Pir Mehr Ali Shah

Arid Agriculture University, Rawalpindi

Office of the Controller of Examinations
Final Exam / spring 2021 (Paper Duration 12 hours)
To be filled by Teacher

Course No.: ECON-402……. Course Title: Institutional Economics. Morning/Evening

Total Marks: 36……………….. Year: 2021…………………………………………Date of Exam: 14-July-2021
Degree: BS (Economics)… Semester: 4TH…………………… Section: A/B…………B……
Marks
Q. No. 1 2 3 4 5 6 7 8 9 10
Obtained/Total Marks
Marks
Obtained

Total Marks in Words:

Name of the teacher :(Who taught the course)
Signature of teacher / Examiner:

To be filled by Student

Registration No: ……19 Arid 1856…… Name: …Sonia Hameed……………..

Answer the following questions.

Q.No.1. Define the political institution? Elaborate how political institution work and discuss the main
institutional factor influence on the growth of economy during this pandemic
Situation? (Marks….6)
Answer:Political institutions are organizations which create, enforce, and apply laws; that mediate
conflict; make governmental policy on the economy and social systems; and otherwise provide
representation for the populous
A set of norms relating to distribution of power and authority concerning the management and
control of society to bring order in life
Examples of such political institutions include political parties, trade unions, and the (legal) courts.
Health and human tragedy of the coronavirus, it is now widely recognised that the pandemic triggered
the most serious economic crisis since World War II. Many economies will not recover their 2019
output levels until 2022 at the earliest .A rebound of the epidemic in autumn 2020 is increasing the
uncertainty the nature of the crisis is unprecedented: beyond the short-term repeated health and
economic shocks, the long-term effects on human capital, productivity and behaviour may be long-
lasting. The COVID crisis has massively accelerated some pre-existing trends, in particular
digitalisation. It has shaken the world, setting in motion waves of change with a wide range of
possible trajectories. On the health front, many countries are adopting differentiated territorial
approaches, for example on policies surrounding masks or lockdowns.
On the socio-economic front, governments are providing massive fiscal support to protect firms,
households and vulnerable populations. They have spent more than USD 12 trillion globally since
March 2020. Many countries, and the EU, have reallocated public funding to crisis priorities,
supporting health care, SMEs, vulnerable populations and regions particularly hit by the crisis. In
addition, more two thirds of OECD countries have introduced measures to support subnational
finance – on the spending and revenue side – and have relaxed fiscal rules.
Many governments announced large investment recovery packages – already much larger than those
adopted in 2008 – focusing on public investment. These investment recovery packages prioritise three
areas: strengthening health systems; (ii) digitalisation; (iii) accelerating the transition to a carbon
neutral economy. Four months on, economic recovery are still few.government estimates that the
gross domestic product will contract by 0.38 per cent for the fiscal year 2019-2020. The World Bank
has forecast even sharper drops of 2.6 per cent for 2019-2020 and 0.2 per cent for 2020-2021.
If the government’s goal in lifting the lockdown was to get the economy moving, little suggests that is
happening, even as numbers of new cases mount. Indeed, it has become ever clearer that economic
growth depends on curbing the virus. On 22 April, days after the lockdown was first eased, the World
Health Organisation’s director general had warned, “Without effective interventions [in Pakistan],
there could be an estimated 200K+ cases by mid-July. The impact on the economy could be
devastating, doubling the number of people living in poverty”. Four months on, signs of economic
recovery are still few.
The federal government has provided emergency assistance to families in need, including food
subsidies and support, but for many this aid is barely enough. The Ehsaas emergency cash program
(the renamed Benazir Income Support Program) provides financial assistance to an estimated twelve
million families that fall under the poverty line. Islamabad began the scheme on 9 April and extended
it the following month to provide a similar amount to four million unemployed workers. Yet the lump
sum cash transfer of approximately $75 to cover four months of expenses hardly covers food costs.
Such support could well be critical for months. According to Prime Minister Khan, the cash
disbursement program can only be a temporary solution, which is why the lockdown was lifted.
“There’s no way the government can give out handouts to feed people for that long”. Yet with the
pandemic continuing to hinder any economic recovery, the need for state assistance appears likely to
increase further. A prominent public health expert and demographer noted: “There is no choice but to
provide the essentials like food, water and health care for the poorest 20 per cent of the population
for the next few months. ... [t]he counterfactual is skyrocketing poverty, malnutrition and deaths of
key household members that will be difficult to repair financially and emotionally”.
At the same time, the government’s financial resources are strained, though foreign aid should help.
Donors have earmarked additional assistance to help Pakistan cope with the pandemic’s economic
impact, including through social protection programs for families in need. The government looks set
to receive billions of dollars in pandemic-related aid.

