What is a barter system? What are its drawbacks?
Barter system is a system that was used in ancient times to exchange goods. In Other words, this system was used to exchange one commodity for another before the monetary system came into existence. For example, if a person having rice wants tea, then he can exchange rice with a person who has tea and needs rice. The economy having the barter system was called ‘C-C economy’, i.e. commodity is exchanged for commodity.
The various drawbacks of the barter system are as follows:
1. Problem of double coincidence of wants
Double coincidence of wants implies that needs of two individuals should complement each other for the exchange to take place. For example, in the above case, the second person must need rice in exchange for tea.
2. Lack of common unit of value
Under the barter system there was no common unit for measuring the value of one good in terms of the other good for the purpose of exchange. For example, a horse cannot be measured in terms of rice in the case of exchange between rice and horse.
3. Difficulty in wealth storage
It was very difficult to store commodities for future exchange purposes. The perishable goods like grains, milk and meat could not be stored to exchange goods in future. Therefore, wealth storage was a major difficulty of the barter system.
4. Lack of standard of deferred payments
The future payments could not be met in a C-C economy (barter system) as wealth could not be stored. It was very difficult to pay back loans.
Differentiate between devaluation and depreciation.
Write down some of the limitations of using GDP as an index of welfare of a country.
Explain the relation between government deficit and government debt.
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.
Give the relationship between the revenue deficit and the fiscal deficit.
Discuss the issue of deficit reduction.
Are fiscal deficits inflationary?
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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?
In the above example, if exports change to X = 100, find the change in equilibrium income and the net export balance.
What is High Powered Money?
Distinguish between revenue expenditure and capital expenditure.
Are fiscal deficits inflationary?
What is a ‘legal tender’? What is ‘fiat money’?
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?
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.
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
What is the difference between planned and unplanned inventory accumulation? Write down the relation between change in inventories and value added of a firm.
Are the concepts of demand for domestic goods and domestic demand for goods the same?