Q. Following information has been released by RBI for the fortnight ended Jun 26.
Mar 31
Jun 26
Currency with the Public
13,863
14,302
Demand Deposits with Banks
8,907
9,134
Time Deposits with Banks
82,538
84,992
`Other' Deposits with Reserve Bank
147
91
Term deposits include deposits of 10000 and 12000, with original maturity up to one year. On the basis of the given information, answer the following questions:
What is the amount of MO as on Mar 31:
a
105455, b
32917, c
14010, d
15346
Explanation : MO = currency with public + other deposit with RBI. Hence MO = 13863 + 147 = 14010.
M I = MO + 15% of demand deposit's = 14010 + 1336 = 15346.
M2 = MI + 85% of demand deposits + Term deposits with original maturity up to one year = 15346 4- 7571 ÷ 10000 = 32917
M3 = M2 + term deposits with original maturity above one year. = 32917 + 72538 = 105455
What is the amount of Narrow Money, as on Mar 31:
a
105455, b
32917, c
14010, d
15346
Explanation : MO = currency with public + other deposit with RBI. Hence MO = 13863 + 147 = 14010.
M1
(Narrow Money) = MO + 15% of demand deposits = 14010 + 1336 = 15346.
M2
= M1 + 85% of demand deposits + Term deposits with original maturity up to one year = 15346 + 7571 + 10000 = 32917
M3
(Broad Money) = M2 + term deposits with original maturity above one year. = 32917 + 72538 = 105455
What is the amount of M2 as on Mat' 31:
a
105455, b
32917, c
14010 , d
15346
Explanation : MO = currency with public + other deposit with RBI. Hence MO = 13863 + 147 = 14010.
M1
= MO + 15% of demand deposits = 14010 + 1336 = 15346.
M2
= M 1 + 85% of demand deposits + Term deposits with original maturity up to one year = 15346 + 7571 + 10000 = 32917
M3
= M2 + term deposits with original maturity above one year. = 32917 + 72538 = 105455
What is the amount of Broad Money as on Mar 31:
a
105455, b
32917, c
14010, d
15346
Explanation : MO = currency with public + other deposit with RBI. Hence MO = 13863 + 147 = 14010.
MI = MO + 15% of demand deposits = 14010 + 1336 = 15346.
M2 = MI + 85% of demand deposits + Term deposits with original maturity up to one year = 15346 + 7571 + 10000 = 32917
M3 = M2 + term deposits with original maturity above one year. = 32917 + 72538 = 105455
Q. While releasing the data relating to inflation by the Govt., it is observed that
1. the consumer price index based inflation increased by 9% and 2.whole-sale price index based inflation has increased by 7%.
3.The govt. claims that due to implementation of recommendations of 6th Pay Commission, there is increase in demand of goods and services leading to increase in consumer prices. 4. Further due to increased wages and salaries, there is increase in cost of inputs leading to increase in whole-sale price index. Based on the above information, answer the following questions:
The inflation rate of 7%, represented by the whole-sale prices, is called:
a
Core inflation b Headline inflation c
Demand Pull inflation d
Cost-push inflation
The inflation rate of 9%, represented by the consumer prices, is called:
a
Core inflation b Headline inflation
c
Demand Pull inflation d
Cost-push inflation
The inflation caused by the information given at point no. 3 in the question, is called:
a
Core inflation b Headline inflation c
Demand Pull inflation
d. Cost-push inflation
The inflation caused by the information given at point no. 4 in the question, is called:
a
Core inflation , b Headline inflation,
c
Demand Pull inflation, d
Cost-push inflation
Explanation:
Inflation due to consumer price index is called core inflation and inflation due to whole-sale prices is called headline inflation. Further, the demand pull inflation is the result of increased demand for goods and services and cost push inflation is due to increase in cost of production of goods and services.
Inflation due to consumer price index is called core inflation and inflation due to whole-sale prices is called headline inflation. Further, the demand pull inflation is the result of increased demand for goods and services and cost push inflation is due to increase in cost of production of goods and services.
Inflation due to consumer price index is called core inflation and inflation due to whole-sale prices is called headline inflation. Further, the demand pull inflation is the result of increased demand for goods and services and cost push inflation is due to increase in cost of production of goods and services.
Inflation due to consumer price index is called core inflation and inflation due to whole-sale prices is called headline inflation. Further, the demand pull inflation is the result of increased demand for goods and services and cost push inflation is due to increase in cost of production of goods and services.
Answers: 1:b
2:a
3:c
4:d
Q.
We are provided following information relating to economies in three countries:
Feature of the economy
Country A
Country B
Country C
Who takes most of the
Individuals, private firms. But
economic decisions relating to
govt. oversees the functioning
production and distribution
of the market.
Ownership of means of
Govt. Individuals, private
production
firms. Public sector, private
sector and joint sector co-
exist.
