DBB1214 MACROECONOMICS JAN FEB 2026

Description

SESSION	JAN – FEB 2026
PROGRAM	BACHELOR OF BUSINESS ADMINISTRATION (BBA)
SEMESTER	II
COURSE CODE & NAME	DBB1214 MACROECONOMICS

 

 

Assignment Set – 1

 

Q.1. Examine the role of foreign trade and foreign remittances in the circular flow of income. Discuss with reference to the four-sector model. (10 Marks)

Ans 1.

The circular flow of income describes how money moves continuously between households, firms, government, and the external sector in an economy. The four-sector model extends the basic model by incorporating foreign trade and remittances, adding an international dimension that significantly influences national income, aggregate demand, and overall economic stability.

The Four-Sector Model

The four-sector model consists of households, firms, government, and the rest of the world.

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Q.2. Explain the classical aggregate production function and its assumptions. Outline the difference between autonomous investment and induced investment with examples. (6+4 = 10 Marks)

Ans 2.

The classical aggregate production function and the distinction between types of investment are foundational concepts in macroeconomics. Together they explain how an economy generates output and how investment decisions differ based on their motivation. Understanding these concepts helps analyze economic growth, employment, and capital formation in both short and long-run frameworks.

Classical Aggregate Production Function

The classical aggregate production function relates total output of an economy to the total

 

 

Q.3. Analyze the effects of inflation on economic growth of India, highlighting both positive and negative impacts. (5+5 = 10 Marks)

Ans 3.

Inflation refers to the sustained increase in the general price level over time. While extreme inflation is universally harmful, moderate levels can have complex and sometimes positive effects on economic growth. In the Indian context, understanding both dimensions of inflation helps policymakers calibrate monetary and fiscal responses that balance growth with price stability.

Positive Effects of Inflation on Economic Growth

Moderate inflation can stimulate economic activity in several ways. Rising prices increase the

 

 

Assignment Set – 2

 

Q.4. Critically examine the measures a government can take to reduce fiscal deficits. What are the advantages and disadvantages of these measures? (10 Marks)

Ans 4.

A fiscal deficit occurs when government expenditure exceeds its revenue in a given year. While some level of deficit is acceptable and even growth-promoting, persistent and large fiscal deficits threaten macroeconomic stability by raising debt levels and crowding out private investment. Governments use several measures to reduce fiscal deficits, each with distinct trade-offs.

Measures to Reduce Fiscal Deficit

Governments reduce fiscal deficits primarily through revenue enhancement and expenditure

 

Q.5. Evaluate the effectiveness of government expenditure as a tool for increasing national income in a highly open economy and discuss its impact on the trade balance. (5+5 = 10 Marks)

Ans 5.

Government expenditure is a key component of aggregate demand and a primary fiscal policy instrument for managing national income. However, its effectiveness varies significantly depending on how open an economy is to international trade. In highly open economies, the standard Keynesian multiplier is substantially reduced by leakages into imports, complicating the relationship between fiscal spending and national income growth.

Effectiveness of Government Expenditure in an Open Economy

In a closed economy, an increase in government expenditure stimulates aggregate demand

 

Q.6. Discuss the different types of rent in economics and explain how rent is determined under extensive and intensive cultivation in Ricardo’s theory. (4+6 = 10 Marks)

Ans 6.

Rent in classical economics refers to the payment made for the use of land and other natural resources. David Ricardo developed the most influential theory of rent, explaining how the surplus accruing to landowners arises from differences in land productivity. Understanding rent theory is essential for analyzing income distribution, agricultural pricing, and land reform policies in agrarian economies like India.

Types of Rent in Economics

Economic rent is the surplus payment made to a factor of production above its transfer