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.
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.
The demand for foreign currency fall and supply rises when its price rises because domestic goods become cheaper. It induces the foreign currency to increase their imports from the domestic country. When the price of the foreign currency increases, this implies that the domestic currency has increased in terms of the foreign currency.in other words, it means that the domestic currency has depreciated.
For example, if price of 1US dollar rises from Rs 53 to Rs 59, it implies that exports to US will increase as Indian goods will become relatively cheaper. It will raise the supply of US dollars.
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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