This document introduces macroeconomics concepts for special needs children. It defines macroeconomics and differentiates it from microeconomics. It then discusses key macroeconomic concepts needed to understand national income, including final goods, intermediate goods, consumer goods, capital goods, and the circular flow of income. The next chapter will cover calculating national income and related aggregates like GDP, GNP, personal income, and their limitations as welfare indicators.
This document provides an introduction to microeconomics concepts. It defines microeconomics as dealing with the behavior and decision-making of small units like individuals and firms. The key concepts discussed include: scarcity and opportunity cost and how they relate to the production possibilities curve; the factors of production and their productivity; different economic systems and the basic questions they address; and supply and demand as determinants of price and resource allocation.
1. The document discusses microeconomics and macroeconomics. Microeconomics examines individual units like households and firms, while macroeconomics examines aggregates like national income and output.
2. It provides definitions and explanations of microeconomics and macroeconomics. Microeconomics is concerned with prices, allocation of resources, and economic efficiency at an individual level. Macroeconomics analyzes economy-wide issues like unemployment, inflation, and economic growth.
3. While micro and macroeconomics analyze different levels, they are interdependent and complementary in understanding how economies function. Both approaches are needed for comprehensive economic analysis.
This document defines basic economic terms and concepts. It discusses that goods can be tangible, like materials, or intangible, like services. It also defines different types of goods like consumer goods, capital goods, luxury goods, and free goods. The four factors of production are land, labor, capital, and entrepreneurship. Land includes natural resources. Labor represents human capital. Capital includes monetary and physical resources. Entrepreneurs combine the factors. The three main economic systems are the traditional economy, command economy, and market economy. The production possibilities frontier illustrates the key economic problem of scarcity and tradeoffs in production.
This document provides an introduction to microeconomics and the basic economic problem of scarcity. It discusses how economics studies decision-making under scarcity and uncertainty. Microeconomics examines individual consumers, firms, and markets. The document also outlines key microeconomic concepts like opportunity cost, factors of production, and different types of economies. It explains how free markets can allocate resources efficiently but also the role of the state in mixed market economies.
Microeconomics analyzes individual markets, industries and decision makers, while macroeconomics analyzes the economy as a whole including aggregate supply and demand, output and prices. Microeconomics uses a "slicing" approach and focuses on specific industries or firms, adopting realistic assumptions. Macroeconomics uses a "lump-sum" approach, focusing on broader concepts like employment, GDP and inflation across entire markets and economies. It relies on more aggregate and simplified assumptions. Both are important tools used in policymaking and analysis.
1. The document defines and explains macroeconomics and its importance. Macroeconomics examines the overall economy and economic aggregates, rather than individual units.
2. It addresses key macroeconomic issues like determining income, employment, price levels, economic growth, business cycles, international trade, and unemployment.
3. Macroeconomics is important for formulating policies around issues like inflation, growth, and fiscal and monetary policy. However, it also has limitations like ignoring individual welfare.
The document discusses health expenditure per capita in Nepal. It states that health expenditure per capita in Nepal was $39.03 in 2013 according to the World Bank. Total health expenditure includes public and private spending on health services as a ratio of total population.
This document provides an introduction to microeconomics concepts. It defines microeconomics as dealing with the behavior and decision-making of small units like individuals and firms. The key concepts discussed include: scarcity and opportunity cost and how they relate to the production possibilities curve; the factors of production and their productivity; different economic systems and the basic questions they address; and supply and demand as determinants of price and resource allocation.
1. The document discusses microeconomics and macroeconomics. Microeconomics examines individual units like households and firms, while macroeconomics examines aggregates like national income and output.
2. It provides definitions and explanations of microeconomics and macroeconomics. Microeconomics is concerned with prices, allocation of resources, and economic efficiency at an individual level. Macroeconomics analyzes economy-wide issues like unemployment, inflation, and economic growth.
3. While micro and macroeconomics analyze different levels, they are interdependent and complementary in understanding how economies function. Both approaches are needed for comprehensive economic analysis.
This document defines basic economic terms and concepts. It discusses that goods can be tangible, like materials, or intangible, like services. It also defines different types of goods like consumer goods, capital goods, luxury goods, and free goods. The four factors of production are land, labor, capital, and entrepreneurship. Land includes natural resources. Labor represents human capital. Capital includes monetary and physical resources. Entrepreneurs combine the factors. The three main economic systems are the traditional economy, command economy, and market economy. The production possibilities frontier illustrates the key economic problem of scarcity and tradeoffs in production.
This document provides an introduction to microeconomics and the basic economic problem of scarcity. It discusses how economics studies decision-making under scarcity and uncertainty. Microeconomics examines individual consumers, firms, and markets. The document also outlines key microeconomic concepts like opportunity cost, factors of production, and different types of economies. It explains how free markets can allocate resources efficiently but also the role of the state in mixed market economies.
Microeconomics analyzes individual markets, industries and decision makers, while macroeconomics analyzes the economy as a whole including aggregate supply and demand, output and prices. Microeconomics uses a "slicing" approach and focuses on specific industries or firms, adopting realistic assumptions. Macroeconomics uses a "lump-sum" approach, focusing on broader concepts like employment, GDP and inflation across entire markets and economies. It relies on more aggregate and simplified assumptions. Both are important tools used in policymaking and analysis.
1. The document defines and explains macroeconomics and its importance. Macroeconomics examines the overall economy and economic aggregates, rather than individual units.
2. It addresses key macroeconomic issues like determining income, employment, price levels, economic growth, business cycles, international trade, and unemployment.
3. Macroeconomics is important for formulating policies around issues like inflation, growth, and fiscal and monetary policy. However, it also has limitations like ignoring individual welfare.
The document discusses health expenditure per capita in Nepal. It states that health expenditure per capita in Nepal was $39.03 in 2013 according to the World Bank. Total health expenditure includes public and private spending on health services as a ratio of total population.
This document provides an introduction to macroeconomics and key concepts like GDP (gross domestic product) used to measure economic growth. It defines macroeconomics as dealing with the performance and decision-making of an entire economy rather than individual markets. GDP is introduced as the market value of all final goods and services produced within a country in a year, though it has limitations in accuracy since it does not include all economic activity and illegal/home production. Other measures like per capita GDP, purchasing power parity, and real growth rates are also discussed to provide additional ways to analyze and compare economic growth between countries.
This document provides an overview of the Advanced Bank Management syllabus from the CAIIB exam. It covers key topics like economics, microeconomics, macroeconomics, types of economies, supply and demand, money supply and inflation, theories of interest, business cycles, and sectors of the Indian economy. The document is compiled by K. Adi Swarup Patnaik and provides important points on each topic in the syllabus.
