Short Answer TypeWhere will sale of machinery to abroad be recorded in the Balance of Payments Accounts? Give reasons.
Explain the 'bank of issue' function of the central bank.
Or
Explain 'Government's Bank' function of central bank.
The central bank is the bank of issue. It has the monopoly of note issue. Notes issued by it circulate as legal tender money. It has its issue department which issues notes and coins to commercial banks. Coins are manufactured in the government mint but they are put into circulation through the central bank.
However, the currency issued by the central bank is its monetary liability. In other words, the central bank is obliged to back the currency issued by it by assets of equal value such as gold coins and bullions, foreign exchange. In addition to issuing currency to the general public, the central bank also issues currency to the central government of the country.
Or
Central banks act as bankers, fiscal agents and advisers to their respective governments. As a banker to the government, the central bank keeps the deposits of the central and state governments and makes payments on behalf of governments. But it does not pay interest on governments deposits. It buys and sells foreign currencies on behalf of the government. It keeps the stock of gold of the government. Thus it is the custodian of government money and wealth. As a fiscal agent, the central bank makes short-term loans to the government for a period not exceeding 90 days. It floats loans, pays interest on them, and finally repays them on behalf of the government. Thus it manages the entire public debt. The central bank also advises the government on such economic and money matters as controlling inflation or deflation, devaluation or revaluation of the currency, deficit financing, balance of payments, etc.
Government of India has recently launched 'Jan-Dhan Yojna' aimed at every household in the country to have at least one bank account. Explain how deposits made under the plan are going to affect national income of the country.
An economy is in equilibrium. Calculate national income from the following:
Autonomous consumption (C) = 100
Marginal propensity to save (S) = 0.2
Investment expenditure (I) = 200
Long Answer TypeA consumer consumes only two goods X and Y both priced at Rs. 3 per unit. If the consumer chooses a combination of these two goods with Marginal Rate of Substitution equal to 3, is the consumer in equilibrium? Give reasons. What will a rational consumer do in this situation? Explain.
Or
A consumer consumes only two goods X and Y whose prices are Rs. 4 and Rs. 5 per unit respectively. If the consumer chooses a combination of the two goods with marginal utility of X equal to 5 and that of Y equal to 4, is the consumer in equilibrium? Give reason. What will a rational consumer do in this situation? Use utility analysis.
Giving reason, explain how the following should be treated in estimation of national income:
(i) Expenditure by a firm on payment of fees to a chartered accountant
(ii) Payment of corporate tax by a firm
(iii) Purchase of refrigerator by a firm for own use
Explain the concept of Inflationary Gap. Explain the role of Repo Rate in reducing this gap.
OR
Explain the concept of Deflationary Gap and the role of 'Open Market Operations' in reducing this gap.
Explain the role the government can play through the budget in influencing allocation of resources.
Calculate National Income and Personal Disposable Income:
| (Rs.crores) | ||
| (i) | Personal tax | 80 |
| (ii) | Private final consumption expenditure | 600 |
| (iii) | Undistributed profits | 30 |
| (iv) | Private income | 650 |
| (v) | Government final consumption expenditure | 100 |
| (vi) | Corporate tax | 50 |
| (vii) | Net domestic fixed capital formation | 70 |
| (viii) | Net indirect tax | 60 |
| (ix) | Depreciation | 14 |
| (x) | Change in stocks | (-) 10 |
| (xi) | Net imports | 20 |
| (xii) | Net factor income to abroad | 10 |
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