Reducing the Budget Deficit Leaves - Economics Assignment Help

Assignment Task

Part - A

1. State for any 5 of the following statements, whether they are true or false or uncertain. Give reasons to support your responses.

(a) If you withdraw Rs 1,00,000 in cash from the Demand Deposit Account of your bank, the immediate effect on aggregate money supply in the economy will be to
increase it by more than Rs 1,00,000.

(b) Reducing the budget deficit leaves more saving available for investment, so investment increases.

(c) An increase in the propensity to consume leads to a decrease in output.

(d) Many people use credit cards to make purchases. Because money is the medium of exchange, credit cards are part of an economy’s measure stock of money supply.

(e) If more and more children drop out of the school to assist their families by under- taking meagre jobs, there will be an overall drop in the amount of GDP.

(f) If in an economy all taxes are lump-sum, they won’t have the automatic stabilising effect on the output.

2. It has been observed empirically that over time the per-capita GDP growth rate of a country mirrors the movement of savings rate with income. Explain the given state-
ment. Can this pattern of growth rates be predicted with the help of the Harrod-Domar model of economic growth? (2 + 3) (Word limit: 600 words)

Part - B

1. Consider two countries A and B, facing a war situation where they are betted against each other. However, this is a peculiar war. Both countries are not using any arma-
ments or big forces of the army to fight this war. They are using ‘paper’ instead. The strategy of each country is to print the other’s currency and then drop large quantities
of it by airplane. Do you think this strategy would work for the countries in fighting the war? Explain in detail, stating the necessary assumptions (if required).

2. The government of a developing country is contemplating launching a welfare scheme, named, ‘Beti’ for the benefit of the girl child. The scheme entails a cash transfer of to the eligible households, that is those with at least one girl child. The economic advisory board of the country is divided between the decision of targeting the entire population as beneficiaries, or targeting just the Below Poverty Line (BPL) households. Another concern before the advisory board is to suggest a source of finance for this scheme. Consider the two situations below and answer the questions.

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