Discuss some of the exchange rate arrangements that countries have entered into to bring about stability in their external accounts.
To combine the two extreme positions, `fixed' and 'flexible', the following exchange rate arrangements are used by governments to bring stability in external accounts:
1. Wider Bands
A system that allows adjustment in fixed exchange rate is referred to as wider bands. It permits only 10% variation between the currencies of any two countries. For example, a country can improve its balance of payments (BOP) deficit by depreciating its currency, which leads to increase in demand for domestic goods due to increase in purchasing power of other currencies. This further leads to the increase in exports, hence improving the BOP.
2. Crawling Peg
Crawling peg system allows continuous and regular adjustments in the exchange rate. Only 1% of variation is allowed at a time.
3. Managed Floating
Managed floating is a scheme under which the government can intervene to vary the exchange rate when the situation demands so. There is no specific limit of variation as in crawling peg and wider bands.
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.
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?
What is the difference between ex ante investment and ex post investment?
What is the difference between ex ante investment and ex post investment?
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.
Measure the level of ex-ante aggregate demand when autonomous investment and consumption expenditure (A) is Rs 50 crores, and MPS is 0.2 and level of income (Y) is Rs 4000 crores. State whether the economy is in equilibrium or not (cite reasons).
Are fiscal deficits inflationary?
What are the instruments of monetary policy of RBI?
What is High Powered Money?
Why should the aggregate final expenditure of an economy be equal to the aggregate factor payments? Explain.
Do you consider a commercial bank ‘creator of money’ in the economy?
Distinguish between revenue expenditure and capital expenditure.
Explain the relation between government deficit and government debt.