economics for upsc ncert compilation

7/25/2019 Economics for UPSC ncert compilation

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ECONOMICS

For farmers the capital depends on the amount of surplus they

produced previous year.

HYV seeds vs Traditional seedsIrrigation vs Rain farmingGreen revolution North vs outhmall farm vs !arge farm"rganised vs #norganised employment!ending options for $griculture%&ect of Transportation on $gricultureHuman capital ' lia(ility vs resource )

.EMPLOYMENT :

Education and skill are the major determinants of the

earning of an indi!idual in the market"

The #ualit of $o$ulation de$ends u$on the literac rate%health of a $erson indicated & life e'$ectanc and skillformation ac#uired & the $eo$le"

(nem$loment is said to e'ist )hen $eo$le )ho are)illing to )ork at the going )ages cannot *nd jo&s

Those activities *hich contri(ute to the gross national product arecalled economic acti!ities"

$ll the $u&lic sector esta&lishments and those $ri!ate sectoresta&lishments *hich employ +, hired *or-ers or more arecalled formal sector esta(lishments and those *ho *or- in suchesta(lishments are formal sector *or-ers.


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In case of rural areas there is seasonal and disguisedunem$loment.

Seasonal unem$lomenthappens *hen people are not a(le to/nd 0o(s during some months of the year

Indisguised unem$loment people appear to (e employed .

#r(an areas have mostly educated unemployment.

1overty means living *ith sense of helplessness. $nti 1overtyshould not (e a(out a minimum su(sistence level of living rather

than a reasona(le level of living.

2omen elderly people and female infants are systematicallydenied e3ual access to resources availa(le to the family.

Therefore *omen children 'especially the girl child) and oldpeople are poorest of the poor.

+erala used human resource de!elo$ment to come out of

$o!ert%like)ise $unja& and harana used agriculture% TN, -P used P.S % /0 used land reforms"

C-(SES O1 PO2E3TY :

The lo* level of economic development under the 4ritish colonialadministration. The policies of the colonial government ruinedtraditional handicrafts and discouraged development of industriesli-e te5tiles. This resulted in less 0o( opportunities and lo* gro*thrate of incomes.

This *as accompanied (y a high gro*th rate of population.

2ith green revolution many opportunities arised out ofagriculture sector. 4ut the e&ects *ere limited to some parts ofIndia.


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The industries (oth in the pu(lic and the private sector didprovide some 0o(s. 4ut it *as no *here near to the demand andpeople in rural areas started to migrate to ur(an for small daily*or-s *hich lead to (irth of ur(an poverty.

The une3ual distri(ution of land and other resources.

-NTI PO2E3TY ME-S(3ES :

The current anti6poverty strategy of the government is (ased(roadly on t*o plan-s

'+) promotion of economic gro*th

'7) targeted anti6poverty programmes.

The higher gro*th rates have helped signi/cantly in the reductionof poverty. Therefore it is (ecoming clear that there is a stronglin- (et*een economic gro*th and poverty reduction. %conomicgro*th *idens opportunities and provides the resources neededto invest in human development. This also encourages people tosend their children including the girl child to schools in the hopeof getting (etter economic returns from investing in education.

Ho*ever the poor may not (e a(le to ta-e direct advantage fromthe opportunities created (y economic gro*th. 8oreover gro*thin the agriculture sector is much (elo* e5pectations. This has adirect (earing on poverty as a large num(er of poor people live invillages and are dependent on agriculture.

This clearly sho*s that economic gro*th is used lift the middleclass to rich class (ut not poor people from poverty . so govstarted antipoverty programmes.

Prime Minister 3o4gar Yo4ana 5PM3Y6 *as started in+99:.The aim of the programme is tocreate self6employmentopportunities foreducated unemployed youth in rural areasandsmall to*ns. They are helped insetting up small (usiness andindustries.


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3ural Em$loment 7eneration Programme 53E7P) *aslaunched in +99;.

The aim of the programme is to create self6employmentopportunities in rural areas and small to*ns.

S)arnajaanti 7ram S)aro4gar Yojana 5S7SY6*as launchedin +999.

