Find the price at which profit would be mximised

 1.The slope of the production possibility curve is the

A. Marginal rate of exchange

B.Margial rate of substitution

C. Average rate of transformation

D. Marginal rate of transformation ✓

Ans: D 

2.  

Solution :

5Q2+20Q+20

MC= ∆C/∆Q

5×2Q+20

MC=10Q+20......(1)

P=100-3Q.....(2)

TR=PQ

TR=(100-3Q)Q  {P=100-3Q}

TR= 100Q-3Q×Q

MR= 100-6Q ....(3)

MC=MR

10Q+20100-6Q

10Q+6Q=100-20

16Q=80

Q=80/16

Q=5

From (2). P=100-3Q

P=100-3(5)

P=100-15

P=85

Derivation of Keynes Multiplier

MPC= Marginal propensity to consume

MPS= Marginal propensity to save

I= investment

∆I= Changed Investment

S= Saving

∆S=Changed Saving

K= Keynes Multiplier

C= Consumption

Y=Income

MPC+MPS=1

MPS=1-MPC---(1)

K= 1/1-MPC or

K= 1/MPS----- ( From-- 1)

∆Y= K.∆I ( K = Keynes Multiplier)

K∆I= ∆Y

K= ∆Y/∆I

S=Y-C

Saving = Income - Consumption

∆S=∆Y - ∆C ---(2)

∆S=∆I---- (3)

K= ∆Y/∆I

K= ∆Y/∆S ----(from 3)

K=∆Y/(∆Y - ∆C) -----( from  2)

Dividing on Numerator and Denominator by ∆Y

K= (∆Y/∆Y)÷(∆Y - ∆C)/∆Y

K= 1÷(∆Y/∆Y -∆C/∆Y)

K= 1÷(1 - ∆C/∆Y)

  K =1/1-MPC. -----  ( ∆C/∆Y=MPC)

K= 1/MPS -------- ( 1-MPC= MPS)

Authors and Books : Economics

 Which of the following pairs is not correctly matched?

Author.                                          Book         

A. Simon Kuznets.              Asian Drama✓

B. J. Robinson.    Essays in the Theory of Economic Growth

C. Karl Marx Das Kapital

D. A.w. Lewis Theory of Economic Growth 

Ans: A

Explanation: 

Simon Kuznets:- 

  Simon Kuznets was born on 30 April 1901 in  Pink,  Belarus and he was died on 8 July 1985 in Cambridge.He received Nobel prize in 1971 for his empirically founded interpretation. 

1.Books he wrote National income and capital formation 

2, Economic Growth and income inequality.

J. Robinson: 

J. Robinson was born on 31 October 31, 1903 in Camberley Surrey I'm England and died August 5, 1983 in Cambridge.

Book's: 1.Essays in the Theory of Economic Growth

2. The production function and the theory of capital: Robinson article in 1954.

Karl Marx: 

Karl Marx was born on 5 May 1818 and died on 14 March 1883. He was German Philosopher in 19 century. He wrote communist Manifesto and was the Author of Das Capital.

A.w. Lewis: 

Arthur Lewis was born on 23 January 1915 and was died in 15 June 1991 A.W .Lewis was an Economist for his work in Development Economics, He was awarded the Nobel Memorial prize in economics in 1979 for his work Duel-Sector Model of development economics which is also known as Lewis Model.

Match the following( Economics): UGC NET, Economics - 2013-paper -III, q.no. 4

 List-I.                                                                     List-II

A) Offer Curve.                                             1. Public Revenue

B) Laffer Curve.                                           2. Sticky Price

C) Lorenz Curve.                                         3. Reciprocal Demand

D) Kinked Demand Curve.                        4.Inequalitie

Codes:  (a).           (b).            (c).             (d)

      A).   3               1                4                  2✓

      B).   1               3                2                  4

      C).   3               4                1                  2

      D).  4               1                2                  3

Ans: A

offer 

Explanation :  Offer Curve:- This Reciprocal Demand Curve first given by Marshal and Edgeworth. According to this offer Curve what quantity of a certain commodity that one country is accept to offer in exchange of certain quantities of another commodity

Laffer Curve : This Laffer was first created by Arthur Laffer in 1974. This Laffer Curve defines relationship between Tax rates and Tax Revenue collected by the government.

