economics.pdf
TRANSCRIPT
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Q.No.1 Define Growth and Development. Distinguish between Growth and
Development?
ANS : Economic Growth and Economic Development these two terms are used
interchangeably. A distinction is often made between economic growth and
economic development. Economic Growth refers to increase in output while
Economic Development also suggests improvement in the quality of good
produced, the way production is organized and ultimately in improvements
in the quality of life. All thse factors together are known as structural
changes. Thus Growth is a quantitative concept which can be measured,
development is qualitative in nature and can't be easily measured.
Difference between growth and development are:
1- Definition
Economic Growth : The term economic growth is only concerned with raising
income level and volume of production of goods and services.
Economic Development : The basic feature of economic development is to
raise income level and improve the human being.
2- Nature in Economic Literature
Economic Growth : Economic growth is the key issue under traditional
economics. According to this approach “take care of growth and poverty
would eliminate automatically.”
Economic Development : Economic development is the main issue under
modern economics literature. Accordingly, “take care of poverty and
growth would take care of itself.”
3- Scope
Economic Growth : Scope of economic growth is narrow because it is
concerned with changes in income level only.
Economic Development : Scope of economic development is wide and
comprehensive than economic growth. Its link is not only with income but
also with the prosperity of the society and economy.
4- Institutional changes
Economic Growth : In case of economic growth strong and effective
institutional set-up is not necessary.
Economic Development : Efficient institutional set-up is necessary.
Effective and strong institutional revolution is the sign of economic
development.
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5- Type of Approach
Economic Growth : According to various economists, economic growth is
said to be quantitative approach.
Economic Development : Economic development refers to the qualitative
approach.
6- Importance
Economic Growth : Economic growth is less important due to the attachment
with income level only.
Economic Development : The Concept of economic development is more
important because it discusses an economy in wider sense.
7- Time Span
Economic Growth : Economic growth is a short-term process. We can measure
income changes yearly. So, its time span may be of one year.
Economic Development : Economic development is a long-term process about
20 to 25 years. Because it takes years to change social, economic and
institutional set-up.
8- National Problem
Economic Growth : Economic growth is the problem of developed countries
of the world.
Economic Development : Economic development is the problem of developing
countries.
9- Political Changes
Economic Growth : Economic growth is not concerned with the political
stability.
Economic Development : The concept of economic development is incomplete
without political stability.
10- Dependence and Self-Sufficiency
Economic Growth : Economic growth does not ensure the freedom from the
dependence of foreign countries.
Economic Development : In case of economic development our dependence on
other countries reduces and country adopts the self-reliance policy.
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11- Economic Application
Economic Growth : Economic growth first checks the statistical upward
movement in the economy.
Economic Development : Economic development basically emphasizes on the
balanced growth of economy.
12- Social Impact
Economic Growth : There may or may not be any social changes in case of
economic growth. It ignores the human beings and it is only concerned
with income level etc.
Economic Development : Social changes, in case of economic development,
are compulsory. It refers to the better jobs, availability of food,
better health and education etc.
13- Economic Welfare
Economic Growth : Economic growth is not much attached with the human
beings. It has no link with the good or bad.
Economic Development : In economic development, more importance is given
to the mankind as compare to the economic growth.
14- Measurement
Economic Growth : Economic growth is measured only by comparing income
levels of different years. It also can be measured numerically.
Economic Development : Measurement of economic development is based on
the reduction in poverty, development of human being and living standard
etc.
15- Quantity and Quality
Economic Growth : Economic growth is concerned with quantity of goods and
services only.
Economic Development : Economic development is concerned with not only
quantity but also with the quality.
16- Problem of Assessment
Economic Growth : It is very difficult to estimate exactly the level of
economic growth in developing countries like Pakistan.
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Economic Development : Computation of economic development is not a
difficult task in developed nations of the world.
17- Use of Technology
Economic Growth : In economic growth, use of advanced technology is not
appreciated.
Economic Development : For the economic development use of modern
technology is compulsory.
18- Implications
Economic Growth : Economic growth refers to an increase in the real
output of goods and services in the country.
