Econometrics is the statistical and mathematical analysis of economic relationships, often serving as a basis for economic forecasting. It is used by economists to study relationships between economic variables Econometrics is interesting because it provides the tools to enable us to extract useful information about important economic policy issues from the available data. It is used to understand economic issues and test theories. Without evidence economic theories are abstract and has no bearing on reality. Econometrics is a set of tools we can use to confront theory with real world data. A study' could estimate a key parameter such as the price elasticity of demand for it or econometric techniques could be used to generate forecasts. It is used to develop, estimate and evaluate models which relate economic or financial variables.

1. Short-term (controlling plans or annual plans) for a period of one year (operation).
2. Medium term plans last 3-7 years but normally 5 years. Related to allocation of financial and physical resources (tactical planning).
3. Long-term (perspective or strategic plans) for 10 to 30 years: To bring structural changes in the economy.
4. Financial planning refers to the technique of planning in which resources are allocated in terms of money
5. Physical planning refers to allocation of resources in terms of men, materials and machinery.
6. Comprehensive plan concerns with the major issues for the whole economy.
7. Partial plan considers only the few important sectors of the economy.
Democratic planning:
1. Planning within democracy.
2. People are associated at every step in the formulation and implementation of the plan.
3. The plan prepared by the Planning Commission can be accepted, rejected or modified by the Parliament.
Totalitarian planning:
1. There is central control and direction of all economic activities.
2. Consumption, production, exchange, and distribution are all controlled by the state.
3. The planning authority decides the target, schemes, allocations, methods and procedures of implementation of the plan.
Centralized planning:
1. The entire planning in under a central planning authority.
2. This authority formulates a central plan, fixes objectives, targets and priorities for every sector.
3. It is planning from̀ above.
Decentralized planning
1. Local organizations and institutions formulate, adopt, execute and supervise the plan.
2. It is called planning from below.
Planning by Direction:
1. There is a central authority which plans, directs and orders the execution of the plan in accordance with pre-determined targets and priorities.
Planning by inducement
1. People are induced to act in a certain way through various monetary and fiscal measures.
2. If the planning authority wishes to encourage the production of a commodity, it can give subsidy to the firms.
Indicative planning:
1. It has been in practice in France since the Monnet Plan of 1947 and in mixed economies.
2. The outline of plan is prepared by the Government.
3. It is discussed with the representatives of private management, trade unions, consumer groups, and experts.
4. The essential function of planning is co-ordination of different economic units.
5. The state provides all facilities to the private sector.
6. The private sector fulfill the targets and priorities.
7. The state does not force the private sector but just indicates the areas of operation and targets to be fulfilled.
Imperative planning (China and Russia):
1. The state is all powerful in preparation and implementation of the plan.
2. The implementation is a matter of enforcement. Policies arc rigid.
3. There is complete control over the entire resources by the state. There is no consumer sovereignty.

Wider Coverage
(i) All consumers have to pay indirect taxes, but only 2 % pay direct tax.
Equitable
(i) It satisfies the canon of equity when higher tax is imposed on luxuries used by the rich.
Economical
(i) Cost of collection is less as producers and retailers collect tax and pay to government.
(ii) The traders act as honorary tax collectors.
Checks harmful consumption
(i) Government imposes indirect taxes on goods which are harmful to health e.g. tobacco, liquor.
Convenient
(i) Indirect taxes are levied on goods and services.
(ii) When consumers buy, they pay tax along with the price.
(iii) So, they do not feel the pinch of paying tax.

(i) To promote international monetary cooperation among the member nations.
(ii) To facilitate faster and balanced growth of international trade.
(iii) To ensure exchange rate stability by curbing competitive exchange depreciations.
(iv) To reduce exchange controls imposed by member nations.
(v) To establish multilateral trade and payment system in respect of current transactions.
(vi) To promote the flow of capital from developed to developing nations.
(vii) To solve the problem of international liquidity.

Single Factoral Terms of Trade
(i) According to Viner, the single factoral terms of trade is an improvement over the commodity terms of trade.
(ii) It represents the ratio of export. price index to the import price index adjusted for changes in the productivity of factors in the production of exports.
\(\mathrm{T}_{\mathrm{f}}=\left(\mathrm{P}_{\mathrm{x}} / \mathrm{P}_{\mathrm{m}}\right) \mathrm{F}_{\mathrm{x}}\)
(iii) T_f is single factoral terms of trade index.
(iv) F_x is productivity in exports.
Double Factoral Terms of Trade
\(\mathrm{T}_{\mathrm{ff}}=\left(\mathrm{P}_{\mathrm{x}} / \mathrm{P}_{\mathrm{m}}\right)\left(\mathrm{F}_{\mathrm{x}} / \mathrm{F}_{\mathrm{m}}\right)\)
(i) It takes into account the productivity in country's exports and productivity of foreign factors.
(ii) F_m is import index (which is measured as index cost in terms of quantity of factors of production employed per unit) of imports.