This document provides an overview of key concepts from the Advanced Bank Management exam syllabus, including:
1) It outlines the major topics covered in the economic analysis module such as fundamentals of microeconomics, macroeconomics, and different types of economies.
2) It also summarizes concepts related to supply and demand like the demand curve, factors influencing demand, the supply curve, and market equilibrium.
3) Finally, it covers money supply, inflation, and different price indexes used to measure inflation in India such as the wholesale price index and consumer price index.
The document discusses concepts related to demand including the law of demand, determinants of demand, and elasticity of demand.
1) The law of demand states that other things being equal, the quantity demanded of a good decreases when its price rises, and increases when its price falls, resulting in an inverse relationship between price and quantity demanded.
2) Demand is influenced by various determinants including the price of the good, prices of related goods, income, tastes and preferences, population size, and income distribution.
3) Elasticity of demand is a concept that measures the responsiveness of quantity demanded to changes in various factors like price. It indicates how flexible or inflexible demand is in response
Chapter 1 introduction to micro & macroeconomics 1Deden As-Syafei
This document provides an introduction to economics, including key definitions and concepts. It discusses that economics involves the study of how scarce resources are used to satisfy unlimited wants. It defines different types of goods such as economic goods, free goods, public goods, and private goods. It also explains the economic concepts of scarcity, choice, opportunity cost, and uses a production possibilities curve model to illustrate scarcity and tradeoffs between producing different goods.
This is a presentation I made for my Applied Economics class Grade 12-ABM. This discusses about the basic economic problems of the country.
Credits go to the sources of my materials and pictures.
This document provides an overview and definitions of key macroeconomic variables including GDP, inflation, and unemployment. It discusses how GDP is calculated and can be interpreted as total output, income, or spending in an economy. Real GDP is used to measure changes in economic activity by removing the impact of inflation. The Consumer Price Index is used to calculate inflation rates by measuring the change in prices of goods and services purchased by a typical family. Unemployment rates measure the percentage of the civilian labor force that is unable to find work.
The document discusses several key concepts in economics including:
1. Microeconomics which studies individual economic units like households and firms.
2. Macroeconomics which studies aggregates and looks at the overall economy.
3. Other branches of economics including international economics, public finance, development economics, and more.
4. Key indicators used to measure economic growth including national income, balance of payments, foreign exchange reserves, and inflation.
5. Concepts related to calculating national income such as GDP, GNP, NNP, personal income, disposable income, and per capita income.
The circular flow diagram shows the flow of money between households and firms through input and output markets. Firms purchase inputs from households and sell outputs to households. Households purchase goods and services from firms using income received from supplying inputs.
Elasticity measures the responsiveness of quantity demanded or supplied to a change in its price. Elastic demand means quantity demanded changes proportionally more than a price change. Inelastic demand means quantity demanded changes less than proportionally to a price change.
Consumer choice is based on utility maximization subject to a budget constraint. Indifference curves illustrate combinations of goods that provide equal utility. Utility maximizes where the highest indifference curve is tangent to the budget constraint.
The document discusses consumption, savings, and the relationship between the two. It defines consumption as household expenditures on goods and services, and savings as disposable income not spent on consumption. It then explains that as income rises, both consumption and savings increase, but consumption increases by a smaller amount. The marginal propensity to consume captures how consumption changes with income, while the marginal propensity to save shows how savings change with income.
The document is an acknowledgement and presentation of a project report on trends in macroeconomic variables for Pakistan by a group of students. It thanks Allah, their teachers including Sir. Badarudin for their guidance. It introduces the group members and acknowledges help from others in completing the project.
This document discusses international trade and government policies around trade. It defines key terms like exports, imports, and comparative advantage. Countries will export goods they have a comparative advantage in producing and import goods they don't. The document outlines arguments for free trade, like increased specialization and efficiency, and more goods at lower prices. It also discusses protectionist views in favor of restricting trade, using policies like tariffs, quotas, and embargoes to protect domestic industries. International agreements and organizations that aim to facilitate trade are also covered.
This document provides an introduction to a macroeconomics module taught at the Foreign Trade University in Vietnam. It outlines the module context, aims, objectives, learning outcomes, teaching methods, and assessment. The module is designed to provide undergraduate students with an understanding of important macroeconomic factors and variables. It will analyze how macroeconomic variables interact in the economy and how economic theories can be used to understand real-world events. Students will learn about macroeconomic policies and different cases of using policies to develop economies. The module will be taught through lectures, discussions, and student assignments and presentations. Students will be assessed based on a written assignment, final exam, and class participation.
Here are three questions related to the material:
1. Why is GDP considered a better measure of economic well-being than GNP? GDP captures total production that occurs within a country's borders, including production by foreign-owned firms, while GNP captures production by citizens of that country wherever it occurs. GDP is therefore a better reflection of the total output and economic activity in a country.
2. What are some limitations of using GDP as a measure of economic well-being? While GDP is a useful measure, it does not capture many factors that contribute to quality of life and well-being, such as environmental quality, leisure time, inequality, health, education levels, etc. GDP also does not distinguish between beneficial and harmful
This document provides an overview of aggregate demand, including its basic concept, determinants, components, and relationship to aggregate supply. It defines aggregate demand as the total quantity of goods and services demanded in an economy at a given price level. The four main components that make up aggregate demand are consumption, investment, government spending, and net exports. Each component is affected by various economic factors, such as consumer confidence, interest rates, fiscal policy, and exchange rates. The document also discusses how aggregate demand curves can be used to model the aggregate demand-aggregate supply relationship in an economy.
Chapter 1 - basic concepts about macroeconomics for BBAginish9841502661
This chapter introduces macroeconomics and important macroeconomic concepts. It discusses what macroeconomists study, including issues like inflation, unemployment, recessions, government budgets, trade balances, and economic growth. It introduces tools and concepts used in macroeconomic analysis, including aggregate supply and demand, GDP, unemployment, inflation, and exchange rates. It explains why macroeconomics is important by outlining how the macroeconomy impacts society's well-being. Finally, it provides an overview of basic macroeconomic models and concepts like stocks and flows, production possibility frontiers, and the differences between endogenous and exogenous variables.
AS Economics Revision - Microeconomics (F581)Tom Simms
Revision for key topics for the OCR A Level/AS Level Economics module F581. May also be useful for other exam boards (WJEC/AQA). Covers basic issues relating to microeconomics.
