VVI QUESTIONS UNIT 3 | INTERMEDIATE MACROECONOMICS 2 | DU BA(H) ECONOMICS COACHING | SEM 4

Summary

Highlights

• Unit 3 in Intermediate Macroeconomics 2 has a weightage of 50% - crucial for exam success! 🏆
• Chapter 6 is a key chapter with many vital questions for students to crack. 🔑
• The difference between depreciation and devaluation is essential; make a tabular comparison in exams. 📅
• Understanding open vs closed economy IS curves is beneficial for comprehending net exports' impact. 🌐
• Exams require detailed explanations with examples for currency changes - not just definitions. 💬
• Practicing numericals and understanding short notes topics will bolster exam confidence. 🧮
• Use diagrams for questions like the J curve, and ensure a solid grasp of speculative concepts. 📉

Key Takeaways

• Unit 3 covers 50% of your Intermediate Macroeconomics 2 exam. Study hard! 📚
• Focus on chapter 6; it's loaded with key questions you can't miss! 📝
• Master the difference between depreciation and devaluation with examples. 💡
• Understand the IS curves in both open and closed economies for a better grip on economics. 🌍
• Don't just memorize definitions; create tables and diagrams for questions about currency shifts. 📊
• Practicing short notes and numericals can boost exam scores. Get cozy with concepts like forward premium and triangular arbitrage. ✍️
• Diagrams and concise explanations can fetch extra marks - make your examiners happy! 😊

Overview

Chapters

• 00:00 - 01:00: Introduction to Unit 3 The introduction to Unit 3 in Intermediate Macroeconomics 2 highlights the significance of this unit, stressing its substantial weightage of 50% in the overall evaluation. The lecturer emphasizes the importance of understanding this unit thoroughly, as its weightage is equivalent to that of Units 1 and 2 combined. Therefore, Unit 3 plays a crucial role in the course assessment.
• 01:00 - 02:30: Importance of Unit 3 Chapter Title: Importance of Unit 3 The discussion emphasized the significance of Unit 3, accounting for 50% of the exam score. It is crucial to dedicate ample time and thoroughly engage with Unit 3 to achieve a favorable outcome. The speaker stressed the necessity to practice all listed questions for mastery, highlighting the unit's pivotal role in the examination.
• 02:30 - 17:00: Questions from Chapter 6 This chapter focuses on questions derived from Chapter 6 in Unit 3 beta. It starts with an overview of the process by which questions are presented chapter by chapter, allowing the reader to consult their text while following along. This structured approach aims to enhance understanding and retention by correlating the discussion directly with the source material specified in chapter six of unit 3.
• 17:00 - 36:30: Questions from Chapter 20 The chapter focuses on the issue of why the external account should always balance itself. It references educational material from the Delhi School of Economics to address this question. The reader is directed to page 151 of Chapter 6 for a detailed explanation on why the current account must balance.
• 36:30 - 59:00: Questions from Chapter 14 The chapter focuses on financial equations and central banking functions. The first question seeks to decode the equation where the deficit added to the net capital inflow equals zero, prompting a detailed explanation of this financial principle. The second question addresses the reasons behind central banks holding reserves, as well as the factors influencing the extent of intervention required by these institutions.
• 59:00 - 76:00: Questions from Chapter 15 Chapter 15 includes a discussion on reserve intervention and fixed exchange rate intervention. The necessity and implications of these interventions are explained, referencing page 153 of the reading material, which seems to be crucial for understanding the topics at hand.
• 76:00 - 80:00: Important Short Notes In Chapter 6, the focus is on the concept of floating exchange rates. The discussion distinguishes between clean and dirty floating, providing insights into the differences. It also touches upon the understanding of fixed and flexible exchange rates as prerequisites for grasping the floating exchange rates effectively.

