Explore topic-wise InterviewSolutions in Current Affairs.

The two accounts of Government budget are Revenue Account and Capital Account.

These below are the Non-tax revenue receipts: 

a. Commercial Revenue: 

Examples-Payments for postage, toll, interest on funds borrowed from government credit corporations, electricity, Railway services. 

b. Interest and dividends 

c. Administrative revenue: 

Examples: Fees, fines, penalties etc.,

(d) The income earners.

When AD falls short of AS at the full employment level of income the difference between AS and AD is called Deficient Demand.

The examples for direct tax are Income tax, Wealth tax, Property tax, Corporate tax.

Fiscal Deficit equals excess of total expenditure over total receipts excluding borrowing of the government.

Detailed Answer:

Fiscal deficit is defined as excess of total expenditure over total receipts excluding borrowing during a fiscal year.

(i) Commercial Revenue; and

(ii) Earning from PSU

(d) Wealth tax and Income tax

Suppose AD is greater than AS. As a result, the producers find their inventories falling  faster than expected. To maintain the inventories level, producers produce more. It starts rising and continues to rise till AD is less than AS. As a result, the producers find that the inventories start going above the expected level. To bring down the inventories to the expected level, they start producing less. It starts falling and continues to fall till AD equals AS once again.

When AD < AS, it means planned demand is less than planned supply. So there will be unintended accumulation of inventories. This will result in fall in supply. These changes continue till AD and AS are equal.

Detailed Answer: 

When Aggregate Demand is less than Aggregate Supply at full level of employment, there is deficient demand in an economy which leads to deflation. The price level will come down which in turn reduces the AS and ultimately AS will be equal to AD.

When AD < AS, it means planned demand is less than planned supply. So there will be unintended accumulation of inventories. This will result in fall in supply. These changes continue till AD and AS are equal.

Detailed Answer:

When Aggregate Demand is less than Aggregate Supply at full level of employment, there is deficient demand in an economy which leads to deflation. The price level will come down which in turn reduces the AS and ultimately AS will be equal to AD.

When AD is less than AS at full employment level. It is a situation of Deflationary Gap.

Role of Margin Requirements to Reduce Deflationary Gap: Margin requirement refers to the difference between the amount of loan granted and the current value of security offered for loans. In case of Deflationary Gap, the margin requirements are lower to increase the flow of credit by encouraging people to borrow. As a result of that, the Aggregate Demand increases and ultimately the economy attains equilibrium.

A tax whose impact and incidence fall on the same person.

Old Age Pensions, Salaries and Scholarships.

In an economy, when AD > AS it is known as Inflationary Gap. The effects of excess demand are continuous and persistent rise in prices. Producer will get abnormal profit. Consumers are losers and real wages fall. It leads to propensity to boom conditions in business cycle.

Revenue Expenditure: Refers to the expenditure that neither creates any assets nor reduces any liability.

Inflationary Gap refers to the excess of Aggregate Demand over Aggregate supply at full employment level of income. It is called Inflationary Gap because it brings in Inflationary tendencies.

Legal reserves refer to that part of bank deposits which Commercial Banks are legally required to keep in the form of cash partly with them selves (Statutory Liquidity Ratio) and partly with the Central Bank (cash reserve ratio), In case of Inflationary Cap, the Central Bank can increase the Legal Reserve Ratio (LRR) so that less money is available to the balks for lending. Borrowings are reduced. AD falls.

Deflationary Gap-Deflationary gap is the deficiency of AD required to maintain full employment equilibrium Deflationary gap occurs when AD < AS (corresponding to full employment level). Open market operation is the policy that focuses on increasing and decreasing the stock of liquidity (or cash balances) with the people as well as with the Commercial Banks, through sale and purchase of securities by the Central Bank. During the situations of Deflationary Gap, when cash balances need to be increased (to stimulate the level of Aggregate Demand), the Central Bank starts buying securities. Purchase of securities injects purchasing power into the money market. Cash balances of the Commercial banks start picking up. This enhances their capacity to create credit. Consequent upon the greater flow of credit flow' in the economy, Aggregate Demand is increased Deflationary gap is corrected.

Inflationary Gap- When Aggregate Demand is greater than Aggregate Supply at full employment level, it is a situation of Inflationary Gap.

Deflationary Gap- When Aggregate Demand is less than Aggregate Supply at full employment level. It is a situation of Deflationary Gap.

(i) Role of Open Market Operations in Correcting Deflationary Gap in an Economy: Open Market Operations refers to sale and purchase of securities by the Central Bank on behalf of government in the open market. It directly affects the supply of money in the hands of Commercial Banks and citizens of the country. In case of Deflation, the Central Bank purchased securities from public.

