Government raises its expenditure on producing public goods. Which economic value does it reflect? Explain.
The economic value that is reflected in the rise in the production of public goods is the 'social welfare'. The major objective of the budgetary policy of the government is to enhance the welfare of the society at large. For this, it performs the allocative function. The allocative function is concerned with allocating the resources between the private and public sectors. As the public goods cannot be provided by the private sectors through market mechanism, hence the need for providing such goods is to be fulfilled by the government. In addition to this, private goods cannot be afforded by all, that is, only those who can pay for these goods can avail the benefits of such goods. But, as the public goods are required by all and are essential from welfare point of view, thus, government provide these goods.
Explain national income equilibrium through aggregate demand and aggregate supply. Use diagram. Also explain the changes that take place in an economy when the economy is not in equilibrium.
Calculate investment expenditure from the following data about an economy which is in equilibrium:
National income = 1000
Marginal propensity to save = 0.25
Autonomous consumption expenditure = 200
Calculate national income and gross national disposable income from the following:
(Rs.)
1. Net current transfers to abroad (-) 15
2. Private final consumption expenditure 600
3. Subsidies 20
4. Government final consumption expenditure 100
5. Indirect tax 120
6. Net imports 20
7. Consumption of fixed capital 35
8. Net change in stocks (-10)
9. Net factor income to abroad 5
10. Net domestic capital formation 110
Outline the steps required to be taken in deriving saving curve from the given consumption curve. Use diagram.
