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Budget Constraints
* The Budget Line
- The budget line indicates all the combinations of 2 commodities for which total money spent equals the total income.
- Let F equal the amount of food which is purchased, and C is amount of clothing.
- Price of food = Pf and price of clothing = Pc
- Pf F is the amount of money spent on food, and PcC is amount of money spent on clothing.
* The budget line then can be given by:
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Types of budget: Surplus Budget: A surplus budget occurs when the expected government revenue is planned to exceed the proposed government expenditure. It can be achieved by
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The Money Multiplier is explained below: If you see carefully, the money multiplier is nothing but an inverse of a reserve ratio. Therefore, we can write MM = 1/rr, where rr is
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