Economics

EFFECTS OF TERMS OF TRADE a)It has the effect of continuously weakening the capacity to import of these countries. b)In has led to the weakening of capacity of their existing primary producing industries to support their growing population. c)It has resulted in failure to transmit to them the benefit of technological progress from advanced countries. d)It has made every individual country's independent effort to raise productivity of its primary producing industry result in deterioration of their terms of trade. e)It has lowered their rates of capital formation and thus their economic growth. f)The primary producing countries have become handicapped in their efforts to develop their economies ,and have been made dependent upon loans and grants of advanced nations. MEASURES TO OVERCOME TERMS OF TRADE At national level •The underdeveloped countries should industrialise their economies by adopting the policy of protection. •To reduce their independence on developed countries by develo...

Unfavourable Terms Of Trade Causes: a)Nature of product : The less developed countries are mainly primary producing countries. Their exports mostly include primary products and their imports include capital goods. On the contrary ,the developed countries produce and export manufactured goods. The terms of trade between primary products and manufactured products are determined against the former and in favour of the latter. b) Effect of technical progress: The industrial countries keep the whole benefit of their technical progress,whereas the primary producing countries transfer a part of fruits from their own technical progress to industrial nations. This has led to the deterioration of terms of trade of primary producing countries. c) Market conditions: Export prices in the industrial countries Di not fall as a result of technical progress because the manufacturer operate under monopolistic conditions in product market and they do not operate under competitive condition in the factor...

NITI Aayog Introduction : In 2014,The 65 year old Planning Commission that supervised five year plan for the economic development of the country got dissolved and a think tank- NITI Aayog took its place. The union government of India announced the formation of NITI Aayog on Ist January,2015.  NITI Aayog is Constituted with the order to serve the needs and aspirations of people of India.While designing strategic and long term policies and programmes for the Government of India, NITI Aayog also provides technical advice to the centre and state. Objectives of NITI Aayog a)The active participation of states in light of national objectives and to provide framework for national agenda. b)To promote cooperative federalism through well ordered support initiative and mechanisms with the states. c)To construct methods to formulate a reliable strategy at village level and aggregate these at higher level of government. d)An economic policy that incorporates national security interests. e)To pa...

FACTORS INFLUENCING TERMS OF TRADE a ) Elasticity of demand : The Elasticity of demand for exports and imports of a country influences it's terms of trade. If demand for a country's exports is less elastic as compared to her imports, the terms of trade will tend to be favourable because the exports can command higher prices than the imports. b ) Elasticity of supply:The nature of elasticity of supply also significantly influences the country's TOT . If the supply of a country's exports us more elastic than the imports, the TOT will tend to be favourable. c) Nature of goods: If a country is producing and exporting only primary goods,and importing manufacturing goods the TOT will be unfavourable. d)Economic development:The economic development has two types of effects : 1) The  demand effec t which refers to the increase in demand for imports as a result of increase in income associated with economic development. 2)The supply effect which refers to the increase in supp...

TERMS OF TRADE Meaning of terms of trade : The concept of terms of trade refers to the rate at which a country exchanges exports for imports. The terms of trade , in other words, represents the international values of its commodities. It is the ratio of price of export commodity to the price of import commodity . Terms of trade are said to be favourable for the country when prices of exports of a country are higher as compared to those of its imports..                                   Export price  Terms of trade =___________________×100                                    Import price Types of terms of trade  a)Net barter terms of trade : This shows the relationship between price of exports and price of imports. It is also known as commodity terms of trade. It is generally used to measure the gains from...

BENEFITS OF FREE TRADE AGREEMENT Free trade means that country can import and export any of its goods without any tariff or non tariff barriers . • Specialization :By specializing in particular goods where countries have low cost of opportunity ,there can be increase in economic welfare for all countries. It enables to specialize in those hoods where the country have comparative advantage. •Creation of trad e :Trade creation occurs when consumption switches from high cost producer to low cost producer . It leads to the fall in prices for consumers which in return increases consumer surplus.  • Increase in exports: firms that are exporting goods will also see a improvement in economic welfare. Low tariff on exports enable higher quantity of exports boosting economic growth and jobs also. • Economies of scale :Countries can have benefit of economies of scale and low average costs. This benefit will lead to low prices for consumer's and greater efficiency for exporting firms. • Incr...