Q.No.2…. what is the difference between rent seeking and corruption? .give your arguments to
control corruption in Pakistan also explain some policies work on anticorruption
in Pakistan? (Marks….6)
Answer: Rent seeking is increasing a company’s income without actually offering any additional
value. It usually happens with the assistance of the government, whether it’s regulations of tariffs or
direct or indirect subsidies. It can make it much harder and more expensive for a newcomer to enter
the industry, so they don’t have to compete. It can allow them to raise their prices without have to
make a better product. It can increase their money flow without welling anything to get it.
Corruption of one sort or another is usually associated with it, but often not a direct payment of
money. It can go to a campaign fund. It can be supporting a union that aids in an election. It can be
letting the politician make money indirectly or for friends and family to benefit. Beneficial terms on a
loan. There are many ways to benefit than just a cash payment.
As long as the government has economic power to sell, there will always be buyers.When buying and
selling are controlled by legislation, the first things to be bought and sold are legislators.”
There are many factors that contribute to the proliferation of corruption. These include the lack of
education, weak institutions, and a dishonest leadership and political system. There are multiple
solutions, though, if they were sincerely applied.
First, educate people so that they are well aware of their rights and duties towards the state. It is only
the people who can play an effective play role in curbing corruption.
In a democracy, people are the most powerful entity, but they need education to do their job. Then,
there should be strict laws against those involved in corruption. Lastly, institutions should be
strengthened and made independent of any political influence.
Effective law enforcement is essential to ensure the corrupt are punished and break the cycle of
impunity, or freedom from punishment or loss.
Successful enforcement approaches are supported by a strong legal framework, law enforcement
branches and an independent and effective court system. Civil society can support the process with
initiatives such as Transparency International’s Unmask the Corrupt campaign.
Reforms focussing on improving financial management and strengthening the role of auditing
agencies have in many countries achieved greater impact than public sector reforms on curbing
corruption.
One such reform is the disclosure of budget information, which prevents waste and misappropriation
of resources. For example, Transparency International Sri Lanka promotes transparent and
participatory budgeting by training local communities to comment on the proposed budgets of their
local government.
Countries successful at curbing corruption have a long tradition of government openness, freedom of
the press, transparency and access to information. Access to information increases the responsiveness
of government bodies, while simultaneously having a positive effect on the levels of public
participation in a country.
Transparency International Maldives successfully advocated for the adoption of one of the world’s
strongest rights to information law by putting pressure on local MPs
Strengthening citizens demand for anti-corruption and empowering them to hold government
accountable is a sustainable approach that helps to build mutual trust between citizens and
government. For example, community monitoring initiatives have in some cases contributed to the
detection of corruption, reduced leakages of funds, and improved the quantity and quality of public
services.
Without access to the international financial system, corrupt public officials throughout the world
would not be able to launder and hide the proceeds of looted state assets. Major financial centres
urgently need to put in place ways to stop their banks and cooperating offshore financial centres from
absorbing illicit flows of money.
Some policies for anti corruption:
working with motivated leaders
addressing key areas like health and education service delivery, or the development of natural
resources
establishing accountability through oversight systems and transparent decision-making
strengthening the accountability function of civil society and an independent media
supporting the role of parliaments and supreme audit institutions to monitor government
performance
appointing a public service based on merit and competitive recruitment
simplifying tax systems, reducing red tape and eliminating unnecessary regulation.

