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Basic concepts of national income:

1. Definition of National Income:

National income is the sum of all the incomes earned by the factors of production within a country's borders in a given time period.

2. What are the methods of Calculating National Income ?

There are three main methods: 

1. the Income Method

2. the Expenditure Method

3. the Output Method

 They should all yield the same result, which is the total national income.

3. What are components of National Income ?

   National income is typically categorised into various components, including wages and salaries, profits,       rents, and interests.

4. Gross National Product (GNP) vs. Gross Domestic Product (GDP):

GNP includes the income earned by the country's residents both domestically and abroad, whereas GDP only includes income earned within the country's borders.

5. Real National Income vs. Nominal National Income:

Real national income is adjusted for inflation, while nominal national income is not. Real national income gives a more accurate picture of an economy's growth.

6. What is Per Capita Income ?

   This is the national income divided by the total population of a country. It is a useful indicator for comparing the standard of living between countries.

7. What are importance of National Income ?

 It helps in measuring economic growth, evaluating the standard of living, making international comparisons, and formulating economic policies.

8. What are Challenges in Measuring National Income ?

Challenges include the underground economy, non-monetary transactions, and the valuation of non-market activities.

9. What are Limitations of National Income ?

   National income does not capture following 

•  income distribution

• quality of life, or non-economic factors like health and education.

10. What is National Income of an Economy?

National income refers to the total value of all goods and services produced within the boundaries of a country in a given time period, usually a year. It represents the collective income earned by all factors of production, including labor, capital, and land, and serves as a critical economic indicator to measure the overall economic performance of a nation.

11. What are Aggregate in Economics?

In economics, "aggregate" is a term used to describe the sum or total of various economic variables or components within an economy. Commonly used aggregates include aggregate demand (the total demand for goods and services in an economy), aggregate supply (the total supply of goods and services), and aggregate expenditure (the total spending in an economy). Aggregates help economists analyse the overall behaviour and performance of an economy, often by considering the interactions between different sectors and components.

Basic concepts of Money 

What are characteristics of to be Money ?

1 Medium of Exchange: 

Money serves as a widely accepted medium for trading goods and services. It eliminates the need for barter, making transactions more efficient.

2. Unit of Account:

Money provides a common measure of value, allowing people to compare the prices of different goods and keep track of their wealth.

3. Store of Value:

Money can be saved and used in the future. It retains its value over time, allowing individuals to store wealth.

4. Standard of Deferred Payment:

 Money facilitates contracts where payments are made in the future, providing a reliable means of settling debts.

What are types of Money in an economy?

1 Commodity Money: 

Money that has intrinsic value, like gold or silver coins.

2. Fiat Money:

 Money that is declared by the government to be legal tender, with no intrinsic value.

3. Digital and Electronic Money:

 Modern forms of money represented electronically, such as bank deposits and cryptocurrencies.

Basics of Banking  System of India

1. Reserve Bank of India (RBI):

The Reserve Bank of India is the central bank of the country. Its primary functions include issuing and regulating the Indian currency, controlling monetary policy, and supervising and regulating banks and financial institutions.

2. Commercial Banks:

These are the backbone of India's banking system and serve various functions. They include both public sector banks (owned by the government) and private sector banks.

3. Scheduled Banks:

 Banks that are listed in the Second Schedule of the Reserve Bank of India Act, 1934 are known as scheduled banks. These banks are eligible for loans from the RBI.

4. Cooperative Banks:

These banks are organised as cooperatives and cater to the financial needs of various cooperative societies, farmers, and rural areas.

6. Electronic Funds Transfer:

 The National Electronic Funds Transfer (NEFT) and Real-Time Gross Settlement (RTGS) systems enable electronic transfer of funds between banks and are widely used for transactions.

7. Digital Banking:

The advent of technology has led to digital banking services, including internet banking and mobile banking, which allow customers to access their accounts and conduct transactions online.

8. Banking Services:

Commercial banks provide a range of services, including lending, accepting deposits, issuing credit cards, and providing trade finance and forex services.

9. Non-Performing Assets (NPAs):

NPAs are loans that are not being repaid as per the agreed terms. Banks must manage and recover NPAs to maintain their financial health.

10. Banking Regulations:

The banking sector in India is regulated by the RBI, which sets prudential norms, capital adequacy requirements, and conducts regular inspections to ensure the stability of the banking system.

Concepts of Investment Multiplier 

The investment multiplier is a fundamental concept in economics that explains how an initial change in investment can lead to a more significant change in overall economic output or income. It is based on the idea that when firms invest in new capital goods or projects, it creates a ripple effect throughout the economy.

Important concepts related to the investment multiplier:

1. Marginal Propensity to Consume (MPC): 

The MPC represents the fraction of an additional income that households and individuals spend on consumption. It's a crucial factor in the multiplier process because it determines how much of the initial injection of spending gets re-spent in the economy.

