Modern States have to build the base for the economic development of the country by creating social and economic infrastructure.

i. This method is frequently adopted by the Central Bank to exercise control over the Commercial Banks.
ii. Under this method Central Bank gives advice, then requests and persuades the Commercial Banks to co-operate with the Central Bank in implementing its credit policies.

(i) RBI introduced the Banking Ombudsman Scheme in 1995.
(ii) Under this scheme, the complainants can file their complaints in any form, including online and can also appeal to the Ombudsman against the awards and the other decisions of the Banks.

Planning by Direction	Planning by Inducement
There is a central authority which plans, directs and orders the execution of the plan in accordance with predetermined targets and priorities.	The people are induced to act in a certain way through various monetary and fiscal measures

M1 = Currency, coins and demand deposits
M2 = M1 + Savings deposits with post office savings banks
M3 = M2 + Time deposits of all commercial and cooperative banks.
M4 = M3 + Total deposits with Post offices.

i. Keynes did not accept the classical view that reduction in money wages led to full employment.
ii. He emphasized that unemployment could be removed by raising the effective demand.
iii. According to Keynes, a cut in money wages applied to the economy as a whole reduces employment rather than increasing it.

The value of total output of goods and services produced in an economy in a year

There are many other packages which are used by econometricians, include Eviews, Gretl, PcGive, Python, RATS, SAS.

(a) Nominal exchange rate
(b) Real exchange rate
(c) Nominal Effective Exchange Rate (NEER) and
(d) Real Effective Exchange Rate (REER)

Gross National Product at market price is Gross Domestic Product at market price plus net factor income from abroad.
GNP_MP is the money value of all final goods and services produced in the domestic territory of a country during a year plus Net factor income from abroad. i.e.,
GNP_MP = GDP_MP + (X - M)
Where,
GNP_MP = Gross National Product at market price
GDP_MP = Gross Domestic Product at market price
(X - M) = Net factor income from abroad

Positive Multiplier
When an initial increases in an injection (or a decrease in a leakage ) leads to a greater final increase in real GDP.
Negative Multiplier
When an initial increases in an injection (or an increase in a leakage ) leads to a greater final decrease in real GDP.

The SDGs links three dimensions of sustainable development: economic development, social inclusion and environmental sustainability.

Question
Income	Consumption	Savings
Y	C	S
0	20	-20
60	70	-10
120	120	?
180	170	10
240	220	20
300	270	30
360	320	40

(i) Administering WTO trade agreements.
(ii) Forum for trade negotiations.
(iii) Handling trade disputes
(iv) Monitoring national trade policies.

Capital gains arise when a capital asset such as a house, other property, stocks or shares, etc. is sold at higher price than was paid for it at the time of purchase. Capital gains are excluded from national income.

Financial planning is nothing but techniques of planning in which resources are allocated in terms of money

Aggregate supply = C + S + T + RF = Aggregate income generated in the economy

Wage-price spiral is used to explain the cause and effect relationship between rising wages andsrising prices or inflation

(i) Central planning authority is the controlling authority in a socialistic economy.
(ii) All the decisions are under taken by the central planning authority.
(iii) It means all factors of production are nationalized and managed by public authority.

i) North Korea
ii) China
iii) Venezuela

(i) In economic system both private and public sectors co-exist.
(ii) It work together towards economic development.

(i) Regression means going back and it is a mathematical measure showing the average relationship between two variables.
(ii) It indicates the cause and effect relationship between the variables and establishes functional relationship.

There are two major types of statistics.
(i) Descriptive statistics
(ii) Inferential statistics

Basic and collective needs of the people - health, education, sanitation, water, food, housing facilities.

(i) An ecosystem includes all living things (plants, animals and organisms) in a given area, interacting with each other and also with their non-living environments (weather, earth, sun, soil, climate, atmosphere).
(ii) It is the foundation of the Biosphere and determine the health of the earth.

(i) It involves fresh evaluation of expenditure in the Government budget assuming it as a new item.
(ii) A review is made to justify the project based on the socio-economic objectives and priorities of the society.
(iii) Government of India presented Zero Base Budgeting in 1987-88.

The rate at which goods of one country are exchanged for that of another country i.e. ratio of export price and import price.

A Commercial bank is a financial institution that accepts deposits and advances loans and are profit motivated.

