Q24 of 36 Page 1

Explain the ‘‘bankers’ bank’’ function of the central bank.

As bankers’ bank function, the central bank keeps some cash balances of commercial banks as compulsory deposits and helps them during financial crisis by providing loans.

So, the central bank has the same relation with other commercial banks as the commercial banks have with the common public.


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22

Explain the ‘‘medium of exchange’’ function of money.

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Distinguish between direct taxes and indirect taxes. Give an example of each.

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Explain the process of credit creation by commercial banks.

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An economy is in equilibrium. From the following data, calculate the marginal propensity to save:

A. Income = 10,000


B. Autonomous consumption = 500


C. Consumption expenditure = 8,000