Consider an economy described by the fol | Class 12 Macro Economics Chapter Government Budget and Economy, Government Budget and Economy NCERT Solutions

Welcome to the NCERT Solutions for Class 12 Macro Economics - Chapter Government Budget and Economy. This page offers a step-by-step solution to the specific question from Exercise 1, Question 6: . With detailed answers and explanations for each chapter, students can strengthen their understanding and prepare confidently for exams. Ideal for CBSE and other board students, this resource will simplify your study experience.

Question 6:

Consider an economy described by the following functions: C = 20 + 0.80Y, I = 30, G = 50, TR = 100 (a) Find the equilibrium level of income and the autonomous expenditure multiplier in the model. (b) If government expenditure increases by 30, what is the impact on equilibrium income? (c) If a lump-sum tax of 30 is added to pay for the increase in government purchases, how will equilibrium income change?

Answer:

(a) C = 20 + 0.80 Y

I = 30
c = 0.80
G = 50
T = 100

Equilibrium level of income

Y =
=
Expenditure multiplier

(b) Increase in government expenditure

∆G = 30

New equilibrium expenditure

Equilibrium level of income increase by 150 (1050 - 900)

So,
=
=
= -120

New equilibrium level of income = Y+ ∆Y

= 900 + (-120)
= Rs 780

Other Questions of Chapter Government Budget and Economy

Suppose that for a particular economy, investment is equal to 200, government purchases are 150, net taxes (that is lump-sum taxes minus transfers) is 100 and consumption is given by C = 100 + 0.75Y (a) What is the level of equilibrium income? (b) Calculate the value of the government expenditure multiplier and the tax multiplier. (c) If government expenditure increases by 200, find the change in equilibrium income.

Explain why the tax multiplier is smaller in absolute value than the government expenditure multiplier.

Suppose marginal propensity to consume is 0.75 and there is a 20 per cent proportional income tax. Find the change in equilibrium income for the following (a) Government purchases increase by 20 (b) Transfers decrease by 20.

Distinguish between revenue expenditure and capital expenditure.

Explain why public goods must be provided by the government.

In the above question, calculate the effect on output of a 10 per cent increase in transfers, and a 10 per cent increase in lump-sum taxes. Compare the effects of the two.

‘The fiscal deficit gives the borrowing requirement of the government’. Elucidate.

Give the relationship between the revenue deficit and the fiscal deficit.

We suppose that C = 70 + 0.70Y D, I = 90, G = 100, T = 0.10Y (a) Find the equilibrium income. (b) What are tax revenues at equilibrium income? Does the government have a balanced budget?

Explain the relation between government deficit and government debt.

Popular questions of class 12 Macro Economics

Differentiate between devaluation and depreciation.

What is a barter system? What are its drawbacks?

Write down some of the limitations of using GDP as an index of welfare of a country.

From the following data, calculate Personal Income and Personal Disposable Income.
Rs (crore)
(a) Net Domestic Product at factor cost 8,000
(b) Net Factor Income from abroad 200
(c) Undisbursed Profit 1,000
(d) Corporate Tax 500
(e) Interest Received by Households 1,500
(f) Interest Paid by Households 1,200
(g) Transfer Income 300
(h) Personal Tax 500

Why should the aggregate final expenditure of an economy be equal to the aggregate factor payments? Explain.

Explain ‘Paradox of Thrift’.

What is the difference between ex ante investment and ex post investment?

Suppose C = 40 + 0.8Y D, T = 50, I = 60, G = 40, X = 90, M = 50 + 0.05Y

(a) Find equilibrium income. (b) Find the net export balance at equilibrium income (c) What happens to equilibrium income and the net export balance when the government purchases increase from 40 and 50?

Suppose the exchange rate between the Rupee and the dollar was Rs. 30=1$ in the year 2010. Suppose the prices have doubled in India over 20 years while they have remained fixed in USA. What, according to the purchasing power parity theory will be the exchange rate between dollar and rupee in the year 2030.

What are official reserve transactions? Explain their importance in the balance of payments.

Recently Viewed Questions of Class 12 Macro Economics

What is High Powered Money?

Differentiate between balance of trade and current account balance.

What is the difference between ex ante investment and ex post investment?

Explain the automatic mechanism by which BoP equilibrium was achieved under the gold standard.

Describe the four major sectors in an economy according to the macroeconomic point of view.

What are the important features of a capitalist economy?

What are the instruments of monetary policy of RBI?

What is the difference between microeconomics and macroeconomics?

The value of the nominal GNP of an economy was Rs 2,500 crores in a particular year. The value of GNP of that country during the same year, evaluated at the prices of same base year, was Rs 3,000 crores. Calculate the value of the GNP deflator of the year in percentage terms. Has the price level risen between the base year and the year under consideration?

Are the concepts of demand for domestic goods and domestic demand for goods the same?

Study Tips for Answering NCERT Questions:

NCERT questions are designed to test your understanding of the concepts and theories discussed in the chapter. Here are some tips to help you answer NCERT questions effectively:

Read the question carefully and focus on the core concept being asked.
Reference examples and data from the chapter when answering questions about Government Budget and Economy.
Review previous year question papers to get an idea of how such questions may be framed in exams.
Practice answering questions within the time limit to improve your speed and accuracy.
Discuss your answers with your teachers or peers to get feedback and improve your understanding.

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