Explain the role of the following in correcting 'deficient demand' in an economy:
Bank rate
Bank Rate as an Instrument to Correct Deficit Demand:
Bank rate refers to the rate at which the central bank provides loans to the commercial banks. To curtail deficit demand, the central bank lowers the bank rate. This implies that cost of borrowing for the commercial banks from the central bank reduces. The commercial banks in turn reduce the lending rate (the rate at which they provide loans) for their customers. This reduction in the lending rate raises the borrowing capacity of the public, thereby, encourages the demand for loans and credit. Consequently, the level of Aggregate Demand in the economy increases and deficit demand is corrected.
Explain the process of money creation by the commercial banks with the help of a numerical example.
Giving reasons classify the following into intermediate products and final products:
Chalks, dusters, etc. purchased by a school.
Explain the role of the following in correcting 'excess demand' in an economy:
Open market operations
From the following data about a Government budget, find out (a) Revenue deficit, (b) Fiscal deficit and (c) Primary deficit:
(Rs. Arab)
(i) Capital receipts net of borrowings 95
(ii) Revenue expenditure 100
(iii) Interest payments 10
(iv) Revenue receipts 80
(v) Capital expenditure 110
Giving reasons classify the following into intermediate products and final products:
Furniture purchased by a school.
Distinguish between collusive and non-collusive oligopoly. Explain how the oligopoly firms are interdependent in taking price and output decisions.
Explain the role of the following in correcting 'deficient demand' in an economy:
Open market operations.
