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Fall-2013 Master of Business Administration - MBA Semester 1 MB0042Managerial Economics-4 Credits (Book ID: B1625) Assignment (60 Marks) Note: Answers for 10 marks questions should be approximately of 400 words. Each question is followed by evaluation scheme. Each Question carries 10 marks 6 X 10=60. Q1. Economic stability implies avoiding fluctuations in economic activities. It is important to avoid the economic and financial crisis. The challenge is to minimize the instability without affecting productivity, efficiency, employment. Find out the instruments to face the challenges and to maintain an economic stability. Answer. Economic stability refers to an absence of excessive fluctuations in the macro economy. An economy with fairly constant output growth and low and stable inflation would be considered economically stable. An economy with frequent large recessions, a pronounced business cycle, very high or variable inflation, or frequent financial crises would be considered economically unstable. A term used to describe the financial system of a nation that displays only minor fluctuations in output growth and Q2. Explain any eight macroeconomic ratios. Answer. Macroeconomics is a branch of economics dealing with the performance, structure, behavior, and decision-making of an economy as a whole, rather than individual markets. This includes national, regional, and global economies. Macroeconomics examines economy-wide phenomena such as changes in unemployment, national income, rate of growth, gross domestic product, inflation Q3. Define Inflation and explain the types of inflation. Answer. Inflation is defined as a sustained increase in the general level of prices for goods and services. It is measured as an annual percentage increase. As inflation rises, every dollar you own buys a smaller percentage of a good or service. The value of a dollar does not stay constant when there is inflation. The value of a dollar is observed in terms of purchasing power, which is the real, tangible goods that money can buy. When inflation goes up, there is a decline in the purchasing power of money. For example, if the

inflation rate is 2% annually, then theoretically a RS.10 pack of gum will cost RS.10.20 in a year. After inflation, your money can't buy the same Q4. Define Fiscal Policy and the instruments of Fiscal policy. Answer. Fiscal Policy: Government's revenue (taxation) and spending policy designed to (1) counter economic cycles in order to achieve lower unemployment, (2) achieve low or no inflation, and (3) achieve sustained but controllable economic growth. In a recession, governments stimulate the economy with deficit spending (expenditure exceeds revenue). During period of expansion, they restrain a fast growing economy with higher Q5. Investment is a part of income which can be used for various purposes. It is necessary to create employment in an economy and to increase national income. To understand the benefits of income, study the various types of investment. Answer. Investment refers to purchase of financial assets. While Investment Goods are those goods, which are used for further production. Investment implies the production of new capital goods, plants and equipments. John Keynes refers investment as real investment and not financial investment. Investment is a conscious act of an individual or any entity that involves deployment of money (cash) in securities or assets Q6. Discuss any two law of returns to scale with example. Answer. The laws of returns are often confused with the law of returns to scale. The law of diminishing returns operates in the short period. It explains the production behaviour of the firm with one factor variable while other factors are kept constant. Whereas the laws of returns to scale operates in the long period. It explains the production behaviour of the firm under the conditions when both the inputs (labour and capital) are variable and they can be increased

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