Download - Jap Session
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CONCEPT OF ECONOMY Broadly, the concept of Economy helps one
understand the prevailing status as regards:
q GDP / GNP /NNP / National Incomeq Per Capita Income
q Contribution of each sector to theEconomy / GDP
q State of economic development(developing / developed)
q R & D and State of Technology
q Productivity
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CONCEPT OF ECONOMY q Role of Private / Public Sector
q Savings and Investment
q Capital Formation
q Income distribution & poverty
qInfrastructure
Physical Infrastructure
Soft / Institutional Infrastructure
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CONCEPT OF ECONOMY Q Share in Global Trade & BoT/BoP
q Imports / Exports
(Primary / Industrial / Capital Goods) q Foreign Exchange Reserves
Q Strength of National Currency inInternational Markets
q Population Growth & Urbanisation q Human Capital
q Employment / Unemployment levels
and Occupational Structure
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ECONOMIC POLICY
The Economic Policy
broadly consists of :
Fiscal Policy
Monetary Policy
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FISCAL POLICY The Fiscal Policy manifests itself in the
form of Budget and Budgetary
Provisions presented by the NationalGovernment and can be said to be theeconomic expression of the
governments political philosophy.
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FISCAL POLICY It encompasses areas such as
government income / expenditure,
budget deficit, public debt /borrowings,subsidies / grants, tax structure,balance of trade / payment, social
sector priorities / activities, role ofgovernment ( command / market-driven), foreign investments etc.
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MONETARY POLICY Monetary Policy, also described as
money and credit policy, concerns itself
with the supply of money as also ofcredit to the economy. The monetarypolicy is devised / designed by thecentral banking authority and pertains
to such matters as money supply,interest rates, bank rate, cash reserveratio, capital adequacy, inflation etc.
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ECONOMIC GOALS:
Efficiency & Effectiveness(Technological & Allocative)
Growth
Price Stability
Competitiveness
Low rate of unemployment
Equitable distribution of income
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MACRO ECONOMIC CONCEPTS: The concepts of Gross Domestic
Product (GDP), Gross National Product
(GNP), Net Domestic Product (NDP),Net National Product (NNP) andNational Income mirror the macro flows
of goods and services and the economicstructure of the economy, during aspecific time period, normally a year.
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WHAT IS DOMESTIC PRODUCT?Domestic Product = Personal Consumption
Expenditure (C)
PLUS Domestic Investment (I)PLUS Government Expenditures for
current goods and services (G)
PLUS Exports of goods and services (X)
MINUS Imports of goods and services (M)Therefore, in symbols,
DP = C + I + G + X M
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Gross National Product
The Gross National Product comprisesof the (money) value of GDP plus
factor-income accruing to residentsfrom abroad, less the income earned inthe domestic economy accruing topersons abroad. In other words, GNP
measures the total domestic andforeign output claimed by residents /nationals of a country.
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NDP / NNP NDP
Net Domestic Product is the GDP minusdepreciation ( reduction in the value ofassets through wear and tear).
NNP
Net National Product is GNP minusdepreciation.
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NATIONAL INCOME
NNP, when calculated at factor cost, iscalled National Income.
National Income, in a way, is the sumof all income derived from supplying the
factors of production. It includes wagesand salaries, rents, interest and profits.
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NATIONAL INCOME NATIONAL INCOME IS A MEASURE OF
TOTAL OUTPUT OF COMMODITIES
AND SERVICES DURING A GIVENPERIOD WITHOUT DUPLICATION
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NATIONAL INCOME IN INDIA, NATIONAL INCOME IS
DEFINED AS TOTALITY OF
PRODUCTION , BOTH MATERIAL ANDNON-MATERIAL.
IN INDIA, THE CSO COMPILES DATA
AS REGARDS NATIONAL INCOME
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NATIONAL INCOME CSO CLASSIFIES INDIAN ECONOMY INTO
SIX BROAD SECTORS:
1. PRIMARY SECTOR2. SECONDARY SECTOR
3. TRANSPORT/COMMUNICATIONS/TRADE
4. FINANCE & REAL ESTATE5. COMMUNITY & PERSONAL SERVICES
6. FOREIGN SECTOR
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NATIONAL INCOME
1.PRIMARY SECTOR CONSISTS OF:
AGRICULTURE
FORESTRY & LOGGING
FISHING MINING & QUARRYING
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NATIONAL INCOME2. SECONDARY SECTOR CONSISTS OF:
q MANUFACTURING (REGD./UNREGD.)
