UNIT II

Economic Trend

Q1) Define of Economic Trends.

A1)

Defination of Economic Trends

Before we dive deeper into the meaning of economic trends, let's first understand the individual parts. The first word, economy, refers to economy. The economy consists of all financial transactions between businesses and consumers in a region or country. In general, when an economy is mentioned, it is heading for a particular country. For example, we hear about the US economy in the news every day.

The second part of the phrase, the trend, can be thought of as a pattern. In most cases, trends are formed and interpreted from datasets. For example, if someone plots a stock price at 4 o'clock every day for 3 weeks, the dots will create a pattern or trend and the chart will show 15 dots. The graph on the left shows these points. The graph on the right shows what happens when the dots are connected.

In this example, this stock price is on the rise. This can be interpreted as the price increases as the vertical axis shows, as the days go by, as shown on the horizontal axis.

The combination of these two words gives economic trends, which are indicators of the financial situation of a region or country. In most cases, the US economy is part of the news. We, like any other economy, experience good times and bad times. What economic trends define your good times and bad times?

Example

Now that we have a general understanding of economic trends, let's look at some of the most important and popular ones that help us define the types of economic conditions we are experiencing. The first is the unemployment rate. The unemployment rate measures the percentage of the unemployed workforce. This tendency personally affects most of us. We may have experienced this directly. We collect data from many individuals every month and publish the unemployment rate based on that data. This percentage will affect the next economic trend, the Consumer Confidence Index.

Q2) Explain the concept of National Income.

A2)

Concept of national income:

National income is the sum of all final goods and services produced by a country in a particular year. The growth of national income helps us to know the progress of the country.

In other words, the total amount of income generated by a country from economic activity in a year is known as national income. This includes payments made to all resources in the form of wages, interest, rent and profits.

 From a modern point of view, national income is defined as "the net production of goods and services that flows annually from the country's production system in the hands of the end consumer."

National accounts are the method or method used to measure the economic activity of the entire national economy.

NIA is primarily intended for the following purposes:

 Policy development: Helps you compare past and future estimates and predict future growth rates. For example, if a country's GDP is Rs. 103 Raku, 3 rupees higher than last year, it has a growth rate of 3 percent.

 Effective decision making: Estimate the contribution of each sector of the economy. This helps companies plan production.

International Economic Comparison: Useful for development level comparisons

It provides useful insights into how well the economy is working and where money is being generated and spent. You can compare the standard of living and its growth rate in different countries.

There are various terms related to measuring national income.

National income concept (theory):

1. GNP (Gross National Product)

2. GDP (Gross Domestic Product)

3. NNP (Gross National Product)

4. NI (National Income)

5. PI (Personal Income)

6. DPI (Disposable Personal Income)

Q3) Write notes on how do we measure National Income.

A3)

 GDP (Gross Domestic Product):

Gross domestic product is the monetary value of all goods and services produced within a country's geographical boundaries over a particular period of time.

Note: GDP is domestic only.

GNP (Gross National Product): GNP is the monetary value of goods and services produced by a country during a particular period of time.

Plus (+)

Total amount of goods and services produced by foreign nationals

minus(-)

Income received by foreigners in Japan.

Note: GNP is calculated based on the market price of the product. Indirect taxes and subsidies, if any, are included. If income is GDP, GNP is equal to GDP

The income earned and received by citizens of a country within the boundaries of a foreign country is the same as the income received by foreigners in that country.

This is GNP minus depreciation. NNP = GNP – Depreciation

Note: Depreciation is the consumption of capital stock

NI (national income):

National income is also known as gross national product at factor cost.

Therefore,

NI = NNP minus (total indirect tax + subsidy)

Note: Both indirect taxes and subsidies will be deducted from NNP.

2.                 PI (Personal Income):

This is the actual income earned by people after deducting various taxes. PI = National Income – (Corporate Tax + Payments Made for Social Security)

Plus (+)

Government transfer payment PLUS (+)

Business transfer payment PLUS (+)

Net interest paid by the government

DPI (Disposable Personal Income):

This is personal income minus direct tax.