The programme aims at (ringing the assisted poor families a(ovethe poverty line (y organising them into self help groups througha mi5 of (an- credit and government su(sidy. No* National Rural!ivelihoods 8ission 'NR!8).

#nder the Pradhan Mantri 7ramodaa Yo4ana 5PM7Y)

launched in 7,,, additional central assistance is given to statesfor (asic services such as primary health primary education ruralshelter rural drin-ing *ater and rural electri/cation.

-ntodaa -nna Yo4ana 5--Y) $$Y *as launched inFood security at the

individual household regional national and glo(al levels e5ists)hen all $eo$le% at all times% ha!e $hsical and economicaccess to su9cient% safe and nutritious foodto meet theirdietary needs and food preferences for an active and healthy life.?


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The most devastating famine that occurred in India *as the1-MINE O1 0EN7-L in ;


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+.$ long and healthy lifeA !ife e5pectancy at (irth

!ife %5pectancy Inde5 '!%I)

7. %ducation inde5A 8ean years of schooling Years that a person7; years6of6age or older has spent in school.

%5pected years of schooling Years that a ;6year6old child *ill spend in schools throughout his life.

%ducation Inde5 '%I)

7.+ 8ean Years of chooling Inde5 '8YI)

7.7 %5pected Years of chooling Inde5 '%YI)

:. $ decent standard of livingA GNI per capita '111 #D).

Income Inde5 'II)

Finally the H


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Collateral is an asset that the (orro*er uses as a guarantee toa lender until the loan is repaid.

TE3MS O1 C3E.IT :Interest rate collateral and documentationre3uirement and the mode of repayment. They may varydepending on the nature of the lender and the (orro*er.

Eheap and a&orda(le credit is crucial for the countryBsdevelopment.

7LO0-LIS-TION -N. IN.I-N ECONOMY

7lo&alisation is this $rocess of ra$id integration orinterconnection &et)een countries

Integration of $roduction andintegration of marketsis a-ey idea (ehind understanding the process of glo(ali=ation and itsimpact.

3a$idim$ro!ementin technologhas (een one ma0or factorthat has stimulated the glo(ali=ation process.

Trade*as the only main channel that connects very distantcountries.

Removing (arriers or restrictions set (y the government is *hat is-no*n as li&eralisation.

CONS(ME3 3I7>TS :

In India the consumer movement as a social force@originated*ith the necessity of protecting and promoting the interests ofconsumers against unethical and unfair trade practices.


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Rampant food shortages hoarding (lac- mar-eting adulterationof food and edi(le oil gave (irth to the consumer movement in anorganised form in the +9,s.

CONS(ME3 INTE3N-TION-L :

In +9; #N adopted the Guidelines for Eonsumer 1rotection. This*as a tool for nations to adopt measures to protect consumersand for consumer advocacy groups to press their governments todo so.

Eonsumers International has (ecome an um(rella (ody of 7,

organisations from over +,, countries

$ ma0or step ta-en in +9 (y the Indian government *as theenactment of the Consumer Protection -ct ;AB ' E"1R$).

IN.I-N ECONOMY :

%conomy *ith the private sector (eing encouraged to (e part ofthe plan e&ort.

The Industrial 1olicy ResolutionB of +9 and the


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Creation

4oth the forms of capital formation are outcomes of conscious

investment decisions. 4ut physical capital formation is mainly aneconomic and technical process. Human capital formation ispartly a social process and partly a conscious decision of thepossessor of the human capital.

2alue

1hysical capital is tangi(le and can (e easily sold in the mar-etli-e any other commodity. Human capital is intangi(leK it isendogenously (uilt in the (ody and mind of its o*ner. Human

capital is not sold in the mar-etK only the services of humancapital are sold and hence the necessity of the o*ner of thehuman capital to (e present in the place of production.

The physical capital is separa(le from its o*ner *hereas humancapital is insepara(le from its o*ner.

mo&ilit

1hysical capital is completely mo(ile (et*een countries e5cept forsome arti/cial trade restrictions. Human capital is not perfectly

mo(ile (et*een countries as movement is restricted (ynationality and culture. Therefore physical capital formation can(e (uilt even through imports *hereas human capital formationis to (e done through conscious policy formulation.