This document provides an introduction to economics. It defines key economic concepts like scarcity, resources, production, consumption, and capital formation. It explains that economics studies how societies allocate their limited resources. Microeconomics focuses on individual units while macroeconomics looks at the overall economy. The central problems that economies face are what and how to produce goods and services, and how to distribute them. Production possibility frontiers are used to show production tradeoffs and opportunity costs between two goods with limited resources. Marginal rates of transformation represent the tradeoff between goods on the production possibilities curve.
The document outlines the 3 basic economic problems: what to produce and in what quantities, how to produce goods, and for whom to produce goods. It discusses each problem in more detail. For the first problem, it notes that production depends on a society's priorities and preferences, and that choosing consumer or capital goods now impacts the future. For the second problem, it states production depends on available resources and the type/quantity of goods. For the third problem, it explains that income distribution determines who can buy what goods.
Concept of macro economics & national incomeImran Khan
Macroeconomics studies economic issues at the level of the overall economy. It examines questions like employment levels, economic growth, and price levels. It also looks at how governments can improve the state of the economy. National income accounting is an important concept in macroeconomics. There are various measures of national income that differ based on whether they include factors like taxes, subsidies, depreciation, and the domestic versus national perspective.
National Income is one of the basic concept in Economics and it's base is Circular Flow of Income. This chapter is based upon ISC Economics. I hope it will be useful. I tried animations for the circular flow...Enjoy it...
National Income and Circular Flow of IncomeManish Purani
1. The document discusses national income, which is defined as the value of all final goods and services produced by the normal residents of a country in a year.
2. It explains the concepts of the circular flow of income, which depicts the interdependence between the production, income, and expenditure in an economy. Money and real flows circulate between the household, business, government, and foreign sectors.
3. The document also outlines some key characteristics of national income, such as it being a flow concept measured over a period of time, and it excluding intermediate goods and pure exchange transactions.
This document provides an introduction to macroeconomics and key concepts like GDP (gross domestic product) used to measure economic growth. It defines macroeconomics as dealing with the performance and decision-making of an entire economy rather than individual markets. GDP is introduced as the market value of all final goods and services produced within a country in a year, though it has limitations in accuracy since it does not include all economic activity and illegal/home production. Other measures like per capita GDP, purchasing power parity, and real growth rates are also discussed to provide additional ways to analyze and compare economic growth between countries.
This document provides an overview of the Advanced Bank Management syllabus from the CAIIB exam. It covers key topics like economics, microeconomics, macroeconomics, types of economies, supply and demand, money supply and inflation, theories of interest, business cycles, and sectors of the Indian economy. The document is compiled by K. Adi Swarup Patnaik and provides important points on each topic in the syllabus.
This document provides an overview of key concepts from the Advanced Bank Management exam syllabus, including:
1) It outlines the major topics covered in the economic analysis module such as fundamentals of microeconomics, macroeconomics, and different types of economies.
2) It also summarizes concepts related to supply and demand like the demand curve, factors influencing demand, the supply curve, and market equilibrium.
3) Finally, it covers money supply, inflation, and different price indexes used to measure inflation in India such as the wholesale price index and consumer price index.
The document discusses concepts related to demand including the law of demand, determinants of demand, and elasticity of demand.
1) The law of demand states that other things being equal, the quantity demanded of a good decreases when its price rises, and increases when its price falls, resulting in an inverse relationship between price and quantity demanded.
2) Demand is influenced by various determinants including the price of the good, prices of related goods, income, tastes and preferences, population size, and income distribution.
3) Elasticity of demand is a concept that measures the responsiveness of quantity demanded to changes in various factors like price. It indicates how flexible or inflexible demand is in response
Chapter 1 introduction to micro & macroeconomics 1Deden As-Syafei
This document provides an introduction to economics, including key definitions and concepts. It discusses that economics involves the study of how scarce resources are used to satisfy unlimited wants. It defines different types of goods such as economic goods, free goods, public goods, and private goods. It also explains the economic concepts of scarcity, choice, opportunity cost, and uses a production possibilities curve model to illustrate scarcity and tradeoffs between producing different goods.
This is a presentation I made for my Applied Economics class Grade 12-ABM. This discusses about the basic economic problems of the country.
Credits go to the sources of my materials and pictures.
This document provides an overview and definitions of key macroeconomic variables including GDP, inflation, and unemployment. It discusses how GDP is calculated and can be interpreted as total output, income, or spending in an economy. Real GDP is used to measure changes in economic activity by removing the impact of inflation. The Consumer Price Index is used to calculate inflation rates by measuring the change in prices of goods and services purchased by a typical family. Unemployment rates measure the percentage of the civilian labor force that is unable to find work.
The document discusses several key concepts in economics including:
1. Microeconomics which studies individual economic units like households and firms.
2. Macroeconomics which studies aggregates and looks at the overall economy.
3. Other branches of economics including international economics, public finance, development economics, and more.
4. Key indicators used to measure economic growth including national income, balance of payments, foreign exchange reserves, and inflation.
5. Concepts related to calculating national income such as GDP, GNP, NNP, personal income, disposable income, and per capita income.
The circular flow diagram shows the flow of money between households and firms through input and output markets. Firms purchase inputs from households and sell outputs to households. Households purchase goods and services from firms using income received from supplying inputs.
Elasticity measures the responsiveness of quantity demanded or supplied to a change in its price. Elastic demand means quantity demanded changes proportionally more than a price change. Inelastic demand means quantity demanded changes less than proportionally to a price change.
Consumer choice is based on utility maximization subject to a budget constraint. Indifference curves illustrate combinations of goods that provide equal utility. Utility maximizes where the highest indifference curve is tangent to the budget constraint.
The document discusses consumption, savings, and the relationship between the two. It defines consumption as household expenditures on goods and services, and savings as disposable income not spent on consumption. It then explains that as income rises, both consumption and savings increase, but consumption increases by a smaller amount. The marginal propensity to consume captures how consumption changes with income, while the marginal propensity to save shows how savings change with income.
The document is an acknowledgement and presentation of a project report on trends in macroeconomic variables for Pakistan by a group of students. It thanks Allah, their teachers including Sir. Badarudin for their guidance. It introduces the group members and acknowledges help from others in completing the project.
This document discusses international trade and government policies around trade. It defines key terms like exports, imports, and comparative advantage. Countries will export goods they have a comparative advantage in producing and import goods they don't. The document outlines arguments for free trade, like increased specialization and efficiency, and more goods at lower prices. It also discusses protectionist views in favor of restricting trade, using policies like tariffs, quotas, and embargoes to protect domestic industries. International agreements and organizations that aim to facilitate trade are also covered.
