Saturday, March 03, 2018

AHSEC Class 12: Economics Solved Question Paper' 2015

H.S. 2nd Year, 2015
Full Marks: 100
Time: 3 hour
1. (a) Fill in the blanks:  In economics, it is generally assumed that the consumer is a rational individual. 1
(b) Define substitute goods. 1
Ans. Substitute goods are those goods which can be substituted for each other.
(c) Define inferior goods. 1
Ans. Inferior goods are those goods in case of which there is a negative relationship between consumer’s income and quantity demanded. Implying that income effect is negative.
(d) In which form of market, products are homogeneous? 1
Ans: Monopoly
(e) What is the shape of supply curve in the market period? 1
Ans. Market price is the price of a good which prevails at any given period. It is determined by the intersection of demand and supply at a time. The perishable goods like fish, milk etc. cannot be stored or kept back. Therefore, the whole of the given stock of a perishable good has to be supplied in the market, whatever the price of the good. As a result, the market period supply curve of a perishable commodity is perfectly inelastic or vertical straight curve of a perishable commodity is perfectly inelastic or vertical straight line.
D:\Work from Atanu\H.S. XII Year Economics\Diagram\Untitled-5 copy.jpg
(f) What is meant by equilibrium price? 1
Ans: The price which equates market demand of a commodity with its market supply is the equilibrium price. Equilibrium Price: Market Demand = Market Supply.
2. Give the concept of centrally planned economy. 2
Ans. A centrally planned economy in such type of economic system, where all decision are taken by the state or central authority in production, distribution, consumption etc
3. Distinguish between positive economics and normative economics. 2
Ans: A positive economics may be defined as a body of systematized knowledge concerning what is. Normative economics is a regulative science is a body of systematized knowledge relating to the criteria of what ought to be.
There are some differences between positive and normative economics as given below:
  1. Positive economic is based on facts. On the other hand normative economics is based on ethical values.
  2. A positive economics may be defined as a body of systematized knowledge concerning what is. On the other hand, normative economics is a regulative science is a body of systematized knowledge relating to the criteria of what ought to be.
  3. Positive economics deals with things as they are. It explains their causes and effects. It remains strictly neutral. On the other hand, normative economics does not strictly neutral. It involves ethical values.
4. Draw a vertical demand curve and state the nature of price elasticity on it. 2

D:\Work from Atanu\Arjun Sir\H.S. XII Year Economics\New Folder (2)\Untitled-4 copy.jpg

In the above diagram, it is shown that DQ is a vertical demand curve. When the price is OP, the quantity demand is OQ. When the price is increase to OP1 the quantity demand is also the same that is OQ. And when the price is decreases to OP2, the quantity demand is the same that is OQ. The quantity demand does not response to change in its price. So it indicates perfectly inelastic demand.
5. State any two assumptions of the law of demand. 2
Ans: Law of demand holds good when “other things remain the same”. It means all other determinants of demand other than own price of the commodity remain constant. Thus,
  1. Taste and Preference of the consumer are assumed to be constant.
  2. There is no change in income of the buyers.
  3. Price of related goods does not change.
  4. Consumers do not expect any significant change in the availability of commodity in the near future.
6. What is shut down point of a firm? 2
Ans: A firm will not produce at a price which is lower than the average variable cost. So long price is above the average variable cost, production will go on. If the price falls below the average variables cost, it will stop production. It is the Shut-down point. Thus in the short run a firm will continue to produce till its price covers the average variable cost of a firm.
7. Total fixed cost of a firm is Rs. 100 when it produces 15 units of output. If the level of output increases to 30 units, what will be the fixed cost in the short-run? Given reasons for your answer. 2
8. Distinguish between change in quantity supplied and change in supply. 4
Ans: A change in supply and a change in quantity supplied are different things.  The first is shown graphically as a movement of a supply curve while the second is shown as a movement along a curve.  The first is caused by changes in costs and incentives that change how much a producer can and will produce at a given price.  The second is caused simply by a change in the retail price of the product. 
9. Write down four characteristics of perfectly competitive market. 4
Ans: Characteristics or Features of Perfect competition are as follows:-
  1. Large numbers of Buyers and Sellers: The number of buyers and sellers of a commodity is very large under perfect competition but no seller or buyer can influence the price.