.e$reciation )ith time :

4oth depreciate (ut nature of depreciation di&ers .

Eontinuous use of machine leads to depreciation and change of

technology ma-es a machine o(solete. In the case of humancapital depreciation ta-es place *ith ageing (ut can (e reducedto a large e5tent through continuous investment in educationhealth etc.

Nature of &ene*tsA


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Human capital (ene/ts not only the o*ner (ut also the society ingeneral. This is called e5ternal (ene/t. $n educated person cane&ectively ta-e part in a democratic process and contri(ute to thesocio6economic progress of a nation. $ healthy person (y

maintaining personal hygiene and sanitation stops the spread ofcontagious diseases and epidemics.

Human capital creates (oth private and social (ene/ts *hereasphysical capital creates only private (ene/t. That is (ene/ts froma capital good Jo* to those *ho pay the price for the product andservices produced (y it"

the human ca$ital gro)th in de!elo$ing countries has&een faster &ut the gro)th of $er ca$ita real income hasnot &een that fast"

3(3-L .E2ELOPMENT:

O/ 3(3-L C3E.IT SYSTEM E2OL2E. IN IN.I-:

$t the time of independence moneylenders and traders e5ploitedsmall and marginal farmers and landless la(orers (y lending tothem on high interest rates and (y manipulating the accounts to-eep them in a de(t6trap.

$ ma0or change occurred after +99 *hen India adopted social

(an-ing and multiagency approach to ade3uately meet the needsof rural credit.

!ater the National 4an- for $griculture and Rural


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The Green Revolution *as a har(inger of ma0or changes in thecredit system as it led to the diversi/cation of the portfolio of ruralcredit to*ards production6 oriented lending.

Since some kind of collateral is re#uired% !ast $ro$ortion

of $oor rural households )ere automaticall out of thecredit net)ork"

$gricultural mar-eting is a process that involves the assem(lingstorage processing transportation pac-aging grading anddistri(ution of di&erent agricultural commodities across thecountry.


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7lo&al &urden of diseases% 70.A is an indicator of the num(erof people dying prematurely due to a particular disease as *ell asthe num(er of years spent (y them in a state of disa(ilityB o*ingto the disease.

In India more than half of G4< is accounted for (y communica(lediseases such as diarrhea malaria and tu(erculosis"

To provide (asic healthcare to all accessi(ility and a&orda(ilityneed to (e integrated in our (asic health infrastructure.

EN2I3ONMENT , S(ST-IN-0LE .E2ELOPMENT:

Glo(ali=ation promises higher economic gro*th the adverseconse3uences of the past development path on our environment

should (e remem(ered and consciously choose a path ofsustaina(le development.

%nvironment total planetary inheritance and the totality of allresources. It includes all the (iotic and a(iotic factors thatinJuence each other.

7LO0-L /-3MIN7:

#N held in Myoto apan in +99O resulted in an internationalagreement to /ght glo(al *arming *hich called for reductions inemissions of greenhouse gases (y industriali=ed nations. 'GHGAE"7 EH ": N")

OONE .EPLETION:


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"=one depletion refers to the phenomenon of reductions in theamount of o=one in the stratos$here"The pro(lem of o=onedepletion is caused (y high levels of chlorine and (rominecompounds in the stratosphere. The origins of these compounds

are chloroJuorocar(ons 'EFE) used as cooling su(stances in airconditioners and refrigerators or as aerosol propellants and(romoJuorocar(ons 'halons) used in /re e5tinguishers.

This led to the adoption of the Montreal Protocol(anning theuse of chloroJuorocar(on 'EFE) compounds as *ell as othero=one depleting chemicals such as car(on

tetrachloride trichloroethane 'also -no*n as methyl chloroform)and (romine compounds -no*n as halons"

The threat to IndiaBs environment poses a dichotomy' 7 mutuallyopposite events)

threat of poverty6induced environmental degradation

threat of pollution from aPuence and a rapidly gro*ingindustrial sector.

