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The rate at which commercial banks can borrow money from RBI, when they run short of reserves, is known as bank rate. When the Central Bank increases the bank rate, it increases the cost of borrowing and hence, discourages the borrowers from taking a loan. Due to this, the process of credit creation and flow of money also reduces.
On the other hand, when the Central Bank decreases the bank rate, it encourages the borrower to take more and more loan. A high demand of loan increases the credit multiplier and credit creation process of the commercial banks.
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Yogita Ingle 6 years, 11 months ago
Consumer's Equilibrium through Indifference Curve:
According to indifference curve approach, a consumer attains equilibrium under two conditions:
- When marginal rate of substitution is equal to ratio of prices of two goods i.e., MRSxy = Px/Py
- MRSxy is continuously falling i.e., indifference curve should be convex to the origin.
Let the two goods be x and y as shown in the following Fig. E is the tangency point of budget line on indifference curve IC2 . For this two basic tools — Indifference Map (i.e., set of indifference curves representing scale of preferences) and Budget Line (representing money income and prices of two goods) are required.
Posted by Varsha Dhiman 6 years, 11 months ago
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Yogita Ingle 6 years, 11 months ago
Consumer Equilibrium Under Marginal Utility Analysis (Cardinal Approach)
1. Consumer’s Equilibrium refers to a situation where a consumer gets maximum satisfaction out of his given money income and given market price.
2. Consumer’s equilibrium through utility analysis can be ascertained with reference to:
- A single commodity
- Two or several commodities
(a) Single Commodity Consumer Equilibrium:
(i) When purchasing a unit of a commodity, a consumer compares its price with the expected utility from it. Utility obtained is the benefit, and the price payable is the cost. The consumer compares benefit and the cost. He will buy the unit of a commodity only if the benefit is greater than or at least equal to the cost.
(ii) Equilibrium Conditions for Single Commodity Consumer Equilibrium
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Gaurav Seth 6 years, 11 months ago
Investment Multiplier refers to increase in national income as i multiple of a given increase in Investment. Its value is determined by MPC. The value equals:
Multiplier = 1/1-MPC or 1/MPS
Suppose increase in investment is Rs.1000 and MPC = 0.8. The increase in National Income is in the following sequence.
(i) Increase in investment raises income of those who supply investment goods by Rs.1000. This is the first round increase.
(ii) Since MPC = 0.8, the income earners spend Rs.800 on consumption. This raises the income of the suppliers of consumption goods by Rs.800, This is second round increase.
(iii) In the similar way, the third round increase in Rs.640 = 800 x 0.8. In this way national income goes on increasing round after round.
(iv) The total increase in income is Rs.5,000 which equals.
△Y = △I x 1/1-MPC
△Y = 1000 x 1/1-0.8 = Rs.5000
Investment Multiplier = 1/1-MPC. It shows a direct relationship between MPC and the value of multiplier. Higher the proportion of increased income spend on consumption, higher will be the value of investment multiplier.
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- Money used for ecological purposes (ecocurrency). It is broadly used in the context of green economists, low carbon economy and political Greens.
- Throughout the Middle East, Green money refers to money from Islamic businesses, Islamic banks, and the religious sector.
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Yogita Ingle 6 years, 11 months ago
The Law of Variable Proportion explains how the output changes when one factor of production is made variable keeping other factors constant. In other words, it refers to the input-output relation when output is increased by varying the quantity of one input.In this law, the unit of labour change by keeping capital constant . As a number of fixed factors,capital is fixed then fixed factor and variable factor can be combined together in varying proportion. So, it is also called " The Law of Proportionality".
If we increase the quantity of variable factor keeping a number of fixed factors constant, then the total production initially increase at increasing rate, then the increase at decreasing rate becomes minimum and ultimately, the total production begins to fall. This law is also called "Short Run Production Function". The short run production function can be expressed as:
Q = f(K, L)
Where, Q = Output
L = Variable input labour
K = Fixed input capital

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Prachi Singh 6 years, 10 months ago
1Thank You