This document provides an introduction to a macroeconomics module taught at the Foreign Trade University in Vietnam. It outlines the module context, aims, objectives, learning outcomes, teaching methods, and assessment. The module is designed to provide undergraduate students with an understanding of important macroeconomic factors and variables. It will analyze how macroeconomic variables interact in the economy and how economic theories can be used to understand real-world events. Students will learn about macroeconomic policies and different cases of using policies to develop economies. The module will be taught through lectures, discussions, and student assignments and presentations. Students will be assessed based on a written assignment, final exam, and class participation.
Here are three questions related to the material:
1. Why is GDP considered a better measure of economic well-being than GNP? GDP captures total production that occurs within a country's borders, including production by foreign-owned firms, while GNP captures production by citizens of that country wherever it occurs. GDP is therefore a better reflection of the total output and economic activity in a country.
2. What are some limitations of using GDP as a measure of economic well-being? While GDP is a useful measure, it does not capture many factors that contribute to quality of life and well-being, such as environmental quality, leisure time, inequality, health, education levels, etc. GDP also does not distinguish between beneficial and harmful
This document provides an overview of aggregate demand, including its basic concept, determinants, components, and relationship to aggregate supply. It defines aggregate demand as the total quantity of goods and services demanded in an economy at a given price level. The four main components that make up aggregate demand are consumption, investment, government spending, and net exports. Each component is affected by various economic factors, such as consumer confidence, interest rates, fiscal policy, and exchange rates. The document also discusses how aggregate demand curves can be used to model the aggregate demand-aggregate supply relationship in an economy.
Chapter 1 - basic concepts about macroeconomics for BBAginish9841502661
This chapter introduces macroeconomics and important macroeconomic concepts. It discusses what macroeconomists study, including issues like inflation, unemployment, recessions, government budgets, trade balances, and economic growth. It introduces tools and concepts used in macroeconomic analysis, including aggregate supply and demand, GDP, unemployment, inflation, and exchange rates. It explains why macroeconomics is important by outlining how the macroeconomy impacts society's well-being. Finally, it provides an overview of basic macroeconomic models and concepts like stocks and flows, production possibility frontiers, and the differences between endogenous and exogenous variables.
AS Economics Revision - Microeconomics (F581)Tom Simms
Revision for key topics for the OCR A Level/AS Level Economics module F581. May also be useful for other exam boards (WJEC/AQA). Covers basic issues relating to microeconomics.
This document provides an introduction to economics. It defines key economic concepts like scarcity, resources, production, consumption, and capital formation. It explains that economics studies how societies allocate their limited resources. Microeconomics focuses on individual units while macroeconomics looks at the overall economy. The central problems that economies face are what and how to produce goods and services, and how to distribute them. Production possibility frontiers are used to show production tradeoffs and opportunity costs between two goods with limited resources. Marginal rates of transformation represent the tradeoff between goods on the production possibilities curve.
The document outlines the 3 basic economic problems: what to produce and in what quantities, how to produce goods, and for whom to produce goods. It discusses each problem in more detail. For the first problem, it notes that production depends on a society's priorities and preferences, and that choosing consumer or capital goods now impacts the future. For the second problem, it states production depends on available resources and the type/quantity of goods. For the third problem, it explains that income distribution determines who can buy what goods.
Concept of macro economics & national incomeImran Khan
Macroeconomics studies economic issues at the level of the overall economy. It examines questions like employment levels, economic growth, and price levels. It also looks at how governments can improve the state of the economy. National income accounting is an important concept in macroeconomics. There are various measures of national income that differ based on whether they include factors like taxes, subsidies, depreciation, and the domestic versus national perspective.
National Income is one of the basic concept in Economics and it's base is Circular Flow of Income. This chapter is based upon ISC Economics. I hope it will be useful. I tried animations for the circular flow...Enjoy it...
National Income and Circular Flow of IncomeManish Purani
1. The document discusses national income, which is defined as the value of all final goods and services produced by the normal residents of a country in a year.
2. It explains the concepts of the circular flow of income, which depicts the interdependence between the production, income, and expenditure in an economy. Money and real flows circulate between the household, business, government, and foreign sectors.
3. The document also outlines some key characteristics of national income, such as it being a flow concept measured over a period of time, and it excluding intermediate goods and pure exchange transactions.
Domestic territory territory and normal resident and typesof goodsdsUmesh Bhardwaj
- Dadabhai Naoroji prepared the first estimates of national income in India in 1876 by estimating agricultural production value and adding a percentage for non-agricultural production.
- The first scientific estimates were done by Dr. VKRV Rao in 1931, followed by other economists in the early 20th century.
- In 1949, the National Income Committee was formed under Prof. Mahalanobis to estimate national income, with the first report in 1951 estimating 1948-49 national income at Rs. 8,710 crore and per capita income at Rs. 225.
This document provides an overview of microeconomics and macroeconomics. Microeconomics examines individual economic agents and how incentives influence their decisions. Macroeconomics considers aggregate indicators for an entire economy such as GDP, inflation, unemployment, and trade balances. It analyzes topics like economic growth, government policies, and the relationships between different parts of the economy. GDP is the total value of all final goods and services produced domestically in a given time period and it equals the total income earned from that production.
Macroeconomics is the study of the economy as a whole, including key topics such as national income, unemployment, inflation, and economic growth. It helps policymakers design fiscal and monetary policies. National income data are important for economic planning and international comparisons of economic development and welfare. National income can be measured using the product, income, and expenditure methods, each of which has limitations due to issues like double-counting, exclusion of non-market activities, and difficulties valuing informal sector output.
This document discusses key concepts in macroeconomics including the circular flow of income, methods for calculating national income, and related aggregates. It describes the three phases of the circular flow as the generation, distribution, and disposition of income between households and firms. National income can be calculated using the product method, expenditure method, or income method. The document also defines terms like gross domestic product, net domestic product, final goods, intermediate goods, stock and flow.
The document discusses fundamentals of commerce and economics. It defines commerce as the transfer of goods from producers to consumers, providing advantages of specialization. Economics is defined as the study of how societies use scarce resources to produce and distribute goods. It examines production, consumption, and resource allocation at both the micro and macro levels. National income can be measured using production, income, and expenditure methods by looking at GDP, GNP, NNP, and personal and disposable income.
This document provides an introduction to macroeconomics. It defines macroeconomics as dealing with the functioning of the overall economy and studying aggregates like income, consumption, investment and price levels. The major concerns of macroeconomics include aggregate demand, aggregate supply, inflation, economic growth, and unemployment. Understanding macroeconomic aggregates is useful for policymakers in formulating monetary, fiscal and other policies. The document also discusses the differences between microeconomics and macroeconomics.