q CONSTRUCTION
q
SUPPLY OF ELECTRICITY, GAS, WATER
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NATIONAL INCOME3.TRANSPORT / COMMUNICATION /
TRADE SECTOR CONSISTS OF:
TRANSPORT
COMMUNICATION
STORAGE
RAILWAYS
TRADES, HOTELS & RESTAURANTS
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NATIONAL INCOME4. FINANCE & REAL ESTATE SECTOR
CONSISTS OF:
BANKING
INSURANCE
BUSINESS SERVICES
REAL ESTATE
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NATIONAL INCOME5. COMMUNITY & PERSONAL SERVICES
SECTOR CONSIST OF:
q PUBLIC ADMINISTRATIONq DEFENCE
q OTHER SERVICES
6. THE FOREIGN SECTOR COVERS THEACTIVITIES RELATED WITH FOREIGNSECTOR
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NATIONAL INCOME THE COMBINED GROSS OUTPUT IN
THE SECTORS 1 TO 5 (viz. PRIMARY
SECTOR , SECONDARY SECTOR,TRANSPORT / COMMUNICATION /TRADE , FINANCE & REAL ESTATE,
COMMUNITY & PESONAL SERVICES)IS CALLED THE GROSS DOMESTIC
PRODUCT AT FACTOR COST
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NATIONAL INCOME THE GROSS NATIONAL PRODUCT
IS ARRIVED
BY ADDING
THE NET FACTOR INCOME FROMABROAD
TO
GDP AT FACTOR COST
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NATIONAL INCOME MEASUREMENT NATIONAL INCOME COULD BE
MEASURED BY THREE METHODS
AS FOLLOWS:
THE INCOME APPROACH
THE EXPENDITURE APPROACH
THE OUTPUT APPROACH
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INCOME APPROACHACCORDING TO THIS APPROACH,
TOTAL OUTPUT COULD BE LOOKED
INTO / AT IN TERMS OF THE INCOMESGENERATED IN THE PROCESS OFPRODUCING OUTPUT LIKEWAGES,
SALARIES, GROSS TRADING PROFITS,INCOME OF SELF-EMPLOYED, RENT,CAPITAL CONSUMPTION (DEPRECIATION)
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EXPENDITURE METHOD UNDER THIS APPROACH,
THE NATIONS TOTAL OUTPUT IS
ARRIVED AT BY ADDING UP THEEXPENDITURE OR OUTLAYS NEEDEDTO PURCHASE ALL OF THE FINALOUTPUT OF THE ECONOMY
( GOVT. EXPENDITURE / INVESTMENT/ CONSUMPTION etc.)
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OUTUT APPROACH IT INCLUDES:
AGRICULTURE, FISHING & FORESTRY
ENERGY, WATER, CONSTRUCTION
MANUFACTURING, TRANSPORT
COMMUNICATION, FIN. SERVICES DISTRIBUTION, HEALTH, EDUCATION
GOVT., DEFENCE, OTHER SERVICES
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NATIONAL INCOMEWE MUST REMEMBER THAT IN ALL THREE
APPROACHES, THE TOTAL VALUE OF
NATIONAL OUTPUT AT MARKET PRICESIS SAME
HENCE :O =Y = E, WHERE,
O= AGGREGATE OUTPUT
Y= INCOME GENERATED BYO
E= EXP. INCURRED TO PURCHASE O
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NATIONAL INCOME NATIONAL INCOME DATA IS USED
FOR:
ECONOMIC PLANNING REGULATION OF ECONOMY
COMPARING PER CAPITA / STANDARD
OF LIVING (OWN / OTHERS) MEASURING NATIONAL ECONOMIC
GROWTH
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DIFFICULTIES IN ESTIMATIONG
NATIONAL INCOMECONCEPTUAL PROBLEMS:
WHETHER SERVICES SHOULD BE
INCLUDED IN NATIONAL INCOME ORNOT
WHAT ABOUT ADMINISTRATIVE
SERVICES TO PRODUCERS AAAANDCONSUMERS?
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DIFFICULTIES IN ESTIMATING
NATIONAL INCOME PRACTICAL PROBLEMS:
PRESENCE OF LARGE NON-MONETISED
SECTOR LACK OF APPROPRIATE & RELIABLE DATA
UNREPORTED ILLEGAL INCOME
REGIONAL DISPARITIES DIFFICULTIES IN CLASSIFICATION OF
WORKING POPULATION
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Per Capita Income
Per Capita Income refers to average percapita income of a country. The Per Capita
Income is arrived at by dividing the NationalIncome of a country by its population.
An increase in the Per Capita Incomeindicates a rise in the availability of goods
and services and for this reason is often usedas an index of welfare of the people.
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INFLATION:
During the late 1970s and the second half of1980s, inflation became a major problem.
However, more often than not, inflation ismisunderstood as price rise alone. It istherefore important to distinguish between arise in the average level of prices (inflation)and a change in relative / temporary prices.
Inflation is an increase in the average level ofprices.
Deflation is a fall in the average price level .
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TYPES OF INFLATION Inflation could be
Creeping Inflation,
Galloping Inflation, or
Hyper Inflation.