(i) Surplus goods were exchanged for money which in turn was exchanged for other needed goods.
(ii) Goods like furs, skins, salt, rice, wheat, utensils, weapons were used as money

APC is the ratio of consumption expenditure to any particular level of income
APC = \(\frac{C}{Y}\)

 

(i) Effective demand is the money spent on consumption of goods and services and on investment.
(ii) Employment and output depends on the level of effective demand
(iii) When effective demand increases, employment will increase.
(iv) Effective demand is determined by aggregate supply and aggregate demand.

(i) "Full employment is the absence of involuntary unemployment." - Keynes
(ii) "Full employment is that level of employment at which any further increase in spending would result in an inflationary spiral of wages and prices" - Lerner

(i) NDP = GDP - Depreciation.
(ii) NNP = GNP - Depreciation.
(iii) The difference between NDP and NNP is the net factor income from abroad.
(iv) In NDP it is excluded but in NNP it is included.

(i) Circular flow of income is a model of an economy showing connections between different sectors of an economy.
(ii) It shows flows of income, goods and services and factors of production between economic agents such as firms, households, government and nations.

The component of GST are of 3 types. They are: CGST, SGST & IGST.
(i) CGST: Collected by the Central Government on an intra-state sale (Eg: Within state/ union territory)
(ii) SGST: Collected by the State Government on an intra-state sale (Eg: Within state/ union territory)
(iii) IGST: Collected by the Central Government for inter-state sale (Eg: Maharashtra to Tamil Nadu)

BASIS	CRR	SLR
Meaning	CRR is the percentage of money which the bank has to keep with the Central Bank of India in the form of cash.	The bank has to keep a certain percentage of their Net Time and Demand Liabilities in the form of liquid assets as specified by RBI
Form	Cash	Cash and other assets like gold and government securities viz. Central and State government securities.
Effect	It controls excess money flow in the economy.	It helps in meeting out the unexpected demand of any depositor by selling the bonds.
Maintenance with	Central Bank of India i.e. RBI	Bank itself.
Regulates	Liquidity in the economy	Credit growth in the economy.

i) To ensure reduction of tariff and other barriers.
ii) To eliminate discrimination in trade.
iii) To facilitate higher standard of living.
iv) To facilitate optimal use of world’s resources.
v) To enable the LDCs to secure fair share in the growth of international trade.
vi) To ensure linkages between trade policies, environmental policies and sustainable development.

(i) The latest type of money is plastic money.
(ii) Plastic money is one of the most evolved forms of financial products. Plastic money is an alternative to the cash or the standard “money”.
(iii) Plastic money is a term that is used predominantly in reference to the hard plastic cards used every day in place of actual bank notes.
(iv) Plastic money can come in many different forms such as Cash cards, Credit cards, Debit cards, Pre-paid Cash cards, Store cards, Forex cards and Smart cards. They aim at removing the need for carrying cash to make transactions.

S.No	Fictional unemployment	Structural unemployment
1	Frictional unemployment arises due to imbalance between supply of labour and demand for labour	Structural unemployment is due to drastic change in the structure of the society
2.	This is because of immobility of labour, lack of necessary skills, break down of machinery, shortage of raw materials etc.	Lack of demand for the product or shift in demand to other products cause this type of unemployment
3.	The persons who lose jobs and in search of jobs are also included under frictional unemployment	This kind of unemployment results from massive and deep rooted changes in economic structure

Fig.1 : Perfect Positive Correlation
Fig.2 : Perfect Negative Correlation
Fig.3 : High Degree of Positive Correlation
Fig.4 : High Degree of Negative Correlation
Fig.5 : No Correlation
Fig.6 : No Correlation

(1) Value of final consumer goods and services produced in a year to satisfy the immediate wants of the people which is referred to as consumption (C);
(2) Gross private domestic investment in capital goods consisting of fixed capital formation, residential construction and inventories of finished and unfinished goods which is called as gross investment (I);
(3) Goods and services produced or purchased by the government which is denoted by (G) ; and
(4) Net exports of goods and services, i.e., the difference between value of exports and imports of goods and services, known as (X - M)
(5) GNP at market prices means the gross value of final goods and services produced annually in a country plus net factor income from abroad (C + I + G + (X - M) + (R - P)).

i. Atmospheric Noise:
Atmospheric noise or static is caused by lightning discharges in thunderstorms and other natural electrical disturbances occurring in the atmosphere.
ii. Industrial Noise:
Industrial noise refers to noise that is created in the factories. Sound becomes noise it becomes unwanted. Heavy industries like shipbuilding, iron, and steel have long been associated with Noise-Induced Hearing Loss (NIHL).
iii. Man-made Noise:
The main sources of man-made noise pollution are ships, aircraft, seismic exploration, marine construction, drilling, and motor boats.

