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.
Central Bank acts as Banker to the government in the following ways:
(i)The central bank is also a banker, agent and financial advisor to the government.
(ii)As a banker, it manages government accounts across the country. It buys and sells securities on behalf of the government as an agent of the government.
(iii)It helps the government in framing policies to regulate the money market by acting as an advisor to the government.
(iv) it also grants short term loans and credit to government.
or,
Reverse repo rate is the rate at which the RBI or the central bank borrows from the other commercial banks. It plays an effective role in controlling the money supply. For example, an increase in the average repo rate implies that the banks will get higher rate of interest from the RBI on their lendings. As a result the banks will lend more to the RBI and less to the public. Thus, resulting in a decrease in the money supply. Similarly, in the case the RBI decreases the reverse repo rate the banks will get a lower rate of interest on their borrowings. as result they can lend more to the public which will in turn increase the 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
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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