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Money Supply, Fiscal Policy, and Liberalization in India: An Overview, Schemes and Mind Maps of Copyright Law

National Law Institute UniversityCopyright Law

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ECONOMICS-II
Date- 25.07.2022, Monday, Day-1
Project:
1. Statement of Problem- Find gaps
2. Hypothesis- It may or may not be proved. It shall be a single line, which you want to
be true, but there is no surety.
3. Literature Review- There shall at least be 10 articles reviewed. (To be done in the
next 15 days)
Course Outline:
Book reference:
Dutta and Sundaram (latest edition)
Date – 28.07.2022, Thursday, Day- 4
UNIT II- THEORY OF INCOME EMPLOYMENT AND OUTPUT
Classical Approach-
term invisible hand- given by Adam Smith- you don’t have to do anything- the market forces
of demand and supply will do everything- the economy was very simple. Flow will be
maintained in the economy. Equilibrium is achieved automatically. Full employment level of
equilibrium. All factors of productions are fully employment. Based on two assumption-
1. Law of market- Supply creates its own demand. Ones they is supply of production
there will be demand. There can be no demand without supply.
It is only when you increase the supply, demand will be generated.
Assumption- income received is immediately spent. No hoarding. No saving. Savings
are transferred into investment. Closed economy. Non-government intervention-
laisez faire.
2. Wage price flexible- here only labour is the factor of production. So if demand is
increased the wages will increase, increase cost of production and lead to cutting
down of labour force, which will decrease the production- demand will increase. The
cycle will continue.
Criticism of classical theory- failed during the recession period.- wages are not
responsible for employment. Full employment is not realistic assumption.
Keynesian Theory of Income-
in short period. Effective demand point- supply=demand.
Date- 01.08.2022, Monday
UNIT IV- CIRCULAR FLOW OF INCOME
It is important to study so as to bring better changes and policies for the improvement in the
Economy.
Sectors of Economy:
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Download Money Supply, Fiscal Policy, and Liberalization in India: An Overview and more Schemes and Mind Maps Copyright Law in PDF only on Docsity!

ECONOMICS-II

Date- 25.07.2022, Monday, Day- Project:

