2nd PUC Economics Question Bank Chapter 10 Income Determination

Under MSF, banks can borrow funds up to 1% of their net demand and time liabilities . The given value of autonomous consumption is incorrect. Decision whether to invest or not The investor goes on making additional investments until M.E.I becomes equal to the rate of interest.

Gross domestic product , or , is positioned on the horizontal axis, rising to the best. The IS curve depicts the set of all ranges of rates of interest and output at which complete funding equals total saving . At decrease interest rates investment is higher, which translates into more complete output so the IS curve slopes downward and to the proper. In this case, the government might use fiscal coverage to influence mixture demand. The authorities may use monetary coverage, although, lately, many governments have delegated financial coverage to an independent Central Bank. In addition to making an attempt to resolve recessions, the government may even try to avoid inflation.

Mechanism to Control Excess Demand or Deficient Demand:

The production of final goods employs factors like labour, capital, land and entrepreneurship. In the absence of indirect taxes or subsidies, the total value of the final goods output is distributed among different factors of production – wages to labour, interest to capital, rent to land etc. The cost function of the firm describes the least cost of producing each level of output, given prices of factors of production and technology.

• The answer is yes, but as excess of anything is bad, the same holds true for savings.
• The TP is total product, MP is marginal product and AP is average product.
• The planned value of a variable as opposed to its actual value is called (Ex-post/ex-ante/Inventory).

Both supply and demand curves shift rightwards. But this is clearly an absurd result as on B, the consumer gets a greater number of mangoes with the same quantity of bananas. So the consumer is ‘ better off at point B than at point C. Thus, it is clear that intersecting indifference curves will lead to conflicting results. Thus, two indifference curves cannot intersect each other. If the two indifference curves intersect H each other, they will give conflicting results.

What is ‘Paradox of Thrift’

As a result of increase in investment by Rs 125 crore national income increases by Rs 500 crore. In an economy planned saving is greater than planned investment. Explain how the economy achieves equilibrium level of national income.

Explain how the economy achieves equilibrium level of income using Savings-Investment (S-I) approach. When marginal propensity to consume is zero, the value of investment multiplier will also be zero. Thus, if all individuals in the economy decide to save more, the income received by each individual will be less and overall income will fall and also lower will be the total savings. If individual ‘A’ decides to save more by reducing his consumption expenditure, the income of individual ‘B’ will be less and individual ‘B’ in turn will spend less. In the above table, the first column lists each round. The second column depicts the total deposits with the bank at the beginning of each round.

It is calculated by dividing the change in output by change in input labour. Every country has to decide, which goods are to be produced and in what quantities. Bitcoin is a virtual currency that allows consumers to make electronic transactions by skipping the legal banking channels. An increase of Rs 1000 crore in invest¬ment leads to a rise of Rs 5000 crore in the national income. The net borrowing at home includes that directly borrowed from the public through debt instruments and indirectly from commercial banks through statutory liquidity ratio. Explain the market equilibrium with the fixed number of firms with the help of diagram.

Chapter-3 MONEY & BANKING

Price elasticity of demand is a measure of the responsiveness of the demand for goods to changes in its price. Price elasticity of demand for goods is defined as the percentage change in demand for the goods divided by the percentage change in its price. Price elasticity of demand for a goods is measured with the help of following formula. The non-debt creating capital receipts are those receipts which are not borrowings and, therefore, do not give rise to debt. Examples are recovery of loans and the proceeds from the sale of public sector undertakings.

The public were advised to deposit old currency notes in their bank account till 31st of March 2017 without any declaration and after 31st March 2017 with the RBI with declaration. Demonetisation was a new step taken by the Government of India on 8th November 2016. It was introduced to tackle the problem of corruption, black money, terrorism and circulation of fake currency in the economy. Old currency notes of Rs.500 and Rs. 1000 were no longer legal tender. In reality, cooperation of the kind that is needed to ensure a monopoly outcome is often difficult to achieve in the real world. The firms may realize that competing fiercely by continuous price cuts is harmful to their own profits.