DPI = PI – Direct tax

3.                 GNP (Gross National Product)

This is the sum of all final goods and services produced in the economy in a year. In W.C.'s words, Peterson, "Gross National Product may be defined as the current market value of all goods and services produced by the economy during the period of income." There are two ways to avoid double counting when estimating GNP.

GNP calculated in this way excludes the value of the import because the cost is automatically deducted from the production value of the industry using the value of the import. To get Gross National Product, you need to deduct depreciation from the total "value added". The "added value" method and the "final product" method give the same result. The former considers the flow of production through each process while the "final product" method counts the quantity of goods delivered at the end of a particular period and appropriates the goods still in transit at the beginning and end. Adjust to. Of the period the "added value" method follows normal corporate accounting procedures because all companies record the value of their products and the value of the materials used. The "final product" method suffers from many difficulties in that it requires the actual production of consumer goods and producers' goods to be split.

Q4) What are the factors that influence how much income people save?

A4)

The factors that influence how much income people save are:

b.                 Expectations for future income and employment security / everything leads to consumer confidence

c.                  Credit Availability – Borrowing to cover extra spending counts as savings

d.                 Taxation of savings. Tax-effective savings schemes and vocational pension tax cuts may encourage people to clean up much of their disposable income

e.                  Need to save to pay off debt – Example: Real estate owners stick to the negative equity that homes are less valuable than families who need to reduce their mortgage or credit card debt did

f.                    Need to accumulate mortgage deposits, pay school and college tuition, and save for retirement under a vocational pension plan

g.                 Availability of savings institutions such as banks and our trust in them. The UK government guarantees deposits in British banks, but in 2013 in other countries, including Cyprus, large depositors were hit by unexpected taxes as part of Cyprus' emergency relief.

Q5) What is the importance of savings for the economy?

A5) The importance of savings for the economy

Q6) Explain the sources of Savings.

A6)

There are three types of sources of savings.

The household sector is the largest contributor to domestic savings. It is important because it reflects how savings are efficiently converted into investments by the role of financial sector mediators in the process. These sectors include the following savings:

b.                 Government Savings:

Government savings come from the surplus of public enterprises and other public financial institutions. Government savings formed 7.4% of the economy's GDP in 2008-09 and increased to 8.2% in 2009-2010. Since then, government savings have been steadily declining, reaching 7.9% in 2010-11.

The most important factors that cause this trend are:

(A) Deterioration of overall tax GDP ratio, and

(B) Increased over time losses from public utilities such as state power and water departments, state road transport corporations, and railroads.

c.                 Private sector savings:

The private sector accounted for 9.4% of total savings in 2007-08. However, this dropped to 7.4% in 2008-09. However, it has been on an upward trend since then, reaching 8.24 percent in 2009-10.

In developed countries, the corporate sector has contributed significantly to national savings, despite the development of secondary and tertiary industries in the economy and the significant increase in manufacturing, but not in India.

Q7) Write note on Economic division between the public and private sectors.

A7)

Economic division between the public and private sectors:

The current economic structure of the Indian economy is known as the mixed economy, where both the public and private sectors coexist. All the different types of industries are divided into these two sectors. From the beginning, most of the country's industry was within the private sector.

However, after independence, especially after the introduction of economic plans and subsequent industrial policy resolutions, the importance of the public sector was recognized in 1948 and 1956. Therefore, some distinct categories

 The industry was gradually reserved for the public sector due to its expansion and development.

Thus, the size and activity of the public sector gained momentum as the amount of spending planned for public sector development under the country's various five-year plans increased. Therefore, in a mixed economy like India, some industries are owned and controlled by the country through the public sector and the rest are owned and controlled by the country's private sector.

In India, only industries that are essential to the rapid development of the economy and are reluctant to invest in the private sector due to low rates of return or high risk are reserved for the public sector.

