Q0.
(a) 1. Answer the following questions: 6 × 5 = 30 Both demand curve and supply curve are negatively sloped. Demand curve cuts supply curve from the above. It is a case of Marshallian unstability and Walrasian stability. Do you agree?
(b) Excess capacity is inversely related to the price elasticity of demand faced by a monopolistically competitive firm. Is it true or false? Explain.
(c) Under what circumstances would contractionary and expansionary policies cause no conflict between internal and external objectives of correcting deficit in balance of payment? Explain.
(d) How is ability to pay measured? What is the best tax base? If A has a greater ability to pay than B, then how much more should A contribute?
(e) "Financial markets are in equilibrium when overall supply of money is equal to overall demand for money." In this context derive money multiplier and show that in equilibrium, the overall supply of money is equal to Central Bank money times the multiplier.