  1. Statement of Problem- Find gaps
  2. Hypothesis- It may or may not be proved. It shall be a single line, which you want to be true, but there is no surety.
  3. Literature Review- There shall at least be 10 articles reviewed. (To be done in the next 15 days) Course Outline: Book reference: Dutta and Sundaram (latest edition) Date – 28.07.2022, Thursday, Day- 4 UNIT II- THEORY OF INCOME EMPLOYMENT AND OUTPUT Classical Approach- term invisible hand- given by Adam Smith- you don’t have to do anything- the market forces of demand and supply will do everything- the economy was very simple. Flow will be maintained in the economy. Equilibrium is achieved automatically. Full employment level of equilibrium. All factors of productions are fully employment. Based on two assumption-
  4. Law of market- Supply creates its own demand. Ones they is supply of production there will be demand. There can be no demand without supply. It is only when you increase the supply, demand will be generated. Assumption- income received is immediately spent. No hoarding. No saving. Savings are transferred into investment. Closed economy. Non-government intervention- laisez faire.
  5. Wage price flexible- here only labour is the factor of production. So if demand is increased the wages will increase, increase cost of production and lead to cutting down of labour force, which will decrease the production- demand will increase. The cycle will continue. Criticism of classical theory- failed during the recession period.- wages are not responsible for employment. Full employment is not realistic assumption. Keynesian Theory of Income- in short period. Effective demand point- supply=demand. Date- 01.08.2022, Monday UNIT IV- CIRCULAR FLOW OF INCOME It is important to study so as to bring better changes and policies for the improvement in the Economy. Sectors of Economy:
  1. Household- suppliers of the factors of production and are the consumers themselves
  2. Firms- Use resources provided by household. To supply goods and services to the market.
  3. Govt. – Consumer as well as producer. Earns taxes from tax and non tax sources. Provides essential public services.
  4. Financial Institutions- Banks. Investments
  5. Foreign Sector- Inflow and Outflow of capital. Types of Economy models: A) 2 Sector model- Producer and Household. Household provides factors of production, producers pay factor payments to household, with which household do consumer expenditure, which general income for the producers, through which they produce goods as well as pay the factors of production. B) 3 Sector model- Producer, Household and govt. additionally to the 2-sector functioning, producers give goods and services to the govt., govt. provides public services to consumers and govt. provides producers subsidies. The taxes break the flow of income, because not the exact amount paid by consumers comes to the producers because there are certain taxes cut in the amount, through which the govt. earns. There is a leakage in the flow. The subsidies given to the producers are called injections. The leakages and injections shall be kept in a balance, in order to balance the economy, or else inflation may be caused. C) 4 sector model - Financial institutions are added here. Additional to 3 sector, saving are done in the financial sector by the consumer, which are leakages, as they don’t go back to the producers. Financial sector do investments in producers. D) 5 Sector model - Includes the overseas sector as well. Producers produce, are provided in way of investment, spending, and export income by financial sector, govt, and overseas respectively, these all are injections. And there are saving, taxes and export expenditure done by consumer to the financial, govt, overseas, these are leakages. NATIONAL INCOME IN INDIA: CONCEPT AND MEASUREMENT- GDP is at a constant price and current price. Constant price is the base price, taken by considering any base year. The prevailing price is the current price. Constant price is not adjusted with the ongoing inflation. Inflation is not included in constant prices but it is concluded in the current prices. GDP (^) MP – NIT= GDP (^) FC [NIT- Net Indirect Taxes] GDPFC- Depreciation= NDP (^) FC [MP- Market price] [FC- Factor Cost] NDP + NFIA = NNP (^) FC [NNP- Net national product] [NFIA- Net factor income from abroad] Personal Income- Income received by the household. Personal Disposable Income- certain compulsory expenses that a household has to do, which is PDI. And the left over is your income in hand that you can use anyway you want.
  • Employment potential-how much employment is generated
  • Output per unit of capital- output generated for every unit of capital invested
  • Value added criterion-
  • Cost benefit ratio- cost and profit ratio
  • Present value of social costs and benefits- the total value of the cost incurred for societal benefits and the benefit out of it
  • Foreign exchange reserve
  • Environmental factors- impacts done upon the environment While auditing it is necessary to see if all of these objectives are achieved. And after determining if certain objectives are not fulfilled, solutions can be put forth to make a level playing ground. Objectives of social accounting:
  • Net contribution
  • Strategies and practices to be consistent with the societal priorities
  • Firms’ goals and practices contribute towards scarce resource
  • Models of quantification that would present social cost and benefits of the enterprise.
  • Meet consumer needs and societal needs. Benefits of social accounting:
  • Provide facilities to employees by free education, free transport, good working conditions
  • Marketing through great consumer support
  • Effective utilisation of resources
  • Free help to customers
  • Counters the adverse publicity leveled by hostile media. Criticisms of social accountability:
  • It creates social pressure upon the corporates
  • so, in order to spend upon these societal benefits, they would cut their cost by declining the quality, and increasing prices of the commodity or services
  • Not always will it happen that they would in practicality enforce all these societal benefits that they have mentioned on the paper this would put the morale of the employees down.
  • They would cut down the salary of the employees in order to provide them with free medical and educational or traveling or accommodation facilities. GREEN ACCOUNTING- Accounting done for the environmental aspects of the economic activities. EDP- Eco Domestic Product The way of giving back to the environmental-
  • Use of alternative resources
  • Provision of subsidies to those companies that use alternative sources can encourage other companies to use them as well.- incentivising
  • Imposing tax- and use it for developing new technology and research Date- 08.08.2022, Monday BUSINESS CYCLES Periodic ups and downs in economic activities. Alternative waves of expansion and contraction. Alternative periods of prosperity and depression. Measured in terms of employment, production, and income moving in a cyclical manner. CHARACTERISTICS:
  • Periodicity- wavelike movement in income, and employment, at intervals of 6 to 12 years. The gap between both cycles is not predictable.
  • Synchronism- Impact is all-embracing, it is due to the interdependence between the different sectors.
  • Self-reinforcing- it is due to this interdependence between sectors that the cyclical movement faced by one sector moves to the other sector as well. The upward swing of the cycle is reinforced for the further upward movement and vice versa PHASES: Go to the ppt Factors for this ups and downs Wars, Political Instability, Climatic conditions, Natural Calamity, and failures in policies of the govt. Epidemic, Pandemic Reasons for Recession-Pandemic, demonetization, GST, Date- 12.08.2022, Friday KENEYS’S BUSINESS CYCLE MODEL: This theory was after the IInd WW, Great Depression. There was a lack of Aggregate Demand (AD) = Consumption (dependent upon the size of income and MPC) + Investment ( Rate of Interest- ROI, and MEC) Since Marginal Propensity to consume (MPC) in a short period so consumer demand plays a greater role. Investment Demand (ID), will determine the Aggregate Demand. Due to expansion, people will start investing, and demand for capital increases, due to which the cost of production increases. When the Cost of Production increases, MEC (Marginal