Economic Development : Economic development implies changes in income,
savings and investment along with progressive changes in socio-economic
structure of country (institutional and technological changes).
19- Factors
Economic Growth : Growth relates to a gradual increase in one of the
components of Gross Domestic Product: consumption, government spending,
investment, net exports.
Economic Development : Development relates to growth of human capital
indexes, a decrease in inequality figures, and structural changes that
improve the general population's quality of life.
20- Measurement
Economic Growth : Quantitative. Increases in real GDP.
Economic Development : Qualitative.HDI (Human Development Index), gender-
related index (GDI), Human poverty index (HPI), infant mortality,
literacy rate etc.
21- Effect
Economic Growth : Brings quantitative changes in the economy.
Economic Development : Brings qualitative and quantitative changes in the
economy.
22- Relevance
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Economic Growth : Economic growth is a more relevant metric for progress
in developed countries. But it's widely used in all countries because
growth is a necessary condition for development.
Economic Development : Economic development is more relevant to measure
progress and quality of life in developing nations.
23- Scope
Economic Growth : Growth is concerned with increase in the economy's
output
Economic Development : Concerned with structural changes in the economy.
Conclusion:
From all above points of difference, we conclude that economic growth is
attached to the increase in production and income etc. while in economic
development more importance is given to man and it tries to remove
poverty.
Q. No. 2 What are the various indicators of Growth.
ANS : Economic Indicators :
Economic reports and indicators are those statistics put out by
government agencies, non-profit organizations and even private companies.
They provide measurements for evaluating the health of our economy, the
latest business cycles and how consumers are spending and generally
faring. Various economic indicators are released daily, weekly, monthly
and/or quarterly.
1. GDP Fiscal Year YoY % : GDP measures summary value of goods and
services generated in a relevant country or region. A region’s gross
domestic product, or GDP, is one of the ways for measuring the size of
its economy.
2. Quarterly GDP YoY % : GDP (gross domestic product) growth dipped to
5.3 per cent in the second quarter (July-September) of 2012-13 from 6.7
per cent in the same quarter during the previous fiscal, mainly owing to
dismal performances by the farm and manufacturing sectors.
3. WPI Inflation YoY % : Wholesale price index (WPI) inflation rate
tracks a set of 435 commodities and their price changes are used for the
calculation. The purpose of the WPI is to monitor price movements that
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reflect supply and demand in industry, manufacturing and construction.
This helps in analyzing both macroeconomic and microeconomic conditions.
4. Fed Fiscal Deficit, INR : The Federal Fiscal Deficit, released by the
Controller General of Accounts, is the difference between the amount the
government takes in as revenue against its overall spending.
5. Repo Rate : The rate at which the RBI lends money to commercial banks
is called repo rate. It is an instrument of monetary policy. Whenever
banks have any shortage of funds they can borrow from the RBI.
6. Reverse Repo Rate : Reverse Repo rate is the rate at which the RBI
borrows money from commercial banks. Banks are always happy to lend money
to the RBI since their money are in safe hands with a good interest.
7. Cash Reserve Ratio : Cash reserve Ratio (CRR) is the amount of funds
that the banks have to keep with the RBI. If the central bank decides to
increase the CRR, the available amount with the banks comes down. The RBI
uses the CRR to drain out excessive money from the system.
8. Cumulative Industrial Output YoY % : The Cumulative Industrial Output
released by Ministry of Statistics and Programme Implementation measures
output of Indian factories, calculated as a weighted aggregate of goods.
A high reading is seen as positive for the Rupee, wheras a low reading is
seen as negative.
9. Infrastructure Output YoY % : The Infrastructure Output released by
the Ministry of Commerce and Industry is a measure of the production in a
range of sector related to infrastructure including coal, electricity
generation, crude oil, refinery throughput, finished steel and cement.
Generally speaking, a high reading is seen as positive for the Rupee,
while a falling trend is seen as negative.
10. Industrial Output YoY % : The Industrial Output released by Ministry
of Statistics and Programme Implementation measures outputs of Indian
factories. Changes in industrial output are widely followed as a major
indicator of strength in the manufacturing sector. A high reading is seen
as positive for the Rupee, whereas a low reading is seen as negative.
