Q16 of 25 Page 1

Identify which of the following statements is true?

a) The fiscal deficit is the difference between planned revenue expenditure and planned revenue receipts


b) Fiscal deficit is the difference between total planned expenditure and total planned receipts


c) Primary deficit is the difference between total planned receipt and interest payments.


d) The fiscal deficit is the sum of the primary deficit and interest payment.

a) The false, fiscal deficit is the government’s total expenditure and its total receipts excluding the borrowing. Therefore it is false because borrowing is not being excluded.


b) False, planned expenditure includes both revenue and capital expenditure and same in case of receipts. Further, the borrowing is not neglected in the formula. The fiscal deficit is the government's total expenditure and its total receipts excluding the borrowing.


c) False, Primary deficit obtained by subtracting net interest liabilities from the gross fiscal deficit. Therefore primary deficit cannot be obtained by subtracting total planned receipt and interest payment.


d) True, the fiscal deficit can be obtained by adding primary deficit and interest payment. It is because the primary deficit is determined by subtracting interest liability from the gross fiscal deficit.


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14

What is the money supply?

OR


What is meant by Reverse Repo Rate?

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_______ (choose the correct alternative) is a revenue receipt of the government.

a) Funds raised by the government by issuing National Saving Certificates


b) Sale of 40% shares of a public sector undertaking to a private enterprise


c) Profits of LIC, a public enterprise


d) The amount borrowed from Japan for construction of Bullet Train

 17

Estimate the value of Aggregate Demand in an economy if:

a) Autonomous Investment (I) = Rs. 100 Crore.


b) Marginal Propensity to Save (MPS) = 0.2


c) Level of Income (Y) = Rs. 4,000 crores.


d) Autonomous Consumption Expenditure (c) = Rs. 50 Crore


OR


In an economy, C= 200+ 0.5 Y is the consumption function where C is the consumption expenditure and Y is the national income. Investment expenditure is Rs. 400 crores. Is the economy in equilibrium at an income level Rs. 1500 crores? Justify your answer.

 18

Explain how the level of effective demand is attained in an economy if, Aggregate Demand is more than the Aggregate Supply.