The document discusses the circular flow of income model and its key components. It describes the five sectors - households, firms, government, financial institutions, and foreign - and the flows between them. It explains how savings, taxes, and imports are leakages that reduce income circulating in the economy, and how investment, government spending, and exports are injections that increase income circulating in the economy. Equilibrium occurs when total leakages equal total injections.
A fantastic PPT on the topic circular flow of income. It gives a complete understanding of the working of an economy in two sector, three sector and four sector models. It explains how production, income and expenditure are interrelated and how they move in a circular way.
Introduction
In life, there are universal laws that govern everything we do. These laws are so perfect that if you were to align yourself with them, you could have so much prosperity that it would be coming out of your ears. This is because God created the universe in the image and likeness of him. It is failure to follow the universal laws that causes one to fail. The laws that were created consisted of the following: ·
Law of Gratitude: The Law of Gratitude states that you must show gratitude for what you have. By having gratitude, you speed your growth and success faster than you normally would. This is because if you appreciate the things you have, even if they are small things, you are open to receiving more.
Law of Attraction: The Law of Attraction states that if you focus your attention on something long enough you will get it. It all starts in the mind. You think of something and when you think of it, you manifest that in your life. This could be a mental picture of a check or actual cash, but you think about it with an image.
Law of Karma: the Law of Karma states that if you go out and do something bad, it will come back to you with something bad. If you do well for others, good things happen to you. The principle here is to know you can create good or bad through your actions. There will always be an effect no matter what.
Law of Love: the Law of Love states that love is more than emotion or feeling; it is energy. It has substance and can be felt. Love is also considered acceptance of oneself or others. This means that no matter what you do in life if you do not approach or leave the situation out of love, it won't work.
Law of Allowing: The Law of Allowing states that for us to get what we want, we must be receptive to it. We can't merely say to the Universe that we want something if we don't allow ourselves to receive it. This will defeat our purpose for wanting it in the first place.
Law of Vibration: the Law of Vibration states that if you wish on something and use your thoughts to visualize it, you are halfway there to get it. To complete the cycle you must use the Law of Vibration to feel part of what you want. Do this and you'll have anything you want in life.
For everything to function properly there has to be structure. Without structure, our world, or universe, would be in utter chaos. Successful people understand universal laws and apply them daily. They may not acknowledge that to you, but they do follow the laws. There is a higher power and this higher power controls the universe and what we get out of it. People who know this, but wish to direct their own lives, follow the reasons. Successful people don't sit around and say "I'll try," they say yes and act on it.
Chapter - 1
The Law of Attraction
The law of attraction is the most powerful force in the universe. If you work against it, it can only bring you pain and misery. Successful people know this but have kept it hidden from the lower class for centuries because th
The circular flow model describes the reciprocal flow of income between two main sectors: households and firms. Households provide factors of production like labor, capital, and land to firms, and in turn receive income payments from firms. Firms then use these factors to produce goods and services, which they sell to households. Households use their income to purchase goods and services from firms, completing the circular flow. Money facilitates the exchange of goods, services, and income between the two sectors.
The document provides an introduction to macroeconomics, describing the four main sectors of the macroeconomy - households (consumers), business (producers), government (regulators and tax collectors), and foreign (other economies). It explains that households consume goods and services, businesses produce goods and services for households to consume, the government collects taxes and provides services, and the foreign sector involves international trade. It also introduces the circular flow model showing how income and spending flow between these sectors.
This document provides an overview of the course Economics for Admin (Eco 1642) at a university. It discusses the following key points in 3 sentences:
The course covers basic macroeconomics topics like money, financial markets, central banking, and economic development theories. It aims to explain the difference between micro and macroeconomics, and cover macroeconomic objectives like growth, employment, and inflation. The document also outlines the learning outcomes and content for two modules, which will measure national income, prices, employment, and discuss business cycles and the informal sector.
all about national income gdp, management , sector models,methods to calculate gdp that you want to learn as a beginner.ppt from CABM students gbpuat, Pantnagar
All about national income that u need to know for beginners. various methods to calculate gdp,gnp etc
presented by students of College of Agribusiness Management, govind ballabh pant university of agriculture & technology.
The document provides an overview of key economic concepts including microeconomics, macroeconomics, positive economics, normative economics, demand, determinants of demand, law of demand, supply, determinants of supply, law of supply, market structures, economic growth, factors affecting economic growth, sectors of the Indian economy, inflation, deflation, balance of trade, balance of payments, GDP, GNP, NNP, purchasing power parity, human development index, and classifications of countries based on their level of economic development.
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Strategies for Effective Upskilling is a presentation by Chinwendu Peace in a Your Skill Boost Masterclass organisation by the Excellence Foundation for South Sudan on 08th and 09th June 2024 from 1 PM to 3 PM on each day.
2. PREFACE
IT’S A MATTER OF A GREAT PLEASURE TO PRESENT MY HAND
BOOK “IKJOT-SURVIVOR” OF COMMERCE WHICH IS SPECIALLY
DESIGNED FOR “SPECIAL-NEED CHILDREN” GRADE 12TH CBSE &
NWAC BOARD COMMERCE STREAM.
I AM CONFIDENT THAT THIS HAND BOOK WILL INSPIRE BOTH
THE STUDENTS AND THE TEACHERS TO ACHIEVE THE BEST
RESULT.
THIS IS MY FIRST BOOK ,SUGGESTIONS AND COMMENTS FOR
IMPROVEMENT OF SUBSEQUENT EDITION ARE MOST
WELCOME.
THE NAME OF MY BOOK IS “IKJOT” WHICH MEANS A SINGLE
LIGHT ,IT WILL SHOW THE SUCCESS PATH TO STUDENTS IN
THEIR EXAM.
BEST WISHES-
GURMEET KAUR
3. IAM dedicating this book to the most
charming ,faithful , forgiving and caring
person on this planet, my loving mother in
heaven
4. IKJOT BY-
GURMEET KAUR
M.COM (ACCOUNTANCY),M. A (ENG.LIT),B.ED,CET,
CERTIFIED LIFE COACH,NLP” PRACTITIONER.
“I’m not sure how much a successful exam has to
do with luck. Rather, it’s about believing in
yourself, trusting that you studied enough, being
confident that you can recall the material and being
present in the moment.”
6. Macroeconomics
Macroeconomics is derived from Greek Prefix “macr(o)” meaning “large” + economics. It
is a branch of economics dealing with the performance, structure, behavior, and decision
making of the entire economy. This includes a national, regional, or global economy.
Microeconomics and Macroeconomics are two most general fields in Economics.
What is the difference between Microeconomics and Macroeconomics?
