Explain 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.
Explain ‘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
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.
Given that
Value of MPC = 0.9
Initial increase in investment = Rs 1000 crore
So, every increase of Re 1 in the income, 0.9 part of the increased income will be consumed
by people.
Consumption= Rs 0.90
Saving= Rs 0.10
It is given that initial increase in investment of RS1000 will lead to change in the income by RS1000 in the first round. As MPC is 0.9 so people will consume 0.9 of the increased income i.e 900 thereby saving RS 100. In the next round due to increase in the consumption expenditure by RS 900 there will be an increase in income by RS 900. Then people will again spend the increased income i.e RS 810 and save the rest part of the income RS 90. similarly, this process will continue and the income will go on increasing as a result of the increase in consumption. The total change in the income is RS 10,000 and the change in the investment will be RS 1,000.