In India, the area of   public sector activity was very limited to limited areas such as electricity, irrigation, roads, railroads, ports, telecommunications, and some sector businesses during independence. However, after independence, the field of activity in the public sector expanded rapidly. Two industrial policy resolutions, adopted in 1948 and 1956, respectively, divided the country's industry into different categories.

Therefore, some industries were completely assigned to the public sector and some industrial sectors were left entirely to the private sector. This division of territory between the public and private sectors has secured both durable and non-durable consumer goods, while heavy, basic and strategic industries have been reserved for the public sector. Reveals that the entire group of consumer durables industry producing remained open for the private sector.

The entire agricultural sector, the country's largest sector, remains in the private sector. Again, infrastructure areas such as rail, air transport, ports, electricity, telecommunications, banks, insurance and financial companies are reserved for the public sector.

The logic behind securing heavy and basic industries such as steel, heavy electric plants and heavy industries in the public sector and the fast-growing consumer goods industry in the private sector is very simple

R.K. Hazari attempted to analyze the logic behind such a government strategy, arguing that the government's industrial programs adopted after 1955 were completed according to two hypotheses:

(A) Private investment activities in relatively simple commodities are generally done by shutting out imports and also. Home, and as a result boost profits. And

(B) Public investment is indifferent to profits, has a long gestation period, has a low or zero rate of return, has high exchange requirements, is complex in technology, and has similarly complex basic and strategic adjustment issues. It is done in the field.

The first hypothesis here is that private investment is a form of "induced investment" and can be facilitated by adopting protection policies against various import substitutions. The argument in support of the second hypothesis was that the flow of investment in industries that are low-profit and require large investments is in the form of "autonomous investment" and therefore can be made by the state.

Q8) What is the role of Indian public sector?

A8) Relative role of Indian public sector:

The public sector has occupied a worthless place to achieve systematic and systematic development in developing countries like India. In a country like India, which suffers from multifaceted problems, the private sector is not in a position to make the necessary efforts to develop different sectors at the same time.

Therefore, in order to provide the support needed for a country's development strategy, the public sector provides the minimum impetus needed to guide the economy on a path of self-sustaining growth. Thus, it is now well recognized that the public sector plays an active role in national industrial development by laying a sound foundation for the industrial structure in the early stages of development.

Below are some of the important relative roles of the public sector in the economic development of countries like India.

(A) Promote economic development at a rapid pace by bridging the gaps in the industrial structure.

(B) Promote appropriate infrastructure for economic growth.

(C) Conducting economic activity in strategically important areas of development where the private sector can distort the spirit of national goals.

(D) Check monopoly and concentration of power in the hands of a few people.

(E) Promote balanced regional development and diversify natural resources and other infrastructure facilities in these underdeveloped regions of the country.

 (F) Close the gap in income and wealth distribution by bridging the gap between the rich and the poor.

(G) Create and enhance ample employment opportunities in various sectors by making large investments.

(H) Achieve independence with various technologies according to requirements.

(I) Eliminate dependence on foreign aid and technology.

(J) Enforce social control and regulation through various financial institutions.

(K) Manage delicate sectors such as distribution systems and rationally allocate rare imported goods. And

(L) Reduce balance of payments pressure by promoting exports and reducing imports.

Q9) Define Trade.

A9)

This is the difference between the amount of exports and imports of important goods (called visible goods or goods) during the year.

Examples of visible items are clothing, shoes, machines, and so on. Obviously, the two transactions that determine a BOT are the export and import of goods.

It does not include imports and exports of services (invisible items such as shipping, insurance, banking, dividend and interest payments, tourist spending, etc.).

The difference in value between exports and imports is called the trade balance or trade balance. Keep in mind that exporting means sending goods abroad to earn forex, and importing means buying goods from abroad and paying forex. Exports are considered income and imports are considered expenditure. It contains only visible items and does not consider service exchanges.