The per capita forestland in the country is only ,., hectareagainst the re3uirement of ,.O hectare to meet (asic needs.India supports appro5imately +

per cent of the *orldBs human and 7, per cent of livestoc-population on a mere 7.; per cent of the *orldBs geographicalarea

In order to address the *ater and air pollution the governmentset up the Central Pollution Control 0oard 5CPC06 in ;D


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comes under the po*ers and functions of the act. The originalname of E1E4 *as Eentral 4oard for the 1revention and Eontrol of1ollution. It *as changed to E1E4 on + $pril +9 through 2ater'1revention Q Eontrol) $mendment $ct +9 to promote

cleanliness of streams *ells.It serves as a /eld formation and also provides technical servicesto the 8inistry of %nvironment and Forests of the provisions of the%nvironment '1rotection) $ct +9

M-C3O ECONOMICS

8acroeconomics as a separate (ranch of economics emergedafter the 4ritish economistohn Manard +enes pu(lished hiscele(rated (oo- The 7eneral Theor of Em$loment%Interest and Monein +9:.

The dominant thin-ing in economics (efore Meynes *as that allthe la(orers *ho are ready to *or- *ill /nd employment and allthe factories *ill (e *or-ing at their full capacity. This school ofthought is -no*n as the classical tradition.

Ho*ever the 7reat .e$ression of +979 and the su(se3uentyears sa* the output and employment levels in the countries of%urope and North $merica fall (y huge amounts.

unem$loment rate may (e de/ned as the num(er of people*ho are not *or-ing and are loo-ing for 0o(s divided (y the totalnum(er of people *ho are *or-ing or loo-ing for 0o(s.

$dam mith named his most inJuential *or- An Enquiry intothe Nature and Cause of the Wealth of Nations.

2hat generates the economic *ealth of a nation 2hat ma-escountries rich or poor

The economic *ealth or *ell6(eing of a country thus does notnecessarily depend on the mere possession of resourcesK thepoint is ho* these resources are used ingenerating a Fo)


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of $roductionand ho* as a conse3uence income and *ealthare generated from that process.

There are t*o types of Final goodsA

Consumer goods: goods *hich *e consume 'foodclothing) andservices.

Ca$ital goodsA they ena(le the process of production and theyundergo *ear and tear. %@ A machines

The consumer dura&lesare (oth goods *e consume anddura(le. %@ A tv sets automo(iles.

There are some goods *hich are used as ra* materials or inputsfor production of other commodities.those are called

INTE3ME.I-TE 7OO.S"

1lo)sare de/ned over a period of time. Stocksare de/ned at aparticular point of time"

Net Investment S Gross investment


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To get NN1 at the real production cost ' factor cost ) *e need toremo!e indirect ta'es and add su&sidiesto NN1 8.1. ThisNN1 F.1 is the National Income'NI).

Thus NN1 at factor cost National Income 'NI ) NN1 at mar-et

prices 'Indirect ta5es u(sidies).

Personal Income 5PI) NI #ndistri(uted pro/ts Net interestpayments made (y households Eorporate ta5 U Transferpayments to the households from the government and /rms.

Increase in 7.P doesn@t mean increase in $roduction "itmay (e primarily dueto increase in P3ICES5nominal 7.P6. othe comparision (et*een G


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:. The *eights are constant in E1I (ut they di&er according toproduction level of each good in GO(L. NOT 0E ME-S(3E O1 /EL1-3E")h G

+. NON (NI1O3M .IST3I0(TION O1 73O/T> :Therise of G-N7ES :8any activities in an economy are not evaluated inmonetary terms. %@ A the domestic services *omenperform at home 4arter e5changes. 4ut since money is not(eing used here these e5changes are not registered as partof economic activity.this is underestimation of G


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87 S 8+ U avings deposits *ith 1ost "Lce savings (an-s

8: S 8+ U Net time deposits of commercial (an-s

8 S 8: U Total deposits *ith 1ost "Lce savings organisations

'e5cluding National avings Eerti/cates)' least li#uid)*here E# is currency 'notes plus coins) held (y the pu(lic and


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R4I uses various policy instruments to (ring forth a healthy rdr incommercial (an-s.

