Q20 of 38 Page 1

Show the inflationary gap using a well-labeled diagram. Suggest any two fiscal measures to correct the situation of inflationary gap.

Inflationary gap refers to a situation when the actual aggregate demand exceeds the aggregate demand required to maintain full employment level.

Two fiscal measures to correct the inflationary gap are mentioned below:


a. A reduction if the expenditure by the government.


b. Increase in the level of taxes.



In the above figure, AD is the aggregate demand. The equilibrium is attained at point T. D is the actual aggregate demand level. It exceeds AD by ET. Et is called the inflationary gap.


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18

Distinguish between final goods and intermediate goods. Give suitable examples.

OR


If in a locality, a new park is developed by the municipal corporation, it will have externalities, both positive and negative. State one example each of both types of externalities with reason.


 19

In recent times the Indian Rupee (<) depreciated to an all-time low against the US dollar ($). Discuss its impact on India’s Imports.

OR


‘‘A country with trade deficit cannot have a current account surplus in its Balance of Payments.’’ Do you agree with the given statement? Discuss with reason.


 20 A

Note: The following question is for the Visually Impaired Candidates only, in lieu of Q. No. 20 :

What is meant by the inflationary gap? Suggest any two fiscal measures to correct the situation of the inflationary gap.


 21

State which of the following statements are true or false. Give valid reasons.

(a) According to the Keynesian theory of employment, the state of full employment is obtained only when the economy is in equilibrium.


(b) In a two-sector economy, if consumption is equal to income, the average propensity to save will be zero.