Q21 of 38 Page 1

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.


(a) According to the Keynesian theory of employment, the state of full employment is obtained only when the economy is in equilibrium - This is a false statement. According to the Keynesian theory of employment, the state of full equilibrium is obtained at more or less than full employment as well.

(b) In a two-sector economy, if consumption is equal to income, the average propensity to save will be zero - This is a true statement. The savings will be zero if income and consumption are equal. So, the average propensity to consumer = Saving/Income = 0/Income = 0


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20

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

 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.


 22

(a) Distinguish between revenue receipts and capital receipts of the government.

(b) Do ‘disinvestment’ and ‘loan proceeds from abroad’ constitute revenue receipts of the government? Give reason.


OR


Given the following data estimate the values of (i) Revenue deficit, and (ii) Fiscal deficit :



 23

Explain the process of money creation by a commercial bank using a hypothetical numerical example.