VVI QUESTIONS UNIT 3 | INTERMEDIATE MACROECONOMICS 2 | DU BA(H) ECONOMICS COACHING | SEM 4 Transcription

• 00:00 - 00:30 Hello beta good afternoon everyone today I am going to go ahead and give you all important questions from unit three of intermediate macroeconomics 2 let me just go ahead and tell you sub the most important thing is that this unit itself has a weightage of 50% better try to understand this thing huh the unit one plus unit 2 has a weightage of 50% and Unit 3 itself has a weightage of
• 00:30 - 01:00 50%. So you have to dedicate a lot of time on unit three and you have to make sure that you do unit three very very well. Say we need to go ahead and do each and every question whatever I have listed I'm listing here because this is one of the most important units of your exam. Okay. So 50% of the score goes to unit number three beta. Let's look into the questions that I have written. So I
• 01:00 - 01:30 am going chapter by chapter. The first few questions that you will be seeing, you can open your reading simultaneously. I will just go ahead and tell you. So the first chapter that I have given you question from that is actually chapter number six of unit 3 beta. Chapter number six of unit 3. This is this is where we are starting from is
• 01:30 - 02:00 the first question goes ahead and it says why should external account always balance itself. The answer of this question according to my reading I have purchased this reading from Delhi school of economics. So according to this the answer of this question is on page number 151 of chapter 6. Okay, page 151 of chapter 6, you have to go ahead and you have to explain why current account
• 02:00 - 02:30 deficit plus net capital inflow is equal to zero. So you need to go ahead and explain this equation better. Okay, this is what the first question is about. Come to the second question. Question number two, why do central bank hold reserves? What determines the amount of intervention that is required by the central bank? So
• 02:30 - 03:00 the question for the answer to this question is on page number 153 beta of your reading. Page 153 of your reading talks about why you need to hold reserve intervention or fixed exchange rate intervention. All of that is explained on page 153 beta. So you have to go ahead and write answer from that page
• 03:00 - 03:30 chapter 6. Okay. Now come to the next question. Next question is saying what is floating exchange rate? What is the difference between clean and dirty floating? The answer to this question is on page number 156 beta of chapter 6 is you should know what is fixed exchange rate, what is flexible exchange rate. You should know what is clean floating, dirty floating in short
• 03:30 - 04:00 note. So this question can also come as a short note. So you need to write a small answer for yourself. Okay. Okay. Come to the next question. What is the difference between depreciation and devaluation? Reverse can also come in exam. They can ask you what is the difference between appreciation and so just reme remember whenever such kind of question
• 04:00 - 04:30 come. So whenever such kind of questions come in exam what is required is that you go ahead and you make a table like thing okay you can write depreciation here you can write devaluation and what you can do now here you will write the definition better depreciation refers to this devaluation refers to this then you will write exchange rate
• 04:30 - 05:00 mechanism, right? So, we know that depreciation happens under flexible exchange rate and devaluation under fixed exchange rate. Right? Then you will go ahead and you will mention the mechanisms that for depreciation to take place when will it take place? When so you will you will answer that depreciation of the currency takes place when you know you will write all the
• 05:00 - 05:30 situation what happens to net exports what happens to capital flows case depreciation right and here you will write down that devaluation takes place when the government wants to devalue the currency right to you will explain under when when depreciation takes place and when devaluation takes place Then you will give you example. Example you will say that if I go from rupees 60 per dollar to rupees70
• 05:30 - 06:00 per dollar then rupees is depreciating. Yeah. You will give the example. Okay. And at last you will give the requirement of reserves that is there any role of reserves under depreciation of currency? Is there any role under the devaluation of currency? So don't think that in such questions you have to just go ahead and give the definition. Just giving the definition is not enough. You have to go ahead and
• 06:00 - 06:30 give a proper answer proper. You have to make these pointers and justify each and everything. Depreciation, appreciation, devaluation, revaluation. So this kind of question can be asked in exam. Okay. But question number five now. So this says what is real exchange rate? What determines the real exchange rate? The answer to this question is on page 160 of chapter number six. Again in this you
• 06:30 - 07:00 will go ahead and give the formula of real exchange rate that R is equal to E PF by P and he say you will tell the factors that R is a function of nominal exchange rate foreign prices and domestic prices or inco you will go ahead and explain right. Okay come to the next question. It says contrast an open economy is curve with a closed economy IS curve. But the answer to this
• 07:00 - 07:30 question is on page 161 of chapter 6. Page 161 of chapter number six. In this you will go ahead and tell closed economy we have y= c + i + g. And in open economy we have y = c + i + g + nx to open economy is curve. You will give that equation a is equal to a y i. But