2. Initial Investment: 

This is the starting point of the multiplier process. An increase in investment spending by firms, such as building a new factory, can stimulate economic activity.

3. Induced Spending: 

When firms make an initial investment, it leads to increased income for workers, suppliers, and others involved in the project. As these individuals and businesses earn more, they, in turn, spend some of their additional income.

4. Multiplier Effect: 

The multiplier effect is the cumulative impact of each round of induced spending. The process continues as each successive round of spending generates additional income and, consequently, more spending.

5. Formula for investment multiplier :

 The formula for calculating the investment multiplier is: Multiplier = 1 / (1 - MPC). This formula quantifies the total change in income or output resulting from the initial change in investment.

6. Leakage:

 Leakage refers to any withdrawal from the circular flow of income and spending. In the context of the multiplier, savings and taxes are examples of leakages because they reduce the amount of income that individuals can spend.

7. Fiscal and Monetary Policy Implications: 

Understanding the investment multiplier is crucial for policymakers. By manipulating government spending, taxes, and interest rates, they can use the multiplier effect to stimulate or restrain economic activity. For example, increasing government spending can lead to a larger multiplier effect and boost economic growth.

Conclusion

the investment multiplier illustrates how changes in investment can have a magnified impact on the overall economy, making it an essential concept in macroeconomics.

INTRODUCTION

Every individual has specific needs, for the satisfaction of which, he/she needs resources. But the resources that a person have, to satisfy his needs are always limited and have alternative uses, and his needs are unlimited. For example, Ram has Rs. 100 (resource) which he can use to satisfy his various requirements such as food, cloth, entertainment (alternative uses) etc. But all needs can not be satisfied with Rs—100 (a limited resource). So, the problem of scarcity of resources in relation to our needs has led to the emergence of Economics as a subject matter of study. 

ECONOMICS

Economics is the study of economic problems or issues that arises due to the scarcity of resources about our needs and alternative uses of those scarce resources. So, it focuses on the rational management of limited resources in such a way that economic welfare is maximized.

Economics is broadly divided into two parts:

1. Microeconomics
2. Macroeconomics

Microeconomics

Microeconomics refers to that part of the economics in which the economic problems are studied at the level of an individual - an individual firm, a particular consumer. The main components of microeconomics are Theory of consumer behaviour, Theory of producer behaviour, Theory of price etc.

Macroeconomics

Macroeconomics refers to that part of economics in which the economic problems are studied at the level of the economy as a whole, i.e. at an aggregate level. The main components of macroeconomics are Theory related to the equilibrium level of output or employment, Fiscal and Monetary Policies, Money supply and Credit creation, National income etc.

It should be noted that while studying microeconomics, macro variables are assumed to be constant, and while exploring macroeconomics, micro variables are assumed to be constant.

Have a beautiful day :)

MANAGERIAL ECONOMICS   

Application of Economics in Managerial Decision Making to optimize resources of the firm and maximize the value of the firm 

 What is economics?

• The best product, wealth, or service you can get through the resources within constraints we have.
• Economics talks about Rational Human beings.

Demand in economics refers to a consumer's desire to purchase goods, or services, and willingness to pay the price for specific products or services.

DEMAND   is an essential concept in  Economics. The three most critical components of need are :

1. Utility
2. Affordability
3. Accessibility

 A Consumer may have elastic or inelastic demand for a good or service. 

 ELASTIC DEMAND: In simple words, If the selling price of a product decreases, there will be an increase in the number of units. Demand elastic when with a small change in price, there is a notable change in quantity demanded eg.: clothing brands when buying online, Shampoo, Soap etc.

 INELASTIC DEMAND: DEMAND is rigid or less elastic when even a significant change in price induces only a slight shift in demand. For eg.: Petrol, Indian railways etc.

Keep Reading!                                  

Every Economy is a Keynesian Model right now but not to increase the Aggregate Demand but to control the Pandemic. As the saying goes, the rule of war never changes, it's the weapons that change. So post corona as well the law of economic war will remain the same but the arms of price, product, strategies, etc.. will change.

7 Ts that can happen/ may happen post corona are

1 Transformation from traditional organisational structure to the new WFH model (the business models, especially for IT industry, will employ in this manner as understood concerning the recent directive by the Indian government)

2 Technological takeover in different sectors and industries (rise of ethical consumers, the new way of hygiene maintenance and a need for social distancing will lead to innovation, and new technological advancements will happen.

