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Gaurav Seth 6 years ago
Repo rate is the rate at which commercial banks can borrow money from RBI to overcome the shortage of money. By varying the repo rates, the RBI can increase or decrease the supply of money. This rate relates to the loan offered by RBI with securities and only short term borrowings by the commercial banks.
Repo rate is used as the main instrument of credit control. When the Central Bank raises the repo rate, there will be an increase in the cost of borrowing which reduces commercial banks borrowing from the Central Bank. Consequently, the flow of money from the commercial banks to the public reduces. Therefore, the supply of money reduces and bank credit creation is controlled.
Posted by Rajanpreet Deol 6 years ago
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Yogita Ingle 6 years ago
MPC (Marginal propensity to consume = 0.6
Initial income = Rs 100
Autonomous investment = Rs 80
The consumption function is :
C = c₀ + cY
Where :
C = Total consumption
c₀ = Autonomous consumption = 0
c = MPC = 0.6
Y = Disposable income = 100
In our case the autonomous consumption is equal to 0 given that it is not mentioned. It takes an absolute value of 0.
Our equation now becomes :
C = 0 + 0.6Y
Savings = disposable income - consumption
THE SCHEDULE :
1.) When Y = 100
C = 60 savings = 40 Autonomous investment = 80
2.) When Y = 200
C = 120 Savings = 80 Autonomous investment = 80
3.) When Y = 300
C = 180 Savings = 120 Autonomous investment = 80
4.) When Y = 400
C = 240 Savings = 160 Autonomous investment = 80
5.) When Y = 500
C = 300 Savings = 200 Autonomous investment = 80
At equilibrium income :
Aggregate demand = Aggregate supply
Aggregate demand = Consumption + Investment
Aggregate supply = Consumption + Savings
At Y = 200 :
Aggregate demand = 120 + 80 = 200
Aggregate supply = 120 + 80 = 200
We see that Aggregate demand = Aggregate supply
And thus the equilibrium income is Rs 200
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Gaurav Seth 6 years ago
Money or Credit Creation by Commercial Banks Commercial banks increases the flow of money in an economy by credit creation. This process of credit creation is an outcome of its two primary functions, i.e. acceptance of loans and advancement of deposits. The banks issue loans from their cash reserves with the confidence on their historical experience that all depositors will not withdraw their funds at the same time. In this way, commercial banks create credit many more times than their cash reserves and contributes to increase money supply in the economy. It depends on initial level of deposits and money multiplier.
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Gaurav Seth 6 years ago
Teacher teaching his son at home is not included in national income
It will not be included in national income as it is a non-market transaction and it is difficult to ascertain its market value.
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Prerna Shukul 6 years ago
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