• 07:30 - 08:00 you have to go ahead and explain that in open economy this y is affected by net exports also equations book. You need to go ahead and explain those equations very very nicely. Okay. So if you will look into your book it says net exports is equal to export minus import. Export is a function of the foreign income and
• 08:00 - 08:30 real exchange rate. Import is a function of domestic income and real exchange rate. So therefore net export is a function of foreign income, domestic income and real exchange rate. So when you will be writing this answer you need to go ahead and explain this net export curve also your equation be explain at the same time you need to go ahead and you need to ensure that you tell open economy versus closed economy
• 08:30 - 09:00 is curve slope difference right so whether the is curve becomes flatter or steeper for an open economy. You have to explain that also. Okay. Beta come to the next question. Question number seven now. So question seven is saying what are repercussion effects? What is the impact of following on net export and uh domestic income, increase in home
• 09:00 - 09:30 spending, increase in foreign income and real depreciation. So the answer of this is on page number 163 beta on page 163 there is a paragraph. This paragraph talks about the repercussion effect explain or in for these three pointers point A, B and C. You will go ahead and you will make that table which is given on the same page which says
• 09:30 - 10:00 income and net export. And here it says increase in home spending. It says increase in foreign income and it says real depreciation as it is you have to make in your exam. If you will make this table it will give you extra marks. Let me give you a very very clear analysis of the exam. Essay tables
• 10:00 - 10:30 diagrams. The examiner will always give you extra marks for that. So you will go ahead and make this table and it will definitely fetch you extra marks. Okay. Come to the next question. P question number A. It says what are the two policy dilemmas? Why is there a conflict between the two? The answer to this question is on page 164 of chapter number six. You have to go ahead and talk
• 10:30 - 11:00 about sorry not 164 166 of chapter number six. You have to go ahead and talk about better external and internal balance in D. What is external balance? What is internal balance? And in the same question you will go ahead and you will make this diagram better your diagram right. You will say that this is
• 11:00 - 11:30 your equilibrium income level. This is your equilibrium interest rate or in phases you will explain here there is deficit and unemployment deficit and overmployment and so on and so forth. Surplus unemployment surplus over overmployment. You will explain all those four cases. This will be the answer to this question. Okay. Now let us go ahead to the next question beta. So question number nine it says all the
• 11:30 - 12:00 cases of mundale flamming can be asked in exam. So in mundale flamming model they can ask you anything right? So they can go ahead and ask you fixed exchange rate plus fiscal policy or fixed exchange rate plus expansionary monetary policy or flexible exchange
• 12:00 - 12:30 rate plus fiscal policy or flexible exchange rate plus monitor policy. So they can go ahead and ask you any of these cases and you need to go ahead and do all these four cases well. Okay. Now from chapter six there are some important back questions that you must go ahead and cover. So do question one, question two and question four from the back
• 12:30 - 13:00 questions of this book. These are important back questions. Okay. This is it from chapter 6 beta. Let us continue now. So the next thing that is in your reading is chapter number 20. Right? And these are the important questions from chapter 20. So first question, what does a country with current account deficit attain equilibrium under fixed exchange rate? How does a country under uh with current account deficit attain equilibrium under
• 13:00 - 13:30 fixed exchange rate? But in this you need to go ahead and you need to explain figure 20.1 which is on page 601. Right? And then if you go to page 602 right in page 602 if you go to par 1 it talks about this only. It says what does a country with current account
• 13:30 - 14:00 deficit like at EU? Yeah. first line has come. So you need to just pick up that paragraph and read that paragraph. Well, that will help you answer this question. Come to the next question. It says, explain classic adjustment process. This question is again from page 602, classical adjustment process. Go towards the last of the page and you will get the answer to this question. Page 602,
• 14:00 - 14:30 chapter number 20. Okay. Now come to the next question beta. So next question is saying what are expenditure switching and expenditure reducing policies. So try to understand the difference. What is the difference between switching and reducing policy to expenditure switching means you switch your expenditure. foreign goods domestic
• 14:30 - 15:00 goods. So you switch your expenditure and expenditure reducing means you lower down the expenditure. So you have to try and explain both of them. The answer to this is given on page 603 beta of chapter number 20 and you must go ahead and do this very well. Take beta. Next question. So question number 14 it says consider an economy which faces adverse external shock. What step should it take
• 15:00 - 15:30 to achieve internal and external balance? The answer to this is given on uh page 606 beta page 606 chapter number 20 has the answer to this question. So if you will look at the diagram which is figure 20.3 the figure explains exactly this question. It says when a country faces