Cash 3eser!e 3atio *hich speci/es the fraction of theirdeposits that (an-s must -eep *ith R4I. Statutor Li#uidit

3atio *hich re3uires the (an-s to maintain a given fraction oftheir total demand and /5ed deposits in the form of speci/edli3uid assets.

$part from these ratios R4I uses a certain interest rate called the0ank 3ate to control the value of rdr. Eommercial (an-s can(orro* money from R4I at the (an- rate *hen they run short ofreserves. $ high (an- rate ma-es such (orro*ing from R4I costlyand in e&ect encourages the commercial (an-s to maintain ahealthy rdr.

The di&erence (et*een the lending rateand &orro)ing rate iscalledSP3E-. "It indicates pro/t to (an-s.

The total lia(ility of the monetary authority of the country R4I iscalled the monetar &ase or high $o)ered mone.

It consists of currency 'notes and coins in circulation *ith thepu(lic and vault cash of commercial (an-s) and deposits held (ythe Government of India and commercial (an-s *ith R4I.

mone multi$lier as the ratio of the stoc- of money to the stoc-of high po*ered money in aneconomy 'al*ays X+). It means thetotal amount of money stoc- in

the economy is much greater than the volume of high po*eredmoney.

lender of last resort.

Financing of (udget de/cits (y the governments is called .e*cit1inancing through Central 0ank 0orro)ing.


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MONET-3Y POLICYINST3(MENTS A ' to control the moneysupply in the economy)A

1. O$en Market O$erations:R4I purchases 'or sells) government securities to the general

pu(lic in a (id to increase 'or decrease) the stoc- of highpo*ered money in the economy.

2. #sing the 0-N+ 3-TE SL3 C33according to situation.

R4I *ill underta-e an open mar-et sale of governmentsecurities of an amount e3ual to the amount of foreigne5change inJo* in the economy there(y -eeping the stoc- ofhigh po*ered money and total money supply unchanged. Thus

it sterilises the economy against adverse e5ternal shoc-s. Thisoperation of R4I is -no*n asSterilisation"

marginal $ro$ensit to sa!e 'm$s). It gives us the ratio oftotal additional planned savings in an economy to the totaladditional income of the economy.

ince consumption is the complement of savings 'additionalincome of the economy is either put into additional savings orused for e5tra consumption (y the people) if *e su(tract the mpsfrom + *e get the marginal $ro$ensit to consume 'm$c6

The rate of increase in e5 ante consumption due to a unitincrement in income is called marginal propensity to consume.

2hen at a particular price level aggregate demand for /nalgoods S aggregate supply of /nal goods the /nal goods orproduct mar-et reaches its e#uili&rium.

$ggregate demand for /nal goods consists of e5 anteconsumption e5 ante investment government spending etc.


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For simplicity *e assume a constant /nal goods price andconstant rate of interest over short run to determine the level ofaggregate demand for /nal goods in the economy. 2e alsoassume that the aggregate supply is perfectly elastic at this price.

#nder such circumstances aggregate output is determined solely(y the level of aggregate demand. This is -no*n as e8ecti!edemand $rinci$le.

$n increase 'decrease) in autonomous spending causesaggregate output of /nal goods to increase 'decrease) (y a largeramount through the multiplier process.

7O2E3NMENT 0(.7ET :-3 J K -nnual *nancial statement " it consists of 7 partsR%V%N#% 4#


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The redistri(ution o(0ective is sought to (e achieved throughprogressive income ta5ation in *hich higher the incomehigher is the ta5 rate

NonKta' re!enueof the central government mainly consistsof interest receipts on account of loans (y the centralgovernment dividends and pro/ts on investments made (y thegovernment fees and other receipts for services rendered (y thegovernment. Cash grantsKinKaid from foreign countriesandinternational organisationsare also included.

ervice Ta5 a ta5 on services li-e telephone services stoc- (ro-ers

in ;;


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Interest payments on mar-et loans e5ternal loans and fromvarious reserve funds X defence X su(sidies.