Date- 18.08.2022, Thursday SAMUELSON’S BUSINESS CYCLE MODEL Modern Business Cycle Model It is not only the multiplier that works but us is also the Accelerator. M – A (K) – (V) (V) is accelerator Delta I  Delta Y  Delta I Change in autonomous investment  (so there is increase in income) Increase in Expenditure  Increase in consumption will lead to increase in Demand- which will lead to increase in supply- further leading to increase in investment in consumption goods  further increase in Investment which is the accelerator. Autonomous investment is done by govt. which is not for profit motive, it is not based on level of income of economy, it has to be done in any condition and are for the provision of services or facilities to the citizens, it may be in form of infrastructure projects, subsidies, etc. Capital Output ratio shall be always low as it will increase the accelerator as the investment will increase. Capital Output Ratio is the capital required for manufacturing of a product. That is if the production of a bottle requires a capital of Rs. 20 and the output is sold for Rs.50, the ratio is 2:3, which means the capital output ratio is low, which will increase the accelerator that is increase in the investment. ASSUMPTIONS:

  1. The productive capacity is limited.
  2. There is a time lag of 1 period (it could be anything) between investment and income.
  3. No govt. activity, non-govt. intervention
  4. Closed Economy- no international trade- no import export Y = AS = AD (Y is Income) Yt= Ct + It ------------------------ (1) (The govt. investment and Net import export is removed due to the presence of the last two assumptions) Ct = Ayt-1 ---------------------------- (2) It = (Ct – C (^) t-1) ------------------- (3) Equation (2) and (3) in equation (1) Yt = aYt-1 + b (Ct – Ct-1) Yt = a.Yt -1 + b ( aYt – aYt-2) Yt = a.Yt-1 + abYt-1 – abYt- Yt = aYt-1 (1+t) – abYt-

Date- 25.08.2022, Thursday INFLATION: Persistent rise in the general price level. Open Inflation- no control by the govt. Supressed Inflation- govt. takes control by fiscal and monetary policy, but in the later period does not Creeping Inflation- The inflation moves at a very low speed. It is below 3 percent. Inflation is good for the economy if it is in a creeping stage because it increases the profits and hence the economy keeps growing. So inflation below 3 percent is healthy for the economy If creeping inflation is not controlled by the govt. then there is galloping inflation. Galloping inflation- at a faster pace. India is currently in this stage. Hyper Inflation- due to the excessive deficit spending by the govt. In india after covid there was no injecting of money or excessive printing of currency which controlled the inflation. CAUSES OF INFLATION:

  1. Factors on Demand Side:
  • Increase in money supply
  • Deficit financing- expenditure is more than revenue. In this case the govt. asks RBI to print more currency.
  • Increase in govt. expenditure
  1. Factors on supply side:
  • Inadequate agricultural and industrial growth- due to crop failure, drought etc. Failure of crops encourage hoarding by wholesalers which leads to scarcity and leads to an increase in price levels. Performance of industrial sector is not satisfactory, as it based on heavy industries and which does not fulfill the supply.
  • Rise in administered prices- large part is regulated by govt.- the govt. keeps on raising prices to cover up loses- leads to cost push inflation. The upwards revision in administered prices of coal, steel etc, the other prices also go up.
  • Rising import prices- inflation being a global phenomenon, if a particular imported good is highly priced in the country of origin which makes it costly in the country of import as well and this contributes in the rise of prices of the domestic market. Ex. Petroleum. The govt. in order to curb this purchases these commodities themselves and then provide it to consumers at a subsidized rate.
  • Rising Taxes- it is in terms of indirect taxes. To raise additional financial resources, the govt. depends upon the indirect taxes, and hence increase it which eventually leads to an increase in price level. How is inflation measured?

