Q19 of 25 Page 1

State whether the following statements are true or false. Support your answer with reason.

(a) Taxation is an effective tool to reduce the inequalities of income.


(b) The revenue deficit increases when the government fails to recover loans forwarded to different nations.


a) The statement is true. The government collects a higher rate of taxes from the rich and spends it on the welfare of the poor. This helps to reduce the inequalities of income.

b) The statement is false. The recovery of loans is a capital receipt and does not affect the revenue receipts. Capital receipts are those receipts that either create liability or cause a reduction in the assets of the government.


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17

Discuss briefly the relationship between marginal propensity to save and investment multiplier, using a hypothetical numerical example.

OR


State the meaning of the following :


(i) Full employment


(ii) Involuntary unemployment


 18

Describe the adjustment mechanism, if in an economy the planned savings are more than the planned investments.

 20

Distinguish between net factor income from abroad and net exports.

OR


What are ‘non-monetary exchanges’? Discuss with a suitable example.


 21

Explain the following functions of the Central Bank :

(i) Banker’s bank


(ii) Authority of currency issue