3e!enue de*citS Revenue e5penditure Revenue receipts.

The revenue de/cit includes only such transactions that a&ect thecurrent income and e5penditure of the government.

1iscal .e*cit: Fiscal de/cit is the di&erence (et*een thegovernmentBs total e5penditure and its total receipts e'cluding&orro)ing"

Gross /scal de/cit S Total e5penditure 'Revenue receipts U Non6de(t creating capital receipts)

The /scal de/cit *ill (e /nanced through (orro*ing. o in/nancing terms Gross /scal de/cit S Net (orro*ing at home U4orro*ing from R4I U 4orro*ing from a(road

Net (orro*ing at home includes that directly (orro*ed from thepu(lic through de(t instruments 'for e5ample the various smallsavings schemes) and indirectly from commercial (an-s throughtatutory !i3uidity Ratio '!R).

'Fiscal


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Net interest lia(ilities consist of interest payments minus interestreceipts (y the government on net domestic lending.

The Ca$ital 0udgetis an account of the assets as *ell aslia(ilities of the central government *hich ta-es intoconsideration changes in capital.

It consists of capital receipts and capital e5penditure of thegovernment.

Ca$ital 3ecei$ts:

$ll those receipts of the government *hich create lia(ility orreduce /nancial assets are termed as capital receipts. The main

items of capital receipts are loans raised (y the government fromthe pu(lic *hich are called mar-et (orro*ings (orro*ing (y thegovernment from the Reserve 4an- and commercial (an-s.through the sale of treasury (ills loans received from foreigngovernments and international organisations and recoveries ofloans granted (y the central government. "ther items includesmall savings '1ost6"Lce avings $ccounts National avingsEerti/cates etc) provident funds and net receipts o(tained fromthe sale of shares in 1u(lic ector #nderta-ings '1#s).

Ca$ital E'$enditure:

There are e5penditures of the government *hich result in creationof physical or /nancial assets or reduction in /nancial lia(ilities.

This includes e5penditure on the ac3uisition of land (uildingmachinery e3uipment investment in shares and loans andadvances (y the central government to state and union territorygovernments 1#s and other parties.

Eapital e5penditure is also categorised as plan and non6plan inthe (udget documents. 1lan capital e5penditure li-e its revenuecounterpart relates to central plan and central assistance forstate and union territory plans. Nonplancapital e5penditure coversvarious general social and economic services provided (y thegovernment.


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$long *ith the (udget : policy statements are also presented in1arliament.

The MediumKterm 1iscal Polic Statementsets a three6yearrolling target for speci/c /scal indicators and e5amines *hetherrevenue e5penditure can (e /nanced through revenue receipts ona sustaina(le (asis and ho* productively capital receiptsincluding mar-et (orro*ings are (eing utilised.

The 1iscal Polic Strateg Statementsets the priorities of thegovernment in the /scal area e5amining current policies and

0ustifying any deviation in important /scal measures.

The Macroeconomic 1rame)ork Statementassesses theprospects of the economy *ith respect to the G


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C(33ENT -CCO(NT : The current account records e5portsand imports in goods and services and transfer payments.

Trade (alance U Net transfers ' forfree li-e remittancesgiftsgrants )U trade in services

C-PIT-L -CCO(NT : The capital account records allinternational purchases and sales of assets such as moneystoc-s (onds.

The third component of 4"1 is E33O3S and OMISSIONSdue toour ina(ility to record all international transactions accuratley.

For three consecutive years from JKJ% JJK= to J=K


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The real e5change rate is often ta-en as a measure of a countryBsinternational com$etiti!eness"

*e may *ant to see the movement of the domestic currencyrelative to all other currencies in a single num(er rather than (y

loo-ing at (ilateral rates. That is *e *ould *ant an inde5 for thee5change rate against other currencies.

Nominal E8ecti!e E'change 3ate 'N%%R) *hich is amultilateral rate representing the price of a representative (as-etof foreign currencies each *eighted (y its importance to thedomestic country in international trade.

