Assignment Task

 


Question1. 
“According to Harrod-Domar model, economic growth is a result of abstention from  consumption”. Using the model itself, explain why. What do you think is the problem with the  statement? 

Question 2.  
Consider a closed economy Lala Land. Lala land has recently suffered on account of a global  economic meltdown and its economy has been in a slump ever since. Many of its citizens have  lost jobs and are unemployed now. The Government of Lala Land is evaluating following  policy options that it has with it 
1. It can try and provide some basic income to all the households, to help them sustain  even in these turbulent times, by running huge deficits. 
2. Alternatively, it can undertake more public work programs 
Assuming that the basic income provided for is same as the level of expenditure on public work  programs. Which one of the above two would you recommend to help in the revival of the  economy. 


Question 3. 
a) Consider a simple economy, where banks are only used for depositing funds and for  loaning out. Every time a person needs money for a transaction, he or she would have  to visit the bank to withdraw the money. Money supply in this system is 1000, the  velocity of money is 2, the price level is at 2 and the level of output that this economy  produces is 1000. Now with the advent of ATMs, debit cards, UPIs and credit cards,  the economy has undergone a structural change. How would it reflect on the equation  of exchange?
b) Consider an economy where there is only one commercial bank, the Hello Bank. It has  been keeping aside higher than requisite funds (as per the statutory requirement) to be  able to honor its withdrawals. Following 2007 recession, the central bank has reduced  the statutory reserve requirement, but Hello bank has become more cautious and has  started keeping aside more funds to be able to honor its withdrawals. What would be  the impact of the policy change by the central bank on the money supply?

Question 4. 
In an economy the currency in circulation is Rs100 and people have also parked their funds  with commercial banks (Rs200). The mandated reserve requirement by Central Bank is 5%

i. If citizens withdraw Rs 100, in all, from the deposits from their respective accounts,  what would be the immediate effect on the money supply?

 ii. What would be the effect of this withdrawal on the economy, by the end of the  financial year.

 

 

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  • Uploaded By : Brett
  • Posted on : April 03rd, 2019

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