  2. Homogeneous Product: All sellers sell identical units of a given product.
  3. Perfect Knowledge: Buyers and sellers have full knowledge regarding the prevailing market price.
  4. Freedom of Entry and Exit: A firm can enter or leave the industry any time. There are no restrictions.
  5. Perfect Mobility: Factors of production are perfectly mobile.
  6. Lack of Selling Cost: The sellers do not spend on advertisement and publicity.
10. Explain with the help of a diagram how the shifting of the demand curve for a commodity affects the equilibrium price and output. 4
Ans: The demand curve will shifted if the consumer’s quantity demands of a commodity changes. Sometimes, the demand curve will change when the price of a commodity remains constant. There are various reason for the change in demand. Following are the most important ones:
  1. Change in consumer’s income.
  2. Change in the consumer’s tastes and habits.
  3. Change in the relative preference of the consumer.
  4. Change in the price of related commodities.
  5. Expectation of decline in price in future etc.
In the below diagram, it is shown that at the same market price the demand curve is shifted from to or D:\Work from Atanu\H.S. XII Year Economics\Diagram\Untitled-2 copy.jpg

What is change in demand? State any three factors that can cause shift in the demand curve.
Ans: Change in demand means an increase or decrease in demand. It is caused by factors other then the price.  The demand curve will shifted if the consumer’s quantity demands of a commodity changes. Sometimes, the demand curve will change when the price of a commodity remains constant. There are various reason for the change in demand. Following are the most important ones:
  1. Change in consumer’s income. D:\Work from Atanu\H.S. XII Year Economics\Diagram\Untitled-2 copy.jpg
  2. Change in the consumer’s tastes and habits.
  3. Change in the relative preference of the consumer.
  4. Change in the price of related commodities.
  5. Expectation of decline in price in future etc.
In the below diagram, it is shown that at the same market price the demand curve is shifted from to or
11. State the law of diminishing returns. State the reason behind this law. 1+3=4
Ans. Law of variable proportions states that as more and more units of a variable factor are employed with fixed factors, total product increases at an increasing rate in the beginning then increases at a diminishing rate and finally starts falling.
Diminishing returns to a factor operate due to: -
  1. Fixity of the factors: As more and more units of a variable factors are combined with the fixed factors, the latter gets over utilized hence the diminishing returns.
  2. Factors of productions are imperfect substitute of each other.
  3. The combination between gets distorted so that marginal product of the variable factor declines.
Explain the relationship between Marginal Product (MP) and Total Product (TP) of an input.
Ans: The relationship between the marginal product and the total product of an input are given below –
  1. When marginal product increases, total product increases at an increasing rate.
  2. When marginal product falls but remains positive total product increases at a decreasing rate.
  3. If marginal product is constant over a range of production, it implies that the total product increases at a constant rate.
  4. If marginal product is negative, then total product falls.
12. Distinguish between explicit cost and implicit cost. Give one example of each of them. 2+2=4
Ans. The differences between explicit costs and implicit costs are as follows –
Explicit Costs
Implicit Costs
1. Meaning
There are the costs of hired/purchased inputs.
These are the costs of self supplied inputs which are used in production.
2. Payment
Explicit costs are the cost of inputs whose payment is made to the out orders.
Implicit costs involve no money payment. These include the imputed value of self inputs supplied.
3. Examples
(i) Payment of wages.
(ii) Payment of rent of hired building.
(iii) Payment for raw material purchased.
(i) Interest on own capital.
(ii) Rent of own land and building.
(iii) Estimated salary of the owner who is acting as a manager.
13. Explain with the help of a diagram why at consumer’s optimum point the budget line should be tangent to an indifference curve. 6
Explain the conditions for profit maximization of a firm.
Ans: A firm is in equilibrium when it is earning maximum profits. A firm will go on expanding output as long as marginal revenue exceeds marginal cost or equal to marginal cost. If the price less than marginal cost it is ruled out for profit maximization for a firm under perfect competition. If at any level of output marginal revenue is less than the marginal cost, the firm will incur loss and it will contract output to avoid loss. So, the firm will attain equilibrium at point where marginal revenue is equal to marginal cost. At this point the profit of the firm is maximum. So, it is ruled out the conditions when P<MC. This is shown in the below diagram. D:\Work from Atanu\Arjun Sir\H.S. XII Year Economics\New Folder (2)\Untitled-8 copy.jpg
As shown in the diagram that price is less than marginal cost at the production level OM or OQ2. So, it is proved that profit maximization point neither be M nor Q2. Suppose the production has been reduced from OQ2 level to OM level. As a result, the reduction of total cost is Q2 MLC, which is larger than the reduction of total revenue that is Q2MTB. The shaded area BTLC is the loss portion of the firm. Therefore, the firms profit maximizing production level can neither be OM nor OQ2. It means that the market price cannot be less than the marginal cost. Thus, at the profit maximizing production level of OQ, price is equal to MC.