11. Manufacturing Output YoY % : India’s manufacturing output expanded at
its slowest pace in three months in January as new orders grew at a weak
pace and power outages continued to hurt industrial activity.
12.Exports – USD : Exports of goods and services consist of transactions
in goods and services (sales, barter, gifts or grants) from residents to
non-residents(one country to another country).
13.Imports – USD : Imports of goods and services consist of transactions
in goods and services (purchases, barter, gifts or grants) from non-
residents to residents(home country).
14. Trade Deficit Government – USD : India’s exports increased marginally
by 0.82% in January to USD 25.58 billion compared to USD 25.37 billion in
the same month last year after contracting for eight straight months. At
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the same time, Imports jumped by 6.12% to USD 45.5 billion in the month.
Trade deficit jumped to record high of USD 20 billion which is becoming
the biggest concern for the Indian economy.
15. Trade Deficit RBI : The Trade Deficit released by the Ministry of
Commerce and Industry measures the amount of imports compared to exports
of total goods and services.
16. Balance of Payment : Balance of payments is a set of accounts
recording all economic transactions between the residents of the country
and the rest of the world in a given period of time, usually one year.
Payments into the country are called credits, payments out of the country
are called debits. There are three main components of a balance of
payments :
– Current Account
– Capital Account
– Financial Account
Either a surplus or a deficit can be shown in any of these components.
17. Current Account Balance : Current account records the values of the
following :
– trade balance – exports and imports of goods and services
– income payments and expenditure
– interest, dividends, salaries
– unilateral transfers
– aid, taxes, one-way gifts
It shows how a country deals with the global economy on a non-investment
basis. Current account surplus may strengthen the demand for local
currency. Persistent deficit may lead to a depreciation of a currency
18. External Debt : As per the standard practice, India’s external debt
data are disseminated on a quarterly basis with a lag of one quarter.
Statistics for the first two quarters of the calendar year (ending March
and June) are compiled and released by the Reserve Bank of India, while
the data for the last two quarters (ending September and December) are
compiled and released by the Ministry of Finance, Government of India.
19. Bank Loan Growth YoY % : Loan growth in the sector has been strong
with over 4% qoq growth (16% yoy until Dec. 14, 2012) which is ahead of
its expectation.
20. FX Reserves - USD : International reserves are used to settle balance
of payments deficits between countries. International reserves are made
up of foreign currency assets, gold, holdings of SDRs and reserve
position in the IMF.
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Q.No.3 Explain following terms:
A. GDP
B. GNP
C. NDP
D. NNP
E. GVA
ANS : Gross domestic product (GDP) :
The monetary value of all the finished goods and services produced within
a country's borders in a specific time period, though GDP is usually
calculated on an annual basis. It includes all of private and public
consumption, government outlays, investments and exports less imports
that occur within a defined territory.
GDP = Consumption + Government Expenditures + Investment + Exports -
Imports
The components used to calculate GDP include:
Consumption : sum of expenditures by households on durable goods,
nondurable goods, and services.
-- Durable goods (items expected to last more than three years)
-- Nondurable goods (food and clothing)
-- Services
Government Expenditures : sum of expenditures by all government bodies on
goods and services.
-- Defense
-- Roads
-- Schools
Investment Spending : sum of expenditures on capital equipment,
inventories, and structures.
-- Nonresidential (spending on plants and equipment), Residential
(single-family and multi-family homes)
-- Business inventories
Net Exports : equals the difference between spending on domestic goods by
foreigners and spending on foreign goods by domestic residents. In other
words, net exports describes the difference between exports and imports.
-- Exports are added to GDP
-- Imports are deducted from GDP
Net domestic product (NDP) :
The total market value of all final goods and services produced within
the political boundaries of an economy during a given period of time,
usually a year, after adjusting for the depreciation of capital. Net
domestic product (NDP) results from adjusting gross domestic product
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(GDP) for the amount of capital depreciation that occurs during
production.