Lorenz Curve: The Lorenz Curve was first developed by the American Economist Max. Lorenz in 1905. This Lorenz Curve defines a Graphical presentation of Income Inequalities.

Let the two regression lines be given as 3x= 10+5y and 4y=5+15x. Then the correlation between x and y is....

 In the following diagram,when the income increase from 120 crores to 180 crores in an economy then what is the value of f MPC?

A. 0.81

B. O.82

C .0.83✓

D. 0.84

Ans:- MPC= ∆C/∆I

∆C= 170-120=50

∆I=180-120=60

50/60=0.83

Ans:C

2. C= 20+3/4Y and Y=80, What is the value of APC?

A. 3

B 0.75

C. 0.1

D.1✓

Solution: C= 20+3/4Y

                       20+(3/4)80

                       20+3×20

                       20+60

                     =    80

APC= C/Y

        =80/80

        =1

Ans:D

2. Let the two regression lines be given as  3x= 10+5y and 4y=5+15x. Then the correlation between x and y is....

A.-0.40

B. 0.40✓

C. 0.89

D. 1.50

Solution: Equation y on x 

                  3x= 10+5y

                  bxy=3/5

& Equation x on y

                  4y= 5+15x

                 byx= 4/15

Correlation ( r)= √bxy×byx

                        r= √3/5×4/15

                        r= √1/5×4/5

                        r= √4/25

                        r=   2/5

                        r= 0.40

Ans: B

How to calculate Inflation Rate

 Inflation Rate Definition: 

According to Prof. Rowan, inflation is the process of increasing prices continuously.

Rowan formula for calculating percentage rate of  inflation= P(t)= {∆pP(t)/P(t-1)}×100

Where, ∆P(t)=P(t)-p(t-1)

P= Price Level

(t), (t-1)= Time periods

 WPI( Holesale price Index).   

Aplication of the formula: Ex:-

Year.                    WPI.                                               {∆pP(t)/P(t-1)}×100           Inflation Rate

2002-03.             174.                                                               -----                                 ------

2003-04.             181.                                                  {(181-174)/174}×100                 4.02

2004-05.             188.                                                  {(188-181)/181}×100.                3.87                

MD>MS

Macro Economics  

Money & Banking

Expectations and Interest Rate

 Introduction:

If someone buys a long-term bond, they must expect some changes in future interest rates.

They speculate as a matter of course. Although other considerations may influence their decisions, those who are converting their cash into bonds tend to think that the interest rate will fall and the bond price will rise. Those who monetize their bonds have conflicting expectations. If the current interest rate is low, they expect the current bond price to be high. To be clear, those who believe that the current interest rate is neither high nor low, they use the normal interest rate to compare the current interest rate. This normal rate also always changes. This rate changes due to inflation. Inflation and other factors cause wealthy people to adjust their perceptions of the normal interest rate, but they may decide that the current interest rate at a time is neither higher or lower than the normal rate can decide.

The amount of illusory money balances that people hold varies inversely with the interest rate. For day-to-day affairs, the equation m=k(Y) used for money demand for precautionary purposes is added to fictitious (legal business) money demand, to write an equation for legal business (fictitious) money demand. If M denotes the amount of nominal money balances demanded for fictitious purposes, then the equation is M = P.h(r). Unlike the positive relationship between Y and M as in the daily affairs equation, in this equation there is an inverse relationship between M and K. In favor of the day-to-day equation, the demand for fictitious money balances is M = P. The h (r) equation can be divided by P to express it in real terms. This means that sp =h(r) = Msp

