State the components of capital account of balance of payments.
(1) Borrowings and Lendings to and from abroad:
All transactions relating to borrowings from abroad by private sector, government, etc. Receipts of such loans and repayment of loans by foreigners are recorded on the positive (credit) side. All transactions of lending to abroad by private sector and government. Lending abroad and repayment of loans to abroad is recorded as negative or debit item.
(2) Investments to and from abroad:
Investments by rest of the world in shares of Indian companies, real estate in India, etc. Such investments from abroad are recorded on the positive (credit) side as they bring in foreign exchange. Investments by Indian residents in shares of foreign companies, real estate abroad, etc. Such investments to abroad be recorded on the negative (debit) side as they lead to outflow of foreign exchange.
(3) Changes in foreign exchange reserves:
The foreign exchange reserves are the financial assets of the government held in the central bank. A change in reserves serves as the financing item in India’s BOP. So, any withdrawal from the reserves is recorded on the positive (credit) side and any addition to these reserves is recorded on the negative (debit) side.
Explain how 'distribution of gross domestic product' is a limitation in taking gross domestic product as an index of welfare.
Given that national income is Rs.80 crore and consumption expenditure Rs.64 crore, find out average propensity to save. When income rises to Rs.100 crore and consumption expenditure to Rs.78 crore, what will be the average propensity to consume and the marginal propensity to consume?
Explain the relationship between investment multiplier and marginal propensity to consume.