NDP = GDP - Depreciation
Gross National Product (GNP) :
Gross National Product is the total market value of all final goods and
services produced annually in a country plus net factor income from
abroad. Thus, GNP is the total measure of the flow of goods and services
at market value resulting from current production during a year in a
country including net factor income from abroad. The GNP can be expressed
as the following equation:
GNP = GDP + NFIA (Net Factor Income from Abroad)
Net National Product (NNP) :
Net National Product is the market value of all final goods and services
after allowing for depreciation. It is also called National Income at
market price. When charges for depreciation are deducted from the gross
national product, we get it. Thus,
NNP = GNP - Depreciation
Gross value added (GVA) :
Gross value added is an indicator of economic output and income
generation, measuring the contribution to the economy of each producer,
industry or sector and is generally regarded as the best measure of the
sum of economic activity within an area. GVA is the grand total of all
revenues, from final sales and (net) subsidies, which are incomes into
businesses.
GVA + taxes on products - subsidies on products = GDP
Q.No.4 Define the term Unemployment and explain various types of
Unemployment?
ANS : Unemployment :
Unemployment is defined as a situation where someone of working age is
not able to get a job but would like to be in full time employment.
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Types of Unemployment :
Demand Deficient Unemployment :
Demand deficient unemployment occurs in a recession or period of very low
growth. If there is insufficient Aggregate Demand, firms will cut back on
output. If they cut back on output then they will employ less workers.
Firms will either cut back on recruitment or lay off workers. This is
also known as cyclical unemployment.
Structural Unemployment :
This unemployment due to inefficiencies in the labour market. It may
occur due to a mismatch of skills or geographical location. For example
structural unemployment could be due to :
Occupational immobility : There may be skilled jobs available, but many
workers may not have the relevant skills. Sometimes firms can struggle to
recruit during periods of high unemployment. This is due to the
occupational immobility.
Geographical immobility : Jobs may be available in London, but,
unemployed workers may not be able to move there due to difficulties in
getting housing.
Technological change : If an economy goes through technological change
some industries will decline. This is likely to lead to structural
unemployment. For example, new technology (nuclear power) could make coal
mines close down leaving many coal miners unemployed.
Real Wage Unemployment / Classical Unemployment :
This occurs when wages are artificially kept above the equilibrium. For
example, powerful trades unions or minimum wages could lead to wages
above the equilibrium leading to excess supply of labour (this assumes
labour markets are competitive).
Frictional unemployment :
This occurs when workers are in between jobs example school leavers take
time to find work. There is always likely to be some frictional
unemployment in an economy as people take time to find a job suited to
their skills.
Voluntary Unemployment :
This occurs when workers choose not to take a job at the going wage rate.
For example, if benefits offer a similar take home page to wage – tax,
the unemployed may feel there is no incentive to take a job.
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Other Concepts about Unemployment :
Seasonal Unemployment : In certain regions, unemployment may be seasonal
example unemployment rises in winter when there are no tourists.
Disguised / Hidden unemployment : This is when people do not have
productive full-time employment, but are not counted in the official
unemployment statistics. This may include:
a. People on sickness / disability benefits (but, would be able to do
some jobs)
b. People doing part-time work.
c. People forced to take early retirement and redundancy.
Disguised unemployment could also include people doing jobs that are
completely unproductive, i.e. they get paid but they don’t have a job. In
a developing economy like China, many workers in agriculture may be
adding little if anything to overall unemployment, therefore this type of
employment is classed as disguised unemployment.
Natural Rate of Unemployment : This is the level of unemployment when the
labour market is in equilibrium. It is the difference between the labour
force and those willing and able to accept a job at going wage rate. It
encompasses the different supply side unemployment like frictional and
structural unemployment.
Under Employment : This is when people have a job but it is part time or
temporary. They would like to work full time, but only have a part time
income.
Q.No.5 Define Sustainable Development. Enumerate Millennium Development
Goals (MDG).
ANS : Sustainable development :
Sustainable development is development that meets the needs of the
present without compromising the ability of future generations to meet
their own needs. It contains within it two key concepts :
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the concept of needs, in particular the essential needs of the world's
poor, to which overriding priority should be given; and the idea of
limitations imposed by the state of technology and social organization on
the environment's ability to meet present and future needs."