It increases the supply of money in the economy and credit/money creation power of Commercial Banks. Thus, the Aggregate Demand increases and ultimately the economy attains equilibrium. 

(ii) Role of Open Market operations in Correcting Inflationary Gap in an Economy: In case of Inflation, the Central Bank sell the securities to the public. It reduces the supply of money in an economy and credit/ money creation power of Commercial Banks. Thus, the Aggregate Demand decreases and ultimately the economy attains equilibrium.

(iii) Role of Bank Rate in Correcting Inflationary Gap: The rate at which the Central Bank lends money to Commercial Banks is termed as Bank Rate. In case of inflation the Central Bank increases the bank rate reduces the money creation power of Commercial Banks and also increases the market rate of interest which discourages public to borrow loans. The Aggregate Demand comes down and the inflation is corrected.

(iv) Role of Bank Rate in Correcting Deflationary Gap: In case of Deflation, the Central Bank reduces the bank rate to increase the supply of money in the economy. Reduction in bank rate increases the money creation power of Commercial Banks and also decreases the market rate of interest which induces public to borrow more. The aggregate demand increase and the deflation is corrected.

By raising taxes, government can reduce Personal Disposable Income of the people. This in turn will reduce private final consumption expenditure depending upon Marginal Propensity to Consume. This will reduce Aggregate Demand.

Inflationary Gap-Inflationary gap is the excess of AD over and above its level required to maintain full employment equilibrium in the economy. Inflationary gap generates extra pressure on the existing flow of goods and services at the level of full employment. Accordingly, prices tend to rise. The output will not increase.

Repo rate is the rate at which the Central Bank lends money to the Commercial Banks. To correct the situation of Inflationary Cap, Repo Rate is increased. As a follow-up action, the Commercial banks raise the market rate of interest (the rate at which the Commercial Banks lends money to the consumers and the investors). This reduces demand for credit. Consequently, consumption expenditure and investment expenditure are reduced. Implying a reduction in Aggregate Demand, as required to correct Inflationary Gap.

Less money supply i.e., stock of money with people leaves less purchasing power in their hands. Therefore, people demand less goods and services. AD falls.

There are different policy instruments through which the monetary authority regulates the money supply, thereby, helpful in reducing excess demand in the economy. The following are the various monetary policy instruments that the Central Bank uses to combat the excess demand.

(i) Bank Rate: Bank rate refers to the rate at which the Central Bank provides loans to the commercial banks. This instrument is a key at the hands of RBI to control the money supply. Changes in the bank rate change the cost of borrowings, thereby affect the money supply and aggregate demand. In case of excess demand, Central Bank raises the bank rate, thereby increases the cost of borrowings for the Commercial Banks. This discourages the demand for loans and credits in the market. Therefore, the consumption expenditure falls and hence, aggregate demand falls.

(ii) Open Market Operations (OMOs): Open Market Operations refer to the buying and selling of securities either to the public or to the commercial banks in an open market. These operations are carried out by the Central Bank to affect the money supply in the economy. In case of excess demand, the Central Bank sells the securities, in order to restrict the supply of the money in the market. This reduces the spending capacity of the people, resulting in a lower level of aggregate demand, thereby, reduces the excess demand.

(iii) Cash Reserve Ratio (CRR): It refers to the minimum proportion of the total deposits that the Commercial Banks have to maintain with the Central Bank in form of reserves. Through CRR, the Central Bank influences the level of aggregate demand by controlling the availability of credit in the market. In case of excess demand, the Central Bank raises CRR. This implies that the Commercial Banks have to maintain a greater portion of their deposits in form of reserves with the Central Bank. This reduces the lending capacity of the Commercial Banks, consequently, lesser volume of credit and loans will be granted to the public. This further reduces the flow of money in the economy, thereby reduces the level of aggregate demand.

(iv) Statutory Liquidity Ratio (SLR): Statutory Liquidity Ratio (SLR) is defined as the minimum percentage of assets to be maintained by the Commercial Banks with themselves in the form of either fixed or liquid assets. Similar to the CRR, the Central Bank uses SLR to influence the aggregate demand by affecting the flow of credit. In case of excess demand, the Central Bank raises SLR. This restricts the Commercial Banks to pump additional money into the economy. As a result, money supply is reduced, resulting in lowering of the aggregate demand.

Excess Demand-Excess demand refers to a situation when Aggregate Demand (AD) is in excess of Aggregate Supply (AS) corresponding to full employment in the economy. It causes Inflationary Gap in the economy. Price level tends to rise without any rise in the level of income or employment.

Deficient Demand- A Situation in an economy, when the Aggregate Demand is less than the Aggregate Supply, corresponding to full employment level, is termed as deficient demand.

Role of Open Market Operations in Correcting Excess Demand:

Open market operations refers to sale and purchase of government securities by the Central Bank in open market. In case of excess demand, the Central Bank sells the securities to public.

