Economics

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Showing posts from February, 2022

Sustainable development

Sustainable development goals (SDG) . One of the 17 SDGs, Goal is ' Zero Hunger' and to achieve this goal. Agricultural orientation index (AOI ) has been developed as an indicator to track the progress of Zero hunger. It is calculated as Share of govt. Expenditure in agriculture put of total govt. Expenditure /share of agricultural GDP in total GDP. Following eight targets have been specifie d. a) Universal access to safe and nutritious food. b) End all forms of malnutrition. c) Double the productivity and incomes of small scale food producers. d) Sustainable food production and resilient agricultural practices. e) Maintaining the genetic diversity in food production. f) Invest in rural infrastructure and agricultural research and technology . g) Prevent agricultural trade restrictions, market distortions and export subsidies. h) Ensure stable food commodity market and timely access to information.

Certificate of deposits

CERTIFICATE OF DEPOSITS (CDs) Certificate of deposits are negotiable unsecured money market instruments issued by the scheduled commercial banks for a maturity period up to one year against funds deposited at the bank. These are different from the deposit certificte that individuals get while doing Fixed depoits in the bank. Individulal's deposit certificate are not tradable . COMMERCIAL PAPER Commercial paper is an unsecured money market instrument issued in the form of promisory notice. The time period of an CP shall be between 7 days to 1 year. NBFCs, All India financial institutions like(NABARD,SIDBI) ,Cooperative societies, Public sector units and other companies can issue CP to raise money in this money market .

Notice money

NOTICE MONEY/CALL MONEY T he money market is a market for short term financial assets that are close substitutes of money. The most important feature of money market instrument is that it is liquid and can be bought or sold quickly at low costs. It provides an avenue for equilibrating the short time surplus funds of lenders and requirements of borrowers. It is an important form of segment in the Indian money market. Under this, funds are transacted on overnight basis for the period between 2 days to 14 days. These are unsecured instruments. Participants in notice money market includes commercial and cooperative banks, primary dealers, developmental finance institutions, insurance companies and select mutual funds.

Formalisation of informal sectors

Policies to formalise the informal sectors of economy Introduction : In the Post Independence period, government gave various fiscal benefits for small enterprises to protect employment because •These enterprises were mostly labour intensive. •These enterprises were established in rural and semi urban areas. Government also reserves various items which could be produced only by MSME firms. Because of socio economic reasons, government has to provide protection to small firms which resulted in formation of informal economies. Meaning of informal sector : These are those sectors of economy which are less productive as compared to formal sectors. These sectors lacks capital, technology and best management practices. The agricultural sector is mostly informal sector in India and labour is struck in this sector of economy due to lack of large scale manufacturing units. So, there is great need of structural transformation of converting these smaller units by providing capital, skill

Economic survey

Economic survey Economic survey is prepared by chief .Economic survey has been prepared by Principal Economic Advisor, as the previous CEA term completed in early Dec 2021 and new CEA joined. CEA heads the Economic division under Department of Economic Affairs, Ministry of Finance. Under CEA ,there are various economic advisors and one of them is Principal Economic Advisor. Among various other functions of economic Division one of them is Preparation of Annual Economic Survey.

AMRIT kAAL

AMRIT KAAL Amrit kaal is the next 25 years leading up to our 100 years of Independence. The 2022-2023 budget lays a blueprint for the Amrit kaal by setting its four priority areas. Goals of Amrit kaal 1) Focus on growth and all inclusive welfare. 2)Promoting technology enabled development, energy transition and climate action. 3)Virtuous cycle starting from private investment, crowded in by public capital investment . Four priorities 1)PM galti shakti 2)Inclusive development 3)Productivity Enhancement and investment, sunrise opportunities, Energy transition and climate action. 4)Financing of investment

Economic terms

ECONOMIC TERMS Inflation premium Inflation premium refers to the higher return that investors demand in exchange for investing in a long term security where inflation has a greater potential to reduce real return. Tri - party repo Tri-party repo is a type of repo contract where third entity called as tri - party agent acts as medium between the two parties to facilitate services like collateral selection, payment, settlement, custody and management during the process of transactions .

