Macroeconomics and Public Finance

Excess demand is a situation when there is no possibility of greater employment opportunities as economy is already at full employment level.

The aggregate demand in two sector economy only includes the expenditure made by the consumer sector and the producer sector. The expenditure by the government sector and net exports are not included in the two sector economy.

The various components of expenditure method are: 

The deflationary gap can be corrected by raising the level of aggregate demand because deflationary gap occurs when aggregate demand falls shod of aggregate supply.

Aggregate demand refers to the sum total of expenditure that the people plan to incur on the purchase of goods and services produced in an economy corresponding to their different levels of income. It can be increased when the credit creation capacity of the commercial banks gets increased. By increasing bank rate, selling government securities by RBI and increasing cash reserve ratio decrease the aggregate demand in an economy.

False. Demand curve slopes downward from left to right because of the law of diminishing marginal utility. According to this law, the utility/satisfaction of the consumer goes on decreasing with every additional consumption of the commodity and hence, the consumer will buy more goods only when the price decreases. Other reasons are income effect, substitution effect, different uses of commodity etc. 

False. Demand is a desire to buy commodity backed by the ability to pay and willingness to buy a commodity.

Market equilibrium is a situation where the aggregate demand and supply of a commodity are the same I.e., equal. Equilibrium is achieved at the intersection of aggregate demand aggregate supply and at that level we get the equilibrium price and quantity. 

Market equilibrium is a situation where the aggregate demand and supply of a commodity are the same. Equilibrium is achieved at the intersection of aggregate demand aggregate supply and at that level we get the equilibrium price and quantity. 

Aggregate demand is the total consumption of goods and services as it is not practically possible to count all the goods and services consumed and hence, the total expenditure undertaken by each household for consumption, private investment, expenditure by government on consumption and investments and net exports. Hence, deficient demand can be because of fall in household consumption, decrease in private investment, decrease in government expenditure. 

Marginal efficiency of investment (MEI) refers to the expected rate of return from the allocation of a proportion of income or capital invested in the business. There is a inverse relation between the rate of
interest and investment. If the rate of interest is high then people will take
less loan from the bank and they will have less money to invest in whereas if
rate of interest is low then people will take more loan from the bank to invest
in the business. 

Induced consumption refers to that consumption which occurs on the basis of change in income. It changes when there is some same change in the level of income in the economy. Therefore, it is income elastic as it depends on the level of income in the economy. 

Aggregate Demand refers to the desired level of expenditure in the economy during an accounting year. It is what people wish to spend on the purchase of goods and services during an accounting year.

The determinants of aggregate demand is expressed as: 

Aggregate demand= C+I+G+ (X-M) where

C= Consumption expenditure

I= Investment expenditure

G= Government expenditure

(X-M)= Net export.

Autonomous consumption refers to that consumption which occurs when there is no income in the economy. It is the minimum level of consumption that takes place in the economy. It is the consumption expenditure which is not affected by the income in the economy. 

Marginal efficiency of capital (MEC) or Marginal efficiency of investment (MEI) refers to the expected rate of return from the allocation of a proportion of income or capital invested in the business. It is the rate of return which is expected as per the economic behavior of the business since past few years. 

Aggregate Demand refers to the desired level of expenditure in the economy during an accounting year. So it can also be expressed as the sale proceeds because the expenditure from consumer's point of view is sales proceeds or earnings from producer's point of view. Therefore, Aggregate demand is the amount of sales proceeds which an entrepreneur actually expects from the sale of output produced during the year assuming it to be the full employment level of output. 

Consumption expenditure refers to the expenditure which is incurred on the basic act of consuming goods and services to satisfy the wants of the individuals. It is usually incurred directly by private individuals and institutions. 

Break-even point is that point where the producer is able to recover the total cost of production through sale of output and incurs no profit or loss. The total revenue here must equal the total cost for the firm to break-even at a given level of production of output.

The demand curve is a graphical representation of the relationship between the price of a good or service and the quantity demanded for a given period of time.

Geometric method was suggested by Prof. Marshall and is used to measure the elasticity at a point on the demand curve. When there are infinitely small changes in price and demand, then the 'Geometric Method' is used. This method is also known as 'Graphic Method' or 'Point Method' or 'Arc Method'.

True. Government expenditure increases demand. Its one of the components to determine demand. Aggregate demand takes into account all the expenditure incurred in the country during the year. Government spending can be in the form of welfare, pension etc which increases the purchasing power of the people thereby increasing demand. 