It reduces the supply of money and also reduces the credit creation power of Commercial Banks. In this way, the Aggregate Demand of economy comes down and the problem of excess demand is corrected.

Government Budget is a statement of estimated receipts and expenditure of the government over the period of financial year. i.e., 1st April to 31st March.

Deficient Demand means excess of AS over AD at full employment. Since government expenditure is component of AD, increasing it will help in removing deficient demand in the economy.

Economic disparity means uneven distribution of wealth

The average fixed cost (AFC) curve looks like a Rectangular Hyperbola. It happens because same amount of fixed cost is divided by increasing output. As a result, AFC curve slope downwards and is rectangular hyperbola, i.e. area under AFC curve remains same at different Point.

(i) When MC is less than AC, AC falls with increase in output.

(ii) When MC is equal to AC i.e., when MC and AC curves intersect each other at point A, AC is constant at its minimum Point.

(iii) When MC is more than AC, AC rises with increase in output.

(iv) Thereafter, both AC and MC rise, but MC increases at a faster rate as compared to AC. As a result, MC curve is steeper as compared to AC curve.

Monopoly refers to a market situation where there is a single seller selling a product which has no close substitutes.

Yes, we do agree with the given statement that the supply curve is the rising portion of marginal cost curve over and above the minimum of Average Variable Cost curve, since no rational producer/seller would like to supply his output to the market if he is unable to recover his per unit variable cost as it would lead to losses between the range of minimum of marginal cost and minimum of Average Variable Cost.

Monopolistic Competition refers to a market competition in which there are a large number of firms which sell closely related but differentiated products.

Economics provide an explanation and world? analysis of various economic events occurring in the real world.

Correct option is (B) U

Utility refers to the amount of satisfaction derived from consumption of a good. 

As consumer goes on consuming more and more units of a good, utility obtained From consuming each extra unit goes on falling. Ultimately, it may become zero or even negative. This is the Law of Diminishing Marginal Utility.

Detailed Answer: 

'Other things remaining the same when a person takes successive units of a commodity, the marginal utility diminishes constantly.' 

The marginal utility of a commodity diminishes at the consumer gets larger quantities of it. Marginal utility is the change in the total utility resulting from one unit change in the consumption of a commodity per unit of time. 

Assumptions: 

Followings are some assumptions of the law of diminishing marginal utility: 

(i) It is assumed that utility can be measured and a consumer can express his satisfaction in quantitative terms such as as1,2,3... etc. 

(ii) Consumption of reasonable quantity. 

(iii) Continuous consumption. 

(iv) Monetary measurement of utility. 

(v) No change in quantity. 

(vi) Rational consumer. 

(vii) MU of money remains constant. 

(viii) Independent utilities. 

(ix) Fixed income price. 

This law can be explained with the help of the following schedule :

The above schedule shows that with the consumption of successive unit of a commodiy, the level of satisfaction falls and becomes negative also, or in other words, MU tends to decline as consumption of the commodity increases.

The two conditions are : 

(i) The ratio of marginal utility to price is same in case of all the goods consumed. Suppose the consumer consumes only two goods x and y then 

MU_x / P_x=MU_y / P_y  

(ii) Marginal utility has a tendency to fall as more and more units are consumed.

Assuming that only two goods the consumer consumes are X and Y, the conditions of equilibrium are:

(i) MU_x/P_x= MU_y/P_y =MU_m  

(ii) MU falls as more is consumed.

(a) Suppose MU_x/P_x> MU_y/P_y. The consumer will not be in equilibrium because per rupee MU of X is greater than per rupee MU of Y. This will include the consumer to buy more of X by reducing expenditure on Y. It will lead to fall in MU_x and rise in MU_y. This will continue till MU_x/P_x=MU_y/P_y. 

(b) Unless MU falls as more of a good is consumed the consumer will not reach equilibrium.

Yes. Total utility is the sum total of marginal utilities. TU =∑MU.

It is a market situation in which there are large number of buyers and sellers selling a homogeneous product at a uniform price.

Yes. It is because homogeneous products are sold at a uniform price under perfect competition and because monopoly product has no close substitutes in the market.

Yes. Under perfect competition, equilibrium price is determined at the point of intersection of market demand and market supply. An individual firm cannot change it.

(D) All the above

The right to liberty and freedom means that they can do, believe and speak out what they want without fear and live the life of their choice.

RTI: Right to Information. This law prescribes that any individual can get documents like government orders, reports, advice, logbooks, rules and regulations, attendance lists, letters, etc. (Some exceptions are there).

(B) all round development

Answer is (C) 1945

Liberty: The state of being free or the ability to act as you please.

(B) Poor people

Answer is (D) 1995

(C) Both A & B