Microeconomics is primarily focused on the Individual Agents i.e. Firms and Consumers
and how their behaviors determine Price and Quantities in specific markets.
Macroeconomics is a broad field of study. It studies Aggregated Indicators such as GDP,
Unemployment Rates, and Price Indices to understand how the whole economy functions.
Macroeconomists develop models that explain relationship between factors such as
National Income, Output, Consumption, Unemployment, Inflation, Saving, Investment,
International Trade and International Finance.
Macroeconomics models and their forecasts are used by both Governments and large
corporations to assist in the development and evaluation of economic policy and business
strategies.Fiscal Policy and Monetary Policies are good examples of how economic
management is achieved through these government strategies. It is also vital to point out
here that to avoid major Economic Shocks, such as Great Depression, Recession, Melt
down etc., Government makes adjustments through policy changes, they hope, will
stabilize the economy.
7. Some Basic Concepts
Computation of National Income is important as it reflects the leveled
growth & development of any country. But before you introduce children
with the concept, meaning and definition of National Income/GDP and
other related terms, introduce and explain the basic concepts/terms which
will invariably be used in the computation of National Income. These
concepts are explained briefly as under:
Final Goods and Intermediate Goods
Final Goods
Final goods are those goods which are ready for use by their final
users. Or Final goods are those goods which have crossed the boundary
line of production. No value is to be added to these goods by way of
further processing or resale. For example, consumption of milk or
vegetables by the consumer households.
8. Final goods are further classified as:
(i) Final consumer goods: goods which are finally used by the consumer
households. Like, milk, bread, car, washing machine, as used by the
consumer households.
(ii) Final producer goods: goods which are finally used by the
producers/firms. Like, plant and machinery, building, as used by the
firms/producers.
Final consumer goods are purchased or used by the consumers for the
satisfaction of their wants. Whereas, final producer goods are purchased
or used by the producers for further production.
Intermediate Goods
Intermediate goods are those goods which are not ready for use by their
final users. Or Intermediate goods are those goods which are within the
boundary line of production. Value is yet to be added to these goods by
way of further processing or resale.
Example: Raw material purchased by one firm from the other firm for
further production is an intermediate good.
9. Distinction between Final Goods and Intermediate Goods
The main difference between final goods and intermediate goods lies in the
end-use of the good. The same good may be a final good or an intermediate
good, depending on its end-use. For example, use of petrol by the consumer
household is regarded as a final good. But the petrol used by some travel
agency is regarded as an intermediate good.
10. Consumer Goods and Capital Goods
Consumer or Consumption Goods
Goods used by the consumer household for the satisfaction of their wants
are known as consumer goods. These goods directly satisfy the needs of
the consumers. These goods are used as final goods by their final users,
viz. consumers. Expenditure on these goods by the consumers is called
final consumption expenditure.
Consumers goods can be classified as:
(i) Durable consumers goods, which can be repeatedly used for several
years and which are of relatively high value. Example:TV, washing
machine, car, etc.
(ii) Semi-durable consumers goods, which can be used for a period of
nearly one year. Example: clothes, shoes, crockery, etc.
(iii) Non-durable goods , which can be used only once. Example: milk,
vegetables, etc.
(iv) Services, which are non-material goods and directly satisfy human
wants.
Example: services of a doctor, teacher, lawyer etc.
11. Capital Goods
Final goods as used by the producers are called capital goods. In other
words, final goods are those fixed assets which are repeatedly used by
the producers in the production process for several years and which are
of relatively high value.
Example: plant and machinery and building.
Depreciation
The value of fixed assets tends to (decrease) due to normal wear
and tear, accidental damages and expected obsolescence. This
decrease in value of fixed assets (while in use) is
called Depreciation.
Consumption of fixed capital or depreciation is the loss in the value
of fixed capital due to normal wear and tear, foreseen obsolescence
and normal rate of accidental damage.
.
12. Circular Flow of Income
The circular flow of income refers to exchange of goods & services and
money across different sectors of the economy, i.e., firms, households and
the government.
Significance: The study of circular flow of income highlights the relation
and interdependence among different sectors of the economy and the
way in which each sector contributes to the national output.
This flow of income is circular as well as continuous because the payment
of one sector becomes the receipt of the other sector and the production
activity (involving payments and receipts) has been continuous since time
immemorial.
13. Circular Flow in a Two Sector Model
Assumptions:
(i) There are only 2 sectors in the economy:
households and producers.
(ii) There are no savings by households.
(iii) Firms sell all their goods to the
households.
(iv) There are no purchases by the
government.
(v) There is no foreign trade.
15. Economic Territory :Economic (or domestic) Territory is the
geographical territory administrated by a Government within which
persons, goods, and capital circulate freely.
Scope of Economic Territory :
(a) Political frontiers including territorial waters and airspace.
(b) Embassies, consulates, military bases etc. located abroad.
(c) Ships and aircraft operated by the residents between two or more
countries.
(d) Fishing vessels, oil and natural gas rigs operated by residents in the
international waters.
16. The related aggregates of national income are:-
(i) Gross Domestic Product at Market price (GDPMP)
(ii) Gross Domestic Product at Factor Cost (GDPFC)
(iii) Net Domestic Product at Market Price (NDPMP)
(iv) Net Domestic Product at FC or (NDPFC)
(v) Net National Product at FC or National Income (NNPFC)
(vi) Gross National Product at FC (GNPFC)
(vii) Net National. Product at MP (NNPMP)
(viii) Gross National Product at MP (GNPMP)
(i) Gross Domestic Product at Market Price : It is the money value of all
the
final goods and services produced within the domestic territory of a
country
during an accounting year.
17. Private Income :Private income is estimated income of factor and
transfer incomes from all sources to private sector within and outside the
country.
Personal Income :It refers to income received by house hold from all
sources. It includes factor income and transfer income.
Personal Disposable Income :It is that part of Personal income which is
available to the households for disposal as they like.
GDP and Welfare :
In general GDP and Welfare are directly related with each other. A
higher GDP implies that more production of goods and services. It
means more availability of goods and services. But more goods and
services may not necessarily indicate that the people were better off
during the year. In other words, a higher GDP may not necessarily mean
higher welfare of the people. There are two types of GDP:
18. Welfare mean material well being of the people. It depends on many
economic factors like national income, consumption level quality of goods
etc and non-economic factor like environmental pollution, law and order
etc. the welfare which depends on economic factors is called economic
welfare and the welfare which depends on non-economic factor is called
non-economic welfare. The sum total of economic and non-economic
welfare is called social welfare. Conclusion thus GDP and welfare directly
related with each other but this relation is incomplete because of the
following reasons.
