Q15 of 34 Page 1

Elaborate the objective of ‘reallocation of resources’ in the government budget.

With the help of budgetary polices, Government aims to reallocate resources keeping in mind the economic (profit maximization) and social (public welfare) priorities of the country. Government can impact allocation of resources by:

(i) Tax concessions or subsidies:


To increase investment, government can give concession on tax, subsidies etc. to the producers. For example, Government discourages the production of harmful consumption goods (like liquor, cigarettes etc.) by imposing heavy taxes and encourages the use of ‘Khaki products’ by providing subsidies.


(ii) Directly producing goods and services:


If private sector does not take interest, government can directly undertake the production.


More from this chapter

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13

Discuss any one of the following functions of a central bank:

a)As government’s bank b) Open market operations.


 14

“Foreign Institutional Investors (FIIs) remained net seller in the Indian capital markets over the last few weeks”. - The Economic Times.

State and discuss the likely effects of the given statement on foreign exchange rate with reference to the Indian Economy. 4


Or


‘Many large Multinational Corporations (MNCs) have recently shifted their investments from China and have started their production in India, thereby boosting the Make in India plans of the Government’. Presuming other factors being constant, discuss the effects of the given statement on Foreign Exchange rates with reference to the Indian Economy.


 16

a) ‘Real Gross Domestic Product is a better indicator of economic growth than Nominal Gross Domestic Product’. Do you agree with the given statement? Support your answer with a suitable numerical example.4

b) Calculate ‘Depreciation on Capital Asset’ from the following data 2



Or


a) ‘Circular flow of income in a two sector economy is based on the axiom that one’s expenditure is other’s income’.


Do you agree with the given statement? Support your answer with valid reasons.3


b) Calculate compensation of employees from the following data: 3



 17

‘An economy is operating at under-employment level of income’. What is meant by the given statement? Discuss one fiscal measure and one monetary measure to tackle the situation.6