Macro economics suffers from certain limitations. They are:
1. There is a danger of excessive generalisation of the economy as a whole.
2. It assumes homogeneity among the individual units.
3. There is a fallacy of composition. What is good of an individual need not be good for nation and viceversa. And, what is good for a country is not good for another country and at another time.
4. Many non - economic factors determine economic activities; but they do not find place in the usual macroeconomic books.

(i) Depreciation
(ii) Devaluation
(iii) Import Control
(iv) Export Promotion
(v) Exchange Controls
(vi) Production of Import Substitutes
(vii) Monetary Policy
(viii) Capital Import

(i) Availability of variety of goods for consumption.
(ii) Generation of more employment opportunities.
(iii) Industrialization of backward nations.
(iv) Improvement in relationship among countries.
(v) Division of Labour and specialisation.
(vi) Expansion in Transport Facilities.

The main objectives of planning in India may be grouped under four heads, they are
(i) Growth
(ii) Modernization
(iii) Self - reliance and
(iv) Social justice

(i) The general objective of Econometrics is to give empirical content to economic theory
(ii) The specific objectives are :
(i) It helps to explain the behaviour of a forthcoming period that is forecasting economic phenomena.
(ii)  It helps to prove the old and established relationships among the variables or between the variables.
(iii) It helps to establish new theories and new relationships.
(iv) It helps to test the hypotheses and estimation of the parameter.

(i) The cause for vicious circle of poverty is demand and supply.
(ii) On the supply side, the low level of real income leads to low level of saving and investment and to deficiency of capital.
(iii) Deficiency of capital leads to low productivity and back to low income.
(iv) On the demand-side, low level of real income leads to low demand so investment is less, therefore deficiency of capital, low productivity and low income.

(i) Land pollution is defined as, "the degradation of land because of the disposal of waste on the land".
(ii) Any substance that is discharged, emitted or deposited in the environment in such a way that it alters the environment causes land pollution.
Causes:
Deforestation and soil erosion:
(i) Deforestation carried out to create dry lands is one concern.
(ii) Land that is once converted into a dry land can never be made fertile again.
Agricultural activities:
(i) With growing human and pet animal population demand for food has increased.
(ii) Farmers use highly toxic fertilizers and pesticides which contaminates and poisons the land.
Mining activities:
(i) During extraction and mining, several land spaces are created beneath the surface.
Landfills:
(i) Garbage like plastic, paper, cloth, wood and hospital waste get accumulated.
(ii) Things that cannot be recycled become a part of the landfills that cause land pollution.
Industrialization:
(i) Due to increasing consumerism more industries are developed which lead to deforestation.
Construction activities:
(i) Due to urbanisation, large amount of construction activities are taking place.
(ii) Waste articles like wood, metal, bricks, are dumped at the outskirts of urban areas that lead to land pollution.
Nuclear waste:
(i) The leftover radioactive materials, harmful and toxic chemicals affect human health.
(ii) They are dumped beneath the earth to avoid any casualty.

(i) Primary deficit is equal to fiscal deficit minus interest payments. PD = Fiscal deficit (FD) - Interest Payment (IP)
(ii) It shows the real burden of the government and it does not include the interest burden on loans taken in the past.
(iii) It shows the borrowing requirement of the government exclusive of interest payments.

1. Basic Credit Facility
2. Extended Fund Facility
3. Compensatory Financing Facility
4. Buffer Stock Facility
5. Supplementary Financing Facility
6. Structural Adjustment Facility

S.No	Balance of Trade (BOT)	Balance of Payments (BOP)
1	Only export and import of commodities are included in BoT	Export and import of commodities and services are included in BoP
2	i.e. Movement of goods or visible trade	Trade in both visible and non visible items.

