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ECO401 Virtual University

Virtual University ECO401 Final Term Short and long questions with answer Paper 1

Q. Write down the functions of commercial banks. (3 marks)

Ans. The main functions of commercial banks are:

  • Receiving of Deposits:
  • Advancing loans:
  • Collection & Payment of Cheques:
  • Collection of dividends:
  • Purchase & Sale of Security:
  • Execution of Standing Instructions:
  • Transfer of Fund:

Q. Discuss different methods for measuring Gross domestic product. (3 marks)

Methods of Measuring National Income:

Three methods are used to measure national income. They are as follows:

  • Product method or output method
  • Income method
  • Expenditure method

(1) Product Method:

This method is also called method of measuring national income at market prices.

(2) Income method:

If annual monetary rewards of all the factors of production are added up then the total will be equal to national income.

National income = Rent of land + Wages of labour + Interest of capital + Profit of entrepreneurs.

 3) Expenditure Method:

If we add the expenditure made on the purchase of goods and services in a

country during one year, we can get national income.

(1) Consumption expenditures.

(2) Investment expenditures.

(3) Government expenditures.

(4) Export minus import.

Q. How the growth rate of output determines in the exogenous growth model? (5 marks)

Exogenous growth theory states that economic growth arises due to influences outside the economy. The underlying assumption is that economic prosperity is primarily determined by external, these factors are diminishing returns of capital, savings rates, and technological variables to determine economic growth.

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