banks and ssc - general awareness 1 economy
TRANSCRIPT
BANK EXAMS AND SSC
General Awareness – EconomyMajor Changes in the recent times
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Economy
An economy (from Greek, "household" and "manage") is an
area of the production, distribution, or trade, and consumption
of goods and services by different agents.
The economy is the production and consumption activities
that determine how scarce resources are allocated in an area.
Careful management of available resources.
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Factors of Production
Land –All natural physical resources
Labour – Human input
Capital – Fixed capital, machinery, equipment, new technology
Enterprise – Entrepreneurs organize factors and take risks
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Types of Economy
Capitalism : Capitalism is an economic system in which capital goods are
owned by private individuals or businesses. The production of goods and
services is based on supply and demand in the general market (market
economy), rather than through central planning.
Socialism: Socialism is a populist economic and political system based on
the public ownership (also known as collective or common ownership) of
the means of production. Those means include the machinery, tools and
factories used to produce goods that aim to directly satisfy human needs.
In a purely socialist system, all legal production
and distribution decisions are made by the government, and
individuals rely on the state for everything from food to healthcare.
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Mixed Economy
A mixed economic system is an economic system that features
characteristics of both capitalism and socialism.
A mixed economic system protects private property and
allows a level of economic freedom in the use of capital, but
also allows for governments to interfere in economic activities
in order to achieve social aims.
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Green Economy
The green economy is defined as an economy that aims at
reducing environmental risks and ecological scarcities, and that
aims for sustainable development without degrading the
environment.
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GDP
The GDP - Gross domestic product of a country is a measure
of the size of its economy.
The most conventional economic analysis of a country relies
heavily on economic indicators like the GDP and GDP per
capita.
While often useful, it should be noted that GDP only includes
economic activity for which money is exchanged.
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Calculation of GDP
The following equation is used to calculate the GDP:
GDP = C + I + G + (X – M) or
GDP = private consumption + gross investment + government
investment + government spending + (exports – imports).
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Real GDP and Nominal GDP
Nominal value changes due to shifts in quantity and price.
In economics, real value is not influenced by changes in price,
it is only impacted by changes in quantity. Real values
measure the purchasing power net of any price changes over
time.
Real GDP accounts for inflation and deflation. It transforms
the money-value measure, nominal GDP, into an index for
quantity of total output.
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Inflation
Inflation is defined as a sustained increase in the general level
of prices for goods and services in a county, and is measured as
an annual percentage change.
Inflation is measured by percentage change in CPI over time
A consumer price index (CPI) measures changes in the price
level of market basket of consumer goods and services
purchased by households.
Venezuela has the highest inflation in the world, with an annual
inflation of around 536.2% as of October 2017.
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Monetary Policy and Fiscal Policy
BASIS FOR
COMPARISONFISCAL POLICY MONETARY POLICY
Usage Fiscal policy is the use of
government revenue
collection and expenditure to
influence the economy.
The tool used by the central
bank to regulate the money
supply in the economy.
Administered by Ministry of Finance Central Bank
Frequency of revision Yearly Depending on the economic
status.
Related to Government Revenue &
Expenditure
Banks & Credit Control
Focuses on Economic Growth Economic Stability
Policy instruments Tax rates and government
spending
Interest rates and credit
ratios
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Instruments of Monetary Policy
Bank Rate of Interest
Cash Reserve Ratio
Statutory Liquidity Ratio
Open market Operations
Margin Requirements
Deficit Financing
Issue of New Currency
Credit Control
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Instruments for Fiscal Policy
Reduction of Govt. Expenditure
Increase in Taxation
Imposition of new Taxes
Wage Control
Rationing
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Major Changes in Indian Economy in recent
times
Liberalisation of Indian Economy
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Liberalisation - Reforms
Liberalisation refers to the slackening of government regulations.
The economic liberalisation in India denotes the continuing
financial reforms which began since July 24, 1991.
Bringing in the Security Regulations (Modified) and the SEBI Act
of 1992 which rendered the legitimate power to the Securities
Exchange Board of India to record and control all the mediators in
the capital market.
Dr. Manmohan Singh, Former Prime Minister of India, was then the
Finance Minister of the Government of India. He assisted.
Narasimha Rao and played a key role in implementing these reform
policies.
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Liberalisation - Reforms
Promoting FDI (Foreign Direct Investment) by means of
raising the highest cap on the contribution of international
capital in business ventures or partnerships to 51 per cent from
40 per cent. In high priority industries, 100 per cent
international equity was allowed.
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Liberalisation - Reforms
Launching of the National Stock Exchange in 1994 in the form
of a computerised share buying and selling system which acted
as a tool to influence the restructuring of the other stock
exchanges in the country. NSE was incorporated in 1992.
It was recognised as a stock exchange by SEBI in April 1993
Commenced operations in 1994
Launched NIFTY 50 Index in 1996, which remains NSE’s flagship index
today.
By the year 1996, the National Stock Exchange surfaced as the
biggest stock exchange in India.
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Other Reforms
Foreign Technology Agreements
Foreign Investment
MRTP Act, 1969 (Amended)
Industrial Licensing
Deregulation
Beginning of privatisation
Opportunities for overseas trade
Steps to regulate inflation
Tax reforms
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Major Changes in World Economy in recent
times Eurozone Crisis
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European Union
The European Union (EU) is a political and economic union of 28 member
states that are located primarily in Europe
Euro Zone has 19 countries – Monetary Union
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Eurozone Crisis
In Europe, in the beginning, internal wars
High Exchange Fee, Tariff Fee – Trade between countries is not easy
World War 2 - Devastated Europe
Unified Europe - Bind Together
Berlin Wall Collapse – The Fall of the Wall, on November 9, 1989
Reunification of East and West Germany
European Union – No Borders – Easy trade
Same Currency – European Central Bank
One monetary policy – Different Fiscal Policies
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Eurozone Crisis
Some Countries started deficit spending – More credits
Germany’s Credit Card
Greece Spending levels increased
Ireland Spain also started doing the same
Austerity Measures
Cut Spending
Cultural Differences
Germany and Greece
Fiscal Union or Breakup
United States of Europe(like United States of America) or Nothing
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Revision
Which of the following is NOT a function of the Reserve
Bank of India?
a) Fiscal Policy Functions
b) Exchange Control Functions
c) Issuance, Exchange and destruction of currency notes
d) Monetary Authority Functions
e) Supervisory and Control Functions
Answer: (a)
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Revision
Nationalization of banks aimed at all of the following except
a) Provision of adequate credit for agriculture, SME & exports
b) Removal of control by a few capitalists
c) Provision of credit to big industries only
d) Access of banking to masses
e) Encouragement of a new class of entrepreneurs
Answer: (c)
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