All definitions of sustainable development require that we see the world
as a system — a system that connects space; and a system that connects
time.
The concept of sustainable development is rooted in this sort of systems
thinking. It helps us understand ourselves and our world. The problems we
face are complex and serious — and we can't address them in the same way
we created them. But we can address them.
Sustainable development constantly seeks to achieve social and economic
progress in ways that will not exhaust the earth’s finite natural
resources. The needs of the world today are real and immediate, yet it’s
necessary to develop ways to meet these needs that do not disregard the
future. The capacity of our ecosystem is not limitless, meaning that
future generations may not be able to meet their needs the way we are
able to now.
Some of the more common examples of sustainable development practices are
:
Solar and wind energy : Energy from these resources is limitless, meaning
we have the ability to eliminate dependence on non-renewable power
sources by harnessing power from renewable resources.
Sustainable construction : Homes, offices and other structures that
incorporate recycled and renewable resources will be more energy
efficient and stand the test of time.
Crop rotation : Many farmers and gardeners are using this method as a
chemical free way to reduce diseases in the soil and increase growth
potential of their crops.
Water fixtures : Water conservation is critical to sustainable
development, and more and more products are available that use less water
in the home, such as showers, toilets, dishwashers and laundry systems.
In order to preserve the future, we must appreciate the
interconnectedness between humans and nature at all levels. Sustainable
development practices can help us do this, and through education and
building awareness, preserving the future is within everyone’s reach.
Millennium Development Goals (MDGs) :
The Millennium Development Goals (MDGs) are eight international
development goals that were established following the Millennium Summit
of the United Nations in 2000, following the adoption of the United
Nations Millennium Declaration. All 189 United Nations member states at
the time (there are 193 currently), and at least 23 international
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organizations, committed to help achieve the following Millennium
Development Goals by 2015 :
Goal 1 : Eradicate extreme poverty and hunger :
Target 1A : Halve, between 1990 and 2015, the proportion of people living
on less than $1.25 a day.
Target 1B : Achieve Decent Employment for Women, Men, and Young People.
Target 1C : Halve, between 1990 and 2015, the proportion of people who
suffer from hunger.
Goal 2 : Achieve universal primary education :
Target 2A : By 2015, all children can complete a full course of primary
schooling, girls and boys.
Goal 3 : Promote gender equality and empower women :
Target 3A : Eliminate gender disparity in primary and secondary education
preferably by 2005, and at all levels by 2015.
Goal 4 : Reduce child mortality rates :
Target 4A : Reduce by two-thirds, between 1990 and 2015, the under-five
mortality rate.
Goal 5 : Improve maternal health :
Target 5A : Reduce by three quarters, between 1990 and 2015, the maternal
mortality ratio.
Target 5B : Achieve, by 2015, universal access to reproductive health.
Goal 6 : Combat HIV/AIDS, malaria, and other diseases.
Target 6A : Have halted by 2015 and begun to reverse the spread of
HIV/AIDS.
Target 6B : Achieve, by 2010, universal access to treatment for HIV/AIDS
for all those who need it.
Target 6C : Have halted by 2015 and begun to reverse the incidence of
malaria and other major diseases.
Goal 7 : Ensure environmental sustainability :
Target 7A : Integrate the principles of sustainable development into
country policies and programs; reverse loss ofenvironmental resources.
Target 7B : Reduce biodiversity loss, achieving, by 2010, a significant
reduction in the rate of loss.
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Target 7C : Halve, by 2015, the proportion of the population without
sustainable access to safe drinking water and basic sanitation.
Goal 8 : Develop a global partnership for development :
Target 8A : Develop further an open, rule-based, predictable, non-
discriminatory trading and financial system.
Target 8B : Address the Special Needs of the Least Developed Countries
(LDCs).
Target 8C : Address the special needs of landlocked developing countries
and small island developing States.
Target 8D: Deal comprehensively with the debt problems of developing
countries through national and international measures in order to make
debt sustainable in the long term.
Target 8E : In co-operation with pharmaceutical companies, provide access
to affordable, essential drugs in developing countries.
Target 8F: In co-operation with the private sector, make available the
benefits of new technologies, especially information and communications.