By economic units or economic agents, we mean those individuals or institutions which take economic decisions. They can be consumers who decide what and how much to consume. They may be producers of goods and services who decide what and how much to produce. They may be entities like the government, corporation, banks which also take different economic decisions like how much to spend, what interest rate to charge on the credits, how much to tax, etc. Demonetisation helps in curbing black money, reducing tax evasion and corruption will decrease. It also helps in tax administration in another way, by shifting transaction out of the cash economy into the formal payment system.

Firms could decide to collude with each other to maximize profits. Here the firms form a Cartel that acts as a monopoly. give the meaning of paradox of thrift The quantity supplied collectively by the industry and the price charged are the same as a single monopoly firm.

Give the meaning of paradox of thrift.

States that individuals try to save more during an economic recession, which essentially leads to a fall in aggregate demand and hence in economic growth. Such a situation is harmful for everybody as investments give lower returns than normal. Using the ‘saving and investment’ approach explain how is the equilibrium level of national income determined? Also explain what will happen if the equilibrium condition is not fulfilled. If marginal propensity to save is 0.1 and increase in national income is Rs 500 crore, calculate increase in investment. In the above figure , we have induced investment function which makes the investment curve upward positively sloping.

It is a direct measure of productivity and an indirect measure of living standards. It is calculated by dividing a country’s GDP by its total population. The rate of growth of GDP reflects the pace of the economy.

Access Class 12 MacroeconomicsEconomics Chapter 4 – Determination of Income and Employment Notes

If marginal propensity to consume of an economy is 0.9, find out the value of income multiplier. In an equilibrium state of the economy, when the final goods market is in equilibrium, the ex-ante supply is equal to the ex-ante demand. Multiplier is the ratio of total change in income due to initial change in investment. Injection It refers to the additions to the circular flow injections causes expansion of the circular flow. Example Government expenditure, export and investmentLeakages It refers to the withdrawals from the circular flow leakages cause contraction of the circular flow. Income of self-employed person and unincorporated enterprises which use their own resources (land labour, capital etc.) is called mixed income of self-employed.

An increase in marginal propensity to save or a decline in marginal propensity to consume reduces the slope of the AD line and it swings downwards. The above diagram depicts the paradox of thrift – downwards swing of AD line. Foreign exchange market is the market in which national currencies are traded for one another. The major participants in the foreign exchange market are commercial banks, foreign exchange brokers and other authorized dealers and monetary authorities.

Here, the central banks intervene to buy and sell foreign currencies in an attempt to moderate exchange rate movements whenever they feel that such actions are appropriate. Secondly, banks themselves might maintain money, quite than loaning it out, which ends up in the growth of extra reserves – funds on deposit but not loaned out. This is argued to occur in liquidity entice conditions, when rates of interest are at a zero decrease sure and financial savings still exceed funding demand. So finally the cash consumers are saving will end up within the palms of companies and other customers in the form of loans—which is able to stimulate the economic system. As early as 1947, Friedrich von Hayek had gathered collectively some 40 intellectuals with free market sympathies to type the Mont Pelerin Society.

The theory was popularized by John Maynard Keynes. Prepare a budget on monthly income and expenditure of your family. ‘The fiscal deficit gives borrowing requirements of the government’. These are the two instances of planned accumulation and planned decumulation of inventories. There is positive relationship between income and demand. Profit that a firm earns over and above the normal profit is called as super normal profit.

The total product is also sometimes called as total return to or total physical product of the variable input labour. The third column gives us a numerical example of marginal product of labour. Another important decision which an economy has to take is for whom to produce. The economy cannot satisfy all wants of all the people. Therefore, it has to decide who should get how much of the total output of goods and services. The society has to decide about the shares of different groups of people poor, middle class and the rich, in the national output.

Clement Attlee’s Labour get together espoused Keynesian policies, while Churchill’s Conservative celebration drew considerable inspiration from Hayek and his then just lately printed The Road to Serfdom. Journalists Larry Elliott and Dan Atkinson say that it’s exhausting for us today to think about how dimly they had been seen. But once more dedication to development economics largely pale away and by the mid Nineteen Eighties the free market agenda was broadly accepted. Exceptions were international locations massive sufficient to retain independence and continue to employ mixed financial system policies, such as India and China.