain the working of the monetary weapons of inflation control.Which of these weapons is more effective under what conditions?
Distinguish between fiscal measures and monetary measures of controlling inflation. What of the two policy measures are more effective under what conditions?THEORIES OF INFLATION AND CONTROL MEASURES 659
What are the traditional monetary measures to control inflation? Explain how these measures work to control inflation.
Combating inflation has been one of the most intractable economic problems faced by the developed and underdeveloped countries. Comment.
What is the ‘structuralist view’ on inflation? Explain the structural bottlenecks that are supposed to cause inflation in the developing countries.
Theories of inflation based on conditions in and experience of developed countries cannot be and should not be applied straightaway to explain inflation in less developed countries. Do you agree with this statement? If not, why?
“The distinction between demand-pull and cost-push inflation is unworkable, irrelevant or even meaningless”. Who gave this statement? Do you agree with this statement?Why?
Distinguish between demand-pull and cost-push inflation. Can the two types of inflation go handin-hand ? Explain in this regard the ‘wage price spiral’.
What are the factors behind cost-push inflation? Is there any link between cost-push and demandpull inflation?
Explain how demand factors cause demand-pull inflation. What are the major weaknesses of the demand-pull theory of inflation?
“Inflation is always and everywhere a monetary phenomenon … and can be produced only by a more rapid increase in the quantity of money than in output”. Who said it?Do you agree with this statement? Give reasons for your answer.
What is monetarists’ explanation for inflation? Is inflation always and everywhere a monetary phenomenon?
Explain the relationship between inflation and employment. Is achieving a high rate of employment by means of inflation always desirable?
In what way does inflation contribute to economic growth? What kind of inflation affects economic growth adversely?
What are the effects of inflation on wage-earners, fixed income people, debtors and creditors, producers and the government? Give the reasons for the effects of inflation.
‘A moderate degree of inflation is the logical concomitant of efficient mobilization’. Explain and examine the validity of the statement.
Explain and distinguish between moderate, galloping and hyper inflation.How do these kinds of inflation affect economic growth of a country?
Explain the various kinds of inflation? How do they differ from one another?
What are the methods of measuring inflation? Why is national income deflator considered as a more reliable method of measuring inflation?
How is inflation defined? Can any rise in prices be considered as inflation? What is the acceptable or desirable limit of inflation?
What is meant by monetary policy? What are the monetary measures?What kind of monetary policy is adopted to control depressionary, factors?
What is meant by fiscal policy? What kind of fiscal policy is adopted to prevent economic depression and to revive the economy?
Describe briefly the Hicksian theory of trade cycle and point out its merits and limitations.
Describe the various phases of a trade cycle. Discuss the steps a businessman may take to safeguard himself against the evil effects of a trade cycle.
What is meant by built-in-flexibility in budgetary policy? Comment on its relevance to a developing economy like India.
Describe briefly the main functions of monetary and fiscal policies.Which of the two policies is more effective in controlling trade cycles in a developing economy?
Why is controlling trade cycles necessary? Describe the major stabilization policies and point out their limitations.
Explain Samuelson’s multiplier-accelerator interaction theory of trade cycle. Also point out its shortcomings.
How does Schumpeter’s innovation theory differ from the monetary overinvestment theory of trade cycle? Which of the two theories explains business fluctuations better?
Compare and contrast the pure monetary and the monetary overinvestment theories of business cycles.
Describe ‘the turning points’ and the factors responsi ble for them in the business cycles.
What is meant by business cycle? What are the different phases of a business cycle? How is private business affected during the different phases?
Write a note on the relevance of the growth models to the real economic world.
What are the remarks of Prof. A.K. Sen on the neo-classical growth theory?
Explain the following concepts:(a) Capital-output ratio,(b) Marginal physical productivity,(c) Marginal revenue productivity and(d) Elasticity of output.
Explain the neo-classical theory of economic growth and point out its limitations.
What do theories of economic growth reveal? What can be the possible use of growth theories in business decisions?
How is the neo-classical growth theory different from the Harrod-Domar growth theory?
Discuss neo-classical theory of growth. How does this growth model incorporate the effect of technological change?
Why is Harrod-Domar model of growth called ‘razor-edge model’?
Discuss elaborately the Harrod-Domar growth model. What is meant by warranted growth rate?
What are the assumptions of the Harrod-Domar growth model? Briefly discuss the model and point out its shortcomings.
What are the determinants of economic growth? How do the social and political factors affect economic growth rate?
What is meant by economic growth? How is economic growth measured?
Suppose economic functions of an economy are given as follows.C = 100 + 0.8 Y I = 150 – 6 i G = 100 T = 0.25 Y M d = 0.2 Y – 2 i M s = 300 X = 100 M = 20 + 0.1 Y Find ( i) The equilibrium level of income and interest rate in closed economy case,( ii) The equilibrium level of income and interest
Given the closed economy equilibrium condition as C + I = S + T, suppose X = X and import function is given as M = M – m Y. Derive graphically the IS curve for both the closed and open economies.
Explain and illustrate graphically how exports and imports affect the IS function of the three sector model and the IS curve. Explain also how IS curve is affected if exports exceed imports and imports exceed the exports.