1) NABARD acts as a refinancing institution for all kinds of production and investment credit to agriculture, small-scale industries, cottage and village industries, handicrafts, rural crafts and real artisans to promote integrated rural development.
2) It provides short-term, medium term and long-term credit to state co-operative Banks, RRBs, LDBs and other financial institutions approved by RBI.
3) NABARD gives long-term loans (20 Years) to State Government to enable them to subscribe to the share capital of co-operative credit societies.
4). It gives long-term loans to any institution approved by the Central Government or contribute to the share capital or invests in securities of any institution concerned with agriculture and rural development.
5) NABARD co-ordinates the activities of Central and State Governments, Planning Commission and all India and State level institutions entrusted with the development of small scale industries, village and cottage industries, rural crafts, industries in the tiny and decentralized sectors
6) It has the responsibility to inspect RRBs and CO-operative banks, other than primary co-operative societies.
7) It maintains a Research and Development Fund to promote research in agriculture and rural development

Demand-Pull Inflation:
(i) Demand and supply decide the inflation level.
(ii) If the demand is high for a product and supply is low, the price of the products increase.
Cost-Push Inflation:
(i) When the cost of raw materials and other inputs rises inflation results.
(ii) Increase in wages paid to labour also leads to inflation.

(i) Payment towards past debts
(ii) Purchase of existing wealth
(iii) Import of goods and services
(iv) Non availability of consumer goods
(v) Full employment situation

(i) Classical unemployment occurs when real wages are kept above the market clearing wage rate, leading to a surplus of labour supplied.
(ii) Classical unemployment is also called real wage unemployment.
(iii) Unemployment occurs when the worker is willing to accept (Real Wages)(RW) is in excess of those an employer is willing to pay (Market Clearing Wage)(MCW).
(iv) Real wage may be above the equilibrium level because of minimum wage policies or union bargaining.
(v) classical unemployment of Q₁-Q₂ can be solved by a wage cut.
(vi) If wages are allowed to fall to the market clearing level, unemployment is solved

(i) A country with a high national income enjoys greater economic welfare and higher standard of living.
(ii) But the per capita income as an index of economic welfare has some limitations.
(iii) Welfare depends on the composition of goods and services. If more capital goods over consumer goods are produced welfare will be lesser.
(iv) Higher GDP with greater air, water, soil pollution will affect welfare.
(v) Production of war goods will increase output but not welfare.
(vi) If more women and children are employed or workers are forced to work for long hours economic welfare is affected.
(v) Therefore the Physical Quality of Life Index is a better indicator of economic welfare than national income.

(i) Red tapism and bureaucracy since, approval of many officials is needed.
(ii) Absence of incentive and so productivity is less.
(iii) Limited freedom of choice in the consumption of goods and services.
(iv) The state takes all major decisions. There is concentration and misuse of power.

1. Duties in respect of succession to property other than agricultural land.
2. Estate duty in respect of property other than agricultural land.
3. Taxes on railway fares and freights.
4. Taxes other than stamp duties on transactions in stock exchanges and future markets.
5. Taxes on the sale or purchase of newspapers and on advertisements published therein
6. Terminal taxes on goods or passengers carried by railways, sea or air.
7. Taxes on the sale or purchase of goods other than newspapers where such sale or purchase taxes place in the course of inter-State trade or commerce.

BASIS	RBI	COMMERCIAL BANK
Meaning	The bank which looks after the monetary system of the country is known as Central Bank.	The establishment, which provides banking services to the public is known as Commercial Bank.
Role	It is a banker to the banks and the government of the country	It is the banker to the citizens of the nation
Established by	Reserve Bank of India Act, 1934	Banking Regulation Act, 1949.
Ownership	Public	Public or Private
Monetary Authority	It is the supreme monetary authority with wide powers	No such authority.
Objective	Public welfare and economic development.	Earning Profits
Money supply	Ultimate source of money supply in the economy.	No such function is performed by it.
Right to print and issue currency notes	Yes	No
Deals with	Banks and Governments	General Public
How many banks are there	Only one	Many

S/No	X	Y	XY	X2	Y2
1	9	23	207	81	529
2	13	40	520	169	1600
3	6	10	60	36	100
4	18	48	864	32	2304
5	14	25	350	196	625
6	12	30	360	144	900
7	11	15	165	121	225
8	7	10	70	49	100
9	2	5	10	4	25
10	6	45	270	36	2025
11	14	40	560	196	1600
12	15	34	525	225	1225
13	5	12	60	25	144
14	8	27	216	64	729
Σ	140	365	4237	1670	12131

