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In case of substitute goods, demand for a commodity falls with fall in price of the substitute commodity. In case of complementary goods, market demand for the commodity rises with a fall in the price of complementary commodity. 

Budget line equation may be expressed as under :

PX + PY = M

where P = Price 

X = Good X units 

Y = Good Y units 

M = Consumer’s income 

10X +57= 100

There is freedom of entry and exit of firms in perfect competition. As such, there is unrestricted entry and exit. Any one, who wishes to enter or leave the market, may do so without any restriction. As a result of this feature, there is no abnormal profit in the long run and firms will earn only normal profit. If there are abnormal profits in the short run, new finns enter the market. This will shift the market supply curve to the right which will reduce the price as well as profit. If there are losses in the short run, some of the existing firms will leave the market. This will shift the market supply curve to the left which will raise the market price and wipe out the losses. Thus, in the long run, all finns will earn only nonnal profits and there will be neither profits nor loss to any firm under perfect competition.

Producer’s equilibrium is the position where a producer earns maximum profits and as a result, there is no tendency to change. According to marginal cost and marginal revenue approach, there are two conditions of producer’s equilibrium :

(i) Marginal Revenue (MR) = Marginal Cost (MC)

(ii) Marginal cost must be rising i.e., MC curve must cut MR curve from below. In other words, marginal cost becomes greater than marginal revenue after this level of output. (MC > MR after the MC = MR out put level) Under perfect competition, the price charged for selling different units of the commodity is always uniform because a producer is a price taker and not a price maker. We can Wow producer’s, equilibrium under perfect, competition, as in figure. 

In the diagram, marginal revenue and marginal cost are equal to each other at two points A and E. But, the producer will be at equilibrium at E because at this level rising marginal cost is equal to marginal revenue. Producer will earn more profit at E than at A because number of units produced are maximum.

The process of working of the investment multiplier is as under:  

(i) It can be illustrated with the help of a simple example. We know that one man’s expenditure is another man’s income. 

(2) Suppose, the government of a country spends Rs 100 crore on building roads. National income of the country automatically rises by Rs 100 crore in Round 1. Now suppose MPC is 0.5, people working in the investment industry will spend Rs 50 crore on new consumption goods. 

(3) The consumer goods industry will have an extra income of Rs 50 crore. Assume the MPC for the whole society is 0.5, people working in these consumer goods industry would again spend 50% of their additional income of Rs 50 crore (which works out to be 25 crore) on more consumer goods. 

(4) These Rs 25 crore will, thus, become the income for others. This will continue till total increase in income becomes k times the increment of investment.

The law of equi-marginal utility states that the consumer will distribute his money income between the goods in such a way that the utility derived from the last rupee spent on each good is equal.

 The equilibrium condition is satisfied when the consumer consumes the goods in the combination of 1 unit of Good X and 4 units of Good Y.

At this level of consumption, the total expenditure of the consumer is :

(1 × Rs.2) + (4 × Rs. 1) = 2 + 4 = 6 This is attainable also in his given income of Rs. 12.

True. They are fixed by central bank under quantitative instruments of credit control.

False. It happens under selective credit controls.

(c) No change in the level of government 

i. Cash Reserve Ratio: (a) It refers to the minimum percentage of a bank’s total deposits, which it is required to keep with the central bank. Commercial banks have to keep with the central bank a certain percentage of their deposits in the form of cash reserves as a matter of law. (b) For example, if the minimum reserve ratio is 10% and total deposits of a certain bank is ?100 crore, it will have to keep Rs 10 crore with the central bank. (c) To increase Money supply in an economy, cash reserve ratio (CRR) falls to 5 per cent, the bank will have to keep Rs 5 crore with the central bank, which will increase the cash resources of commercial bank and increasing credit availability in the economy, which will increase the money supply in an economy. 

ii. Open Market Operation: (a) It consists of buying and selling of government securities and bonds in the open market by central bank. (b) To reduce Money Supply in an economy, central bank sells government securities and bonds to commercial bank. With the sale of these securities, the power of commercial bank of giving loans decreases, which will reduce the money supply in an economy.

1. As banker to the banks, the central bank acts as the lender of the last resort. 

2. In other words, in case the commercial banks fail to meet their financial requirements from other sources, they can, as a last resort, approach to the central bank for loans and advances. 

3. The central bank assists such banks through discounting of approved securities and bills of exchange. 

Value: Analytic

Money creation by commercial bank in the condition of rising prices increases money supply. It creates the situation of excess demand and consequently again increases the price level. 

Value: Analytic.

(a) Under employment equilibiurm

During excess demand central bank Increase the margin

Full employment equilibrium refers to the situation where aggregate demand = aggregate supply and all those who are able to work and willing to work (at the existing wage rate) are getting work.

Under developed economies have expenditure on fulfilling the minimum needs for the people for the country, so much is not left for investment further.

Full employment equilibrium refers to a situation when equilibrium is attained i.e., aggregate demand is equal to aggregate supply at full employment level.

When in an economy aggregate demand falls short of aggregate supply at full employment level, the demand is said to be deficient demand and the gap is called deflationary gap.

Working of the multiplier process is based on one fundamental assumption: that there exists, excess capacity in the economy , so that whenever consumption expenditure rises (implying increase in demand ) there is a corresponding increase in production (implying increase in income ) . But poor countries like India, lack in production capacity. Accordingly, whenever demand increases (in terms of increase in consumption expenditure), there is increasing pressure of demand on the existing output (implying inflation or rise in prices) rather than the increase in output or income. 