• 15:30 - 16:00 adverse external shock how you can just handle that. So you need to go ahead and write your answer from this one. Okay come to the next question. Does a decline in relative price always improve current account balance? examine to is I have changed the language and I have given you actually it is asking you to examine the J curve. It is asking you to examine the J
• 16:00 - 16:30 curve. So in this case you will write the answer entirely of J curve but current account balance actually worsen and with time the current account balance actually goes ahead and improves. So we have done this diagram also of Jcur and you should always go ahead and show this diagram also in exam is beta they can also ask you just part B to this question that you should be
• 16:30 - 17:00 writing a short note on hysteresis right again an important word from the point of view of exam okay beta let's go to the next question so next question goes ahead and says says nominal devaluation may not always lead to real devaluation justified. So this for this question you have to go to page 610 of chapter number 20 beta and on this page it says exchange
• 17:00 - 17:30 rate and relative price adjustment. Exchange rate and relative price adjustment. Section you have to write this section completely. Just go ahead and write this section completely. Clear? So nominal devaluation may not always lead to real devaluation justified. Please go to this page and write this section completely. Okay beta let's go to the next question
• 17:30 - 18:00 now. Question number 17. What are the functions of foreign exchange market? Okay, so this is coming from your next chapter now. Beta chapter number 14. Chapter number 14. What are the functions of foreign exchange market? The answer to this question is on page number 456 of
• 18:00 - 18:30 chapter number 14 beta. You have to tell all functions or marks to you also have to tell all the level of transactors or all level of participants. Right? Sometimes it can be asked as a separate question also. Right? So you need to go ahead and tell all level of participants. Right? But the solution of IIAT uh economics
• 18:30 - 19:00 paper I have solved it and posted on the portal. Actually it is only for enrolled students. It is posted on the portal. Let me see if I get some time. I will go ahead and take some questions on YouTube as well. Right. Okay. Fine. So now let's go to the next question. The next question is what determines the demand and supply of
• 19:00 - 19:30 foreign currency? How is equilibrium attained under flexible exchange rate? So the demand and supply of foreign currency. For this you need to go ahead and write answer from page 460 beta. The equilibrium conditions are well defined. So you can go ahead and take the equilibrium condition from there. demand supply you need to go ahead and write that also. Now let's go ahead one very
• 19:30 - 20:00 important very very important aspect of macroeconomics exam is short notes. Usually the last question of your exam that you will be seeing question number seven of your exam short notes form they will give you three or four short notes and they will give you some options. They will say out of the four write short note on three or write short note on two. So please go
• 20:00 - 20:30 ahead and do do revise short note. Do revise those short notes as them. Okay. I will definitely try if I can do so. Okay. So these are the short notes that you have to do. Arbitrage, effective exchange rate, cross exchange rate, triangular arbitrage. In your book there is an example given of triangular arbitrage. Please please revise that
• 20:30 - 21:00 example very well. H it can come as a numerical also. Same example numerical they will give you suppose the exchange rate between dollar and pounds is this much pounds is this much the exchange rate between pound and euro is this much the exchange rate between euro and dollar is this much then define the triangular arbitrage okay as a question it can be asked in exam and therefore I will go ahead and I want all of you to
• 21:00 - 21:30 revise that example I have done this as part of the video lecture. Please do that better. Next question. How is disequilibrium? How is beta uh question paper? Okay, question paper. You can go ahead and get it. Uh for question paper, you can just WhatsApp us. Uh and you can get the question paper of IAT Delhi. Hm. So it is uh just WhatsApp us on
• 21:30 - 22:00 83686 63950 just WhatsApp Rohit sir and he will give you the link to question paper. It is available on our website. Okay wait on what is the disequilibrium uh how is disequilibrium resolved under fixed exchange rate? How is it different from flexible exchange rate? Bit important question. In this you have to go ahead and you have to write answer of
• 22:00 - 22:30 page 466. Right on this page 466 there is a diagram 14.2. This case may diagram explain it explains both the cases. It explains fixed exchange rate also and it explains flexible exchange rate also. So go ahead and do these two cases from this diagram. Question number 21 again
• 22:30 - 23:00 short notes usually in topics forward exchange rate, spot exchange rate, forward premium, currency swap, hedging, speculation there is mostly 90% of the time there will be a short note that would be asked in your exam. So therefore all of you have to write short notes on these right there will be sometimes a choice in short notes as I am telling you to out of short notes will be for 15 marks huh and they will give you three short notes just say you
• 23:00 - 23:30 have to write on two each for 7.5 right so this is the topics for short notes again forward rate spot rate forward premium currency swap foreign exchange risk hedging and specul relation here. I want to again specify that they can ask you a numerical very very small numerical based on the formula beta book. So they will ask you find out the forward
