Question 1:- It is said that business strategy, structure and system

is affected by government’s economic policies. Do you agree? Give

suitable examples in support of your answer, quoting experiences
from across the world of business.

Answer: Yes, it is true that business strategies and structure is also affected by the
government policies if there is changing if affects the whole business. Economic policies
are the backbone of any country because the complete growth of the country is dependent
on the economic policies of the country. Some suitable examples which will give strength
to my statement:-

 Suppose if govt. imposes the higher tax on automobiles than purchasing power of
the people will decrease, it directly affect the consumer demand and sale of the
automobile industry is affected. So in that case the business definitely has to adopt
some new business strategy to overcome the same problem.
 If government change in the import and export policy than it effects on the
business as well as growth of the country. For example automobile import is
highly taxed by the government so if they decrease the import duties than the
import will definitely increase.
 Income tax charged by government will also affect the business strategy because
the disposable income is also affected by the taxation policies of government. So if
the disposable income decrease or increase it will affect the purchasing power of
consumer than business will definitely suffer from it and they have to change their
business strategy.
 FDI policies will affect the business, we can see the example of telecom sector
when the government allowed the 100% FDI complete face of telecom is changed
and all the companies changed their strategies.
 Also many times the policies like Fiscal and monetary made by government also
effect the businesses. For example the stimulus packages given by the government
will directly affect the business market.

So overall we can say that the business strategy of a business is directly dependent on
the government policies.
Question 2:- Ensuring “Economic growth with social justice
“requires a balanced mixture of several policies, monetary as well
as non-monetary. Explain.
Answer: - Monetary policy is concerned with the management of supply of money in a
economy and managing the rate of growth of money supply per period. In a growing
economy money supply has to be well only than the country can grow continuously and
the economic condition of the country will be better. Talking in terms of annual rate of
growth of money supply, the optimal monetary policy requires that this rate of growth, on
an average, is such as to be consistent with the attunement of the desired social goals. It is
universally admitted that the best combination of these social goals is growth with
stability and equity. Stability here means severe economic stability but, for all practical
purposes, is generally equated with the general price stability.

An effective fiscal policy is composed of policy decisions relating to entire financial

structure of the government, including tax revenue, public expenditure, loans, transfers,
debt management, budgetary deficit, and so on. The policy tries to attain a proper balance
between these aforesaid units so as to achieve the best possible results in terms of
economic goals.

Both the monetary and the fiscal policy need to work in a economy to achieve economic
growth in social justice because if one work alone, it would result into more chronic
problems.

For example the taxation policy of the government, government charges high taxes from
the high income group and use that money in the development of the country.

At last we can say that fiscal as well as monetary policies are ensuring economic growth
with social justice.
Q3: Explain the mechanism through which the following policy
instruments may work towards(short-term) macroeconomic
stability and (long term) structural adjustments:
a. Borrowing from the IMF and world bank
b. Government spending on public work programme.
c. Foreign Direct Investment
d. Pay hike announced and effected by government.

Answer:
 Borrowing from IMF and the World bank:- Any member country can turn to
the IMF for financing if it has a balance of payments need—that is, if it cannot
find sufficient financing on affordable terms in the capital markets to make its
international payments and maintain an appropriate level of reserves. Its loans are
intended to help its members tackle balance of payments problems, stabilize their
economies, and restore sustainable economic growth.
Whereas World bank didn’t provide direct loan they invest in the development
activities which ultimately help in economic development because if the world
bank spend in any development activity in India ultimately the money supply
come in the economy and the economy grows.

 Government spending on public work programme:- Whenever Government

spent on any project in the country for example they make roads than ultimately it
raises the productive capacity of the economy and promotes technological
progress through embodiment of new techniques, and when the production
increase the money flow again starts and ultimately results in increased GDP.
That’s why when a country suffers with economic crisis economists suggest them
to invest in the development

 Foreign Direct Investment:- Whne a country have good FDI it will provide the
employement opportunities the people of that country, it will apso provide
customers high quality goods and services. This will also bring copmetetion in the
domestic market if we take a example of Telecommunication industry when the
FDI has started in it then the whole face of telecomm is changed.
  Pay hike announced and effected by government:-Pay hike simply means
increase in the income of people and also increase in the disposable income of
people. When the disposable income increases ultimately the purchasing power of
consumer will increase. When the consumer buy more the demand also increase
which will increase in the growth of GDP.

Question 4: Which of monetary and fiscal measures do you think

more effective in controlling inflation? Give logic to support your
answer?
Answer: When the prices of goods and services in the economy rise over a period of time
we call it Inflation. Inflation is a curse to any economy so government has to control it for
the betterment of the economy. For that Indian government has made Fiscal and
Monetary policies.

According to me monetary policies are more effective in controlling the inflation,

because monetary policies directly control the flow of money in the country. By a small
change in CRR, SLR or Bank rate we can control the money flow in very short period of
time.