What are the determinants of export and imports of a country? Why are exports considered as an injection into and imports as leakages from the economy?
What is an open economy? How does addition of foreign sector to closed economy model affect the IS-LM model?
Suppose product sector model is given as C= 100 + 0.75 Y and I = 120 –0.5 i and money market model is given as M s = 150 and M d = 0.2Y – 4 i. Find equilibrium level of Y and interest rate.
Suppose a product market model is given as follows.C = a + b( Y – T)I = Î – hi G = G T = T + tY Derive the product market equilibrium condition and the IS curve .
How does addition of the government sector to the two-sector model change the IS-LM model of the general equilibrium analysis? What new variables are added to the model and how do they ffect the IS and LM curves?
Suppose in two-sector economy, product-sector functions are given as follows.C = 10 + 0.5 Y I = 200 – 2000 i And monetary sector functions are given as M s = 150 M t = 0.5 Y and M s = 150 – 1500 i Find (a) IS and LM functions, and(b) Find income and interest rate the general equilibrium.
Explain the concept and conditions for the general equilibrium. Show graphically the determination of the general equilibrium by drawing the IS and LM curves. Show also how general equilibrium is disturbed by change in the interest rate.
Suppose money market functions are given as follows.M t = 0.5 Y M s = 100 – 1500 i M s = 150 Derive the LM function.
Explain the basis of the derivation of the LM curve. Derive the LM curve graphically and explain the determination of the equilibrium at different rate interest and the level of income.
Suppose consumption function and investment functions are given as follows.C = 20 + 0.5 Y and I = 200 – 2000 i Find the equilibrium level of income at interest rate of 8 per cent.
What is the basis of derivation of the IS curve? Derive the IS graphically in two-sector model and explain the relationship between interest rate and national income.
Distinguish between the product and money markets. Explain the interdependence of the two markets. How does it matter in determining the general equilibrium of the economy?
“Keynes’s criticism of the classical interest theory applies equally to his own theory.” Explain and justify this statement.
The Keynesian theory of interest is as indeterminate as the classical theory. Comment.
Suppose money demand function is given as MD = kY + f( i). Explain and illustrate graphically how change in Y and i would affect MD.
Explain the derivation of the Keynesian money demand function. What factor causes the shift in money demand function?
Explain the Keynesian theory of the interest rate determination. How is the Keynesian theory different from the classical theory of interest?
What is meant by the ‘Liquidity trap’. Why does a change in money supply up to a certain limit does not help the economy out of the liquidity trap?
What is the effect of simultaneous change in money demand and money supply if (a) both change in the same direction at equal and different rates, and (b) both change in opposite direction at equal and different rates?
Why does an increase in the interest cause a decline in the bond prices?What is its effect on the demand for money?
When the transaction demand for money is interest-inelastic and speculative demand for money is interest-elastic, how can the total money demand curve be interest-elastic?
Why does the speculative demand for money change with the change in the interest rate? Explain in this regard the relationship between the interest rate and the bond prices.
Define and explain the speculative demand for money. Why is the speculative demand for money interest-elastic?
What are the reasons for holding money in the Keynesian system? How is the Keynesian theory of demand for money different from the classical theory?
Suppose structural equations for an open economy are given as follows.C = 50 + b( Y – 50 – tY)I = 100 G = 50 T = 50 X = 10 M = 5 + 0.1 Y b = 0.8 t = 0.20 Find (a) national income at equilibrium, (b) foreign trade multiplier if Δ X = 5 and (c) M and T at equilibrium level of income.
Suppose structural equations (except T) of an economy are given as in question 7 and T = T +tYd. Find foreign trade multiplier.
What is balanced budget multiplier? Suppose C = a + bYd and Yd = Y – T I = IΔ G = Δ T Show that balanced budget multiplier equals 1.
Suppose macro variables are given as follows.C = 50 + 0.8 Yd, where Yd = Y – T I = 100 G = 50 T = 50 Find (a) equilibrium level of national income;(b) government expenditure multiplier;(c) Δ Y resulting from Δ G = 25, all other things given.
What is export multiplier? Find export multiplier for the following model.C = a + b ( Y – T)I = I G = G T = T X = X M = M Compare export multiplier with investment multiplier.
What additional variables are added to convert a 3-sector model into a 4-sector model? What are the factors that determine exports and imports of a country? How do exports and imports affect national income equilibrium?
What is balance-budget multiplier? Assuming a 3-sector model, prove that the balanced budget multiplier equals one.
Suppose structural equations for an economy are given as follows.C = a + b Yd Yd = Y – T I = 50 G = 50 T = 50 Find the equilibrium level of national income. What will be the level of national income if G increases from 50 to 75?
How does inclusion of the government sector in two-sector model affect the income determination model? Illustrate your answer by using the three-sector model of income determination.
What are the leakages from the economy that prevent the application of the multiplier theory to the less developed countries? Give your answer in the light of the conditions prevailing in the Indian economy.
Explain and distinguish between the concept of static and dynamic multiplier. Assuming a consumption function given as C = a + bY and investment constant at I, show the working of static and dynamic multipliers.
Suppose consumption function in an economy is given as C = 150 + 0.75 Y. Find out investment multiplier by using income determination model.
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