FTAs and INDIA

FREE TRADE AGGREMENTS AND INDIA India is currently working in the process of free trade agreement (FTA) with the countries like UK, UAE, Australia and EU and will about to launch aggrements with Canada and Gulf cooperation council. But, India is no longer signing FTAs just to be a part of group or for sake of it. India is lookimg at reciprocal access, good market conditions and equitable and fair play in trade of goods and services. India is looking towards those nations which values democracy, transparency and mutual growth. Main focus of India a) Market access: India's main focus is on market access at FTAs for now. Market access refers to the situation where the cheap domestic goods can be traded with the FTAs partners who can reduce customs duties and other restrictions. b) Non -coercion : There is no forcefull action to be taken to buy expensive goods during FTAs. If FTAs partner is providing cheaper goods, then India can reduce custom duties and other restrictions t

Reverse charge mechanism

RESERVE CHARGE MECHANISM Reserve charge mechanism under GST is a mechanism where the receipts of goods or services is liable to pay or deposit GST instead of the supplier. It is seen that GST which the supplier charges from the buyer and then he deposit it with GST. But in some of the cases, it is buyer who needs to deposit the GST with Government and he is the one who bears the burden of taxes also. This mechanism is done for operational reasons.

Inclusive budget

INCLUSIVE BUDGET An inclusive budget of this year should be consist of following practices: a)Informal service sector jobs marks a marginal existence in agriculture. b)There is strong need of creating job opportunities for unskilled, equip people at all levels to participate more fully in the economy. c)Budget needs to create good jobs for unskilled by accelerating spending on infrastructure. d)Millions of unskilled and less educated can be employed in good manufacturing jobs where average productivity is 15 times the national average. e)There is need of labour reform skills employing people is less expensive and improved logistics to move goods around more cheaply. f)The government passed four labour laws that are major step forward in helping balance flexibility with protection for labour, formal and informal. g)The budget should announce a time frame for implementation, notification by union government and then by states. h)The budget must also look at investments in educat

Current terms

China+1 China plus one also known simply as plus one, is the business strategy to avoid investing only in China and diversify business in other countries also. This strategy is developing from the over concentration of business interests in China, it may be done for reasons of cost, safety or long-term stability . Line of credit Line of credit is a pre agreed amount of money that a bank or financial institution has agreed to lend. The people can borrow any amount from that maximum amount approved at any point of time and people need to pay interest only on the amount that they borrow .

Anchor investors

Anchor investors Anchor investors is a concept launched by SEBI in the year 2009.These are the institutional investors who are invited to subscribe/purchase the shares before the IPO opens so that, it popularises the issue and increase the confidence of other investors and also to improve the demand of those shares. Each investor needs to invest atleast a minimum of Rs 10 crore. They are allotted share one day before IPO opens. In the year 2021 ,63 companies raised Rs 1.19 trillion through IPO's .

Manifestos for the agriculture of Punjab

Suggestions for the farmers of Punjab to be implemented on agricult ure There is still a hope to recalibrate agriculture of Punjab towards higher sustainable growth. a)The marketing channels such as direct marketing, contract farming and exports needs to be scaled up. b)Adoption of market first approach can ensure farmers benefits. c)Punjab needs to shift from supply driven agriculture to demand driven agriculture. d)The demand of fruits, vegetables, fisheries, poultry, dairy are more than that of wheat and rice. e)Rationalising mandi charges to not more than 3% .It will attract private sector investment. f)Promoting mega markets for value addition through medium and small enterprises will strengthen out competitiveness. g)It should use technology to ensure optimal utilisation of resources. h)The digital market will generate real time information on input sales, market arrivals,transactions. i)Innovations in supply chain management will bring traceability of farms and animals.