The 3eal E8ecti!e E'change 3ate 'R%%R) is calculated as the*eighted average of thereal e5change rates of all its trade

partners the *eights (eing the shares of the

respective countries in its foreign trade. It is interpreted as the3uantity of domestic goods re3uired to purchase one unit of agiven (as-et of foreign goods.

In a system of Fe'i&le e'change rates 'also -no*n as Foatinge'change rates) or CLE-N 1LO-TIN7 the e5change rate isdetermined (y the forces of market demand and su$$l. In acompletely Je5i(le system the central (an-s do not intervene inthe foreign e5change mar-et. ' so oLcial reserve transactions is,).

$nother factor that is important in determining e5change ratemovements is the interest rate di8erentiali.e. the di&erence(et*een interest rates (et*een countries"

$ rise in the interest rates at home often leads to an appreciationof the domestic currency.

$ccording to the 111 theory di&erences in the domestic inJationand foreign inJation are a ma0or cause of ad0ustment in e5changerates.


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-utonomous change $ change in the values of varia(les in amacroeconomic model caused (y a factor e5ogenous to themodel.

-utonomous e'$enditure multi$lierThe ratio of increase 'or

decrease) in aggregate output or income to an increase 'ordecrease) in autonomous spending.

0alance of $aments $ set of accounts that summarise acountryBs transactions *ith the rest of the *orld.

0alanced &udget $ (udget in *hich ta5es are e3ual togovernment spending.

0alanced &udget multi$lierThe change in e3uili(rium output

that results from a unit increase or decrease in (oth ta5es andgovernment spending.

0ank rateThe rate of interest paya(le (y commercial (an-s toR4I if they (orro* money from the latter in case of a shortage ofreserves.

0arter e'change %5change of commodities *ithout themediation of money.

0ase earThe year *hose prices are used to calculate the real

G


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Ca$ital goods Goods *hich are (ought not for meetingimmediate need of the consumer (ut for producing other goods.

Ca$italist countr or econom $ country in *hich most of theproduction is carried out (y capitalist /rms.

Ca$italist *rmsThese are /rms *ith the follo*ing features 'a)private o*nership of means of production '() production for themar-et 'c) sale and purchase of la(our at a price *hich is calledthe *age rate 'd) continuous accumulation of capital.

Cash 3eser!e 3atio 5C336The fraction of their deposits *hichthe commercial (an-s are re3uired to -eep *ith R4I.

Circular Fo) of incomeThe concept that the aggregate value

of goods and services produced in an economy is going around ina circular *ay. %ither as factor

payments or as e5penditures on goods and services or as thevalue of aggregate production.

Consumer dura&les Eonsumption goods *hich do not gete5hausted immediately (ut last over a period of time areconsumer dura(les.

Consumer Price Inde' 5CPI6 1ercentage change in the

*eighted average price level. 2e ta-e the prices of a given (as-etof consumption goods.

Consum$tion goods Goods *hich are consumed (y the ultimateconsumers or meet the immediate need of the consumer arecalled consumption goods. It may include services as *ell.

Cor$orate ta'Ta5es imposed on the income made (y thecorporations 'or private sector /rms).

Currenc de$osit ratioThe ratio of money held (y the pu(lic incurrency to that held as deposits in commercial (an-s.

.e*cit *nancing through central &ank &orro)ing Financingof (udget de/cit (y the government through (orro*ing moneyfrom the central (an-. !eads to increase in money supply in aneconomy and may result in inJation.


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E'ternal sector It refers to the economic transaction of thedomestic country *ith the rest of the *orld.

E'ternalitiesThose (ene/ts or harms accruing to anotherperson /rm or any other entity *hich occur (ecause some

person /rm or any other entity may (e involved in an economicactivity. If someone is causing (ene/ts or good e5ternality toanother the latter does not pay the former. If someone isinJicting harm or (ad e5ternality to another the former does notcompensate the latter.

1iat mone 8oney *ith no intrinsic value.

1inal goodsThose goods *hich do not undergo any furthertransformation in the production process.

1irms %conomic units *hich carry out production of goods andservices and employ factors of production.

1iscal $olicThe policy of the government regarding the level ofgovernment spending and transfers and the ta5 structure.