14. Show with the help of a diagram how the market demand curve can be derived from individual demand curves. 6clip_image004
Ans: Market Demand Curve: Market demand curve refers to a graphical representation of market demand schedule. It is obtained by horizontal summation of individual demand curves. The points shown in Table 3.2 are graphically represented in Fig. 3.2. DA and DB are the individual demand curves. Market demand curve (DM) is obtained by horizontal summation of the individual demand curves (DA and DB).
Market demand curve ‘DM‘ also slope downwards due to inverse relationship between price and quantity demanded.
Explain the relation among TR, AR and MR of a monopolist with the help of a hypothetical table and a diagram.
Ans: The relationship between TR, AR and MR of a monopoly firm with the help of an imaginary table and diagram are given below:
Number of units of commodity
Market Price
Total Revenue
TR = P x Q
AR = P
Marginal Revenue
From the above table we find that when the 1st unit is sold, total revenue, average revenue and marginal revenue are the same that is Rs. 10. A firm can sell more of its product only at a lower price. As a result both average revenue and marginal is falls. But marginal revenue falls more rapidly than the average revenue. Total revenue is positively sloped straight line implies that quantity demanded rises in greater proportion to fall in price. When marginal revenue (MR) becomes negative then total revenue (TR) starts declining. D:\Work from Atanu\Arjun Sir\H.S. XII Year Economics\New Folder (2)\Untitled-9 copy.jpg
This relationship among the three are diagrammatic represents in below. In the below diagram, the number of units of commodity is measured in OX-axis, while the TR, AR and MR are measured along OY-axis. As shown in the figure, TR, AR, MR are respectively the total revenue curve, average revenue curve and marginal revenue curve. In accordance with the description of above table, the total revenue is downward sloping after the point “A”. Because marginal revenue is zero in case of 6th unit of output level. If the units of commodity are sold beyond 6th unit of level of output, the marginal revenue will be negative gradually by an increasing amount. The total revenue will go on declining with increase of every unit of commodity. AR curve always remains above the MR curve. The slope formed by a straight line drawn from the point of origin O to a point on the total revenue curve (TR) relating to any output level will be the measure of average revenue at that level of output.
Ans: Monopoly is opposite to perfect competition. Under monopoly both AR and MR curves slope downward. It indicates that to sell more units of a commodity, the monopolist will have to lower the price. This can be shown with the help of table 6.
Revenue Schedule for a Firm under Monopoly
In case of pure monopoly, AR curve can be rectangular hyperbola as has been shown in Fig. 9. In this situation, a producer is so powerful that by selling his output at different prices, he can make the consumer spend his income on the concerned commodity. In this case AR curve is rectangular hyperbola. It implies that TR of the monopolist will remain same whatever may be the price. Area below each point of AR curve will be equal to each other. When TR is constant MR curve will be represented by OX-axis as has been shown in figure 9.
Revenue Curves under Monopoly
15. (a) What is macroeconomics? 1
Ans. Macro economics is the study of aggregates of the entire economy like national income, full employment, total investment etc.
(b) What is circular flow of income? 1
Ans: In a macro economy, every economic decision of a sector is in response to that of another. The system of interrelationship between the major sectors of economic activity is called circular flow of income and product.
(c) Define intermediate goods. 1
Ans: The intermediate products are those goods which are purchased by one production unit from other production unit and meant for production.
(d) What is velocity of circulation of money?
Ans. Velocity of circulation of money means the average number of times each unit of money is spent on the purchase of goods and services. 1
(e) “The speculative demand for money is ……………. (directly/inversely) related to the market rate of interest.”(Fill in the blank by choosing the correct word from the bracket.) 1
(f) What is foreign exchange rate? 1
Ans: Foreign exchange rate is the price of one currency in terms of another currency.
16. Explain the concept of depreciation in the context of national income accounting. 2
Ans: Depreciation refers to a fall in the value of fixed assets due to normal wear and tear, passage of time and expected obsolescence (change in technology).
17. If the marginal propensity to consumer (C) of an economy is 0.9, find out the value of the income multiplier. 2
18. Distinguish between consumption goods and capital goods? 2
Ans: The main differences between consumer goods and capital goods are as follows:
Consumer Goods
Capital Goods
These goods are used by their ultimate consumers.