Forward policies for the development of economy

Forward policies for the development of economy Our demographic cycle is almost ten to twenty years late as compared to China, Singapore, Taiwan, South Korea. Demographic dividend can be reaped to achieve economic growth by empowering the youth in terms of education, trainning and skills. Following are the policies which can be undertaken for the development of economy. a) National Transfer account :To undertake National Transfer Accounts (NTA) which shows India's per capital consumption pattern. It needs to be calculated every year which helps the states to rank for investing in youth. b) To invest more in children amd adolescants: A complete shift from the secondary education to universal skilling should be undertake, as in South Korea. c) To make health investments: Health spending should be in pace with the economic growth. d) Reproductive health care services: There is need to provide universal access to high quality primary education and basic healthcare. e) Gender di

GST compensation

GST COMPENSATION The Central government convinced most of the states to merge their indirect taxes under GST. States indirect tax revenue growth was measured for three years before 2015-2016 and it was observed that their indirect tax revenue average growth was 14%.So, states were promised that they should not worry about their indirect tax revenue growth after implementation of GST and in case there is shortfall, they wil be compensated from GST Compensation fund.This exits only for five years i.e from 1st july 2017 to 30th june 2022. There was major tax revenue decline in the pandemic year 2020-2021 and cess collection was not enough to compensate the states but however central government agreed to provide compensation to the states and it will continue even after 30th june 2022. Important issues of GST a) The technology platform could not be firmed up for a long time which led to large scale misuse of input tax credit. b) This is only source of revenue for states and conside

Developing countries (WTO)

Developing countries - WTO The countries which are classified into 3 categories according to WTO are -Least Developing countries -Developing countris -Developed countries The status of China has become issue after being called as developing nation in the WTO. The concerns have been raised also to the status of least developed countries. Benefits of developing countries tag a)It provides special rights through 'special and differential treatment'(S&DT) provision. b)This grants longer timeframes to implement aggrements and commitments to raise trading opportunities. c)It aimed at reduction in government support to industries over time and set more lenient target for developing nations and grant them more time to achieve these targets. d)It also allows other countries to offer preferential treatment. Benefits of LDC classification -LDC's are often exempted from certain provisions of WTO pacts. Bangladesh is being classified as LDC -It recieves zero duty, zero q

FAE 2021-2022

First advance estimates of National Income, 2021-2022 The National statistical office (NSO) Ministry of Statistics and programme implementation has released the first Advance estimate (FAE) Of national Income both at constant(2011-2012) and current prices, for the year 2021-2022. The FAE of GDP of 2016-2017 serve as essential inputs to budget excercise . This is based on limited data, where the estimates available for previous year are projected using indicators reflecting performance of the sectors. -According to the FAE report, the Nominal GDP for the year 2021-2022 is going to be Rs 232 lakh crore which is expected to be 17.6% . -The real GDP growth for the same year is expected to be 9.2%.

Insolvency and bankruptcy code

Insolvency and bankruptcy code (IBC) 2016 IBC 2016 is a code which is not applicable to financial institutions like banks, pension funds, mutual funds. This means if company has taken loan from a bank and is not making repayment of its debt, bank can then move to National company law tribunal under IBC 2016 to declare the company bankrupt. To deal with the bankruptcy of financial institutions, Government is planning to bring " Financial Resolution and Deposit Insurance " (FRDI) bill. It is a system to deal with financial firms insolvency while at same time providing highest level of safety to the depositors . This law is in dicussion since last 4 to 5 years, but still not passed by the parliament due to "Bail - in "clause. It states that in case there is bankruptcy or insolvency in bank, then depositors will have to give up some parts of their deposit to protect the bank. There is disagreement on this clause. To conclude, The FRDI bill, 2017 was mea

Foreign exchange market

Foreign Exchange Market Foreign exchange market refers to the market for national currencies of different countries in the world. It is described as the centre of Trade for different currencies. Buyers and sellers in foreign exchange market wish to buy or sell foreign exchange. Functions a)It implies transfer of purchase power in terms of foreign exchange across different countries of the world. b)It implies provision of credit in terms of foreign exchange for the export and import of goods and services across different countries of the world. c)It implies protection against risk relate to variations in the foreign exchange rate. Operation It operates either as spot market or as forward Market a)Spot market :Spot market for foreign exchange is that market which handles only spot transaction or current transaction.It is also called as current market. Characteristics a)Spot market is of daily nature. It does not trade in future deliveries. b)The rate of exchange which is determined in S