Surplus or shortage BOT:

The trade balance can be in the black, in the red, or in equilibrium. If the export value of a visible item is greater than the import value of a visible item, the trade balance is said to be positive or favorable. Therefore, BOT is in the black. If the export value is less than the import value, the trade balance is said to be negative, negative or disadvantageous.

The BOT is then called in red. A bot is said to be in equilibrium or equilibrium if its export value is equal to its import value. Rows (1) and (5) of the table in Section 10.1 show the country's trade balance as a fictitious example. The country exported 55 billion rupees of goods and imported 80 billion rupees of imported goods. The trade balance of 250 rupees was in the red.

Trade Balance = Table Rows (1) and (5) = 550-800 = Rs -250

Even if a country's trade balance is in the red, it can be offset by other account items, especially the capital account. The trade balance (commodity) provides a substantive description of the payments that result from international transactions, but does not reflect the full picture of all payments payable to a country and the payments payable to a country. To do so, you need a balance in your Pa5 Tnent account. To be on the safe side, the balance of items displayed in your BOP account is called a BOT.

Q10) What do you mean by Balance of Payments?

A10)

Like companies, these are needed to present the balance sheet and cash flow at the end of the year. This is the same way we wanted to get a snapshot of the country's balance of accounts for the country's foreign currency. Through a statement named Balance of Payments. The trade balance shows the difference in value between imports and exports, and the balance of payments shows the combined effect of different other balances of trade and trade balances on different accounts from countries in other worlds.

In addition to imports and exports, we also take into account receivables or payables for:

(1) Freight fare,

(2) Port charges,

(3) Expenditures for foreign visits for tours, education, medical care, business, etc.

(4) Purchase of marine fuel and preparation for crew,

(5) Maintenance of overseas embassies,

(6) Remittance of foreigners, repayment of external debt and interest,

(7) Remittance of profits of foreign companies and development subsidies.

Q11) State the Capital account components.

A11)

 The main items or components of the capital account are:

(I) Gold movement:

Central banks in each country buy and sell gold domestically and internationally. This means the import and export of gold by the central bank that pays and receives the gold. The amount of gold purchased is reflected in the "debit" and the sale of gold is reflected in the "credit".

(Ii) Reserve, gold coins, SDR:

Government foreign currency assets, central bank gold reserves, IMF SDRs and other similar capital transactions are included in the "credit items" and payments for these transactions are

(Iii) Bank capital movements:

The inflow of bank capital other than the central bank is reflected in the "credit item", and the outflow of bank capital other than the central bank is reflected in the "debit item".

(Iv) Private foreign loan flow:

The country's private sector received foreign loans from abroad. Receipts for these external debts are included in the "credit items". The country's private sector also pays foreign loans abroad. Repayments of these foreign loans are included in the "debit items".

(V) Official capital transactions:

The national public sector receives foreign loans from the International Monetary Fund. The receipt of these loans is included in the "credit item" and the public sector also pays the loan to the International Monetary Fund, which is included in the "debit item".

(Vi) Others:

In addition to the above items, the central bank receives other types of government capital. These types of receipts are also included on the "credit side" and the central bank pays for these government capitals included on the "debit side".

Q12) What is money?

A12)

 Money can be defined as what is generally accepted by people in society or the community for the payment of purchased goods and services or the payment of debt. Another very good, but a simple definition of money is the exchange in a region or defined area. Money is a concept that we all understand, but it is difficult to define exactly.

Money serves as a medium for exchange. Most definitions of money

Start with "money function". "Money is money." According to Professor Walker, "Money seems to be money."

That is, the term money should be used to include everything that performs the function of money. That is, the medium of exchange, the measurement of value, the unit of account, and so on. Since general acceptance is a fundamental property of money, money is defined as "what people generally accept in the exchange of goods or services or the repayment of debt."

Q13.What are the main functions of money?

A13. The main features include the most important money features that need to be performed in all countries.