These are final goods used by the producers in the production process.
These goods directly satisfy human wants. Thus they have direct demand.
These goods indirectly satisfy human wants. Thus they have derived demand.
These goods may be consumer durables (i.e. TV set, car), Semi-durables like clothing and single use goods such as milk, good etc.
Capital goods are the producer durables of high value.
The wear and tear of consumer durables, when put in use, is not taken into account while measuring national income.
These goods undergo wear and tear and hence are gradually replaced over time. Their cost of wear and tear is deducted to arrive at net national income.
19. Explain the significance of revenue deficit. 2
Ans. Revenue deficit refers to the excess of total revenue expenditure of the government over its total revenue receipts.
  1. Revenue deficit affects the economic growth of the economy as Govt. expenditure is reduced to the extent of deficit on the revenue account.
  2. Revenue deficit lowers the rate of economic growth of an economy as govt. has to borrow from the market which reduces the resources available for private investment.
  3. Revenue deficit is a reflection of the government’s fiscal policy.
20. Define private goods and public goods. 2
Ans: Goods are something which we all use in our daily lives and the moment we wake up till we sleep we are using one or another product. However goods can public or private which are differentiated as below:
  1. Public goods are those which are free to use and therefore there is no cost involved in usage of such products whereas for private product one has to pay in order to use them.
  2. Examples of public goods are air, roads, street lights and so on whereas examples of private goods are cars, cloths, furniture and so on.
  3. Public goods are either provided by nature or government whereas private goods are provided or manufactured by entrepreneurs who make them in order to earn profit.
  4. Public goods are non-rivalrous and non-excludable in consumption. Whereas, Private goods are rivalrous and excludable in consumption.
21. State two merits of fixed exchange rate. 2
Ans: Fixed exchange rate which is officially fixed in term of gold or any other currency by the govt. Fixed exchange rate promotes international trade.
Merits of Fixed Exchange Rate: Fixed exchange rates have the following merits:
  1. Promotes International Trade: Fixed exchange rates ensure certainty about the foreign payments and hence help to promote international trade.
  2. Promotes International Investment: Fixed exchange rates promote international investments. They encourage long term capital flows.
  3. No Fear of Speculation: Under fixed exchange rate system, there is no fear of speculation on the exchange rate. Under this system. Speculative activities are controlled and prevented by the monetary authorities.
22. What do you understand by the problem of double counting? Explain the need for avoiding double counting in the estimation of national income. 2+2=4
Ans: The counting of the value of commodity more than once is called double counting. This leads to over estimation of the value of goods and services produced. Thus, the importance of avoiding double counting lies in avoiding over estimating the value of domestic product, e.g. a farmer produces one tonne of wheat and sells it for Rs.400 in the market to a flour mill. The flour mill sells it for Rs. 600 to the baker. The baker sells the bread to the shopkeeper for Rs. 800. The shopkeeper sells the entire bread to the final consumer's for Rs.900. Thus, Value of Output = Rs. (400 + 600 + 800 + 900) = Rs.2700.
Double counting can be avoided by:
  1. Taking the value of final goods
  2. Add value added method of each firm
23. It is planned to make a new investment of Rs. 1000 crores in a economy. How much will be the increase in National Income if MPS is 0.4? 4
24. What is investment? Distinguish between gross investment and net investment. 2+2=4
Ans: Increase in the stock of capital during the year is called investment during the year. In other words, investment can also be defined as the purchase of goods that are not consumed today but are used in the future to create wealth.
Following are the differences between gross investment and net investment.
  1. Gross investment means the final goods that comprises of capital goods are called gross investment. For example – machines, roads, bridges etc. On the other hand net investment means the value of those investments which are received after deducting the replacement expenditure from the gross investment.
  2. The net picture of a country is given by net investment instead of the gross investment.
25. Explain two functions operated through government revenue and expenditure measures. 4
26. Explain the concepts of autonomous and accommodating transactions of balance of payments. 4
Ans: The items that are included in a particular balance are placed below the line are called accommodating items. On the other hand the items that are put above the line are called autonomous items.
Accommodating transactions are determined by the new consequence of autonomous transaction. On the other hand, autonomous transaction are refer those transactions which are made independently of the state of the balance of payment. It is a record of all economic transaction that take place between one country and the rest of the world during an year. Balance of payments have two components – Capital account and current account.
What do you mean by disequilibrium in balance of payment (BOP)? Mention any two causes of adverse BOP of a country.