Pros and cons of system of foreign exchange rate

Advantages and disadvantages of exchange rate system Fixed exchange rate system Merits a) Market stability and mobility of capital :It ensures stability in the international money Market by eliminating risks relate to exchange rate variation. It promotes international mobility of capital. b) Check on inflation:It implies an in- built check on inflation level because money supply is an important trigger factor of inflation. Also,high rate of inflation was a rarely occuring phenomenon under this system. c) Growth of international trade :It offers an hospitable environment for growth of international trade. The traders can explore international markets for their products almost with asserted returns,involving minimum possible risk. d) Stable MACROECONOMICS policies :The central bank can frame it's monetary policy and government can frame it's fiscal policy, independent of external shocks related to fluctuations in the exchange rate. e) Automatic BoP adjustmen t : It is an autom

Foreign exchange rate

FOREIGN EXCHANGE RATE Foreign exchange rate refers to the rate at which one unit of currency of country can be exchanged for number of units of currency another country. It is the price paid in domestic currency in order to get one unit of foreign currency. Thus,it expresses the ratio of exchange between currencies of two countries . It is also refer to as external value of the currency. System of exchange rate There are two systems of exchange rate: a)Fixed exchange rate system b) Flexible exchange rate system Fixed exchange rate system refers to rate of exchange as fixed by the government. It has two important variants , historically. 1)Gold standard system of exchange rate b)Bretton woods system of exchange rate Gold standard system According to this system of exchange rate,gold was taken as common unit of parity between currencies of different countries in circulation. Each country was to define value it's currency in terms of gold. Thus,value of one currency in terms of othe

Fiscal policy

FISCAL POLICY Fiscal policy is the revenue and expenditure policy of the government focusing on growth and stability of the economy. It is also called as budgetary policy of the government . The government tries to achieve its set of objectives by varying the size and composition of revenue as well as of expenditure. Role of fiscal policy a)Accelerating pace of growth : In welfare state like India ,there is direct Intervention by the government in the production process . The government spearheads process of growth through investment expenditure in strategic sectors of the economy, defence sector in particular. Autonomous investment of government seeks to trigger pace of growth. b) Regional balanced growth : By offering tax holidays, subsidies ,the government prompts private investment to focus on backward areas. It facilitates balanced regional growth. It also helps to stop migration of labour from one state to other . c)Inclusive growth: It is a growth process in which rate of part

Balanced and unbalanced budget

BALANCED AND UNBALANCED BUDGET Balanced budget Balanced budget is that budget in which government receipts are equal to government expenditure. Balanced budget : receipts=expenditure Merits a)The government does not indulges in wasteful expenditure. b)A balance budget ensures financial stability. Demerits a)It does not offer solution to problem of unemployment during depression. b) It is not conducive to growth and development programme of less developed countries. Unbalanced budget An unbalanced budget is that budget in which government receipts and government expenditure are not unequal . It is of two types : a)Surplus budget b)Deficit budget Surplus budget : This is a budget of government whereby the receipts are greater than the expenditure. Surplus budget : Receipts>expenditure Merits a)It helps in correction of inflationary gap in the economy. b)Revenue collected by the government reduces purchasing power within the people. c)There is low level of

Budget deficit

BUDGET DEFICIT Budget deficit refers to a situation when budget expenditure of the government are greater than the budget receipts. The three types of budget deficit are: a)Revenue deficit b)Fiscal deficit c) Primary deficit Revenue deficit means the excess of revenue expenditure over revenue receipts . RD =RE-RR Ways of lowering revenue deficit a)Increase revenue receipts through tax and non tax receipts. Thus,rates of income tax may be raised. b)Decrease Revenue expenditure. It may be achieved through cut in subsidy. It may also be achieved through a cut in administrative expenses of the government. Fiscal deficit Fiscal deficit is the excess of total expenditure (revenue+capital) over total receipts (revenue+capital other than borrowing) . Fiscal deficit =Total expenditure-total receipts Primary deficit Primary deficit is the difference between fiscal deficit and interest payment. PD =FD-IP While fiscal deficit shows borrowing requirement of government inclusive of interest pay

