Short Answer TypeExplain the store of value function of money.
Or
State the meaning and components of money supply.
Explain ‘banker to the government’ function of the central bank.
Or
Explain the role of reverse repo rate in controlling money supply.
An economy is in equilibrium. From the following data about an economy calculate autonomous consumption.
(i) Income = 5000
(ii) Marginal propensity to save = 0.2
(iii) Investment expenditure = 800
Why does the demand for foreign currency fall and supply rises when its price rises ? Explain.
Long Answer TypeExplain ‘non-monetary exchanges’ as a limitation of using gross domestic product as an index of welfare of a country.
Or
How will you treat the following while estimating domestic product of a country ? Give reasons for your answer :
(a) Profits earned by branches of country’s bank in other countries
(b) Gifts given by an employer to his employees on independence day
(c) Purchase of goods by foreign tourists
The major limitation of GDP as an index of welfare of country is that GNP does not take into account those transactions that are not expressed in monetary terms.Non-monetary exchanges are not considered for the estimation of domestic income. These transactions such as domestic services rendered by house wife, kitchen gardening and a parent teaching her child. It is difficult to ascertain their market value and not rendered for the purpose of earning income. Though these services are rendered for development of a child and welfare of the family, it is not included in the gross national product. Thus, 'non-monetary exchanges' as a limitation of using gross domestic product as an index of welfare of a country.
or,
i. Profits earned by branches of country's bank in other countries are not included in the estimation of national income because the branches of country's bank in other countries are outside the domestic territory.
ii. Gifts given by an employer to his employees on Independence Day are included in the domestic income because the gifts given by the employer are compensation in kind.
iii. Purchase of goods by foreign tourists is included in the estimation of domestic income because they are exports and part of domestic income.
Calculate (a) net domestic product at factor cost and (b) gross national disposable income :
| s. no. | in RS | |
| 1 | Private final consumption expenditure | 8000 |
| 2 | Government final consumption expenditure | 1000 |
| 3 | exports | 70 |
| 4 | imports | 120 |
| 5 | Consumption of fixed capital | 60 |
| 6 | Gross domestic fixed capital formation | 500 |
| 7 | change in stock | 100 |
| 8 | Factor income to abroad | 40 |
| 9 | Factor income from abroad | 90 |
| 10 | indirect taxes | 700 |
| 11 | subsidies | 50 |
| 12 | Net current transfers to abroad | (-)30 |
Assuming that increase in investment is Rs. 1000 crore and marginal propensity to consume is 0.9, explain the working of multiplier.
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