Repo Rate. In OMO, the securities are sold to the public, the funds go to RBI, this way the supply of money in the economy reduces.

  1. Fiscal policy- Taxes- Direct taxes will be increased. Public expenditure will be decrease which will bring down the flow of money. The savings will be increased.
  2. Other:
  • rational wage policy- there is rise in price, labours ask for increase in wages, but the output is not increasing this will lead to further rise in price. Hence it is necessary to have a rational wage policy. Date- 29.08.2022, Monday DEFLATION: Opp. Of inflation Inflation is better than deflation Decrease in the general price level. It can intensify a recession and lead to a deflationary spiral CAUSES:
  • Fall in Aggregate Demand-
  • Fall in Money Supply-
  • Decline in Confidence
  • Lower Production Cost
  • Increase in Aggregate Supply
  • Technological advances EFFECTS: DISINFLATION- When the Inflation increases but by a lesser amount or percent. STAGFLATION- economic slowdown, economy isn’t growing but prices are high. uk Date- 30.08.2022, Tuesday Q.1- Present a comparative analysis of Keynesian and Classical school of thought? Q.2- Critically analyse the Samuelson model of Business Cycle. Date- 05.09.2022, Monday PUBLIC FINANCE Basis of Similarities between private and public finance:
  1. It is done to get the maximum benefit
  2. Scarcity of Resources
  1. Precedence of income
  2. Optimum allocation of resources
  3. Borrowings
  4. Adjustment of Income and Expenditure Differences between Private and Public Expenditure:
  5. Nature of benefit- Pvt- Profit, Public- Social Motive
  6. Extent of Borrowing, Pvt- Limited, Public- larger extent
  7. Determination of Expenditure
  8. Secrecy of Budget, pvt. - is secret, Public- is presented to a large number of people.
  9. Compulsory Character, the revenue generation in public sector is compulsorily public, in pvt. They cannot force the people.
  10. Effect on economy, pvt. – no direct impact, Public- direct impact as it is meant for economic purposes of the general public
  11. Time duration, in pvt. It depends from person to person or from organization to organization, in public there is a time limit fixed for a budget.
  12. Patterns of expenditure, Public- on the basis of general income, employment levels, pvt. – it would depend upon the requirements of an individual or organization Objective of PUBLIC FINANCE:
  13. Economic Growth and Development
  14. Economic Stabilization Scope:
  15. Public Revenue
  • TAX- direct and indirect
  1. Public Expenditure
  2. Public Debt- loans
  3. Public Administration Date- 06.09.2022, Tuesday PUBLIC REVENUE:
  • TAX  DIRECT TAX-  Demerits- tax evasion, demotivates, Narrow coverage  Merits- Anti-inflationary, Equity, Convenient, Cost efficient  INDIRECT TAX-  Demerit- Inflationary, less equitable, less convenient, High cost of agriculture  Merits- Universality, less demotivative, Broad Coverage Non-Tax Sources:
  • Fines and Penalties, Charges, Fees
  • PSUs- Profit
  • Railway, Postages
  • Profit by RBI

MID-SEMS SYLLABUS DONE!!!!!