• 23:30 - 24:00 discount or find out the forward premium and then they will just give you some values. Suppose the spot rate is one the forward rate is 1.01 then find the forward premium. to forward premium you will just go ahead and plug the formula and you will get the answer to this question. So basic basic formulas revise them very well. There will be a numerical that will be asked in
• 24:00 - 24:30 exam. Okay. Now let's go to contrast between futures and option. But when you will be contrasting between future and option, you have to make sure it's answer that is on page I think I just saw this. It is on page 469 only of this chapter number 14.
• 24:30 - 25:00 Say in this question you need to make sure that you make a table better. What is the time time frame involved? Right? What is their definition? Right? When is it required? Right? And then you have to give all such points VA possible pointers they are issued. Can you redeem it early or not? On all those aspects you will go ahead and you will
• 25:00 - 25:30 distinguish between forward and options, forward and futures. Sometimes it will ask you between forward, future and option to explain that an option. There are two kind of options like put option, call option which is you will go ahead and explain. Okay. Come to the next question. What is the difference between stabilizing and destabilizing speculation? This may come as a short note
• 25:30 - 26:00 also answer. It's a very small part that you have to go ahead and do. And this is on page 478 of chapter 14. Okay. Come to the next question. What is covered interest parity? Diagrammatically explain covered interest arbitrage. What is covered interest arbitrage margin? Sometimes they will ask you distinguish between uncovered interest arbitrage and covered
• 26:00 - 26:30 interest arbitrage. This can come as an important question and sometimes they will only ask you covered interest arbitrage or CI M. This entire part is super important from exam point of view important or exammroach. So figure 14.5 of page 482 chapter 14 is super
• 26:30 - 27:00 super important important and then the equation 14.2 it is equation 14.2 2 it is very very important from exam point of view equation if you just go to the next page that is page 484 chapter number 14 beta this page there is a small numerical given again numerical in which you have
• 27:00 - 27:30 to calculate C I A this can be asked as it is an exam that do this numerical it can be asked in exam and you must go ahead and do this. So please go ahead and do this totas a threeliner numerical of deriving C I A M right. Similarly if you just go to your next page that is appendex. In
• 27:30 - 28:00 appendex also there is this formula given to you. You need to go ahead and revise that formula very well. Okay. I have already derived this in uh in my video lectures and it is available on the portal but question C is equal to I - I upon 1 + I - F_s - SR by SR please try to remember this formula well derive it
• 28:00 - 28:30 well this can be asked in exam okay now we will go ahead to chapter number 15 beta Chapter number 15 is exchange rate determination. This is the first question from that chapter. What is the difference between absolute and purchasing power parity? What do empirical results suggest? A lot of times in exam you will notice empirical results club and they ask you empirical results it will be say
• 28:30 - 29:00 suppose question suppose it is for eight marks. So this will come for six and this will come for two. Right? If it is for say 15 marks so this will go ahead and come for 10 and this will come for five. So comparatively empirical mark empirical results will come for a very small weightage and you don't have to remember it in huge detail but one one and a half
• 29:00 - 29:30 paragraphs that is it that you have to go ahead and study. Okay, then the next question which is important beta, what is monetary approach under fixed and flexible exchange rate? How can it be used for exchange rate determination? So again you have to explain both under fixed and flexible exchange rate. Answer to this is on page number 509 beta section 15.3 very very important or is you have
• 29:30 - 30:00 to derive the entire equations till you reach this exchange rate MS k* yar upon ms k y msar k y this is your derivation You should be well aware about that because that is used for exchange rate determination. Okay. Come to the next
• 30:00 - 30:30 question now. Beta an expected change in exchange rate will lead to change in actual exchange rate justified. So uh for this you can I have to see where which page to refer for this one. Yeah. So page number 517 beta chapter 15 15
• 30:30 - 31:00 15.3D section in this if you go to par 2 it explains this line and as I told you you have to read in between the lines MCQ's difficult so try to read this properly answer okay come to next bit question number 28 it says What is the portfolio balance approach? How is it different from monetary approach? The answer to
• 31:00 - 31:30 this question is uh section 15.4A which talks about the asset market approach. It talks about asset market approach to is you have to also learn to find the difference between the two. So if you will go to the next paragraph under asset market approach it says asset market approach differs from monetary
• 31:30 - 32:00 approach to paragraph it is 15.4A 4 a par number two. You need to do this well beta. Okay. Come to the next question. What is extended asset market? What is extended asset market model? What factor determine demand for domestic money, bond and foreign bond? Let me highlight your question. Important is very important. But this question can be rewarded.