1i'ed e'change rate $n e5change rate (et*een the currenciesof t*o or more countries that is /5ed at some level and ad0ustedonly infre3uently.

1le'i&leFoating e'change rate $n e5change rate determined(y the forces of demand and supply in the foreign e5changemar-et *ithout central (an- intervention.

1lo)s Varia(les *hich are de/ned over a period of time.

1oreign e'change Foreign currency all currencies other thanthe domestic currency of a given country.

1oreign e'change reser!es Foreign assets held (y the central

(an- of the country.1our factors of $roduction !and !a(our Eapital and%ntrepreneurship. Together these help in the production of goodsand services.

7.P .eFator Ratio of nominal to real G


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Income method of calculating national income 8ethod ofcalculating national income (y measuring the aggregate value of/nal factor payments made 'S income) in an economy over aperiod of time.

Interest 1ayment for services *hich are provided (y capital.

Intermediate goods Goods *hich are used up during theprocess of production of other goods.

In!entoriesThe unsold goods unused ra* materials or semi6/nished goods *hich a /rm carries from a year to the ne5t.

ohn Manard +enes 5AA= ;


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Medium of e'changeThe principal function of money forfacilitating commodity e5changes.

Mone multi$lierThe ratio of total money supply to the stoc- ofhigh po*ered money in an economy.

Narro) mone Eurrency notes coins and demand deposits held(y the pu(lic in commercial (an-s.

National dis$osa&le income Net National 1roduct at mar-etprices U "ther Eurrent Transfers from the rest of the 2orld.

Net .omestic Product 5N.P6 $ggregate value of goods andservices produced *ithin the domestic territory of a country *hichdoes not include the depreciation of capital stoc-.

Net interest $aments made & households Interestpayment made (y the households to the /rms interestpayments received (y the households.

Net in!estment $ddition to capital stoc-K unli-e grossinvestment it does not include the replacement for the depletionof capital stoc-.

Net National Product 5NNP6 5at market $rice6 GN1 depreciation.

NNP 5at factor cost6 or National Income 5NI6 NN1 at mar-etprice 'Indirect ta5es u(sidies).

Nominal e'change rateThe num(er of units of domesticcurrency one must give up to get an unit of foreign currencyK theprice of foreign currency in terms of domestic currency.

Nominal 57.P6 G


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Parado' of thrift $s people (ecome more thrifty they end upsaving less or same as (efore in aggregate.

Parametric shift hift of a graph due to a change in the value ofa parameter.

Personal .is$osa&le Income 5P.I6 1I 1ersonal ta5 payments Non6ta5 payments.

Personal Income 5PI6 NI #ndistri(uted pro/ts Net interestpayments made (y households Eorporate ta5 U Transferpayments to the households from the government and /rms.

Personal ta' $amentsTa5es *hich are imposed on individualssuch as income ta5.

Planned change in in!entories Ehange in the stoc- ofinventories *hich has occurred in a planned *ay.

Present !alue 5of a &ond6That amount of money *hich if -epttoday in an interest earning pro0ect *ould generate the sameincome as the sum promised (y a (ond

over its lifetime.

Pri!ate income Factor income from net domestic product

accruing to the private sector U National de(t interest U Netfactor income from a(road U Eurrent transfers from governmentU "ther net transfers from the rest of the *orld.

Product method of calculating national income 8ethod ofcalculating the national income (y measuring the aggregate valueof production ta-ing place in an economy over a period of time.

Pro*t 1ayment for the services *hich are provided (yentrepreneurship.

Pu&lic good Goods or services that are collectively consumedK itis not possi(le to e5clude anyone from en0oying their (ene/ts andone personBs consumption does

not reduce that availa(le to others.


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Purchasing $o)er $arit $ theory of international e5change*hich holds that the price of similar goods in di&erent countries isthe same.

3eal e'change rateThe relative price of foreign goods in terms

of domestic goods.

3eal 7.P G


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Store of !alue 2ealth can (e stored in the form of money forfuture use. This function of money is referred to as store of value.

Transaction demand


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economics for upsc ncert compilation

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