Important Question:

  1. Suppose an Economy is undergoing recession because of fall in aggregate demand: a. Using an aggregate demand and supply diagram depict the situation of the economy. b. If policy makers take no action, how will the economy evolve over time.
  2. Explain different methods of calculating national income. Which method of calculating National Income is appropriate in context to India Economy? Go through the article about Public Finance in the reading Material. SYLLABUS: Unit I- Meaning of Micro Economics and its relation to macroeconomics. Unit II- Theories of Output and employment- Classical and Keynesian Theory Unit III- Business Cycle- Long and Shot, Inflation, Deflation, Stagflation, Keynesian view of Business Cycle, Samuelson model, Regulation relation to trade cycle- monetary policy, fiscal policy Unit IV- NI and Social Accounting- Types, Problems, etc. the entire 4th^ unit. Nature and scope, public and private, PMSA, (GST won’t be coming) Date- 26.09. MONEY:
  • Medium of exchange that is universally accepted
  • Legal tender
  • Store of value Problems/Barriers of Barter system: -
  • Lack of chance of wants
  • Double coincidence of wants
  • Lack of common Measure of value
  • Lack of subdivision
  • Lack of store of value
  • Difficulties in future payments
  • Difficulty in transfer of wealth
  • Difficulty in tax collection
  • Lack of specialization
  • Difficulty in budgeting
  • No scope of saving
  • Some goods cannot be stored
  • No divisibility of goods
  • Inconvenience to carry

On the basis of evolution, the money is classified in five main types: Commodity money: - In commodity money, different commodities have been used as money. A single commodity authorized by a country or place to use as a form of exchange. However, the supply of these can’t be controlled. Metallic money: - Use of Coins of different value

  • Convenience
  • Supply is limited
  • Fake currency
  • Intrinsic (Similar at face value) and extrinsic (not similar at face value) Paper Money: -
  • Consists of money issued by the reserve bank of the India
  • Initially Same face value and intrinsic value
  • Later Face value is not equal to Intrinsic value
  • Initially proportional reserve and minimum reserve Bank Money: -
  • Bank Deposits
  • Bank Deposit
  • Savings (will get the interest)
  • Current account (won’t get the interest)
  • Fixed deposit (less liquid) Digital Money: - Fiat Money: - Money which is printed during time of emergency or crisis. DEFINITION OF MONEY: H. G. Johnson The Conventional Approach- Oldest and widely accepted approach The Chicago Approach The Gurley Shaw Approach The Central Bank Approach Conclusion FUNCTIONS OF MONEY: Anything which is used for medium of exchange, measure of value, store of value and standard of deferred payments. SPECULATIVE MONEY

Increase in supply of money is inversely proportional to value of money. To prove this, Economists formulated quantity theory of money.  Fisher’s Transaction Approach- MV = PT Where, M= Supply of money V= Velocity of money P= Price level of goods and services T= Total amount of goods and services MV= Supply of money PT= Demand of money Assumptions-  Constant velocity of money  Constant volume of Trade and transaction  Price level is a passive factor  Money is the only medium of exchange  Direct relationship between M and M’  Long period (When V, M’V’ and T’ are constant for long period of time, then money supply is directly proportional But later Fisher modified the equation- MV+M’V’ = PT M is directly proportional to Price level of Goods and services -M = 1/ Value of money. Criticisms- CENTRAL BANK OF INDIA (RBI) It has the authority to control all the banks. Monetary Functions-

  1. Bank of issue or currency Function
  2. Banker, Agent and Advisor of the government
  3. Custodian of cash and Foreign Exchange Reserves
  4. Lender of last resort
  5. Credit Control Non-Monetary Functions-
  6. Supervision of Bank
  7. Promotional and developmental function- NABARD and EXIM
  8. Data Collection and Publication
  9. Clearance TYPES OF BANKS

Banks- Commercial bank, regional Rural Banks, Cooperative Banks Commercial banks Scheduled Banks Non-scheduled Banks Indian Banks Foreign Banks

