Q.11. What does mean by “Price Index Number”? (2006-07)
Discuss its utilities and limitations.
Ans. Price index number is a number which indicates the price level at any given data as compared with the level of prices at some standard date called the base.
The first step is selecting the base year which should the average year neither a year which should or year of depression. Next step is selection of commodities which should be representative and sufficiently large in number. Then price are taken for the base year and also for the subsequent years.
Uses of Price Index Number: -
It is used for measuring the changes in price level this is essential for maintaining price stability price stability is conductive to the maintenance of economic activity at the desired level.
It helps in measuring social and economics trends and helps in framing policies with respected them. We can measure any quantitative change in addition to change in the value of money and the cost of living. There may be index number of wages, imports, exports, industrial activity, employment etc.
An index number of cost of living can guide us in the adjustment of wages to changing prices. Index number of whole sale prices can guide the currency authority not only in stabilizing price levels but also in stabilizing foreign exchange.
Limitations: -
(i) Index numbers are just appropriations. Their data are open to question and they lead to different, interpretations.
(ii) International comparisons are difficult, if not impossible on account of the different bases different sets of commodities or difference in their quality or quantity.
(iii) Comparisons between different times are also not easy. Over long periods, some popular commodities are replaced by others. Entirely new commodities come to figure in consumption of the commodities may be vastly different for what it is used to be e.g. is ford car 1983 is a different commodity from 1940 ford.
Q.12. What is modern banking system? (2006-07)
Summarize the functions of control bank.
Ans. A bank is an institution, which deals in money. Bank draw surplus money from the people who are not using it at the time, and lend to those who are in a position to use it for productive purposes. Modern banks have developed from very small beginnings. Earlier bankers were goldsmiths the present day maker has three accestors: Merchant Money lender and goldsmith. A modern bank is something of each of these.
The main function of the banks is borrowing for leading purpose. They borrow in the form of deposits (s)
(a) fixed deposits.
(b) saving bank deposits and
(c) Current deposits in accounts.
The banks lend overdraft (b) loans on the case credit basis and (c) discounting of bills banks borrow short and lend long. They help in the transfer of funds from one place to another and from one person to another through the use of cheques.
Bank is enabled to erect a vast super structure of credit on the basis of a small cash reserve.
Functions of a central bank are as follows:
(i) As the note-issuing agency.
(ii) As the banker to the state.
(iii) As the banker’s bank.
(iv) As the lender of last resort.
(v) As the guardian of the money market through control of credit.
Q.13. Discuss the factors responsible for business fluctuations. (2004-05)
Ans. There are various factors which are responsible for business fluctuations. The laws of production are particularly helpful to business an optimum factor mix in the use of resources can achieved through the use of the law of variable proportions. Economic help in forecasting demand. For making a suitable choice of location for the business, and entrepreneur must know about the reliability of raw materials, power and labour. The price situation also influences the demand for the products. Economics helps a business manager to analyses the external environment of business. As such economics play a vital role in business firms.