Consumption decisions
Individuals
Individuals
Individual
Based on above information, Answer the following Questions -
01
Country A is following which of the following Economic System :
a
command economy b. Market Economy c
capitalistic economy d. Mixed economy
02
Country B is following which, of the following Economic system:
a
command economy b. Market Economy c
capitalistic economy d. Mixed economy
03
Country C is following which of the following Economic System :
a
command economy b. Market Economy c
capitalistic economy d. Mixed economy
Answers:
1:a
2:b
3:d
Explanation :
Where the economic decisions are taken by Govt. and ownership of means of production is with the govt., such economy is called command economy or socialistic economy (used to be followed by USSR earlier).
2 : Where the economic decisions are taken by private firms and individuals and ownership of means of production is with private firms and individuals, such economy is called market economy or capitalistic economy (used to be followed by USA earlier).
3 : Where the economic decisions are taken by private firms and individuals and govt. oversees the functioning of the market and ownership of means of production is with private firms and individuals (public sector, private sector and joint sector co-exist), such economy is called mixed economy (followed by most of the countries).
Q. Case Study/Concept Based questions: Shift in Demand & Supply Read the following situations carefully to answer the questions given at end :
I. During the year 2016, Central Govt. announced implementation of recommendations of 7th Pay Commission and increased the salary of it employees. It is observed that quantity demanded of cars and other consumer goods has increased substantially and this trend last for few months.
The demand for landline telephone connections declined substantially during the last few years because people opted for Mobile Phones despite high cost of Cell phone sets.
Companies manufacturing toys in China increased their exports of toys to India, since these companies were able to manufacture the toys at a low cost compared to the cost incurred by them earlier.
The demand for lap tops manufactured by Company-A increased substantially when the company reduced the price of its lap tops, as a result of reduced cost, due to technology innovations.
Questions:
Law of demand applies on which of the above situations.
a
1 to 4 all, b
only I, 2 and 4, c only 3, d only 4
E xplanation : The law of demand operates when there is change in quantity demanded as a result of change in price of the commodity, which is the case with situation No.4 only. In other cases, the change is due to factors other than price.
The increase in quantity demanded in situation No.I above, will be termed as:
operation of Law of demand, b equilibrium of demand and supply, c shift in demand, d shift in supply
Explanation : Shift in demand is a situation where quantity demanded changes (increases or decreases) as result of change in factors other than price. Here the change in demand is due to increase in income and not because of change in price of cars or consumer durables.
The demand for landline phones declined and for mobile phones increased. This will be called..
a
operation of Law of demand, b
increase in demand, c
shift in demand, d
shift in supply
Explanation : Shift in demand is a situation where quantity demanded changes as result of change in factors other than price. Here the change in demand is due to convenience or habit of the consumers, which is a factor the factors other than price.
The situation given in case No.3 above is known as:
a
operation of Law of supply, b
increase in supply, c
shift in demand, d
shift in supply
Explanation : Shift in supply is a situation where quantity supplied changes as a result of factors other than price. Here the supply has increased because of decline in cost of manufacturing.
q.
Case Study/Problems : Demand and Supply Equilibrium
Read the information relating to motor-bikes, as provided in the table carefully :
Situation
Price
Quantity
Quantit
demanded
y
A
80000
1550000
2770000
B
70000
1980000
2490000
C
65000
2250000
2250000
D
60000
2600000
1940000
E
50000
3000000
1650000
Based on the given information, answer the following situation?
1.What will be state of the market and what type of pressure will be there on the prices of the motor-bike for situation — A or B
the market is having surplus supply and there will be reduction in price
the market is having surplus supply and there will be increase in price
the market is having short supply and there will be reduction in price
the market is having short supply and there will be increase in price
Explanation : In situation A and B, there is excess supply of motorbikes compared with demand which is less. This will force the price to decmase.
What will be state of the market and what type of pressure will be there on the prices of the motor-bike for situation — D or E a. the market is having surplus supply and there will be reduction in price , b. the market is having surplus supply and there will be increase in price, c. the market is having short supply and there will be reduction in price
d.the market is having short supply and there will be increase in price
Explanation : In situation A and B, there is excess demand of motorbikes compared with supply which is short. This will force the price to increase.
3.What is equilibrium price, demand and supply in the given problem? a. equilibrium price is Rs.70000 and demand and supply 1980000 units b.equilibrium price is Rs.65000 and demand and supply 2250000 units
c.equilibrium price is Rs.50000 and demand and supply 3000000 units, d. information is inadequate. No conclusion is possible. Explanation : Situation C is the equilibrium where the equilibrium price is Rs.65000 and demand and supply 2250000 units.
Q. : Business Cycle
Half-yearly growth rates of an economy are provided for 3 major segments of gross domestic product for 5 years:
1
2
3
4
•
5
6
7
8
9
10
11
Segment
June
Dec
June
Dec
June
Dec
June
Dec
June
Dec
2012
2012
2013
2013
2014
2014
2015
2015
2016
2016
Agriculture
5
4
3
2
2
-1
-1
2
3
4
Industry
10
10
8
7
5
2
0
1
5
7
Services
11
10
9
9
7
4
2
4
7
8
Aggregate
9
8
7
6
4
2
1
2
4
6
Growth rates are given in percentage, over the corresponding period of previous year.