• 32:00 - 32:30 So it says consider an expected appreciation of foreign currency. How does it impact demand of domestic money, domestic bond and foreign bonds? Instead of expected appreciation of foreign currency consider a change in the interest rate, domestic interest rate. How does it
• 32:30 - 33:00 impact all these three things? Or consider a change in the price level. How does it impact these three things? So you need to go ahead and you need to remember this well to you. Now if you go to equation 15.10 10 15.11 15.12 know equations you have to do them very nicely factors that you know M is a function of interest rate foreign interest rate expected appreciation risk
• 33:00 - 33:30 premium Y p W S factors up you have to remember how it is going to impact M right so you need to go ahead and do All these factors factor they can ask you this question. Okay. Next question. Why does exchange rate overshoot before reaching and equilibrium? This question will be again definitely be asked in exam.
• 33:30 - 34:00 Exchange rate overshooting model. Figure 15.5. You have to do it thoroughly. guaranteed question full-fledged marks. So you have to definitely do this question. It's a 150% definitely asked question in exam. Okay. Next question. Do empirical test support any for monetary and asset market approach? So
• 34:00 - 34:30 this is section 15.6 or I don't want to read this big section 15.6. What you can do now? You can go towards the summary summary book. Six summary pointers are given. Six summary pointers. Point number six that is enough for your revision of this question and it says
• 34:30 - 35:00 empirical test do not provide much support for monetary and asset market approach. explain five six lines that is enough for this question. So you can just read it from the summary. Summary is enough. Make sure I am expecting MCQ questions. The MCQ
• 35:00 - 35:30 questions beta that will be actually asked from the summaries of this chapter especially chapter 15 summary say MCQ pointers. So you have to do this summary very nicely. Okay bet. Now let me go to this question. This is question number 33. And to do question number 33 what you need to do now? You need to do this from the appendix appendix of chapter 15. Chapter
• 35:30 - 36:00 15 append it's a n question and examiner actually append I don't want you to take any risk so go ahead and revise this question it can be easily solved from the appendix
• 36:00 - 36:30 beta okay so now it says exam Examine the effect of exchange rate uh on exchange rate of increase in domestic money supply one and for all depreciation using portfolio balance approach. This is again from appendex 15.2 beta. You can write the answer to this question. So refer to appendex 15.2 for this question. Okay. Next question beta. This is from your next chapter. Chapter number 20.6 Step six is say
• 36:30 - 37:00 questions. So first of all the question is write short note on on this most probably there will be a short note that will be asked. So write short note on exchange rate band in this beta you need to go ahead and make the diagram figure 20.3. Second adjustable peg system and third crawling peg. So important from exam point of view.
• 37:00 - 37:30 Okay, important but I just want you to to read it time. So what is leaning against the wind policy? Are there any reserves required under uh the dirty floating? So leaning against the wind policy beta this is covered under section 20.6D 6 MCQ rather than a full-fledged question or MCQ word leaning against the
• 37:30 - 38:00 wind policy to just read it out from the point of view of an MCQ. So these are the important questions