It could also be attributed to Push Factors or
Pull Factors.
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WHAT IS INFLATION?INFLATION OCCURS WHEN THE
GENERAL LEVEL OF PRICES AND
COSTS IS RISING RISING PRICESFOR BREAD, GASOLINE, CARS; RISINGWAGES, LAND PRICES, RENTALS ON
CAPITAL GOODSPROF. PAUL SAMUELSON
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WHAT IS INFLATION?
INFLATION IS A PROCESS OF STEADY
AND SUSTAINED RISE IN PRICES
PROF. MILTON FRIEDMAN
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IMPACT OF INFLATION While there is considerable controversy about
whether any inflationary pressures should beallowed to be built / developed in aneconomy,
there seems to be a general consensus that amoderate rate of inflation may actually begood for the economy as it is felt that asmaller rate of inflation makes it easier forthe economy to adjust to changes and tomaintain a high level of employment.
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IMPACT OF INFLATIONq # Inter-sectoral terms of the trade
adversely affect the poor.
# Balance of payments go into deficit.# Consumption levels of the poor arereduced and the conditions of the poordeteriorates.
# Inequalities in income rise# Development of the economy gets a set-back as Investment & Savings suffer.
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BUSINESS CYCLE BUSINESS / TRADE CYCLES, BOOMS &
SLUMPS ARE TYPICAL OF A MARKET
ECONOMY THEY INFLUENCE BUSINESS
DECISIONS & ALSO AFFECT THEFUTURE BUSINESS GROWTH / TRENDS
BUSINESS CYCLE, THEREFORE, ISBOTH A THREAT & AN OPPORTUNITY
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BUSINESS CYCLE IT IS A FLUCTUATION IN AGGREGATE
ECONOMIC ACTIVITY
IT IS AN ALTERATION OF PERIODS OFPROSPERITY & DEPRESSION, OF GOODTRADE & BAD TRADE
IT IS COMPOSED OF PERIODS OF GOOD
TRADE CHARACTERISED BY RISING PRICES& LOW UNEMPLOYMENT, ALTERING WITHPERIODS OF BAD TRADE CHARACTERISEDBY FALLING PRICES & HIGHUNEMPLOYMENT PERCENTAGES
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BUSINESS CYCLE : FEATURES A TRADE CYCLE IS WAVE-LIKE MOVEMENT
CYCLICAL FLUCTUATIONS ARE RECURRENT
IN NATURE EXPANSION & CONTRACTION IN A TRADE
CYCLE HAVE CUMULATIVE EFFECT
TRADE CYCLES ARE ALL-PERVADING INTHEIR IMPACT
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BUSINESS CYCLE : FEATURES A TRADE CYCLE IS CHARACTERISED BY
PRESENCE OF CRISIS I.e. PEAK & TROUGH
ARE NOT SYMMETRICAL & DOWNWARDMOVEMENT IS MORE SUDDEN / VIOLENT
THOUGH TRADE CYCLES DIFFER IN TIMING& AMPLITUDE,THEY HAVE A COMMON
PATTERN OF PHASES WHICH ARESEQUENCIAL IN NATURE
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BUSINESS CYCLE: PHASES EXPANSION
PEAK
RECESSION
TROUGH
RECOVERY & EXPANSION
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EXPANSION RISING NATIONAL OUTPUT
RISE IN CONSUMER / CAPITAL
EXPENDITURE
RISE IN EMPLOYMENT LEVELS
EXPANSION IN BANK CREDIT
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PEAK / BOOM INPUTS START FALLING SHORT OF
DEMAND
WAGE RATES RISE, LABOUR MARKETBECOMING SELLERS MARKET
INPUT PRICES (ALL INPUTS) INCREASE
PRICES INCREASE & OVERTAKE THEINCREASE IN HOUSEHOLD INCOME
CAPITAL GOODS DEMAND SLACKENS
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RECESSION / DEPRESSION INCREASE IN DEMAND HALTED
DISCREPANCY/ INEQUILIBRIUM
STARTS CREEPING IN DUE TO HIGHOUTPUT / SUPPLY & STAGNATING /DECLINING DEMAND
STARTS FROM FEW INDUSTRIES ,MOVING THROUGH THE ECONOMY
DECLINE IN INCOME EVIDENT
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TROUGH SLIDE DOWN IN ECONOMICACTIVITIES
LEVEL OF NATIONAL INCOME &EXPENDITURE DECLINES RAPIDLY
STEADY DECLINE IN EMPLOYMENT
DECLINE IN DEMAND FOR CAPITAL /CONSUMER GOODS
LIQUIDITY /PROFITABILITY PROBLEMS
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RECOVERY & EXPANSION RENOVATION / MODERNISATION STARTS
WITH INVESTMENTS SLOWLY COMING IN
(CAPITAL / CONSUMER GOODS)
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PRESENTATION