Local hi friends chatsg

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Local hi friends chatsg

Fundamental Psychological Law of Consumption 82 B Consumption Function 84 C Technical Attributes of the Consumption Function 88 D Factors Affecting the Consumption Function 92 E Significance of the Concept of Consumption Function 96 F. Marginal Efficiency of Capital and Rate of Interest 107 F, MEC Schedule 109 G Investment Demand Schedule no H. The Concept of Savings 140 B Determinants of Savings 142 C Saving : A Virture or a Vice ? the0 , r y* fav '«g and point of less than full employment. Keynes’ Criticisms against the Classtcal Theory ... Keynesian Theory of Emplojmcnf 55-81 A Introduction 55 D Pnnuplcs of Effective Demand 56 C Anal) sis of the Level ol Effective Demand 57 D How GNP is determined 70 E Pa adox of Poverty and Potential Plenty 75 F Outline ot Keynesian Theory of Employment 77 G Shortcomings of Keynesian Theory 80 23 The Consumption Function 82— 1(10 A. 101-123 A Introduction 101 0 Meaning of Investment Function 102 C Marginal Efficiency of Capital 102 D Difference between Marginal Productivity and Margin »1 Elficicncy of Capital 105 E. " which invest, differs from Tl "»’ Keynes investment can be, and norma *' . (a) It explains value of money under full employment ( b ) It integrates theory of value with the theory of money (e) It explains a complex chain reaction between money and prices (d) It supplants the QTM 5 ’The Quantity Theory of Money explains, as it were, the average level of the sea , the saving and Investment theory explains the violence of the tides ” Whose remark is this ?

U not bar pushing up the price level, 172 Analytic of Inflation and Defl f on Fig 1 The Mode! Such a permanent case for an export boom inflation is, however, ruled out in the Indian economy, because neither export trade is a significant portion of Domestic National Product nor is there a continuous boom of export demand, causing terms of trade to move up favourably all t V time H INFLATION IN AN UNDERDEVELOPED ECONOMY Fundamentally, inflation emerges due to a lag between effec- live demand and output Normally, inflation is suppossed to be a post full employment phenomenon, because until the full employ- ment stage is reached, an increase in effective demand does not lead to an increase in prices but raises the level of employment, income and output Theoretically, therefore, inflation is not possible if there is unemployment ° r underemployment This docs not mean that th6re is no possibility of a persistent nse in prices or inflation in an economy with less than full employment conditions It is not true that an underdeveloped economy with large-scale unutilised or underutilised resources will have no inflation or rising prices Analytic oj Inflation and Deflation 193 rities, which are readily encashabe, can lead to an increase in the consumer's rate of spending (p) With the extension of consumers’ credit, such as hire or instalment purchase schemes or consumers’ borrowings, consumption also increases consumers’ expenditure in the economy, adding to inflationary pressures An increase in business outlay refers to the increase m invest mem expenditure by the business community It expresses an increase in the monetary demand for capital goods, raw materials and factors of production Business outlays increase considerably when there is a speculate boom, business expectations are opti- mistic and prices rise, that is to say, inflationary symptoms irt the economy become substantial by the increased business expenditure which is profit-motivated Increasing busiress outlays substantially widen the inflationary gap 4 Foreign Demand As Kunhara points out, "an additional factor in the increased monetary demand is foreign expenditure for domestic goods and services 1,14 He, however, also points out that the inflationary impact of foreign demand is weakened to the extent that the marginal propensity to import offsets additional expendi- tures for domestic goods and services out of the increased national income on account of export earnings Sopply Side The inflationary gap is widened when the supply of goods and services does not keep pace with the increased monetary demand for things The case in the supply of goods and services