EXTERNAL COMMERCIAL BORROWING External Commercial Borrowings  are commercial loans or debt raised by resident entities from recognised non-resident entities. Therefore,it is debt denominated in foreign currency or Indian rupee and includes: 2. Trade Credits : It  refers to the credits/loan extended by the overseas supplier, bank, financial institution and other permitted recognised lenders for imports (into India) of capital/non-capital goods permissible under the Foreign Trade Policy of the Government of India.    3. Bonds, Debentures which should not have condition of fully/compulsorily convertibility.  Bonds/debentures are basically debt but some have option to convert into shares/equity. So, only those debentures/bonds which does not have a condition of fully/compulsorily convertibility  are treated as ECB.  4. Preference Shares which should not have condition of fully/compulsorily convertibility:  Preference shares have basically preferentia...

Tokenization  Tokenization is the process of turning sensitive data into non-sensitive data called "tokens" that can be used in a database or internal system without bringing it into scope.  •It can be used to secure sensitive data by replacing the original data with an unrelated value of the same length and format.  •The tokens are then sent to an organization’s internal systems for use, and the original data is stored in a secure token vault. •The purpose of tokenization is to swap out sensitive data—typically payment card or bank account numbers—with a randomized number in the same format but with no intrinsic value of its own. •Tokenization is the process of removing sensitive data from your business systems by replacing it with an undecipherable token and storing the original data in a secure cloud data vault.  Token will be unique for a combination of card, token requestor (i.e. the entity which accepts request from the customer for tokenisation of a card and p...

CURRENT ACCOUNT DEFICIT  A current account deficit means that the value of goods and services ported is greater than the value of exports. It is helpful to the borrowing nation in short run . Foreigners are willing to pump capital in account deficit ,which drives economic growth. It is a sign of competitiveness in the international level. In exchange rate market , current account deficit put downward pressure on currency. It enables higher level of consumption. BALANCE OF PAYMENT Balance of payments refers to the statement of accounts recording all monetary (arising out of export and import of goods and services, international sale and purchase of assets) transaction of a country with the rest of world. In other words, Balance of payments of a country is a systematic record of all economic transaction between it's residents and residents of foreign countries.   Components of BOP - It is split broadly into two categories: a)Current account b)Capital account  Current acco...

FACTORS AFFECTING SUPPLY Supply refers to the quantity of a good that producer plans to sell in the market during the period of an account year. The following are the factors which affect the supply: 1 Decrease in costs of production affects the supply as business can supply more at each price. 2. Increase in number of firms will increase the supply. 3.Expansion in the capacity of existing firm can influence supply. 4.Climatic conditions are important as they can influence the supply of agricultural products. 5.Lower taxes can reduce cost of goods which further directly effects the supply. 6.Price and supply are directly related.higher prices induces the firm to offer more for sale. 7.Increase in prices of other goods make products more profitable . 8.Technological changes influence supply of a commodity. 9.Supply of a commodity increases at higher prices as it fulfills the objective of profit maximisation.

REASONS OF POVERTY • The poor households of the world doesnot have ability to invest in property . •There is limited education basically confined to rural areas only . •The systems or rituals followed by ethnic tribes,castes, minorities stop them from participating in economic power. •Political violence , wars ,crimes are another major reason of poverty. •Unemployment and lesser opportunities to the youth is the reason of promoting poverty to another level. •Limited agricultural produce Leads the people of those country towards starvation and thus resulting in poverty. •Refugee migration creates overcrowding which further promotes poor hygiene. •Lack of basic necessities makes the poor even more poorer. •Unhealthy people who works less are no more productive which is the cause for poverty. •Climate change or natural calamities prone areas are another important reason for the poverty. •Poor governance , policies, law can lead the country towards poverty.

SRI - LANKAN ECONOMIC CRISIS Sri Lanka is currently in the midst of economic crisis where the government of Sri Lanka is running low on foreign currency and as a result has been unable to pay for essential imports leading to power cuts. •Sri Lanka is now dealing with shortages and soaring inflation. •President of sri lanka has imposed national public emergency on April ist. •Sri Lanka has total external debt of $50 billion USD . REASONS   •The covid -pandemic •Russia -Ukraine war •Drop tourism •Affected crop production •Imbalanced economic structure •International loans •Misguided economic policy. •Debt trap •foreign exchange crisis •Money printing by central bank Effects •Sri lanka devalued it's currency last month with IMF  •Creation of Budget shortfall •Deep cut in taxation •Results in twin deficit -expenditure exceeds income and inadequate production of tradable goods and services . •Drop in crop of rice because of ban of chemical fertilizers. •Foreign exchange reserves we...