3 Thrifty Investments by both businesses and households (Businesses many of them are incurring huge losses and covering that up they will be very mindful of their investments, as well as households, will watch their expenses as job loss, income cuts and price rise will play a role)

4 Tenacity of employees as job market will transform (The employees will be motivated, efficient and dedicated due to lay off in organisations or tightened opening of vacancies in the market)

5 Tariffs and Taxes on (the exports/imports and community, more restrictions on imports and an expansionary fiscal policy/ expenditure switching policy will aim at increasing the aggregate demand and protecting the domestic producers, sunset industries etc.)

6 Tick size in the financial market (minimum price change in the financial sector). The investors' interest will be protected with new rules.

7 Third Way Political Economic Model (a hybrid of both the left-wing and right-wing politics, a model "beyond left and right", a model that takes in consideration the social justice, neoliberalism as well as capitalism or in simple words a "New Mixed Economy")

All these Ts will mainly relate to Tiger Economies/ Asian Economies. In the long run, the World will opt India for diversified supply chain and manufacturing channels.

Methods of Calculating National Income

Value Added Method:- According to this method, National Income is calculated by adding net value by

                                          all producing unit during the year within the domestic boundary.

GVPmp = GDPmp = Value of Output – Intermediate consumption 

                                          ↓

                             Sales+ Change in stock

                                                     ↓

                                        Closing stock – Opening stock

                            or

GDPMP= Gross value added by primary sector, tertiary sector, secondary sector

For calculating domestic & national income,

Domestic income (NDPFC) =GDPMP –Depreciation – NIT

National Income(NNPFC) = NDPFC+NFIA

Following items should not be included

(i) Sale and purchase of second hand goods.

(ii) Value of intermediate goods & services.

(iii) Goods & services produced for self-consumption.

Precautions:-

(i) Commission on sale and purchase of second goods is included.

(ii) Imputed value of production  for self-consumption is included.

(iii) Imputed rent on the owner occupied house is also included.

Problem of Double Counting:-  Double counting means when value of certain goods  is counted more than once. E.g. suppose there are four producers.

                           Farmer, Miller, Baker, Shopkeeper

                               Total :               14000                                     9000                                     5000

If we take  â?¹14000 as final output, this will arise the problem of Double Counting.

To avoid the problem of double counting, we have following measures:-

(i) Value Added Method:- By this method, we take value added only at each stage i.e. 5000

     Value Added= Value of output – intermediate consumption(inputs value)

                             = 14000-9000

                             =5000

(ii) Final Output method :- According to this method, we take value of final goods only. Value of Intermediate goods are not taken into account. In the above case, â?¹5000 only added to national income.

Income Method:- According to this method, national income is measured in terms factor payments

                                                                                                                                                        ↓

                                                                                                                                   (Land, Labour, Capital, Owner)

Components of Income Method-

(i) Compensation of Employees: it includes

              (a) Wages and salaries in cash and kind

              (b) Employers’ contribution to Social Security

              (c) Pension on Retirement (It does not refer to old age pensions)

              Note:- Ignore employee contribution to social security

(ii) Operating  Surplus: It is the income from property and entrepreneurship. It includes

              (a) Rent, Interest, Royalty

                                    ↓

             (Ignore National Debt Interest)

              (b) Profit: Profit is further split into

                              → Dividends

                              → Corporate Profit Tax (tax on profit)

                              → undistributed profits (corporate saving)

(iii) Mixed Income: Income of the self-employed persons using their own labour, land, capital, and  owner,  to produce goods & services. For e.g.  an owner uses himself in place of manager or any other type of labour, or his car, or his building instead of other.

 When we add above values, we get NDPFC (domestic income)

Operating Surplus + Compensation of Employees+ Mixed Income = Domestic Income (NDPFC)

Precautions:

(i) Transfer earnings like old age pensions, scholarships etc. should not be included in National Income.

(ii) Income from illegal activities is not to be included.

(iii) Brokerage on sale and purchase of bonds should be included.

(iv) Commission on sale and purchase of second hand goods should be included.

(v) Income from lotteries or capital gain should not be included.

(vi) if any item is separately listed then it should not be included. For e.g. if  value of operating surplus is given and we have separate value of wages & salaries, then wages & salaries should not be included while calculating national income.

Expenditure Method:- As we know, “Production creates income, income creates expenditure”. If we want to calculate National Income by this method, we have to add different final expenditures from an economy. By adding all final expenditure we get GDPMP.

Components of Expenditure Method:-

(i) Private Final Consumption Expenditure(C)

(ii) Government Final consumption Expenditure(G)

(iii) Investment Expenditure(I):

         It includes, = Business Fixed Investment (Purchase of fixed assets)

                           + Residential Construction

                           + Public Investment (Roads, dams, bridges)

                           + Inventory Investment (change in stock)

                           + Net Acquisition of Valuables(Gold, Diamonds)

(iv) Net Exports (X-M) = Exports – Imports

GDPMP = C+I+G+(X-M)

Domestic Income (NDPFC) = GDPMP –Depreciation-Net Indirect Taxes