Equilibrium state is a state at which the quantity supplied is equal to the quantity demanded. Hence, neither buyers nor sellers want to change their behaviour. They are exact same. Hence, in economics, equilibrium is a situation in which there is no inherent tendency to change. Also, the market clears and becomes stable.

Equilibrium state is a state at which the quantity supplied is equal to the quantity demanded. Hence, neither buyers nor sellers want to change their behaviour. They are exact same. Hence, in economics, equilibrium is a situation in which there is no inherent tendency to change.

Foreign exchange reserves of India Consists of Foreign currency assets held by RBI, gold holding of RBI, Special drawings Rights. Foreign exchange reserves of India are holdings of cash, bank deposits, bonds and other financial assets. 

The period of time, when supply is fully adjusted to change in demand is called long term period. During the long period, all factors of production of inputs in the industry can be converted into variable. In the long run the firms can change the scale of production, the plant size can be changed, etc. Thus, in long run supply can be fully adjusted to the change in demand. 

Under monopolistic competition, if Price is more than Marginal cost there is no optimal utilisation of resources. Optimum utilisation of resources will be achieved only when price = marginal cost. 

In case of excess demand market supply will be less than market demand and equilibrium price and quantity will decrease. Its a situation in market when at the given price the quantity demanded id more than quantity supplied. Due to competition the prices will rise and then buyers will demanding less of the commodity. When the price is high suppliers increase the supply thereby increasing the supply as well as price of the commodity. 

Excess demand is a situation where the demand for a product is more than the supply for the product. In the given question, demand for good X is 30 units and supply for good X is 20 units. Hence, the excess demand is 10 units. 

Price ceiling means that a maximum price that can be charged for a product is fixed by the government. The sellers cannot charge a price beyond it. Price ceiling is done to help the people to get goods at a lower rate and save them from getting exploited. Hence, when the prices are reduced the demand for that commodity increases due to the mechanism of law of demand, while supply decreases, leading to excess demand.

True.
Excess demand generates pressure of demand on the existing supply. As an immediate impact, market price rises. It leads to extension of supply and contraction of demand. Finally, equilibrium is reached in the market where DX=SXDX=SX. This new equilibrium price happens to be higher than the initial equilibrium price.

True.
Equilibrium price may not change with a change in market demand, if the market supply changes in a proportion equal to the change in market demand.

Aggregate demand refers to the total demand in the economy as a result of consumption expenditure of households, investments made and the government expenditure in a given year. The expenditure of households on consumption goods, in a given period is, thus, a part of aggregate demand in the economy for the given period of time.

Government debt is the amount of borrowings by government. It also known as public interest, national debt and sovereign debt.

A fiscal deficit occurs when a government's total expenditures exceed the revenue that it generates, excluding money from borrowings. Deficit differs from debt, which is an accumulation of yearly deficits.

Fiscal policy refers to the use by the government of the various instruments such as taxation, expenditure and borrowing to achieve the objectives of balanced economic development, full employment, etc. The budget or the annual financial statement of the government, gives expression to its fiscal policy.
In accordance with Article-112 of the Indian Constitution, the President shall cause to be laid a financial statement before both the houses of parliament at the commencement of every financial year of the estimated receipts and expenditure of the Government of India for that year.

All the external loans which constitue at least 25 per cent (or more) grant (relaxation/subsidy) on its interest rates are considered 'concessional loans' by the government.

A budget surplus is a period when income or receipts exceed outlays or expenditures. A budget surplus often refers to the financial states of governments; individuals prefer to use the term 'savings' instead of the term 'budget surplus.' A surplus is an indication that the government is being effectively managed.

The government has sovereign power to levy taxes and borrow, which individuals do not possess.

Public debt is often used for infrastructure and development, which impacts the production of wealth, whereas private debt is typically for consumption or specific business ventures.

Public borrowings from other countries, are referred to as External Debt. External debt permits import of real resources. It enables the country to consume more than it produces. The sources of external debts are loans from foreign government, IMF, World Bank etc.

External debt is sourced from international entities, foreign governments, and foreign individuals.

Unproductive debt is debt incurred for purposes that do not generate future income or assets, such as war or administrative expenses.

Unless public debt is not used on developmental procedures which generate revenue, the above will be a problem. 

Internal debt is raised within the country through various financial institutions and the sale of government securities.

National debt increases when the government spends more than it earns, which is facilitated by long-term government borrowings.

External assistance (bilateral and multilateral) historically constitutes a significant portion of India's external debt.

Over time, India has shifted towards more commercial borrowings, leading to a decrease in the proportion of concessional debt.

A vast majority of external assistance received by India is in the form of loans rather than grants.