Structure Of budget

STRUCTURE OF BUDGET Budget consists of the components a)Revenue budget b) Capital budget Revenue budget includes revenue receipts and revenue expenditure of the government. It shows current receipts of government and related expenditure . Capital budget includes capital receipts and capital expenditure of the government . It shows capital receipts of government and related expenditure. Two another broad components are a)Budget receipts b)Budget expenditure Budget receipts Budget receipts refer to estimated money receipts of government from all sources during fiscal year. It is further classified as :- 1)Revenue receipts 2)capital receipts Revenue receipts of the government defined as those money receipt which do not create a liability for the government and as well as not lead to reduction in assets of government. It is further classified as -Tax receipts -Non-tax receipts Tax receipts :A tax is compulsory payment to government by the households, firms or other institutional uni

Government Budget

GOVERNMENT BUDGET Government Budget is a statement of estimate of the government receipts and government expenditure during the period of the financial year . It also includes government report on its financial performance over last one year. It also unveils the fiscal or budgetary policy of the government for the coming year. Objectives of government Budget a) Redistribution of income and wealth : Through it's revenue and expenditure policy ,the govt seeks to promote equity .So that the growth process can become inclusive.Tax structure is designed to be progressive,placing burden on richer section of society .subsidies are provided to poorer section ,provission of employment in rural area ,provission of food items to be sold in BPL families are made . b) Reallocation of resources : Economies are believed to achieve optimum allocation of resources ,producing such goods and services which consumers wish to buy.Provission of public goods like law ,order,defence ,public administrat

Monetary Measures to correct inflationary and deflationary gap

Monetary Measures to correct inflationary and deflationary gap Monetary measures Monetary policy is that policy of government which corrects the situation of excess and deficit demand by regulating interest rate and availability of credit in the economy. The cost of credit is raised and availability of credit is reduces when excess demand is to be correct . It is called as Dear money policy. The cost of credit is reduced and availability of credit is increased when deficit demand is to be corrected . It is called as cheap money policy. Component of monetary policy and the way which can help to correct inflationary and deflationary gap a) Bank rate : Bank rate is the rate at which the central bank lends money to the commercial banks .It is also called as repo rate. In the situation of excess demand ,bank rate is increased .As this action follows ,the commercial bank raise market rate of interest which can reduces the demand for credit.Due to this consumption and investment expenditure

Fiscal Measures to correct inflationary and deflationary gap

Fiscal Measures to correct deflationary and inflationary gap Fiscal measures Fiscal policy of government refers to the revenue and expenditure policy of the government. It is also called as Budgetary policy of government. It helps in correcting the situation of excess demand and deficit demand in the economy. Component of fiscal measures and the way how those are used in correcting inflationary and deflationary gap. a) Government expenditure: The government of country incurs various types of expenditure like on public works such as dams ,roads,bridges ,on eduction and public welfare, on defence and maintaining the law and order. It is by changing all types of government expenditure seeks to correct the situation of excess and deficit demand in the economy. When there is excess demand ,govt expenditure is reduced and when there is deficit demand ,it should be increased. b) Taxes : Taxes are compulsory payment made to government by household and producing sectors of the economy . When

Inflationary gap

EXCESS DEMAND or INFLATIONARY GAP Excess demand refers to the situation when aggregate demand is in excess of aggregate supply corresponding to full employment in the economy. AD>AS It implies that a)Desired AD in the economy happens to exceed its full employment level . b)The level of AD surpasses level of AS even when available factors are fully utilised. c)The level of output cannot be rise because factors are already fully employed. Excess demand raises the market value of output because quantum of output remaining constant,higher the demand leads to rise in prices level which implies the situation of inflationary gap . Inflationary gap Inflationary gap is the excess of AD over and above it's level required to maintain full employment equilibrium in the economy.Higher the excess demand,greater the inflationary gap. It is measured as the difference between AD beyond full employment and AD at full employment. Causes of inflationary gap a)Private consumption