The comparison of information provided in Column 3 and 4 confirms that:
a business cycle shows a waive-like movement , b a business cycle is synchronic , c.a business cyclical fluctuations are recurring in nature d.there is no definite period of a business cycle
Explanation : When the decline in growth rate is across all the segments of the economy, it is call that 'the business cycle is synchronic. In the given case there is decline in growth rates in all the sectors.
The information given in column No.2, 8 and 11, suggests that
a
a business cycle shows a waive-like movement, b
a business cycle is synchronic
C
a business cyclical fluctuations are recurring in nature, d
there is no definite period of a business cycle
Explanation : When the period of prosperity (see Co1.2 and then 11) and depression (see column 8) are seen alternatively, this is called that 'business cycle shows a waive-like movement'.
The combined information of column No.6, 7, 8, 9 and 10 represents:
boom, recession and recovery, b recession, depression and boom, c recession, depression and recovery
ddepression, recovery and boom
Explanation : Information in column No.6 and 7 is part of recession which started from column No.3. Information in column No.8 is depression, which is lowest aggregate growth rate. Information in column No.9 and 10 is part of recovery phase of a business cycle.
Q.Example Bonds prices and yields
In certain cases, the bonds are listed on stock exchange, where trading takes place, in these bonds. Let us calculate the bond price with the help of an example.
Bond prices with half-yearly coupon
In the above case, the coupon payment was yearly. But if the payment is on a half yearly basis, the compounded return would be halved i.e. 5.6 / 2 = 2.8% and time interval would be doubled. In this case the value would be Rs.1010.91 as calculated as under:
PV = Rs.30 + Rs.RO + Rs.20
Rs.20 + Rs.R0 + Rs.1030
(1.028)
(1.028)2
(1.028) 3
(1.028) 4
(1.028) 5
(1.028) 6
PV = Rs.1010.91
It will be observed that with reduction in compounding intervals (say from annual to half-yearly), the yield increases.
Bond prices and varying interest rates
With change in interest rates, bond prices change. The price can be worked out if the discount rate is 6%
PV at 6% = Rs.6o + Rs.6o + Rs.106o
(1.06)
(1.06)2 (1.06) 3
PV,= Rs.1000.00
It means that if interest rate is same as the coupon rate, the bond sells for face value.
If the interest rate change from 6% to say, 15%, the bond price would be Rs.794.51 as under:
PV at 15% = Rs.6o + Rs.6o + Rs.106o
(1.15)
(1.15)2
(1.15) 3 PV = Rs.794.51
Hence this bond can sell at 79.45 % of its face value.
Quotation of bond price in market : The bond prices are quoted as a percent of their face value. For example, if the bond with face value of Rs. moo is current priced at Rs.1o22.13, the quote would be 102.213% of face value. It would be called 102.213
Q.
Case study / Case lets : GVA concepts
You are provided the following information for the financial year ended Mar 31, 2016:
Value
(Rs.in
crores)
Employees contribution
14000
Operating surplus
18000
Mixed income:.
(a) employment income
140000
(b) profits of self-employed persons
90000
Consumption of fixed capital i.e. depreciation
20000
Production Subsidies such as to railways, input subsidies to farmers, village and small industries, administrative subsidies
8000
Production taxes such as land revenues, stamps and registration fees, tax on profession
24000
Product taxes such as excise duty, sales tax, service tax, import and export duties
60000
Product subsidies such as food, petroleum and fertilizer subsidies, interest subsidies to farmers, households etc.
28000
through banks]
Based on the above, answer the following questions:
1.
What is the gross value added (GVA) at factor cost?
1.
330000 , b. 282000 c. 298000, d. data is not sufficient
2.
What is the gross value added (GVA) at basic prices?
a
330000, b 282000, c
298000, d
data is not sufficient
3.
What is the amount of GDP at market price?
4.
330000, b. 282000, c. 298000, d data is not sufficient
Answers:
1: b
2:c
3:a
Explanation-1: OVA at factor cost = CE + OS/MI
CFC
[Contribution of employees + Operating Surplus / Mixed income (employment income and profits of self employed persons) + Consumption of fixed capital 1= 14000 + 248000 + 20000 = 282000_ Explanation-2 : GVA at basic prices = CE + OS/MI + CFC +
Production Taxes — Production Subsidies
OR
GVA at basic prices = GVA at factor cost + Production Taxes Production Subsidies.
= 14000 + 248000 + 20000 + 24000 — 8000 = 298000
Explanation-3 : GDP at market price = GVA at basic price + Product Tax — Product Subsidies = 298000 + 60000 — 28000 =
330000