1. Money is a medium of exchange: This is arguably the most prominent feature of money. Money solves all problems related to bartering or bartering systems. The barter system was used long ago when money was not invented. In bartering, a product was directly exchanged for another product. This system had many drawbacks. Because the only way to get what you want was to have something in exchange for what you want with someone. For example, suppose John wants an onion and goes to Janet, who has the onion. And because he didn't have the money to pay Janet to collect the onions, he had to find what Janet needed to exchange for onions. This system was very difficult to implement in the sense that it could not be exchanged without a match of desires. But money came to solve this problem.

2. Money is a measuring tool: As you can see, distances are measured using units of measure such as kilometres so that you can compare distances from one location to another. Therefore, it goes without saying that it is very difficult to compare the distances from one place to another without kilometres. Money plays a similar role in the evaluation of goods and services. Money plays a similar role in evaluating goods and services and comparing them to other goods and services. Thanks to the money, it's no longer difficult to be effective, for example, replacing a bag of beans with a cow. Today, money has allowed us to exchange bean bags for the right ones.

2. Secondary function:

These refer to money features that complement key features. These functions are also called "derivatives" because they are derived from linear functions.

1. Post-paid criteria: When we say deferred payment, it means debt settlement at a later date. With money, it's very easy to defer payment from now until a later date. For example, if you buy an item with credit, you promise to pay for the item you purchased at a later date. You can't do this without money. Thanks to the money, we were able to record the debt and pay it at a later date. Money also allows contracts to be signed now and executed in the future.

2. Money allows us to save now for future use: Without money, it is very difficult to store goods, especially fresh foods such as tomatoes, onions, fruits and vegetables, for future use. For example, tomato farmers cannot store tomatoes for future use. However, by selling produce for money, farmers can now save for later use.

3. Credit Foundation: Money facilitates mortgages. Borrowers can spend money to get goods and services when they need them most. For example, newlyweds need a lot of money to complete their home at one time. They don't have to wait 10 years, for example, to save enough money to buy expensive items such as cars, refrigerators and TVs.

Q13) What do you mean by Accidental function? Explain.

A13)

Moreover, Professor Kinley, the primary and secondary function of money, focuses on the accidental function of money. Money facilitates the distribution of national income among the various elements of production. Land, labour, capital and organizations all cooperate in production activities, and products are the result of joint efforts belonging to all of them

Some of the accidental functions of money in economics are: (I) Distribution of national income (ii) Maximization of satisfaction (iii) Foundation of credit creation (iv) Capital productivity (v) Option bearers and (vi) Guarantee solvency.

(I) Distribution of national income:

Money helps to optimally distribute national income among the various elements of production (land, labour, capital, businesses).

The country's total production is jointly produced by these factors. Therefore, the output needs to be distributed among them. Money helps distribute domestic products in the form of rent, wages, interest and profits. These are represented by money.

(II) Maximizing satisfaction:

Money helps consumers and producers maximize satisfaction. Consumers derive maximum satisfaction by equalizing the price of each product (expressed in money) to its marginal utility (satisfaction). Similarly, producers maximize satisfaction (profit) by equalizing the marginal productivity of an element with the price of such element.

(III) Basics of credit creation:

 Money as a store of value has encouraged people to save in the form of demand deposits with banks. Such demand deposits are used by commercial banks to generate credit. ‘

(IV) Capital productivity:

Money is the most liquid asset and can be used for any purpose, increasing capital productivity. The liquidity of money makes it easy to move capital from less productive uses to more productive uses.

(V) Optional bearer:

Money provides purchasing power in the hands of the person (owner) who owns it, and he has many options for using it. Owners can change their spending decisions at any time and from place to place, depending on urgency, intensity, and priority.

(VI) Guarantee of solvency:

Money acts as a guarantee of the solvency of an individual or institution. If an individual has enough money (more than his debt), he cannot declare bankruptcy or bankruptcy. For this reason, individuals and businesses have large amounts of money to meet unexpected needs.