Fiscal deficit is defined as excess of total expenditure over total receipts excluding borrowings during a fiscal year. In simple words, it is the amount of borrowing the government has to resort to meet its expenses. A large deficit means a large amount of borrowing. Fiscal deficit is a measure of how much the government needs to borrow from the market to meet its expenditure when its revenues are inadequate. In the form of an equation:
Fiscal Deficit = Total Expenditure - Total Receipts excluding Borrowings = Borrowing
If we add borrowing, fiscal deficit is zero. Clearly fiscal deficit gives borrowing requirement of the government. Let it be noted safe limit of fiscal deficit is considered to be 5% of GDP. Again borrowing includes not only accumulated debt but also interest on debt. If we deduct interest payment on debt from borrowing, the balance is called primary deficit.
Fiscal Deficit = Total Expenditure - Revenue Receipts - Capital Receipts excluding Borrowing
Fiscal deficit is the most important measure of deficit budget.
Can there be Fiscal deficit without Revenue deficit? Fiscal deficit without revenue deficit is possible (i) when revenue budget is balanced but capital budget shows a deficit or (ii) when there is surplus in revenue budget but deficit in capital budget is greater than surplus of revenue budget. The following equations further clarify the distinction between the two.
Revenue Deficit = Revenue expenditure - Revenue receipts
Fiscal Deficit = Total expenditure (Revenue exp. + Capital exp.) - Revenue receipts - Capital receipts excluding borrowing.

National Income And Domestic Income:

1. National Income refers to net money value of all the final goods and services produced by the normal residents of a country during an accounting year.
2. Domestic Income refers to a total factor incomes earned by the factor of production within the domestic territory of a country during an accounting year.
3. The difference between these two incomes is Net Factor Income from abroad (NFIA), which is included in National Income (NY) and excluded from Domestic Income (DY).
4. Where NFIA is the difference between income earned by normal residents from rest of the world and similar payments made to Non residents within the domestic territory. NFIA = Income earned by Residents from rest of the world (ROW) – Payments to
Non-Residents within Domestic territory.
NY = DY + NFIA DY = NY – NFIA
Note:
Case I: Income paid to abroad is given, then to make NFIA inverse the sign. For this put income from abroad 0.
Example, Income paid to abroad =100
NFIA = Income from Abroad – Income paid to abroad
= 0 – 100 = -100 and vice versa.
Case II: Income from abroad is given, then NFIA = Income from abroad. For this put income paid to abroad 0.
Example, Income from abroad =100
NFIA = Income from Abroad- Income paid to abroad = 100 – 0 = 100 and vice versa Case III: If income from abroad and income paid to abroad both are given, then NFIA is the difference between them,
Example, Income from abroad =100 Income paid to abroad =120
NFIA = Income from Abroad- Income paid to abroad = 100 – 120 = (-) 20 and vice versa Case IV: Net factor income to abroad be given, then to make NFIA inverse the sign.
Net factor income paid to abroad (NFPA) = income to abroad – income from abroad.
Example,
(i) Net Factor Income to abroad (NFPA = 100). In this NFPA is positive, which means that income to abroad is greater than income from abroad, which makes,
NFIA = (-)100
(ii) Net Factor Income to abroad [NFPA = (-)100]. In this NFPA is negative, which
means that income to abroad is less than income from abroad, which makes,
NFIA = (+) 100

RBI controls the- -commercial banks through the fallowing measures

(i) RBI Fixes the Bank Rate and Repo Rate Bank rate is the interest rate at which the RBI, lend funds to other commercial banks in the country, It is also called the discount rate, In older to control the supply of currency in the economic system RBI often uses the bank rate. On the other hand, Repo Rate Is the rate at which commercial banks will borrow the funds from the RBI against the securities. In order to make expensive or cheaper to borrow the money, RBI fixed this rate.
(ii) Variable Reserve Ratios The commercial banks have to keep a certain proportion of their total assets in the form of liquid assets so that they are always in a position to honour the demand for withdrawal by their customers. These reserve ratios are named as Cash Reserve Ratio (CRR) and a Statutory Liquidity Ratio (SLR). The CRR refers to the percentage of deposits with the commercial banks which they have to maintain with the RBI in cash form and SLR refers to the percentage of deposits to be maintained as reserves in the form of gold or foreign securities. Thus, by varying reserve ratios lending capacity of commercial banks can be affected.
(iii) Fixing Margin Requirements The margin refers to the "proportion of the loan amount which is not financed by the hank'. This method is used to encourage credit supply for the needy sector and discourage it for other non-necessary sectors by increasing margin for the non necessary sectors; and by reducing it for priority sectors.
(iv) Credit Rationing RBI can fix the upper limit of credit amount to be granted for various purposes. This can help in lowering the credit exposure of commercial banks 10 undesirable sectors.

Disguised Unemployment is a kind of unemployment in which there are people who are visibly employed but are actually unemployed. This situation is also known as Hidden Unemployment.In such a situation more people are engaged in a work than required.

BOP comprises of two accounts, namely current account and capital account. BOP always balances in accounting sense  such that when current account is in surplus it is always that capital account will be in deficit by the same amount and vice- versa. Suppose current account is in surplus that is, exports are more than imports. This implies that receipt from export are more than payment for imports. This surplus would be matched by a deficit in the capital account by the same amount. In this way, in accounting sense, the country has zero net financial obligations always. 