Monetary policies
 Control Over Money: It is suggested that to check inflation government should
impose strict restrictions on the issue of money by the Central Bank.
 Credit Control: RBI can also control the credit market they can increase the bank
rate, raise minimum cash reserve ratio (CRR), Increase statutory liquidity ratio
(SLR), sell securities in the open market all these weapons will suck the money
from the market ultimately economy of the country will overcome the inflation.
 .Demonetization of old currency: When inflation increases at very higher pace
than govt. have demonetize the old currency and issue new currency . However
government may allow a limited amount of old currency exchanged to be new
currency.

So, we can say by using all these methods government can easily control the inflation
in the market so all
Q5: How does inflation affect the following groups?
a. Creditors
b. Debtors
c. Consumers

Answer:- Creditors:- People who lend money to someone else will face a loss because
they lend money to others on a fixed interest rate. But when the inflation arises the real
value of money decreases so ultimately the creditors are on a loss side. For example if a
person lend rupees 100 to someone on 10% rate of interest, but at the time of taking the
money there is 10% inflation then we can say that the creditor didn’t get anything while
taking the money back.

b) Debtors.:- Debtors in any economy will have benefit from the inflation because they
borrow at fixed interest rates. Because they borrow and use the money when prices were
normal when they pay back the money principle amount plus interest on that amount the
purchasing power from both the amount is almost same so ultimately there is advantage
for the debtors in Inflation.

c.)Consumers:- Consumers suffers in the inflation because the prices will rise in the
market so they decrease the purchasing power of the consumer. If the salaries don’t rise
with the inflation then the consumers hurt in the inflation.

Question 6: Can a government focusing on high economic growth

plan to curb inflation? Why? Why not? You are making future
financial plan, how would you go ahead drawing inferences from
your knowledge of inflation?
Answer: A government focusing on high economic growth cannot curb inflation. Because
a government which is spending lots of money on the economic development is
ultimately spending in the market, and when they are spending it means the money in the
supply is increasing so if the money in the economy is increasing it will further result in
inflation. Because increase in the money supply will result in inflation to curb it
government need to suck the money not to increase the money. So, we can say that the
above given statement is not true.
If I have the knowledge of inflation than for future I would save accordingly. I would
save the money only with that interest rate which is more than the inflation so that my
purchasing power will not decrease rather while I am taking the money back I would get
it with some additional value.

Question 7:- Suppose the economy is caught up in recession,

which marketing strategy and tactics that a firm producing and
selling consumer durables can take up. Quote examples.
Answer: In recession the sale of the goods and services decreases so that the demand of
raw material also decreases. Or we can say the demand in the market decrease in the time
of recession because people do not have money to buy the goods and services. In the time
of recession every business suffers from it some of the businesses survives but some
businesses may also shut down. So in the time of recession every business is supposed to
take steps after thinking 1000 times.

But if we talk about consumer durable it didn’t affect so much in the time of
recession. But still the business has to bring some new marketing strategies so that they
can survive in the long run. According to me these are:-

 Decrease the prices

 Provide scheme and offers on the product
 Adjust the product portfolio
 Do not spent so much on advertising
 Understand the market briefly and then make plans

Question 8: The objective of achieving price stability through

monetary policy clashes with its objective of economic growth, do
you agree?
Answer:- Yes, I agree with that statement because when government start spending in the
economy for the growth then the budget deficit arises and for overcoming that budget
deficit government ask Reserve Bank of India to print new notes, and when the RBI
prints new notes and that money come into market than the inflation arises that example
clears that statement “the objective of achieving price stability through monetary policy
clashes with its objective of economic growth. ”
 So, we can say when government tries to achieve the price stability through
monetary policy it will in one on other way it clashes with its objective of economic
growth.

Question 9:- Why and how the Keynesian theory of interest

determination is more applicable in real world as compared with
classical theory.
Answer:- Classical believe that interest is having direct relation with the savings
according to them if the interest rates increase the savings will increase if the interest rate
decreases than the savings will decrease. Keynesians say that interest is only a monetary
phenomenon. They don’t agree with the classical that savings is dependent on the interest
they say that savings is totally dependent on the income of the people. If a person didn’t
have enough income than what is to do with the interest rates. If the person has good
income, than only he or she can save the money.

Question 10:- Fiscal and Monetary policies are designed to

influence the level of economic activity through their impacts on
total spending. Using the circular flow model, identify the
leakages and injections in each of these policies affects.
Answer:-The 1st and main leakage in any economy is the parallel economy because
monetary as well as fiscal policy cannot control the parallel economy. Black money is the
curse that most of the economies have and they are not able to control it. Taxes received
by the government are a leakage from circular flow of economy likewise is the purchases.

Spending done by government that is public expenditure is injection in the economy as it

put in extra money supply into the circular flow. Subsidies are also the injection for an
economy. The monetary policy of the RBI when increases the cash reserve ratio, it will
take out extra money which will act as leakage in the circular flow. Also the SLR, Open
market operation Bank rates are the injections.