Ans: Disequilibrium in Balance of Payments: Balance of payments always balances in the accounting sense. The overall account of the balance of payments necessarily balance or must always be in equilibrium. It is because of the reason that balance of payment is prepared in terms of credits and debits based on the system of double entry book-keeping. Under the system, the two sides are kept equal.
Causes behind Deficit in BOP: Deficit in BOP is caused by a variety of factors which are given below
  1. Huge Development Expenditure: When a backward country starts various development schemes often needs the imports of machines, raw materials, etc. This raises the country’s import bill and consequently its BOP becomes adverse.
  2. Population Growth: A country with a high rate of growth of population often faces an adverse balance of payments because the total demand for goods and services within the country cannot be met out of domestic production.
  3. Inflation: Inflation may also cause deficit in the balance of payments; Exports decrease as a result of inflation and at the same time the demand for imports increases.
  4. Change in Foreign Exchange Rates: When the external value of the domestic currency goes up, imports become cheaper and exports dearer.
27. From the following data, find out personal income and personal disposable income. 4+2=6

Rs. in crore
  1. NDP at factor cost
  2. Net factor income from abroad
  3. Undistributed profit
  4. Corporate Tax
  5. Interest received by household
  6. Interest paid by household
  7. Transfer income
  8. Personal tax
Explain the income method of calculating GDP.
Ans: The income method of calculating national income is also called the factor income method or factor share method. This method measures national income from distribution side i.e. the national income is measured after it has been distributed and appears as income earned by individuals in the country. To estimate the national income by this approach, the total sum of the factor payments received during a given period is estimated. The factors of production are classified as land, labor, capital and organization. Accordingly, the national income is calculated as the sum of various factor payments like rent, wages, interest and profits plus depreciation.
Thus, National income = Rent + Wages + Interest + Profits + Depreciation
This method of estimating national income is of great advantage as it shows the distribution of national income among different income groups such as landlords, capitalists, workers, etc. It is therefore called national income by distributive shares.
Precautions: While estimating national income through income method the following precautions should be taken:
  1. Transfer payments are not included in estimating national income through this method.
  2. Imputed rent of self-occupied houses are included in national income as these houses provide services to those who occupy them and its value can be easily estimated from the market value data.
  3. Illegal money such as hawala money, money earned through smuggling etc. are not included as they cannot be easily estimated.
  4. Windfall gains such as prizes won, lotteries are also not included.
28. Briefly explain any four functions of a commercial bank. 6
Ans: Commercial Banks are the financial institution which accepts deposits from different institutions and advances loans to some other institutions.
The primary functions of a Bank are:
  1. Acceptance of Deposits: It is the most important function of a bank. According to this function, the commercial bank accepts deposits from different individuals and organizations. The bank accepts deposits from them and provides all securities to them.
  2. Making loans and advances: The second important function of bank is advancing loan. The commercial banks earn interest by lending money.
  3. Investment of funds: Besides loan and advances, banks also invest a part of its funds in govt. and industrial securities. Banks purchases both govt. and industrial securities like govt. bills, share, debentures, etc from their market.
  4. Credit Creations: The banks create credit. When a bank advances a loan, it does not give cash to the borrower. It opens an account in the name of the borrower. The borrower is allowed to withdraw money by cheque whenever he needs. This is known as Credit Creation.
The secondary functions of a bank are:
  1. Agency functions: These functions are performed by the banker for its own customer. For these services, the bank charges certain commission from its customers. These functions are :-
  1. Remittance of funds.
  2. Collection and payment of credit instruments.
  3. Execution of standing orders.
  4. Purchase and sale of securities.
  5. Collection of Dividend and interest
  6. Income tax consultancy.
  1. General Utility functions: These are certain utility functions performed by the modern commercial bank to its customer for the community. These are:
  1. Safe custody of valuables.
  2. Issuing letters of credit.
  3. Gift Cheques.
  4. Dealing in foreign exchange.
  5. Credit cards.
  6. Collection of statistics.
Explain three instruments of credit control used by the central bank.