Deflationary gap

DEFICIT DEMAND or DEFLATIONARY GAP DEFICIT demand refers to the situation when aggregate demand is short of aggregate supply corresponding to the full employment in the economy . AD>AS This implies that - AD is short of its full employment level. -AS converges with AD at level lower than full employment. Owing to the deficit AD , equilibrium between AD and desired AS is struck at a level lower than full employment which creates a situation of underemployment in the economy. Deflationary gap It is a situation when resources are not fully utilised and there is excess capacity in the economy. Deficit aggregate demand is often described as situation of deflationary gap .It is Shortfall in AD from the level required to maintain full employment equilibrium. There is involuntary unemployment in the economy in such a situation. It is measured as the difference between desired AD corresponding to the full employment and desired AS corresponding to under employment . It

Investment Multiplier

INVESTMENT MULTIPLIER The number of times by which the increase in ∆Y exceeds the increase in investment is called as Investment Multiplier. Investment Multiplier or output multiplier refers to the number of times by which the increase in output/income ∆Y exceeds the increase in investment ∆I. It is measures as the ratio between change in output /income and change in investment. k = ∆Y / ∆I Where k is the multiplier. Relationship between Multiplier and Marginal propensity to consume (MPC) There is direct relationship between Multiplier and MPC . Higher the value of MPC ,higher the multiplier . K =1 / 1- MpC This is because of the given reasons : a)Additional investment means additional expenditure in the economy, additional expenditure means additional income . b) Higher the value of MPC ,higher is generation of income caused by a given increase in investment. c) Also, Investment Multiplier works with the change in consumption as

Saving function

Saving function Income is either consumed or saved because of this Y = C+S . Saving is must be related to income due to this . Thus,the functional relationship between Saving and income is called saving function. Saving function can easily be derived out of it out of consumption function. Income. Consumption. Saving S= Y-C 0 20 -20 50 60 -10 100 100 0 150 140 10 Central significance a)Saving is negative when income is zero. b)Saving increases as income increases . Implying that saving is positively related to income. c)Savings remains lower than income. Unlike consumption,saving is never greater than income , it is always a part of it. d)Saving line is positively sloped ,moving upward from left to right which causes higher saving. e)Saving line

Consumption function

CONSUMPTION FUNCTION The functional relationship between consumption and income is called as consumption function.In an economy ,consumption is an important component of aggregate demand . Consumption is often studied with the respect of income ,considering income as the important factor of consumption. Central significance a)Consumption is positive related to income . Rise in income causes the rise in consumption and fall in income causes the fall in consumption. b)The increase in income during particular period is not converted into consumption A part from this income is saved also . c)There is always some minimum level of C ,even when y is equal to 0 . This is also called as autonomous consumption which leads to the negative savings. Income Consumption 0 20 50 60 100 100 150 140 Thi

REAL NATIONAL INCOME

Real national income Real national income is a measure of goods and services at disposal of a country for consumption and investment. Changes in real national income register the real change in country's production. It can be obtained from money national income in two ways. Estimating national product at some fixed prices In India, under revised series of national income accounting, we estimate national income at the prices of 1970-1971. Using GNP deflator In this, national income estimates at current prices are obtained. These are called nominal GNP estimates.then by selecting a base year whose price index number is already known. Comparing the base year price index with current year price index and obtain GNP deflator as GNP deflator = current year price index/base year price index

Aggregate Demand

Aggregate Demand A Aggregate demand is the total demand for domestic output. It is made up of four components a) consumption by households b) Investment by businessmen c) Government purchases d) Foreign demand Consumption The components of aggregate demand shows that important component is consumption spending by person sector. Consumer spending on durable goods such as automobiles spending which might be regarded as investment rather than consumption. Government It includes items such as national defense, roads paving, salaries of govt employees. Investment Investment means additions to the physical stock of capital. It includes inventories like building construction, building of machinery, human capital. Human capital us the knowledge and ability to produce that us embodied in labour force. Net exports It shows the spending on foreign goods and foreign spendings on domestic goods. The difference between the exports and imports are called as net exports. Final sales