  1. Public Sector Banks
  2. Private Sector Banks Functions of commercial Banks- (a) Primary Functions- Acceptance of deposits, advancing loans, Creation of Credit, Clearing of Cheques Creation of Credit- Deposit (1000)- CRR (5%) (50)- Loan (950)- Investment (W, R, I, P)- Deposit (950)- CRR (47,5)- Loan (902)- Investment (W, R, I, P) Credit Creation= Deposit*1/CRR (%) (b) Secondary Functions- (c) General Utility Services- Locker facilities, Travellers’ Cheque Regional Rural bank: - Features- Cooperative Bank: - Features- CHAPTER- 10 Liberalization, Privatization, Globalization https://blog.ipleaders.in/all-about-liberalization-privatization-and-globalization/ REASONS FOR IMPLEMENTING LPG With long-term perspective and eyeing for improvement of the economy and enhancing the international competitiveness, reforms were made to remove rigidity in various segments of Indian economy. These measures were undertaken to correct the inherent weakness that has developed in Balance of Payments and control the inflation. These measures were short-term in nature. Various Long-Term Structural Reforms were categorized as:  Liberalization  Privatization and  Globalization

 Lop-sided development  Income disparities Disinvestment Disinvestment commission Successful Privatizations in India GLOBALISATION ADAVANTAGEs DISADVANTAGES FDI in India FINANCIAL SECTOR REFORMS- Banking sector, Capital sector, Foreign Sector Banking Sector- National 1969/1980 -> 1991 RBI Regulation First phase of banking sector reforms /Narasimhan Committee report- 1991

  1. Recommendation of Narasimhan committee:  Establishment of 4-tier banking system
  2. Lowering SLR and CRR  Reduction SLR and CLR led to more funds with banks for allocation to agriculture etc.
  3. Prudential Norms: Standard assets and non-performing assets (NPA)
  4. Capital adequacy Norms- Rs 20 lakh deposited to bank, interest on it, etc are assets. If there is a risk that this money will not get back, it is capital risk. The Capital assets and its risk ratio should be less than 8%.
  5. Deregulation of interest ratio- Interest rates should be decided by market forces.
  6. Recovery of debts- Passed Recovery of debts due to banks and financial institutions act, 1993 to facilitate and speed up recovery of debts due to banks & financial institutions.
  7. Competition from new private sector banks: Banking now open to private sector. SARFAESI Act India- The Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act India) empowers Banks and Financial Institutions to recover their non-performing asset (NPA) loan dues without the intervention of the Court. The provisions of this Act are applicable only for Non-Performing Asset (NPA) loans with outstanding above Rs.1 lakh. Further, NPA loan accounts where the amount is less than 20% of the principal and interest are not eligible to be dealt with under this Act. FII (Foreign institutional investors and Foreign Banks)
  1. Phasing out of Directed Credit- Phasing out of the directed credit programme. Reason- Farmers, small industries and transporters have powerful lobbies.
  2. Access to capital Market-
  3. Freedom of operation- Scheduled commercial banks are given freedom to open new branches and upgrade extensions.
  4. Local area banks- Helped in mobilising rural savings and in channelling it to investment in local areas.
  5. Supervision of commercial banks- Establishment of department of supervision by RBI in 1993. ATM is an example of Reform in Banking Sector. Positive impacts of reform in banking sector (1991): - (a) Increasing competition to public sector banks- Income efficiency (b) Increasing accessibility – more banks (c) Inflow of fund (d) Checks & balances – By RBI (e) Agricultural sector boost (f) Technological advancement Negative impacts of reform: - (a) Increasing NPA (b) Increase in consumption- increase in inflation (c) Increasing manipulation by private sector (d) Waiving of loans (e) Misuse of technology CAPITAL MARKET REFORMS IN INDIA There are two types of Financial Market-
  6. Capital Market- A capital market is a financial market where money is borrowed or invested for a long-term meaning more than a year. Some prominent participants of this market are banks, financial institutions, corporate bodies, foreign institutional investors, retail investors, etc. Due to the long term nature, the returns and gains are also high. Some capital market instruments are equity, preference share, debenture, bonds, etc. The capital market is further divided into primary market and secondary market.
  7. Money Market- A money market is a financial market where money is borrowed or invested for a short-term, meaning less than a year. This short-term fund is not bound to a fixed geographical location due to globalization. It includes institutions like The Reserve Bank of India, commercial banks, life insurance corporations (LIC), etc. Due to the short-term nature of this financial market, it is not risky, and the returns and gains are low. Some money market instruments are treasury bills, commercial bills, commercial paper, cal money, certificate of deposit, etc. Difference Between Capital Market and Money Market-