Apply the formula
\(r=\frac { n\sum { xy-(\sum { x } )(\sum { y } ) } }{ \sqrt { n{ \sum { x } }^{ 2 }-{ (\sum { x } ) }^{ 2 }n{ \sum { y } }^{ 2 }-{ (\sum { y } ) }^{ 2 } } } \)
\(r=\frac { 14x4237-(140x365) }{ \sqrt { (14x1670-{ 140 }^{ 2 })(14x12131-{ 365 }^{ 2 }) } } \)
\(r=\frac { 59318-51100 }{ \sqrt { (14x1670-{ 140 }^{ 2 })(14x12131-{ 365 }^{ 2 }) } } \)
\(r=\frac { 8218 }{ \sqrt { 13642020 } } =\frac { 8218 }{ \sqrt { 11763.589 } } \)
= 0.70

Economic development is measured on the basis of four criteria

Gross National Product (GNP):
(i) GNP is the total market value of all final goods and services produced within a nation in a particular year, plus income earned by its citizens (including income of those located abroad), minus income of non-residents located in that country.
(ii) GNP is one measure of the economic condition of a country, under the assumption that a higher GNP leads to a higher quality of living, all other things being equal.
GNP per capita:
(i) This relates to increasing in the per capita real income of the economy over the long period
(ii) This indicator of economic growth emphasizes that for economic development the rate of increase in real per capita income should be higher than the growth rate of population.
Welfare:
(i) Economic development is regarded as a process whereby there is an increase in the consumption of goods and services by individuals.
(ii) From the welfare perspective, economic development is defined as a sustained improvement in health, literacy, and standard of living
Social Indicators:
(i) Social indicators are normally referred to as basic and collective needs of the people
(ii) The direct provision of basic needs such as health, education, food, water, sanitation, and housing facilities check social backwardness.

S/N	Basic need	Indicators
1	Health	Life expectancy at birth
2	Education	Literacy signifying primary school enrolment as a percent of the population.
3	Food	Calorie Supply per head
4	Water supply	Infant mortality and percentage of the population with access to potable water
5	Sanitation	Infant mortality and percentage of the population with access to sanitation.

(a) Kumar is cyclically unemployed. He has lost his job as a result of the general economic recession.
(b) Sathish is frictionally unemployed. Job openings exist for him. It is merely a case of tracking down a position.
(c) Latha is structurally unemployed. Unemployment due to technological change in an industry is classified as structural.
(d) Devi, is frictionally unemployed. Job openings exist for her.

Adam Smith argued that all nations can be benefitted when there is free trade and specialisation in terms of their absolute cost advantage
The Theory
(i) According to Adam Smith, the basis of international trade was absolute cost advantage.
(ii) Trade between two countries would be mutually beneficial when one country produces a commodity at an absolute cost advantage over the other country which in turn produces another commodity at an absolute cost advantage over the first country.
Assumptions
1. There are two countries and two commodities (2 x 2 model).
2. Labour is the only factor of production
3. Labour units are homogeneous
4. The cost or price of a commodity is measured by the amount of labour required to produce it.
5. There is no transport cost.
Illustration
Absolute cost advantage theory can be illustrated with the help of the following example.

(iii) From the illustration, it is clear that India has an absolute advantage in the production of wheat over China and China has an absolute advantage in the production of cloth over India
(iv) Therefore, India should specialize in the production of wheat and import cloth from China. China should specialize in the production of cloth and import wheat from India
(v) This kind of trade would be mutually beneficial to both India and China.

