Economics (030) Class Xii (2014-15) Worksheet Page 15
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21a)
Fixed exchange rate system: A Central Bank actively uses its foreign currency
reserves to maintain the officially determined exchange rate.
(1)
b)
Floating exchange rate system: A Central Bank does not maintain any reserves of
foreign currency as the market automatically adjusts to determine the market driven
exchange rate.
(1)
c)
Managed Floating: A Central Bank enters the foreign exchange market to buy/sell
foreign currency in order to control fluctuations and volatility in the market.(1)
21. At equilibrium
AD = Y
AD = C+I = Y
(1)
80+0.4Y+100 = Y
0.6Y = 180
Y =
= 300
(1)
Since the given income of 400 is greater than equilibrium level of income, the economy is
not at equilibrium. It is at a situation where aggregate demand is greater than the
aggregate output produced in the economy.
(1)
OR
At equilibrium AD = C +I = Y
(1)
I = 60
C = C
+ bY = C
+ 0.8Y
0
0
If equilibrium level of income is 400, then C = C
+ 0.8x400 =C
+320
0
0
Thus, 60+C
+320 = 400
0
C
= 20
(1)
0
The given value of autonomous consumption is incorrect. The correct value is 20.(1)
22. Suppose planned saving is higher than planned investment. It means that households are
not consuming as much as the firms had anticipated. In other words, planned output is
greater than planned demand.
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