The amount of illusory money balances that people hold varies inversely with the interest rate. For day-to-day affairs, the equation m=k(Y) used for money demand for precautionary purposes is added to fictitious (legal business) money demand, to write an equation for legal business (fictitious) money demand. If M denotes the amount of nominal money balances demanded for fictitious purposes, then the equation is M = P.h(r). Unlike the positive relationship between Y and M as in the daily affairs equation, in this equation there is an inverse relationship between M and K. In favor of the day-to-day equation, the demand for fictitious money balances is M = P. The h (r) equation can be divided by P to express it in real terms. This means that sp =h(r) = Msp

Obviously, some wealthy people are like this. At a certain interest rate. The monetary demand of the wealthy classes for illusory purposes depends to some extent on the price level. But, that amount may not change proportionately with the price level. However, it is common these days to show that the imaginary constants change as indicated by the equation M. = P. h (r). The total demand for fictitious real estate can be shown by the line Msp P in under given Graph this relationship, showing the form  =h(r)

In the above graph X axis denoted demand for money  and Y axis denoted Rate of Interest in %.

If the market interest rate is high, the wealthy are realistic to maintain the illusionary intention monetary. The amount of verticals is kept low. At a somewhat higher interest rate, the wealthy are illusory.The line in Figure 6.4 indicates that no monetary reserves are maintained for || As pictured here,14 percent

At or above the interest rate, the imaginary demand line is perpendicular to the horizontal line.merged with the vertical axis. ie m. becomes null. How high is this rate? If there is, the rich will think that it will decrease in the future, but not increase much. Suffice it to say. If this rate rises, the gain from this interest rate is more than the capital loss will be. At Erate, bonds are preferred over money. Bonds are absolute

Provides security. At the other end of the line, illusory money demand is perfectly elastic.

In this current diagram, perfect elasticity occurs at an interest rate of 4 percent.Under different circumstances, the 4 percent interest rate would not have been considered a low rate at the time

The implication is that the wealthy believe that interest rates will not fall under the circumstances. This at an interest rate, if bonds are held instead of money, the rising interest rate is a measure of capital loss (capital loss) has to be faced. Income, capital provided at low interest rate.

P= MV/T

 Where: P= Price level 

M=Money in Circulation 

V= Velocity of Money 

T= Transactions 

Budget Decision – Welfare Planning

i Know  Budget Decision – Welfare Planning

Allocation of taxes should be done one in such a way as to produce more welfare with less sacrifice. According to 'Edgeworth' and 'Piego' the principle of distribution is better in all sacrificial formulas. According to them, the theory of utility will do more good.

The taxation system is essential to cover the cost of government services and the revenue generated by taxation should be distributed in an equitable manner. With this revenue, the tax distribution department distributes the income according to the desires of private individuals to the detriment of the welfare of each individual and distributes the income to the public welfare. According to Edward, the government should follow the principle of taxation with minimum sacrifice from the people. According to 'Pigu', government actions should be for public welfare. But according to 'Peegu' and 'Edworth' the principle of equality may lead to serious consequences in the state of maximum production. Hence the doctrine of sacrifice must be re-established.

*Wanner' included the differences between seed and social welfare in the tax formula. The social welfare principle is based on the implication that the principle of will is the priority of income distribution, and on the implication that the consequences of public institutions and market forces determine the distribution of income. According to the theory of utility, social well-being depends on the principle of equal sacrifice, but Wagner does not speak specifically about the principle of sacrifice. Purogami supported the tax.

Principles of egalitarian social welfare give less priority to public services. Hence Bygan and Dalton formulated two budgeting approaches. The first is distributional, where marginal utility must be equal to satisfaction. That is, the last rupee (tax paid) and the final satisfaction received by the individual from the last rupee should also be equal. Then marginal satisfaction is equal in public and private sectors. According to 'Dalton' the taxation system should be designed in such a way as to minimise the total direct burden. According to 'Peegu' theory, minimum aggregate sacrifice imposes a marginal burden of tax. The good of the people does not demand total sacrifice.