may be limited on various accounts (») when the full employment stage is jeached by the economy , (»») when there is a shortage and deficiency of factors of production, shortage of land labour, capital equipment, raw materials, etc obviously accounts for inadequacy of supply of certain goods , (»»») operation of the law or diminishing returns in variable factors, with a given technological structure, also causes slow movement of supply of real goods and services (*v) increasing export of certain goods which have strong domestic demand evidently aggravates the supply situation , (ti) A wage price spiral is another important factor which aggravates the supply situation When wages rise, the costs of production also rise Thus entreprereurs usually adjust cost increases by increasing prices rati er than by absorbing them fully or partly by reducing profits When demand is inelastic bu inessmen are very much inclined to raise prices on account of wages and an 200 Analytic of Inflation and Deflation conditions, rigid social structure and lack of specialisation cause friction and act as impediments, preventing the achievement of an optimum allocation of resources, thus resulting in imperfect elasticity of supply (t») As Dr V K R V Rao points out that while in an ad- vanced country, the existence of unemployment helps in increased output as a result of increased demand, this may not be the case in an under developed country like India, where the^e is a large magnitude of disguised unemploy- ment and underemployment. MEC and Secular Stagnation 118 L Measures to Stimulate Investment 120 25. The Acceleration Principles 132 G Interaction of the Multiplier and Acceleration . 166 B Features of a Trade Cycle 167 C Pha«es of a Trade Cycle 168 D Impo riant Trade Cycle Theories 171 E The Purely Monetary Theory . Purchasing Power Parity Theory t3 H Balance of Payments Theory . » dually on die level of profi, cxpecfahons^d'^f^d'inr' de PC ' ^d, conumons groups of people, "Indore™™' lhc dec i,ions of different possibility of their equihbriuro mot,ve, s there is every «at other times* savings ma^exc^ed’ m VE! Factors Affecting MEC II 3 I Role of Expectations 114 J, Cuticism of MEC 117 K. Leakages to the Multiplier Process 130 E Shortcomings of the Multiplier Theory 1 31 F. 149 D Saving and Investment Equality 152 E Underemployment Equilibrium 157 (XV) 11 Keynes’ Theory and Underdeveloped Countries It O— 165 A Introduction 160 B Distinctive Nature and Typical Causes of Unemployment in Underdeveloped Countries 160 C The Static Feature c f the Keynesian Model 161 D Failure of the Keynesian Multiplier m Underdeveloped Countries 163 E Concluding Remarks 164 -28 Trade Cycles and Measures of Economic Stabilisation 166—196 A Introduction ... 71 ' Fixed vs Flexible Exchange Rates 73 Case for Fixed Exchange Rate System . ’ ° q Ua t0 Cach other at the Saving Investment Inequality different group™" p Vop Te^avmg i Tan a^of effectcd b £ two investment is made bv PI1 ir B n.5 an a £5, con3 ™cn, whereas different from that of investment Pennt THe mot Ive for saving is for leaving a good fortune tn °£ , e , want r ° save for old age, accumulating money, etc Investrr^ f cbl dl Jf n » for the pleasure of motivated by profit earnings S“ i, 0n the °i her fiand . employment and money ““Tnthenunbell *e income ween saving and investment v P throug h change in * h * ^ came changes in the value o _/j nvei tment are m equihbn . t , c as it u based on xl Tmt^n^u S 5SSZ2^£Sh K£ —« ~ rf ,ha ” u 'JJ t inces unaer me t money that the quantity ..r money can always pro _ ver Come a u that ordinarily a shortag . It is amusingly analogous 176 Analytic of Inflation and Deflation Likewise, the income theory too implies the seme thing Thus, wh-n ^ O P= - where, if the reel output (O) remains constant under Ml- employment, an increase in Y. According to Keynes, ^^g'Tshort period Hence more or less constant phenomeno of investment in affecting S-b K^in'irnee.. MEANING OF INFLATION^ uo do,deve- Ir, modern money «™»^ d 0 '" n d^ n ,ome cnee,, a loped, inflation has becom j t bis problem in recent years discussions are centred rou AH economic and Pg'^t economir.r of elusive nddle-inflation Dj J e way a , it «PP' a « .* in wh ich seven tbis phenomenon in i oc0U » to the ancient them.