WAYS TO IMPROVE ECONOMY •Unemployment plays a major role in affecting GDP of a country .Therefore,  there is greater need to increase employment opportunities in the economy to attain higher GDP gro. •Economic policy has to be re- strategized to find potential drives of growth like , multi sector infrastructure projects,primary healthcare network , strengthening rural infrastructure,labour reforms etc. •Economy will be in a better position only when end consumers will spend more . •It is important to increase demand and increase purchasing power of consumers . •When per capital income increases ,nations productivity also increases and thus our economy. •Govt. Needs to create skill based education , especially for young talent. •Government should accelerate on disinvestment,which will generate revenue that govt can use to increase its expenditure. •Implementation of labour reforms to liberalise manufacturing industry. •Govt. Can increase private investment by starting projects like ...

ROLE OF TECHNOLOGY IN THE ECONOMY •It reduces the national cost of the production. •It establishes standards for quality . •It boost economy of nation. •It leads to increase in division of labour. •It offers specialisation of jobs within a business. •It uses natural resources efficiently and effectively. •It is because of technology that economies are increasing their total output,which leads to higher profit and development. •It allows trade to be spread not only in domestic areas but also international areas. •It encourages growth of new business . •Consumer get benefits from the creation of new products through advanced technology. •It leads to higher paying jobs. •It can save lot of time . •It can contribute to efficiency of business' output rate.

STAGNATION/RECESSION Stagnation is a macroeconomic phenomenon with Slow or zero growth in the economy.Whereas Recession refers to significant decline in economic activity and negative growth . Where there is stagnation ,there is high unemployment and involuntary employment. Whereas recession can be seen in production, employment or real income. It can both be short lived or long lasting depending on the situation of the economy.whereas it lasts more than a few months. It happens when total output is declining,zero or increasing slowly .whereas recession happens because of false business judgements which leads to business failures. It results in wage increase .whereas recession results in decline in level of employment.

Fiscal  policy   •It is the guiding force which helps the government to decide how much money it should spend to support economic activity and how much revenue it must earn from the system. •It helps in increasing the economic growth swiftly. •Through these policies government of a country controls flow of tax revenues and government expenditure. •It helps in elevating the rate of capital formation in public and private sector. •It helps in elevating savings rate. •It provides incentives to private sector to expand its business. •It helps in minimising the imbalance in dispersal of income and wealth. •It helps in managing government budget. •It helps during the period of recession and inflation. Monetary policy  •It is concerned with changing supply of my ney stock and rate of interest for the purpose of stabilising economy at employment level . •It helps in increasing money supply and lowering interest rate with the adoption of monetary tools during recession. •It s...

Imports exceeds exports-Impact When a country imports more than its exports , it will eventually lead the country towards trade deficit . Trade deficit is a situation , when the country's imports exceeds than the exports referring both to goods or physical product and services. •It will effect the job creation ability of the country. •It will have positive economic growth. •Consumer's are left with more Wealth to purchase overseas product. •It attracts foreign investors. •It will puts limitations on the production of domestic goods. •If trade deficit increases ,the GDP will decrease.. •It can make devaluation if currency impossible. •It leads to budget deficit which can impact all parts of civic life, including education , infrastructure also.

IMPACT OF ECONOMIC INFLATION •There will be higher profits as producers can sell products at higher rates. •There is overall increase in production of varieties of commodities. •There is more employment and better incomes in the hand of the people . •There will be good investment returns because investors receives incentives for investing . •Inequality in income distribution increases. Rich may become more richer and poor may become more poorer. •It leaves negative impact on exports income . •It will have negative effect on capital accumulation. •It can raise the cost of borrowing. •It will erodes purchasing power of currency. •It increases cost of living standard . •It leads to deceleration in economic growth. •It increases revenue of government .

DEMAND PULL INFLATION : Demand pull inflation is a phenomenon which happens when demand surpasses supply which further leads to higher prices as a result. When the aggregate demand in the economy strongly outweighs aggregate supply ,it causes rise in prices. It is upward pressure on prices. It leads to unemployment rate because it can cause inflation. It increases government spending but can lead to scarcity. Rise in exports can lead to undervaluation. COST PUSH INFLATION: Cost push inflation is a phenomenon which occurs when the overall prices increases due to increase in cost of wages and raw materials. Higher cost of production decreases aggregate supply in the economy. Demand for affected product must be constant during the production cost changes are occurring. Producers raise the prices to consumer to maintain profit levels. natural disaster can cause cost push inflation. Change in govt. Or regulation of govt can cause cost push inflation