Explain the 'lender of last resort' function of a central bank.
Lender of last resort function of Central Bank implies that the Central Bank is under the obligation to provide funds against securities to the commercial bank as and when needed by them. When a commercial bank faces a financial crisis and fails to obtain funds from other sources, then the central bank provides them with the financial assistance in the form of credit. This role of the central bank saves the commercial bank from being bankrupt. Thus, the central bank plays the role of a guarantor for the commercial banks and maintains a sound and healthy banking system in the economy.
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
Government raises its expenditure on producing public goods. Which economic value does it reflect? Explain.
Calculate national income and gross national disposable income from the following:
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
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.
Outline the steps required to be taken in deriving saving curve from the given consumption curve. Use diagram.