Explain the store of value function of money.
Or
State the meaning and components of money supply.
People keep their wealth in the form of money because money is the most liquid form of wealth. Savings in the form of money is maintained for purchasing commodities in the future. In this case, the values of commodities are being stored. Hence, money acts as a store of value. Wealth is stored in terms of goods as there was no money in existence. . For example, wheat and rice do not possess durability i.e. their quality deteriorates with passage of time. Storage of good requires time and efforts. Hence, it is not practically possible to store people’s purchasing power.
justification for store value of money:
i)money is the most and widely accepted as a common medium of exchange
ii)there is no loss in the value of money over time
iii)money can be stored conveneintly and does not involve any cost
iv) money abolished barter system and all the problems related to it.
or,
Money supply means the total stock of money in circulation, in form of coins and currency notes, among the people at a particular point of time in an economy.
There are various types of money supply and these are labeled as M0, M1, M2 and M3, according to the type and size of the account in which the instrument is kept.
M1 = Currency with the public + demand deposits with the commercial banks + deposits kept by commercial banks with the Reserve Bank.
or M1 = C + DD + OD
Demand deposits are not for any specific period of time. They can be withdrawn as and when required. Demand deposits are chequeable deposits.
2. M2 = M1 + Savings deposits with Post office Savings banks.
Saving deposit includes the features of both demand and term deposits.
3. M3 = M2 + Term deposits in Commercial banks. Term deposits are always for a specific period of time. They cannot withdraw
money as when required. They are not chequeable deposits as we cannot sign a cheque against these deposits.
4. M4 = M3 + Savings with the Post office other than in the form of National Saving Certificate.
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.