ECO401 Final Term Past Papers by Laiba Butt

ECO401 CURRENT PAPERS Spring 2010

SUBJECTIVE SOLVED BY LAIBA BUTT

Q49. What is meant by exchange rate? Also give example of exchange rate. (3 marks)

EXCHANGE RATE:

Rate at which one currency may be converted into another. The exchange rate is used when simply converting one currency to another (such as for the purposes of travel to another country), or for engaging in speculation or trading in the foreign exchange market. There are a wide variety of factors which influence the exchange rate, such as interest rates, inflation, and the state of politics and the economy in each country.also called rate of exchange or foreign exchange rate or currency exchange rate. EXAMPLE: An exchange rate of 123 Japanese yen (JPY, ¥) to the United States dollar (USD, $) means that JPY 123 is worth the same as USD 1.

Q50. What is the reason of poverty in developing countries according to Prebisch- Singer (3 marks)

hypothesis?

Answer: POVERTY means the state of being poor; lack of the means of providing material needs or comforts.

According to Prebisch-Singer hypothesis following are the reason of poverty in developing countries:

One of the reson for poverty is increasing population. Another reason Lack of precious natural resources (like oil, gold, gas, iron, copper etc.) was also cited by some as the reason for LICs’ continued poverty.

Q51. According to the values given in the following table, calculate the injections at each level of output. (5 marks)

Output · (Y) · Saving · (S) · Gross · Imports · (M) · Gross · investment · (I) · Gross · exports · (X) · Govt. Expenditures · (G) · Taxes (T)

Answer: We know:

INJECTION=I+X+G

SO,

the injections at each level of output= · 1-317 · 2-332 · 3-343 · 4-352 · 5-359

Q52. What are the major weaknesses of exogenous growth theory? Which theory was developed in against of exogenous growth theory? (5 marks)

Exogenous growth theory suffered from three major weaknesses:

i. It could not explain why the gap between the poor and rich countries had widened (anticatch up), ii. It could not explain why some countries in East Asia had apparently grown consistently on the back of higher saving rates, and iii. It modeled technology as exogenous, and beyond the influence of policy.

response to criticism of the neo-classical growth model OR exogenous growth theory

Q53. ANSWER: (5 marks)

Q49. Define balance of payment (BOP). How the BOP can be determined? (3 marks)

THE BALANCE OF PAYMENTS (BOP):

BOP is an accounting record of a country’s transactions with the rest of the world. The balance of payments (or BOP) measures the payments that flow between any individual country and all other countries. It is used to summarize all international economic transactions for that country during a specific time period, usually a year.

How the BOP can be determined?

IT CAN BE DETERMINED IN THE FOLLOWING WAY:

The BOP is determined by the country's exports and imports of goods, services, and financial capital, as well as financial transfers. It reflects all payments and liabilities to foreigners (debits) and all payments and obligations received from foreigners (credits). Balance of payments is one of the major indicators of a country's status in international trade, with net capital outflow.

Q50. Explain the shape of money demand curve with the help of diagram. (3 marks)

PERFECT ANSWER ON THIS LINK IS AVAILABLE SEE THIS(PG 9 AND PG 10)