Q20 of 25 Page 1

How is Real Gross Domestic Product (GDP) different from NominalGross Domestic Product (GDP)? Explain using a numerical example.

Gross domestic product is the total value of the goods and services produced within the territory of the country irrespective of nationality.

Nominal GDP is said when it is calculated without the effect of inflation.


Real GDP is said when GDP gets adjusted with inflation.


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18

Describe the adjustments that may take place in an economy when ex-ante savings are less than ex-anteinvestments.

 19

Explain, using a numerical example, how an increase in reserve deposit

ratio affects the credit creation power of the banking system.


 21

Explain how the government can use the budgetary policy in reducing inequality of income in the economy.

OR


Discuss briefly the role of the government budget in influencing ‘‘allocation of resources’’ in the economy.


 22

What is meant by the ‘‘Effective Demand Principle'' in the Keynesian theory of employment? Discuss using a schedule or a diagram.