Introduction
(i) The Reserve Bank of India is India's central banking institution
(ii) It commenced its operations on 1 April 1935 and it was nationalised on 1 Jan, $1949 .$
1) Monetary Authority
(i) It controls the supply of money in the economy to stabilize exchange rate, maintain healthy balance of payment, attain financial stability, control inflation, strengthen banking system.
2) Issuer of currency
(i) It is the sole authority to issue currency
(ii) It also takes action to control the circulation of fake currency.
3) Issuer of Banking License
(i) Every bank has to obtain a banking license from RBI to conduct banking business in India.
4) Banker to the Government
(i) It is the banker to the central and the state governments.
(ii) It provides short term credit, manages all need issues of government loans, services the government debt outstanding
(iii) It advises the government on banking and financial matters.
5) Banker's Bank
(i) It is the bank of all banks in India as it provides loan to banks, accepts the deposit of banks and rediscounts the bills of banks.
6) Lender of last resort
(i) The banks can borrow from RBI by keeping eligible securities as collateral at the time of need when there is no other source.
7) Act as clearing house
(i) For settlement of banking transactions, RBI manages 14 clearing houses.
(ii) It facilitates the exchange of instruments and processing of payment instructions.
8) Custodian of foreign exchange reserves
(i) It administers and enforces the provision of Foreign Exchange Management Acr, 1999.
(ii) RBI buys and sells foreign currency to maintain the exchange rate of Indian rupee vs foreign currencies.
9) Regulator of Economy
(i) It controls the money supply in the system, monitors GDP, Inflation
10) Managing Government securities
(i) RBI administers investments in institutions when they invest specified minimum proportions of their total assets/liabilities in government securities.
11) Regulator and Supervisor of Payment and Settlement Systems
(i) RBI oversees the payment and settlement systems in the country.
(ii) It focuses on the development and functioning of safe, secure and efficient payment and settlement mechanisms.
12) Developmental Role
(i) It develops the quality of banking system in India and ensures that credit is available to the productive sectors of the economy.
(ii) It provides a wide range of promotional functions to support national objectives.
(iii) It establishes institutions which build the financial infrastructure.
(iv) It also helps in expanding access to affordable financial services and promotes financial education and literacy.
13) Publisher of monetary data
(i) It maintains and provides all essential bánking and other economic "data, formulating and critically evaluating the economic policies in India.
(ii) RBI collects, collates and publishes data regularly.
14) Exchange manager and controller
(i) RBI represents India as a member of the International Monetary Fund.
(ii) Most of thé commercial banks are authorized dealers of RBI.
15) Banking Ombudsman Scheme
(i) RBI introduced this Scheme in 1995
(ii) Those who have complaints including online, can appeal to the Ombudsman against the awards and the other decisions of the Banks.
16) Banking Codes and Standards Board of India
(i) To measure the performance of banks against Codes and Standards based on established global practices, the RBI has set up the Banking Codes and Standards Board of India.

(i) Primary Functions:
Medium of exchange:
(i) Money has general acceptability and all exchanges take place in terms of money.
(ii) First, money is got through sale of goods or services.
(iii) Later, money is used to buy goods and services.
(iv) Thus, in the modern exchange system money acts as the intermediary in sales and purchases.
Measure of value
(i) Money measures the value of goods and services.
(ii) Prices of all goods and services are expressed in terms of money.
(iii) Since all the values are expressed in terms of money, it is easier to determine the rate of exchange between various types of goods in the community.
(ii) Secondary Functions:
Store of value:
(i) Savings is done in terms of money.
(ii) Money is a store of wealth, as it can be easily converted into other marketable assets such as land, machinery, plant.
Standard of Deferred Payments:
(i) Borrowing and lending is done in money.
Means of Transferring Purchasing Power:
(i) The field of exchange went on extending with growing economic development.
(ii) The exchange of goods is now. extended to distant lands.
(iii)  So it is necessary to transfer purchasing power from one place to another.
(iii) Contingent Functions:
Basis of the Credit System:
(i) Business transactions are either in cash or on credit.
(ii) A depositor uses cheques only when there are sufficient funds in his account.
(iii) The commercial banks create credit on the basis of adequate cash reserves.
(iv) Money is at the back of all credit.
Money facilitates distribution of National Income:
(i) Money is used in the distribution of income as rent, wage, interest and profit.
Equalize Marginal Utilities and Marginal Productivities:
(i) Consumer gets maximum utility only if he incurs expenditure on various commodities in such a  manner as to equalize marginal utilities accruing from them.
(ii) Here, money plays an important role, because the prices of all commodities are expressed in money.
(iii) Money helps to equalize marginal productivities of various factors of production.
Increases Productivity of Capital:
(i) Money is the most liquid form of capital.
(ii) It can be put to any use.
(iii) So it can be transferred from the less productive to the more productive uses.
(iv) Other Functions:
Maintains Repayment Capacity:
(i) Money has general acceptability.
(ii) To maintain its repayment capacity, every firm has to keep assets in the form of money.
(iii) Firms, banks, insurance companies and governments have to keep some liquid money (i.e., cash) to maintain their repayment capacity.
Represents Generalized
Purchasing Power:
(i) Purchasing power kept in terms of money can be put to any use.
Gives liquidity to Capital:
(i) Money is the most liquid form of capital & so can be put to any use.