Q.No.3….Every student take one project and how to calculate the cost benefit analysis of their project
explain it step by step? (Marks….6)
Answer: A cost-benefit analysis (CBA) is the process used to measure the benefits of a decision or
taking action minus the costs associated with taking that action. A CBA involves measurable financial
metrics such as revenue earned or costs saved as a result of the decision to pursue a project.
Step 1: Compile lists
The first thing to do when running a cost benefit analysis is to compile a comprehensive list of all the
costs and benefits associated with the potential action or decision.
Consider not only the obvious costs but also possible intangible costs like the opportunity cost of
picking one software over another, like hiring a new employee.

Step 2: Give the costs and benefits a monetary value

Once you have two comprehensive lists of costs and benefits for the action, assign monetary values to
each individual cost or benefit.
The values will be obvious - like the cost of installing the software might be $500. However, it is also
important to try to assign monetary values to direct or indirect and tangible and intangible costs or
benefits if possible.

Step 3: Set up the equation and compare

Take the sum of the benefits the sum of all the monetary values assigned to the benefits o f the action
and the sum of the costs the monetary values of the costs of the action and plug them into the b/c
equation.
The equation should be a numerical equation, and if the numerical benefits the sum of the fiscal
values for the benefits of the action outweigh the costs, it is advisable to proceed with the decision. If
not, the company or individual should re-examine the potential action and make adjustments
accordingly.
This equation can also be set up for multiple different options or projects and can help companies
compare options side by side.
Q.No.4….what is difference between neoclassical economics, Old and new institution economics?
Write a complete note on effect of social capital on economic growth? Is this positive impact or
negative impact give your arguments? (Marks….6)
Answer: Neoclassical economics is a broad approach that attempts to explain the production, pricing,
consumption of goods and services, and income distribution through supply and demand. It integrates
the cost-of-production theory from classical economics with the concept of utility maximization and
marginalism. Neoclassical economics emerged in the 1900s. In 1933, imperfect competition models
were introduced into neoclassical economics. Some new tools, such as indifference curves and
marginal revenue curves, were used. The new tools were instrumental in improving the sophistication
of its mathematical approaches, boosting the development of neoclassical economics.
Neoclassical economics is primarily concerned with the efficient allocation of limited productive
resources. It also considers the growth of the resources in the long term, which will allow for
expanding the production of goods and services.
Neoclassical economics integrates the cost of production theory from classical economics with the
concepts of utility maximization and marginalism.
Classical economics states that the cost of production drives the value of a good or service.
Neoclassical economics emphasizes demand as a key driver of the value of a product or service.New
institutional economics (NIE) is an economic perspective that attempts to extend economics by
focusing on the institutions (that is to say the social and legal norms and rules) that underlie economic
activity and with analysis beyond earlier institutional economics and neoclassical economics.Unlike
neoclassical economics, it also considers the role of culture and classical political economy in
economic development.
The NIE assume that individuals are rational and that they seek to maximize their preferences, but
that they also have cognitive limitations, lack complete information and have difficulties monitoring
and enforcing agreements. As a result, institutions form in large part as an effective way to deal with
transaction costs.
Social capital has a direct effect on economic performance through its influence on reducing
transaction costs and offsetting the effects of malign externalities. Social capital has a direct influence
on growth because it enables actors to solve collective action problems.Social capital is an important
constituent of the prosperity of a company. Social networks in an organization include the trust
among the employees, their satisfaction level with the job and also the quality of communications
that take place with the peers, seniors and subordinates.
Strong social networking, coupled with efficient performance by the workforce, signifies a healthy
state of affairs for the company. Social capital stresses on the importance of these social networks and
relationships and aims to use it in the best possible way for achieving organizational goals.
Social capital might have its share of pros and cons, but if it is utilized properly, it can pave the way for
an organization's prosperity.First, by reducing transaction costs, creating new forms of information
exchange and influencing behaviour through norms, higher social capital induces innovation. The
empirical findings suggest that innovation works as a transmission mechanism that translates social
capital to economic growth.
Social capital producing negative outcomes is generally called as negative social capital. The potential
downsides include restrictions on individual freedom, excess claims on group members and exclusion
of outsiders. ... Social capital is all about bridging the gap between the rich and the poor.

…….………………….Best Of Luck ………………………….