Explain the role of the following in correcting 'excess demand' in an economy:
Bank rate
Bank Rate as an Instrument to Correct Excess Demand:
Bank rate is the rate at which the central bank provides loan to the commercial banks. To control excess demand, the central bank increases the bank rate. A rise in the bank rate increases the cost of borrowing for the commercial banks from the central bank. The commercial banks in turn raise the lending rate (the rate at which they provide loans) for their customers. This rise in the lending rate reduces the borrowing capacity of the public, thereby, discourages the demand for loans and credit. Consequently, the level of Aggregate Demand in the economy falls and excess demand is curtailed.
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 process of money creation by the commercial banks with the help of a numerical example.
Explain the role of the following in correcting 'deficient 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
Explain the role of the following in correcting 'deficient demand' in an economy:
Bank rate
Explain the role of the following in correcting 'excess demand' in an economy:
Open market operations
Giving reasons classify the following into intermediate products and final products:
Chalks, dusters, etc. purchased by a school.
