ECONOMICS – Daily Answer Writing Challenge, 14 July 2014
1) Explain Chamberlain’s concept of excess capacity.What according to him is responsible for emergence of excess capacity under monopolistic competition? ( 200 words)
2) Suppose the goods, financial, current account and foreign exchange markets are initially in equilibrium . The economy has low or imperfect capital mobility and operates at fixed exchange rate. The economy is subject to favorable demand shock that raises expenditure. What is the impact of the shock on aggregate income and interest rate in the short run? How is the balance of payment equilibrium is achieved? ( 300 words)
3) Why are fiscal policy multipliers smaller in magnitude in the variable price fixed wage version of the Keynesian model than in the fixed price IS-LM model.? Why are these multiplier still smaller when we allow the money wage as well as the price level to be variable? (200 words)