Limitation of percapita real GDP/GDP as a indicator of Economic
welfare :
Non-monetary exchange
Externalities not taken into GDP but it affects welfare.
Distribution of GDP.
All product may not contribute equally to economic welfare.
Contribution of some products may be negative.
Inflation may give falls impression of growth of GDP.
20. MEANING OF MONEY: Money is anything which is generally
accepted as medium of exchange, measure of value, store of
value and as means of standard of deferred payment.
FUNCTIONS OF MONEY: Functions of money can be classified
into Primary and Secondary
Primary/Basic functions:-
Medium of Exchange: - It can be used in making payments for all
transactions of goods and services.
Measure /Unit of value: - It helps in measuring the value of goods
and services. The value is usually called as price. After knowing
the value of goods in single unit (price) exchanges become easy.
21. Secondary functions:-
Standard of deferred payments: Deferred payments referred to those
payments which are to be made in near future.
Money acts as a standard deferred payment due to the following
reasons:
a. Value of money remains more or less constant compared to other
commodities.
b. Money has the merit of general acceptability.
c. Money is more durable compare to other commodity.
Store of value: Money can be stored and does not lose value
Money acts as a store of value due to the following reasons:
a. It is easy and economical to store.
b. Money has the merit of general acceptability.
c. Value of money remains relatively constant.
22. MONEY HAS OVERCOME THE DRAW BACKS OF BARTER SYSTEM:
Medium of Exchange: Money has removed the major difficulty of the
double coincidence of wants.
Measure of value: Money has become measuring rod to measure the
value of goods and services and is expressed in terms of price.
Store of value: It is very convenient, easy and economical to store the
value and has got general acceptability which was lacking in the barter
system.
Standard of deferred payments: Money has simplified the borrowing
and lending of operations which were difficult under barter system. It
also encourages capital formation.
23. CENTRAL BANK
MEANING: An apex body that controls, operates, regulates and directs
the entire banking and monetary structure of the country.
FUNCTIONS OF CENTRAL BANK:
Currency authority or bank of issue: Central bank is a sole authority to
issue currency in the country. Central Bank is obliged to back the
currency with assets of equal value (usually gold coins, gold bullions,
foreign securities etc.,)
Advantages of sole authority of note issue:
a. Uniformity in note circulation
b. Better supervision and control
c. It is easy to control credit
d. Ensures public faith
e. Stabilization of internal and external value of currency
24. Banker to the Government: As a banker it carries out all banking business of the
Government and maintains current account for keeping cash balances of the
government. Accepts receipts and makes payments for the government. It also gives
loans and Advances to the government.
Banker’s bank and supervisor: Acts as a banker to other banks in the country—
a. Custodian of cash reserves:- Commercial banks must keep a certain proportion of
cash reserves with the central bank (CRR)
b. Lender of last resort: - When commercial banks fail to need their financial
requirements from other sources, they approach Central Bank which gives loans and
advances.
c. Clearing house: - Since the Central Bank holds the cash reserves of commercial banks
it is easier and more convenient to act as clearing house of commercial banks.
Controller of money supply and credit: - Central Bank or RBI plays an important role
during the times of economic fluctuations. It influences the money supply through
quantitative and qualitative instruments. Former refers to the volume of credit and the
latter refers to regulate the direction of credit.
Custodian of foreign exchange reserves.
Another important function of Central Bank is the custodian of foreign exchange
reserves. Central Bank acts as custodian of country’s stock of gold and foreign exchange
reserves. It helps in stabilizing the external value of money and maintaining favourable
balance of payments in the economy.
26. Aggregate Demand refers to total value of all final goods and services
that are planned to buy by all the sectors of the economy at a given leve
of income during a period of time. AD represents the total expenditure
on goods and services in an economy during a period of time.
Components of Aggregate demand are:
(i) Household consumption expenditure (C).
(ii) Investment expenditure (I).
(iii) Govt. consumption expenditure (G).
(iv) Net export (X – M).
Thus, AD = C + I + G + (X – M)
In two sector economy AD = C + I
27. Aggregate Supply is the money value of all final goods and
services available for purchase by an economy during a given
period. It is the flow of goods and services in the economy. Since,
money value of final goods and services is equal to net value
added, AS is nothing but the national income.
AS = C + S
Aggregate supply represents the national income of the country.
AS = Y (National Income)
Consumption function shows functional relationship between
consumption and Income.
C = f(Y)
where C = Consumption
Y = Income
f= Functional relationship.
Equation of Consumption Function
C = + MPC * Y
C = Consumption
= Autonomous consumption
28. (1) Average Propensity to Consume (APC):
Average propensity to consume refers to the ratio of consumption
expenditure to the corresponding level of income.
2. Marginal Propensity to Consume (MPC):
Marginal propensity to consume refers to the ratio of change in
consumption expenditure to change in total income. MPC explains
what proportion of change in income is spent on consumption.
29. Average Propensity to Save (APS): Average propensity to save refers to
the ratio of savings to the corresponding level of income
Important Point about APS
(1) APS can never be 1 or more than 1 :As saving can never be equal to
or more than income.
(2) APS can be zero: At break even point C = Y, hence S = 0
(3) APS can be negative: At income levels which are lower than the
break-even point, APS can be negative when consumption exceeds
income.
(4) APS rises with increase in income.
Marginal Propensity to Save (MPS): Marginal propensity to save refers
to the ratio of change in savings to change in total income.
MPS varies between 0 and 1
(i) MPS = 1 if the entire additional income is saved. In such a case, ΔS =
ΔY, then MPS = 1
(ii) MPS = 0 If the entire additional income is consumed. In such a case, ΔS
= 0, then MPS = 0
(iii) Mps is the slope of saving curve.
(iv) MPS remains constant throughout in short run.
30. Autonomous Investment: Autonomous investment refers to the
investment which is not affected by changes in the Level of income and is
not induced solely by profit motive. It is income inelastic.
Ex-Ante Savings: Ex-ante saving refers to amount of savings which all
the household intended to save at different levels of income in the
economy at the beginning of period. It is also known as planned savings.
Ex-Ante Investment: Ex-ante investments refers to amount of investment
which all the firms plan to invest at different level of income in the
economy at the beginning of the period. It is also known as planned
investment.
Ex-Post Saving: Ex-post savings refer to the actual or realised savings in
an economy during a financial year at end of the period.
Ex-Post Investment: Ex-post investment refers to the actual or realised
investment in an economy during a financial year at the end of the
period.
32. Budget is a financial statement showing the expected receipt and
expenditure of Govt. for the coming fiscal or financial year.