False, As saving can be negative, when consumption is more than income, APS can be less than zero.

Involuntary unemployment refers to a situation in which all able and willing persons to work at existing wage-rate do not find work. They are rendered unemployed against their wish. Hence, it is termed as involuntary unemployment.

Full employment equilibrium refers to a situation when equilibrium is attained i.e., aggregate demand is equal to aggregate supply at full employment level.

No, it is not necessary that full employment occurs when AD = AS. Equilibrium can be achieved at full employment level, under employment level or at over full employment level.

MPS = 0.2 SO , MPC =0.8 

C=c + bY (c = autonomous consumption) 

C= 80+ 0.8 * 1000=Rs. 880 crores

Aggregate demand refers to total demand for all the final goods and services in the economy. It is also defined as total amount of money which all the sections (Household, Government, firm) are ready to spend on purchase of goods and services produced in an economy during a given period. Thus Aggregate demand is synonyms with aggregate expenditure.

 (c) Dividends 

(d) Fiscal Deficit – Interest Payments

(d) The income earners

(b) Fiscal deficit

 (b) 75000 crore

In case of proportional taxes

(a) ΔY = 1/(1 - c(1 - t)) x ΔG

MPC = 0.75 and ΔG = 20

= 1/(1 - 0.75(1 - 0.2)) x 20

= 1/(1 - 0.75 x 0.8) x 20

= 20/(1 - 0.60)

= 20/0.4

= 50

(b) Transfer decreases by 20

ΔY = c/1 - c x ΔT

 = 0.75/(1 - 0.75) x 20

= 0.75/0.25 x 20

= 60

(d) fiscal deficit

Budget deficit is the difference between total receipts and total expenditure.

(a) deficit financing

(c) Both Lok Sabha and Rajya Sabha

(a) C = 70 + 0.70YD
I = 90
G = 100
T = 0.10Y
Y = C + I +G
Y = 70 + 0.70YD + 90 + 100
Y = 70 + 0.70YD + 190
Y = 70 + 0.70(Y - T) + 190
Y = 70 + 0.70Y - 0.70T + 190
Y = 70 + 0.70Y - 0.70 × 0.10Y + 190
Y = 70 + 0.70Y - 0.07Y + 190

Y = 70 + 0.63Y + 190
Y = 260 + 0.63Y
Y - 0.63Y = 260
0.37Y = 260

Y = 260/0.37

Y = 702.7

(b) T = 0.10Y

= 0.10 x 702.7

 =70.27

Government expenditure = 100
Tax revenue = 70.27
As, G > T, Government has a deficit budget, not a balanced budget.

(a) Financial statement

The relationship between the revenue deficit and the fiscal deficit can be explained through the following points: 

i. Revenue deficit is the difference between government's revenue expenditures and government's receipts. 

Revenue deficit = Revenue expenditures - Revenue receipts

On the other hand, fiscal deficit is the difference between the total expenditure and the total receipt of the government.

Fiscal deficit = Total Expenditure - Total Receipts (excluding borrowings)

ii. The term 'fiscal deficit' is used in a broader sense than the term 'revenue deficit'.

iii. As revenue deficit increases, the proportion of fiscal deficit also increases.

1. We cannot depend solely on direct taxes because they are progressive in nature and there is possibility of tax evasion.

2. But as against it indirect taxes are proportional in nature and are generally imposed on commodities (necessity goods etc.) which each and every individual purchase. 

3. So, direct and indirect tax are important for providing funds for investment and for other social welfare considerations.

Indirect taxes such as sales tax and excised duty fall heavily on the shoulders of common man. This means they are inequitable. Therefore in such a situation tax basket should be mixture of direct and indirect taxes.

We cannot depend solely on direct taxes because they are progressive in nature and there is possibility of tax evasion. But indirect taxes are proportional in nature and are generally imposed on goods which each and every individual purchases. So direct and indirect taxes are important for providing funds for investment and for other social welfare causes.

It will reduce the Revenue expenditure and hence fiscal deficit will also be reduced.

Public goods are those goods and services for which consumption by some individuals, do not reduce the amount available to others. Example parks, roads. People receive benefits from public good but do not pay for them. Such a good can be produced only by government.

(i) and (iv) are anionic detergents.

Explanation:

(i) Sodium salts of sulphonated long chain alcohol.

(iv) Sodium salts of sulphonated long chain hydrocarbons.

(ii) Al³⁺ , O^– and (iv) N^3–, Cl^– are pairs, can not be iso-electronic.

(b) Accepting deposits from public.

Involuntary unemployment means a situation under which those who are able and willing to work at the current wage rate do not get work.

1. It is generally thought that time deposits with the banks are not as liquid as demand deposits, because the time deposits are not chequeable (i.e., these cannot be withdrawn through cheques drawn on them). 

2. However, loans against these time deposits can be easily taken. Hence, they can be used in times of need.

3. Moreover, they can also be withdrawn at any time by forgoing some interest earned on them.

Post office saving banks are not as liquid as demand deposits with the banks (commercial or cooperative) as they are not chequeable account. However, saving deposits with post offices are more liquid than time deposits with the banks.