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363863 360170 Branch O'fice "Pooja A partner " 4 B Muran Lai Street Aroari Ro- 110 002 Phone 270 j92 V First Edition 1985 Second Edition 1986 Third Revised Edition 1988 Fourth Revised Edition 1989 ©DM Mitham Printed at 1 Sanjeev Printers Babarpur Road, Sbahdara, Delhi-110032 PREFACE TO THE FOURTH EDITION The author js grateful to the student community and teaching fraternity alike for the warm welcome they have accorded to this book, so that within a short span of time it has reached to the fourth edition In this edition, the author has seized the opportunity to thoroughly revise and update the subject-matter References to the Indian economy have been updated by providing latest available statistical informations and analysis In this edition many new topics have been added A special mentioa may be made of Developmmt Banking and Financial Insti- tutions in India, the Ctnkravarty Committee s Report, Aspects of Blac'c Money in India, Euro Dollar Market, Long-Term Fiscal Policy, Indian Mo letary Policy in Retrospect and Pro»pect, Keynesian Vs Monetarist Co, hoped that tlus edition will have an enhanced utility to the students and teach*rs alike, at undergraduate as well as post graduate levels Comments and suggestions from the reviewers of the earlier Editions, other adopters and friends like Dr G S Afonga (University of Bombay) Dr C D Maheshwari (Seth Motilal College Jhunjhum O, Dr B M Jam (Saurashtra University), Prof Devcndra Awasthi (St Andrew’s College Gorakhpur) Prof P S Tnvedi (Mahila College, Bhavnagar), Dr Himanshu Desai (Nav Gujarat College, Ahmedabad) and my students have been most bene* ficial in preparing this edition My thanks to all Bombay, 1989 D M Mithani (v/i) 7 It contains discussion on the subjec'-matter developed right from an introductory to an advanced level, suitably arranged section- wise so that the students can pick up the sections of bis requirement, omitmg the rest 8 Most of the chapters in the book are written m a fairly self- contained manner As such, th“ student can read the text in the order which suits best his interest and the requirements of his ovn syllabus of preferences 9 It incorporates numerous questions at the end of each chapter These have been designed ( a ) to test the student’s under- standing of the subject-matter discussed in the text , (b) to encourage the student himself to absorb the ideas expounded , and (c) to enable him to review definitions and impo tant concepts during the coirse of bis study In the objective test section, multiple choice questions are set to provide practice in answering this form of qu-stioas, usually set in many professional examinations such as I A S , I E S , etc 10 The book is designed to meet the varying needt graduate students and others interested in econo- mics As a whole, it should be of value to at least three categories of students 0) undergraduates in economics and commerce reading for B A and B Com d-grees at the various Indian universities , («} post-graduate stud-n's at M A and M Com levels , and (iir) those preparing for provisional examinations 82 D Constituents of Mom \ Supply 83 C Different Approaches Regarding Measure of Money Supply 85 D Resene Bjnh of India s Measure of Money Stock 86 E D tuminants t f Money Supply 88 I Money Supp Jv Tuncficn 90 G \ clocity of Circulation of Money 91 H Creation of Money Clnnges m M keynes s Liquidity Preference Theory 254 E Comparison between Classical and Keynesian Theories of Interest 259 F Modern Theory of Interest 260 33 Commercial Banking 272—294 A What is a Bank? 1963) 2 (a, What the (61 How does the income-expenditure appt over it 7 «nthe income theory oi 3 Describe the saving and investment »PP f money . Coast, of the Inflationary Trend In And K In Jhllnnan BCcnncmlt Bylln P^’i- M orarrrbutlern Effo C. Keynes favours mild inflation on the ground that it tends to stimulate busi- ness optimism through rising prices, resulting m high profit expecta- tion (a high marginal efficiency of capital) which stimulates further investment, employment, output and income Another argument advanced in support of the view that in- flation stimulates development is that cr P(k) 1950-51 1862 89 4 __ 1955-56 2049 73 9 10 0 - 55 1960-61 2725 99.8 33 -66 4236 131-6 48 -62 2844 100 0 44 02 1970-71 6729 151.1 58 9 49 5 1975-76 12175 313 3 80,9 1976-77 13975 319 5 14 8 62 •* June 1978 19477 336.7 39 4 17 2 June 1979 23132 367 4 18 8 30 7 Source ; RBI Bulletins. Analytic of Inflation and Deflation 219 I (iv) Inflation u unjust because it affects different people and classes in society in different ways and to different degrees If inflation were to affect everyone in society in exactly the same manner and to the same degree, it would not alter economic and social relationships in the community But inflation takes away wealth from some people and transfers it to others arbitrarily without taking into consi* deration the sound maxim of social equity (c») Inflation is also unjust because it breaks public morale From the point of view of social ethics, inflation is always demoralising , it introduces the spirit of gambling It promotes speculation, hoarding, and diverts business skill and efficiency from productive purposes to speculative purpose* (*») inflation erodes real savings by deterioration of the value of money (tml Inflation creates mo ni'v illusion and generates artificial prosperity which is not permanent On the other hand, deflation is inexpedient and therefore, not advisable It is considered inexpedient for the following reasons (0 Deflation means falling prices in general which adversely affect th» marginal efficiency of capital Consequently investments volume tends to contract causing unemploy* ment to increase (u) Deflation paves the way for depression In a depressionary phase, economic activity contracts, scale of production is curtailed, output shrinks no new investment is forth* coming , on the contrary investment is curtailed (»»t) By reducing aggregate income, it also pauperises every group in societ It n flicts on society the harsh punish- ment of mass unemployment Volume of employment falls, money income of the community diminishes and, therefore, even though people’s purchasing power is in- creased due to falling prices they are unable to buy goods Thus, aggregate demand falls, profit falls, producers suffer heavy losses and curtail investment and output further, leading to a further decline in employment and income This clearly shows that though inflation is unjust, it is better than deflation Keynes showed i preference for inflation, because it is the lesser of the two evils The following points bring out the fact that inflation is a lesser evil * {») Inflation though it redistributes income and wealth in the community in an unjust manner, does not reduce the national income of the community Deflation, on the other hand, reduces the national income of the community and pauperises society as a whole 226 financial Market* Hong tfrm'ba^^On'L '^uenon^e'^almtke.s are broadly divided into two categories (t) Money Market and (») Capital Market B MONEY MARKET ITS MEANING The .era, money men., facilitating borrowing lends f * b ” ods var nstitutions tnai uea« i»» .

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