Ans: The principle methods or instruments of Credit Control used by the Central Bank are:
  1. Quantitative or General Methods
  2. Qualitative or Selective methods
  1. Quantitative or General Methods: These are the traditional or general methods of credit control. These methods one used by Central Bank to expand or contract the total volume of credit in the economy neglecting the purpose for which it is used. These methods are :-
  1. Variation in the bank rate
  2. Open Market operations:
  3. Variation in cash reserve ratio:
  4. Variation in the statutory liquidity ratio:
  5. ‘Repo’ Transactions:
  1. Variation in the bank rate: Bank rate or discount rate is the rate at which the Central Bank of a country makes advances to the banks against approved securities or rediscounts the eligible bills. The purpose of change in the rate is to make the credit cheaper or expensive depending upon whether the purpose is to expand or control credit. An increase in bank rate result, in increase in lending rate of commercial banks lending to contraction of credit while a decrease in bank rate leads to decrease in lending rates of commercial banks lending to expansion of credit.
  2. Open Market operations: Open market operations means deliberate and direct buying and selling of securities and bills in the market by the Central Bank. The open market operations of the RBI are mostly confined to government securities. In order to increase money supply in the market, the RBI purchases securities in the open market. On the other hand, in order to contract credit, the RBI starts selling the securities in the open market.
  3. Variation in cash reserve ratio: Every scheduled bank in India is required to maintain a minimum percentage of their deposits with the RBI. Larger the reserve, lesser is the power of the banks to create credit and smaller the reserves, greater is the power of the banks to create credit.
  4. Variation in the statutory liquidity ratio: Statutory liquidity ratio is another reserve requirement used by the RBI to control money supply. In India, besides maintaining the cash reserve, every bank has to maintain a statutory reserve of liquid assets in terms of cash, gold or unencumbered securities. This is termed as statutory liquidity ratio. In increase in the liquidity ratio implies a transfer of banking funds to Government and corresponding reduction in credit available to the borrowers.
  5. ‘Repo’ Transactions: ‘Repo’ stands for repurchase. Repo or repurchase transactions are undertaken by the Central Bank in the money market to manipulate short term interest rates and to manage liquidity levels. In case the RBI desire to inject fresh funds in the economy it conducts ‘Repo’ transactions. On the other hand, to absorb liquidity the RBI ‘Reserve Repo’ transactions. The securities eligible for carrying out this operation are selected by the RBI. It includes government promissory notes, treasury bills and public sector bonds.
  1. Qualitative or Selective Methods: These are basically the selective and general methods of credit control. These methods are used for controlling the use and direction of credit. They have nothing to do with the control of the total volume of credit in economy. These methods are :-
  1. Direction
  2. Margin Requirement
  3. Consumer Credit Regulations
  4. Publicity
  5. Credit Rationing
  6. Moral Suasion.
  7. Direct Action.

  1. Directions: Sec. 21 of the Banking Regulation Act gives wide power to the RBI for controlling granting of advances by an individual bank or by banking as a whole. The RBI can give directors to any particular bank or all banks in general in regard to the purposes for which advances may or may not be made, the maximum amount of advance to any individual, firm or company etc.
  2. Margin requirement: Margin means the difference between the market price of security and loan amount. Changing margin requirement is another credit control method followed by the RBI. This system was introduced in 1956. By requiring higher margin while accepting a commodity as a security, the RBI can decrease the flow of credit to particular sector or vice versa.
  3. Consumer Credit Regulation: Under this method, consumer credit supply is regulated through hire-purchase and installment sale of consumer goods. Under this method the down payment, installment amount, loan duration, etc is fixed in advance. This can help in checking the credit use and then inflation in a country.
  4. Publicity: This is yet another method of selective credit control. Through it Central Bank (RBI) publishes various reports stating what is good and what is bad in the system. This published information can help commercial banks to direct credit supply in the desired sectors. Through its weekly and monthly bulletins, the information is made public and banks can use it for attaining goals of monetary policy.
  5. Credit Rationing: Central Bank fixes credit amount to be granted. Credit is rationed by limiting the amount available for each commercial bank. This method controls even bill rediscounting. For certain purpose, upper limit of credit can be fixed and banks are told to stick to this limit. This can help in lowering banks credit exposure to unwanted sectors.
  6. Moral suasion: It implies to pressure exerted by the RBI on the Indian banking system without any strict action for compliance of the rules. It is a suggestion to banks. It helps in restraining credit during inflationary periods. Commercial banks are informed about the expectations of the central bank through a monetary policy. Under moral suasion central banks can issue directives, guidelines and suggestions for commercial banks regarding reducing credit supply for speculative purposes.
  7. Direct action: Under this method the RBI can impose an action against a bank. If certain banks are not adhering to the RBI's directives, the RBI may refuse to rediscount their bills and securities. Secondly, RBI may refuse credit supply to those banks whose borrowings are in excess to their capital. Central bank can penalize a bank by changing some rates.