NATIONAL INCOME AND ECONOMIC WELFARE

National income as measure of economic welfare The factors which are not taken jnto consideration in computing GNP are as follows: a) Leisure : An important element affecting welfare of community is amount of leisure enjoyed by its members. But leisure is not included in GNP. If the GNP is produced after reducing the working hours of labour, it can be said that welfare has increased. b) Quality of life : GNP estimates don't include quality of life as component. With increase in GNP, quality of life is bound to go down if environment pollution is freely allowed. Economic growth involves urbanisation which leads to overcrowding, spreading of slums, pollution of water and air. All these reduce quality of life and social welfare is adversely affected. But GNP figures place no value in quality of life. c) Production structure :GNP shows total of goods and services produced in country not the structure of production. The National income accountable treats equally the poor mans good

Importance of studying NATIONAL INCOME

Importance of studying NATIONAL INCOME a) Economic policy :National income figures are an important tool of macroeconomic analysis and policy. It's estimates are most comprehensive measures of aggregate economic activity in the economy. Through such estimates, it is easy to lay down future economic policy for development. B) Economic planning: National income statistics are most important tool for long term and short term economic planning. A country cannot frame a plan without having knowledge of national income. c) Economy's structure :National income statistics enable us to have clear ideas about the structure of economy. It enables us to know the importance of various sectors of economy and their contributions. This help in knowing how income is produced, distributed, spent, saved or taxed. D ) Inflationary or deflationary gaps : National income enables us to have an idea of inflationary and deflationary gaps. For accurate and timely anti inflationary and deflation

DIFFICULTIES WHILE CALCULATING NATIONAL INCOME

Difficulties in calculating National income a) Double counting : Double counting implies the possibility of commodity like raw material or labour bring included in national income more than once. For instance, a farmer sells maize worth rupees two hundred to a mill owner, the mill owner further sells it to wholesale dealer, who further sells it to retailer and who in turn sells it to consumer, if we calculate it at every stage, its value will come to 800 rupees but actually the increase in national income has been to extent of two hundred rupees only. b) Difficulty of defining nation : The definition of nation is used in studies of National income. National income does not only include income produced within the country but also income earned in other countries by way of shipping charges, interest, insurance minus any payments made to foreign countries. Therefore, the definition goes beyond this. c ) Non- marketed services : Commodities and services having money value are includ

Concept of National income

Concept of NATIONAL INCOME Macroeconomics works with aggregates. The central variable in it is income which is called as National income. National income estimate measures the volume of commodities and services turned out during given period counted without duplication. National income =Domestic income +factor income earned by our residents from rest of the world -factor incomes earned by non residents in our domestic territory Or NI =DI +net factor income from abroad Aggregates of NATIONAL INCOME Domestic/National product(net/gross)at Market price and at Factor cost When domestic product is estimated as the sum total of value added by all producing units (within domestic territory) ,domestic product at market price is found out. Domestic product at market price =Domestic price at factor cost +Indirect taxes-subsidies When domestic production is estimated as the sum total of factor income generated,domestic product at Factor incomes is found out. Domestic product at factor price=Do

BASICS OF MACROECONOMICS

Basics of Macroeconomics a) Capital goods : Capital goods are described as fixed assets of producers which are used in the process of production for several years. Plant, heavy equipment, machinery are examples. b) Investment : Investment is a process of capital formulation also known as the process of increase in stock of capital . I =∆k Where I is investment and ∆k refere to the change in capital stock during the year. There are two types of investment Fixed investment refers to increase in stock of fixed assets of producers during the period of an accounting year .Plant ,machinery are some of its examples.It is also called as fixed capital formation. Inventory investment are those stock which keeps varying . At a point of time,producers have stock of finished goods ,semi finished goods or raw material . These are called as inventory investment. Change in the stock of these are called as inventory investment of producers. c) Depreciation : Depreciation is describe

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