1. In addition to household and firms, inclusion of the government sector makes this model a three-sector model.
2. The government levies taxes on households and firms, purchases goods and services from firms, and receive factors of production from household sector.
3. On the other hand, the government also makes social transfers such as pension, relief, subsidies to the households.
4. Similarly, Government pays the firms for the purchases of goods and services.
5. The Flow Chart illustrates three- sector economy model

Under three sector model, national income
(Y) is obtained by adding Consumption expenditure (C), Investment expenditure (I) and Government expenditure (G).
Therefore Y = C + I + G

(i) The propensity to consume refers to the portion of income spent on consumption.
MPC = \(\frac{ΔC}{ΔY}\)
(K) = \(\frac{1}{1-MPC}\)
(ii) The multiplier is the reciprocal of one minus marginal propensity to consume.
(iii) Multiplier is 1/MPS
(iv) The multiplier is therefore define as reciprocal of MPS.
(v) Multiplier is inversely related to MPS and directly with MPC.
Numerically, if MPC is 0.75, MPS is 0.25 and K is 4.
Using formula K = \(\frac{1}{1-MPC}\)
⇒\(\frac{1}{1-0.75}\) = 1/0.25 = 4
∴ Multiplier (K) = 4

MPC	MPS	K
1.00	1.00	1
0.10	1.90	1.11
0.50	0.50	2.00
0.75	0.25	4.00
0.90	0.10	10.00
1.00	0.00	∝

C = 100 + 0.8Y;
I = 10
Y = C + I
= 100 + 0.8 Y +9p00

0.2Y = 1000
∴ Y = 1000
Here, C = 100 + 0.8y
= 100 + 1000 = 900
S = 100 = I
After I is raised by 10, now I = 110
Y = 100 + 0.8y + 110
0.2y = 210 
y = \(\frac{210}{0.2}\) = 1050
Here, C = 100 = 0.8 (1050) = 940,
S = 110 = I
(i) It implies the variables in axis-and axis are equal.
(ii) The MPC is assumed to be at 0.8. (C = 100 + 0.8y)
(iii) The aggregate demand (C + I) curve intersects 45° line at point E.
(iv) The new aggregate demand curve is
C + I = 100 + 0.8Y + 100 + 10
Y = \(\frac{210}{0.2}\)
C = 940; S = 110 = Z

Product Method:
(i) Product method measures the output of the country. It is also called inventory method.
(ii) It is obtained for the entire economy during a year.
(iii) The value obtained is actually the GNP at market prices.
(iv) Care must be taken to avoid double counting.
(v) The value of the final product is derived by the summation of all the values added in the productive process.
(vi) To avoid double counting either the value of the final output should be taken in to the estimate of GNP.
(vii) In India the gross value of the farm output is obtained as follows.
(1) The output of each crop is measured by multiplying the area shown by the average yield per hectare.
(2) The total output of each commodity is valued at market prices.
(3) The net value of the agriculture output is measured by making deductions for the cost of seed, manures and fertilisers etc.,
(4) Net value of the output in these sectors is derived by making deductions for cost of materials used in the process of production and depreciation allowances etc., from gross value of output,
(5) For example, value of cotton enters value of yarn as cost and value of yarn in cloth and that of cloth in garments at every stage value added only should be calculated.

Introduction
A systematic development of the simple accelerator model was made by J.M.Clark, It was further developed by Hicks, Samuelson and Harrod.
Definition
Accelerator coefficient is the ratio between induced investment and an initial change in consumption \(\beta=\frac{\Delta \mathrm{I}}{\Delta \mathrm{C}}\)
Operation
Suppose that in order to produce 1000 consumer goods, 100 machines are needed. Working life of a machine is 10 yrs i.e, every year 10 machines have to be replaced. This is called replacement demand
(i) Suppose that demand for consumer goods rises by 10 % (i.e, from 1000 to 1100)
(ii) This results in increase in demand for 10 more machines
(iii) The total demand for machines is 20 i.e, 10 % increase in demand for consumer goods causes 100 % increase in demand for machine (from 10 to 20 )

Explanation
 (i) SS is the saving curve.
(ii) II is the investment curve.
(iii) At point E₁ the economy is in equilibrium with OY₁ income.
(iv) S and I are equal at O₂.
(v) Now I increased from OI₂ to OI₄.
(vi) This increases income from OY₁ to OY₃ at E₂ equilibrium.
(vii) If the increase in investment by I₂I₄ is purely exogenous, then the increase in income by Y₁Y₃ would be due to multiplier.
(viii) But in this diagram it is assumed that exogenous investment is only by I₂I₃ and induced investment is by I₃I₄.
(ix) Therefore, the increase in income by Y₁Y₂ is due to the multiplier effect and the increase in income by Y₂Y₃ is due to the accelerator effect.