Reason that goverment's operating surplus is zero or nil is that the main motive of government is maximisation of social welfare rather than profit.
The subsistence sector relies on natural resources to provide basic needs. Even the term subsistence means supporting oneself at minimal level. Accordingly, their operating surplus is minimal or zero.

Often GDP (real GDP) is considered as an index of welfare of the people. Welfare means sense of material well-being among the people. This depends upon availability of goods and services per person for consumption. When GDP (or GNP) rises, it shows increase in flow of goods & services. Greater availability of goods and services implies higher standard of living which increases economic welfare. So one may conclude that higher level of GDP is an index of greater well-being of the people. But this may not be correct due to following limitations or reasons.

(i) Distribution of GDP. A mere rise in GDP (or GNP or National Income) may not lead to rise in economic welfare if its distribution results in concentration of income in the hands of very few individuals or firms. A mere increase in GDP does not mean that every individual automatically gets this much of increase. Distribution of GDP might have resulted in making the rich richer and the poor poorer leading to further increase in the gap between rich and poor.

(ii) Non-monetary exchanges or transactions. Many economic activities in the economy are not evaluated in monetary terms. Thus non-market transactions like services of housewife, exchanges through barter, enjoyment from hobbies like painting, gardening, etc. which increase economic welfare are not included in measuring GDP. Hence GDP may not reflect actual productive activities and wellbeing of the country.

(iii)    Externalities. These refer to the benefits or harms which a firm or an individual causes to other in the process of production but for which they are not paid or penalised. For example, negative externalities occur when smoke of a factory pollutes the air or its industrial wastes causes water pollution in the nearby river resulting in loss of social welfare. But nobody is penalised for it nor it is accounted in GDP. GDP does not take into account these externalities. Similarly, positive (beneficial) impact of beautiful garden remains outside of realm of GDP. To that extent GDP is not a correct index of welfare as GDP is then underestimated or overestimated.

For calculating GDP deflator, the following steps are necessary

1. Determine the nominal GDP
2. Determine the real GDP
3. Find the GDP Deflator

GDP deflator formula can be represented as

GDP deflator = Nominal GDP / Real GDP * 100

Like other price indices such as CPI, GDP deflector is not formed on a fixed basket of goods and services. The basket is altered every year depending on people’s investment and consumption patterns for that year.

(i) Profit earned by a foreign bank is included in domestic product of India because the banks branches are located in the Indian domestic territory.
(ii) Scholarships is a trasnfer payment because no service is provided in return.
So, it is not included in domestic income.

This is because of two reasons:
(i) Export refers to the purchase of domestically produced goods by the rest of the world. Goods produced within the domestic territory of a country are to be treated as a part of GDP.
(ii) Export receipts refer to revenue of the firms from the sale of its output. These are not the receipts of factor incomes from abroad which are to be in the form of rent, interest, profit and wages.

Operating surplus does not arise in the subsistence sector and in the general government sector because of the following reasons: (i) in the subsistence sector, production is meant only for subsistence of the producing families. Production is not meant for sale in the market. Accordingly, there is no operating surplus.

Money flows are opposite to real flows. Because money flow are in response to the real flows. Example-There is a real flow of goods and services from the producers to the households. It is in response to it, that the households makes payments to the producers. So, that money flows from the households to producers in terms of consumption expenditure. Likewise, there is a real flow, of factor services from the households to the producers. It is in response to it, that the producers make payments to the households. So that, money flows from producers to the households in terms of factor payments.

Capital formation implies an increase in capital assets such as plant and machinery, buildings and equipment available to the firm. Now, with a higher net capital formation, means higher capital equipments per unit of labour. This leads to a higher productivity/efficiency of labour.

• The term ‘Macro’ means large. So Macroeconomics is that part of economics which studies the economic problems and issue that are on a large scale. It studies about the performance of the economy as a whole and not of any individual firm or business. It focuses on the study of problems like inflation, unemployment, poverty, etc. It takes into account aggregate demand and aggregate supply.  
• While in microeconomics, aggregation is at an individual household, individual industry or an individual market but on the other hand in macroeconomics aggregation is done at the level of an economy as a whole.

Interest paid by banks on deposits by individuals. Payment of interest by a government firm. Yes, it will be included in the national income as such interest is paid on loan taken for productive purpose. No, as national income is at factor cost so no subsidy would be accounted. It is not included in national income because national income is found out at 'factor cost' which excludes subsidies from the government which are nothing but economic assistance given by the government to reduce the market price of a commodity.

To calculate, GDPMP by, the expenditure method, we add up final expenditure on the goods and services produced by all the economic sectors of an economy. Expenditures incurred on consumption and investment are final expenditures. These are classified into: (i) Private final consumption expenditure. (ii) Government final consumption expenditure. (iii) Gross domestic capital formation. (iv) Net exports = (Exports less Imports) The sum total of these expenditures is GDPMP..

The expenditures approach says GDP = consumption + investment + government expenditure + exports – imports. The income approach sums the factor incomes to the factors of production. The output approach is also called the “net product” or “value added” approach .

a n s w e r

National Income refers to net money value of all the final goods and services produced by the normal residents of a country during an accounting year.

The Production Possibilities Curve (PPC) is a model that captures scarcity and the opportunity costs of choices when faced with the possibility of producing two goods or services. ... The bowed out shape of the PPC in Figure 1 indicates that there are increasing opportunity costs of production. In other words, it reflects the opportunity cost of producing one good in terms of another good. ... For example, a movement from point B to point C implies that the economy is diverting resources from the production of consumer goods to the production of capital goods.