Introduction
J.M Keynes has divided factors influencing the consumption function into two namely Subjective factors and Objective factors
Subjective Factors
These factors are internal and related to psychological feelings. Keynes lists 8 motives which lead individuals to refrain from spending
Motive of precaution
To build a reserve against unforeseen contingencies. (eg.) Accidents
Motive of foresight
The desire to provide for anticipated future needs. (eg.) Old age
Motive of calculation
The desire to enjoy interest and appreciation.
Motive of improvernent
(i) The desire to enjoy for improving standard of living.
(ii) Motive of financial independence
(iii) Motive of enterprise - desire to do forward trading
(iv) Motive of pride - desire to leave a fortune
(v) Motive of avarice - miserly instinct
(vi) The government institutions, business corporations and firms may also consume mainly because of:
Motive of enterprise
The desire to get resources to carry out further capital investment without debt.
Motive of liquidity
The desire to secure liquid resources to meet emergency
Motive of improvement
The desire to secure a rising income and to demonstrate successful management
Motive of financial prudence
The desire to ensure adequate financial provision against depreciation, obsolescence and to discharge debt.
Objective Factors
They are the external factors which are real and measurable. They can be easily changed in the long run;
Income Distribution
According to VKRV Rao if incone is equally distributed propensity to consume increases
Price level
When price falls, real income rises; people consume more and save more.
Wage level
Consumption expenditure increases with a rise in wages.
Interest rate
Higher interest rate will encourage people to save more money and reduces consumption.
Fiscal Policy
When government reduces tax, disposable income rises and propensity to consume increases.
Consumer credit
The availability of consumer credit at easy installments will encourage people to buy consumer durables like car, fridge, computer
Demographic factors
(i) Size of family, stage in family life cycle, place of residence and occupation affect the consumption pattern
Duesenberry hypothesis
(i) Consumption expenditure depends on current income, past income and standard of living
(ii) As individuals are accustomed to a particular standard of living, they continue to spend the same amount on consumption
(iii) Consumption of the poor people is influenced by the rich. This is called Demonstration effect.
Windfall gain and loss
Unexpected changes in the stock market leads to gain or loss, so consumption function shifts upward or downward.
Conclusion
According to Keynes only the subjective factors do not change in the short-run, so consumption function remains stable in the short period.

Cyclical unemployment:
(i) During the downturn phase (recession and depression) of trade cycle, income and output fall leading to cyclical unemployment.
(ii) It is caused by deficiency of effective demand
Structural unemployment:
(i) Unemployment due to massive and deep rooted changes in economic structure leads to structural unemployment.
(ii) Lack of demand for the product or shift in demand to other products cause this type of unemployment.
(iii) (e.g.) rise in demand for mobile phones has adversely affected the demand for cameras, tape recorders
Disguised unemployment:
(i) It occurs in agriculture when more people are there than required. Even if some workers are withdrawn, production does not suffer.
Actual marginal productivity is zero, less or negative.
(i) Seasonal unemployment
1. In agriculture and agro based industries like sugar, production activities are carried out only in some seasons.
2. These industries offer employment only during that season in a year.
3. People remain unemployed during the off season.
4. Seasonal unemployment takes place from demand side also (eg) ice cream industry, holiday resorts
(ii) Frictional unemployment (Temporary unemployment)
1. It arises due to imbalance between supply of labour and demand for labour.
2. It is because of immobility of labour, lack of necessary skills, break down of machinery, shortage of raw materials.
3. The persons who lose jobs and in search of jobs also come under frictional unemployment
(iii) Educated unemployment
1. Educated people are underemployed or unemployed when qualification does not match the job.
2. Faulty education system, lack of employable skills, mass student turnout and preference for white collar jobs are highly responsible for educated unemployment.

S.No	Features	Capitalism	Socialism	Mixedism
1.	Ownership of Means of Production	Private Ownership	Public Ownership	Private Ownership and Public Ownership
2.	Economic Motive	Profit	Social Welfare	Social Welfare and Profit Motive
3.	Solution of Central Problems	Free Market System	Central Planning System	Central Planning System and Free Market System
4.	Government Role	Internal Regulation only	Complete Involvement	Limited Role
5.	Income Distribution	Unequal	Equal	Less unequal
6.	Nature of Enterprise	Private Enterprise	Government Enterprise	Both Private and State Enterprises
7.	Economic Freedom	Complete Freedom	Lack of Freedom	Limited Freedom
8	Major Problem	Inequally	Inefficiency	Inequality and Inefficiency