Main objectives of budget are:
(i) Reallocation of resources.
(ii) Redistribution of income and wealth
(iii) Economic Stability
(iv) Management of public enterprises.
(v) Economic Growth
(vi) Generation of employment
There are two components of budget:
(a) Revenue budget
(b) Capital budget
33. Revenue Budget consists of revenue receipts of govt. and expenditure met from such revenue.
Capital budget consists of capital receipts and capital expenditure.
BUDGET RECEIPTS:
1. Revenue Receipts
A. Tax
a. Direct Tax
i. Income tax
ii. Corporate Tax
iii. Wealth and Property Tax
b. Indirect Tax
i. Value added Tax
ii. Service Tax
iii. Excise Duty
iv. Custom Duty
v. Entertainment Tax
B. Non-Tax
a. Commercial Revenue
b. Interest
c. Dividend, Profits
d. External Grants
e. Administrative Revenues
f. Fees
g. License Fee
h. Fines, Penalties
i. Cash grants-in-aid from foreign countries and international org.
34. 2. Capital Receipts
A. Borrowing and Other liabilities
B. Recovery of Loans
C. Other receipts(Disinvestments)
Direct Tax: A direct tax is one whose burden cannot be shifted to others
I.e. the impact and incidence of the tax is on the same person.ex- income
tax, wealth tax, gift tax.
Indirect Tax: An indirect tax is one whose burden can be shifted to others
or the impact and incidence of an indirect tax falls on different people.
ex- excise duty, VAT, service tax.
Revenue Receipts:
(i) Neither creates liabilities for Govt.
(ii) Nor causes any reduction in assets.
Capital Receipts:
(i) It creates liabilities or
(ii) It reduces financial assets.
35. BUDGET EXPENDITURE:
1. Revenue Expenditure
(i) Neither creates assets
(ii) Nor reduces liabilities.
e.g., Interest Payment, subsidies etc.
Capital Expenditure:
(i) It creates assets
(ii) It reduces liabilities.
e.g., Construction of school building Repayment of loans etc.
36. Budget Deficit:- It refers to a situation when budget expenditure
of a govt. are greater than the govt. receipts.
Budgetary Deficit: Total Expenditure > Total Receipts.
Revenue deficit: It is the excess of govt. revenue expenditure
over revenue receipts
Fiscal Deficit: When total expenditure exceeds total receipts
excluding borrowing.
Fiscal Deficit: Total expenditures > Total Receipts excluding
borrowing.
. Primary Deficit: By deducting Interest payment from fiscal deficit
we get primary deficit.
Primary Deficit: Fiscal deficit – Interest payments.
38. The balance of payment is a comprehensive and systematic records of all
economic transaction between normal residents of a country and rest of
the world during an accounting year.
Accounts of Balance of Payments:
1. Current Account: The current account records export and import of
goods and services and unilateral transfers.
2. Capital Account: It records of all such transactions between normal
residents of a country and rest of the world which relates to sale and
purchase of foreign assets and liabilities during an accounting year.
39. Components of Current Account Components of Capital Account
1. Visible items (import and export
of goods).
1. Foreign Direct investment.
2. Invisible items (import and
export of services).
2. Loans.
3. Unilateral transfers. 3. Portfolio investment.
4.Income receipts and payments
from and to abroad.
4. Banking capital transactions.
5. These are the transactions which
do not affect the assets or
liabilities position of the country.
5. These are the transactions which
affect assets or
liabilities position of the country.
6. It is a flow concept. 6.It is a stock concept.
40. Balance of trade is the net difference of Import and export of all visible items
between the normal residents of a country and rest of the world.
Autonomous items are those items of balance of payment which is related to
such transaction as are determined by the motive of profit maximisation and not
to maintain equilibrium in balance of payments. These items are recorded as a
first items before calculating deficit or surplus in balance of payment a/c.
These items are generally called ‘Above the Line items’ in balance of payment.
Accommodating item refers to transactions that take place because of other
activity in Balance of Payment. These transactions are meant to restore the
Balance of Payment identity. These items are generally called ‘Below the Line
items’.
Deficit of Bop Account: When total inflows of foreign exchange on account of
autonomous transactions are less than total outflows on account such transaction
then there is a deficit in Bop.
Foreign exchange rate refers to the rate at which one unit of currency of a
country can be exchanged for the number of units of currency of another country.
In simple words, we can say that the price of one currency in terms of other
currency is known as foreign exchange rate or exchange rate.
41. SYSTEM OF EXCHANGE RATE:
1. Fixed exchange rate2. Flexible exchange rate
Fixed exchange rate . Flexible exchange rate.
In fixed exchange rate system, the rate of
exchange is officially fixed or determined by
Government or Monetary Authority of the
country.
Merits of Fixed Exchange Rate
(i) Stability in exchange rate
(ii) Promotes capital movement and
international trade.
(iii) No scope for speculation
(iv) It forces the govt. to keep inflation in check.
(v) Attracts foreign capital.
Demerits of Fixed Exchange Rate
(i) Need to hold foreign exchange reserves.
(ii) No automatic adjustment in the ‘Balance of
payments.’
(iii) It may result in undervaluation or
overvaluation of currency.
(iv) It discourages the objective of having free
markets.
The supply of foreign exchange have the
positive relation with foreign exchange rate. If
foreign exchange rate rises the supply of
foreign exchange also rises and vice versa.
Merits of Flexible Exchange Rate
(i) No need to hold foreign exchange reserves
(ii) Leads to automatic adjustment in the
‘balance of payments’.
(iii) To enhances efficiency in resources
allocation.
(iv) To remove obstacles in the transfer of
capital and trade.
(v) It eliminates the problem of undervaluation
or overvaluation of currency.
cles in the transfer of capital and trade.
(v) It eliminates the problem of undervaluation
or overvaluation of currency.
Demerits of Flexible Exchange Rate
(i) Fluctuations in future exchange rate.
(ii) Encourages speculation.
(iii) Discourages international trade and
investment.
42. Devaluation of a currency: When government or monetary authority of a
country officially lowers the external value of its domestic currency (in respect of
all other foreign currency) is called devaluation of a currency. It takes place by
government order under fixed exchange rate system.
Revaluation of a currency: When government or monetary authority of a
country officially raises the external value of its domestic currency is called
revaluation. It takes place by government order under fixed exchange rates
system.
.
Managed floating system is a system in which the central bank allows the
exchange rate to be determined by market forces b intervenes at times to
influence the rate. When central bank finds the rate is too high, it starts selling
foreign exchange from its reserve to bring down it. When it finds the rate is too
low. It starts buying to raise the rate.