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Ayushi posted an Question
August 26, 2020 • 05:13 am 30 points
  • UGC NET
  • Economics

45. assume that last year the consumer price index (cpi) was 150 and a house- hold's nominal income was rs. 30,000. ifthe cpithis year is 160, to be as well off

45. Assume that last year the consumer price index (CPI) was 150 and a house- hold's nominal income was Rs. 30,000. Ifthe CPIthis year is 160, to be as well off as last year, the household should have an increase in nominal income of 45. (1) Rs. 1,800 (2) Rs. 1,875 (3) Rs. 2,000 (4) Rs. 4,800 30,000 R (CPI) 160 TrT a 3T f=i q (1) 1,8000 (2) 1,875 (3) 2,000 (4) 4,800 46. As per JM Keynes variations in the bank rate influence economic activity through their impact upon (1) Short Tem Rate of Interest (2) Long Term Rate of Interest (3) Both Short & Long Term Interest Rates (4) Has no impact on the economy at all

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    Nidhi taparia Best Answer

    46. The answer is (2). Keynes suggested that bank rate influences long term interest rate and this way affects investment demand and economy.

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    Nidhi taparia best-answer

    45. The answer should be (3) 2,000. Let's assume the quantities that the household buys is denoted by Q. This Q is the level of consumption and implies the household's welfare as well. Let's also assume the household spends all the income on consumption, or if it doesn't then it saves in a constant proportion only. So last year when the price index was 150, 150 x Q = 30,000 or Q = 30,000 / 150 = 200 This year to remain on the same welfare level, the household must continue to consume Q such that, 160 x Q = Nominal income or 160 x 200 = 32,000 Consequently household must increase its income by 2000.

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