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ECONOMICS OBJ
1-10: CABACCBBCC
11-20: CDBAABCCCA
21-30: CCADBAACDB
31-40: BBABDBABAC
41-50: CCABCBCBCC
*2019/20 ECONOMICS ESSAY AND OBJECTIVES ANSWERS*
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3ai) Economics is the science which studies human behavior as a relationship between given ends and scarce means which have
alternative uses. Ends are behaviour of relationship in exchange rate of a given change
3aii) Scarcity dictates that economic decisions must be made regularly in order to manage the availability of resources to meet human needs. Some examples of scarcity include: The gasoline shortage in the 1970's. Coal is used to create energy; the limited amount of this resource that can be mined is an example of scarcity.
3aiii) When economists refer to the “opportunity cost ” of a resource, they mean the value of the next-highest-valued alternative use of that resource. If, for example, you spend time and money going to a movie, you cannot spend that time at home reading a book, and you can't spend the money on something else.
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6a) The price elasticity of supply (PES or Es) is a measure used in economics to show the responsiveness, or elasticity, of the quantity supplied of a good or service to a change in its price.
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6(b) Functions of Central Bank (pick any three):
*1. Issue of Currency:*
The central bank is given the sole monopoly of issuing currency in order to secure control over volume of currency and credit. These notes circulate throughout the country as legal tender money. It has to keep a reserve in the form of gold and foreign securities as per statutory rules against the notes issued by it.
It may be noted that RBI issues all currency notes in India except one rupee note. Again, it is under the directions of RBI that one rupee notes and small coins are issued by government mints. Remember, the central government of a country is usually authorised to borrow money from the central bank.
When the central government expenditure exceeds government revenue and the government is unable to reduce its expenditure, then it borrows from the RBI. This is done by selling security bills to RBI which creates new currency notes for the purpose. This is called monetisation of budget deficit or deficit financing. The government spends new currency and puts it into circulation to meet its expenditure.
*2. Banker to Government:*
Central bank functions as a banker to the government—both central and state governments. It carries out all banking business of the government. Government keeps their cash balances in the current account with the central bank. Similarly, central bank accepts receipts and makes payment on behalf of the governments.
Also, central bank carries out exchange, remittance and other banking operations on behalf of the government. Central bank gives loans and advances to governments for temporary periods, as and when necessary and it also manages the public debt of the country. Remember, the central government can borrow any amount of money from RBI by selling its rupees securities to the latter.
*3. Banker’s Bank and Supervisor:*
There are usually hundreds of banks in a country. There should be some agency to regulate and supervise their proper functioning. This duty is discharged by the central bank.
Central bank acts as banker’s bank in three capacities:
(i) It is the custodian of their cash reserves. Banks of the country are required to keep a certain percentage of their deposits with the central bank; and in this way the central bank is the ultimate holder of the cash reserves of commercial banks,
(ii) Central bank is lender of last resort. Whenever banks are short of funds, they can take loans from the central bank and get their trade bills discounted. The central bank is a source of great strength to the banking system,
(iii) It acts as a bank of central clearance, settlements and transfers. Its moral persuasion is usually very effective so far as commercial banks are concerned.
*4. Controller of Credit and Money Supply:*
Central bank controls credit and money supply through its monetary policy which consists of two parts—currency and credit. Central bank has monopoly of issuing notes (except one-rupee notes, one-rupee coins and the small coins issued by the government) and thereby can control the volume of currency.
The main objective of credit control function of central bank is price stability along with full employment (level of output). It controls credit and money supply by adopting quantitative and qualitative measures. Following three quantitative measures of credit control by RBI are recalled for ready reference.
(Number 7)
(7a)
Inflation may be defined as a persistent rise in the general price level of goods and services. Inflation occurs when the volume of purchases is permanently running ahead of production, with too much money in circulation chasing too few goods.
(7b)
*[Choose Any Three]*
(i)Reduction in burden of debt : During inflation debtors gain because there is too much money in circulation,which will enable them to pay their debts with ease.
(ii)Higher profit margin : Because producers are selling their goods at higher prices,this will lead to higher profits.
(iii)Higher tax yield:As a result of high volume of money in circulation, government is able to realise high yield from taxes
(iv)Higher output:Higher prices of goods and services during inflation encourage producers to embark on large scale production,resulting in greater output.
(7c)
*[Choose Any three]*
(i)Decline in profits: Deflation causes a decline in profits as a result of low volume of money in circulation
(ii)Fall in prices of goods:As a result of decline in the volume of money in circulation, the prices of goods and services tend to fall.
(iii)It discourage imports: Goods imported are generally more expensive and there is no hope of selling such goods in an economy that is experiencing deflation
(iv)Fixed income earners gain: During the period of deflation,Fixed income earners gain because wages are fixed and they are able to buy more goods and services
(v)It result in unemployment and creditors gain: Deflation brings about unemployment in the labour market and creditors gain because money has added value during the period of deflation
8a) Economic development is the process by which the economic well-being and quality of life of a nation, region or local community are improved. The term has been used frequently in the 20th and 21st centuries, but the concept has existed in the West for centuries. Modernization, Westernization and especially industrialization are other terms often used while discussing economic development.
8b)
i)Assist African governments to improve business enabling environment.
ii)Create strong demonstration effect by assisting entrepreneurs to achieve success with a select number of transactions.
iii) Non-sovereign guaranteed (NSG) lending activities in the area of Industries & Services
8c)
i) To provide long-run capital to member
countries for economic reconstruction and
development.
ii) To induce long-run capital investment for
assuring Balance of Payments (bop) equilibrium
and balanced development of international trade.
iii) To provide guarantee for loans granted to
small and large units and other projects of
member countries.
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