(1) Principles of Economics - Science of Wealth, Earning & Spending, Income & its use, Sacrify

Unlimited wants, limited means, Alternative use of resources

Micro - Economics - Adam Smith is Foundar of micro-Economics which deals with individual
behaviour such as markets, firms & households

1 Consumption - the use of goods and services by households

consumption expenditure, which is the purchase of goods and services for use by households

Indifference Curve (IC) - it is a conceptual curve at which every point represent the
combinitions of goods on x-axis & y-axis, which would place a consumer at a point of
indifference as to which combinition to choose. Every combinition at each point of the curve
gives him the equal satisfaction

Consumer's Equilibrium - When he is buyingsuch a combinition of two goods as leaves him

with no tendency to rearrange his purchase. Combinition of maximum satisfaction

Consumers Surplus - the concept is based on theroy of dimilishing utility.

The law of dimilishing utility means that total utility increases at the decreasing rate after a point
is reached in the consumption level. Glass of water thirsty condition
We by goods & services because they gives us utility at the cause of money utility

Elasticity - concept of elasticity explains the exact change in demand when there is change in
price. It analyses Price - Demand relationship, Helps in price fixing, helpful to Government to
declare certain industries as public utility services, frame economic policies, taxation,
Determine terms of trades between two countaries
Cross eleasticity - measures elasticity of demand and related goods

Unitary Elastic Demand ( e = 1 )

Relatively elastic demand ( e > 1 )
Relatively inelastic demand ( e < 1 )
Perfectly elastic demand ( e = infinity )
Perfectly inelastic demand ( e = 0 )

2 Price Mechanism -
A market is a mechanism by which buyersand sellers interact to determine the price and quality
of goods and services. Prices serve as signals to producers & consumers.
A market equilibrium represents a balance among all the different buyers & sellers
In economics, a price mechanism is the manner in which theprices of goods or services affect
the supply and demand of goods and services, principally by the price elasticity of demand.
A price mechanism affects both buyers and sellers who negotiate prices

Individual & Market demand Scedules -

Market demand schedule refers to a tabular statement showing various quantities of a
commodity that all the consumers are willing to buy at various levels of price, during a given
period of time. It is the sum of all individual demand schedules at each and every price.

Law of Demand & its condition

The law of demand states that, "conditional on all else being equal, as the price of a good
increases (↑), quantity demanded decreases (↓); conversely, as the price of a good
decreases (↓), quantity demanded increases (↑)".

Assumptions under which law of demand is valid

1. No change in price of related commodities.

2. No change in income of the consumer.
3. No change in taste and preferences, customs, habit and fashion of the consumer.
4. No change in size of population
5. No expectation regarding future change in price.

Expectations of law of Demand -

The Law of Demand states that the quantity demanded for a good or service rises as the
price falls, ceteris paribus (or with all other things being equal)
Exceptions of law of Demand -
They are goods that people buy more of when or if the price increases

Limitations of Demand Law -

Law of Demand indicates the inverse relationship between price and quantity demanded of a
commodity, But there are some situations under which there may be direct relationship between
price and quantity demanded of a commodity. These exceptions are known as exceptions to
the law of demand

Law of Demand indicates the inverse relationship between price and quantity demanded of a
commodity. It is generally valid in most of the situations. But there are some situations under
which there may be direct relationship between price and quantity demanded of a commodity.
These exceptions are known as exceptions to the law of demand.Consumer ignorance:
Consumers ignorance induce them to buy/purchase more in the costly market. Sometimes they
think like high price commodity is better in the quality. Thus with the increase in price, demand
increases.Necessary Goods: There are some commodities which are not necessities/necessary
but have become necessities because of their constant use and fashion. For example: LPG gas,
Petrol, etc. Prices of such commodities increases, demand does not show any tendency to
contractand it negatives the law.Conspicuous & consumption: If consumers measure the
desired ability of the utility of acommodity, solely by its price and nothing else, then they tend to
buy more of the commodity at higher price and less of it at lower price. Hence, there is a direct
relationship between price & quantity demanded. For example: Gold ornaments, Diamonds,
hair paintings.

Individual & Market Supply Schedule -

Individual supply is the supply of an individual producer at each price where as market supply of
the individual supply schedules of all producers in the industry.

Highest, Lowest & Equilibrium Price

A maximum price occurs when a government sets a legal limit on the price of a good or service
with the aim of reducing prices below the market equilibrium price

If the maximum price is set above the equilibrium price then it will have no effect.
If the maximum price is set below the equilibrium price, it will cause a shortage –
demand will be greater than supply.

Reasons for maximum prices

The good is essential for daily living, Monopoly exploitation, Inelastic Supply, Resource allocation
 A maximum price limits the resources flowing to houses and enables a more balanced economy

Problems of maximum prices

Shortage, Encourage of black market, Queues, The market will become less profitable for firms,
Maximum prices may be most useful in the case of a monopoly who is both restricting supply
and inflating prices

Lowest Price -
A price floor is the lowest legal price a commodity can be sold at. Price floors are used by the
government to prevent prices from being too low. The most commonprice floor is the minimum
wage -- the minimum price that can be payed for labor.Price floors are also used often in
Agriculture to try to protect farmers.

Equilibrium Price -

When we combine the demand and supply curves for a good in a single graph, the point at
which they intersect identifies the equilibrium price and equilibrium quantity. Here, the
equilibrium price
Market equilibrium in this case refers to a condition where a market price is established
through competition such that the amount of goods or services sought by buyers is equal to
the amount of goods or services produced by sellers

Importance of Time Element -

Marshall was the first economist who analysed the importance of time in price determination.
When the demand for a product hikes or drops, its supply does not hike or diminish at the same
time. Variations in supply depend on technical factors which take time to change.
Time plays an important role in the theory of volume, i.e., price determination because supply
and demand conditions are affected by time.
Price during the short-period can be higher or lower than the cost of production, but in the
long-period price will have a tendency to be equal to the cost of production.
The relative importance of supply on demand in the determination of price depends upon the
time given to supply to adjust itself to demand.

3 Pricing of Products under Different Market Conditions -

Perfect Competetion -
Free Entry or exit, Perfect knowledge, Absence of Transport cost, perfect mobility of factors
of production

Imperfect Competetion -
 Supplyers are not large, products are not homogeneous, ignorance, lack of liability,
same price rule not observed in market, high pressure salesmanship, labeling & branding

Monopoly -
Mono means one and ploy means seller
Single seller of the product having complete control on supply of product
there should be no close substitute to monopoly product or
cross elasticity demand between monopoly product & other products must be zero or too small
Total absence of substitute
Strong barriers to the entry of new firms in the market
No rival firm allowed to enter in market
Large number of buyers

4 Factors of Production and their Pricing -

In economics, there are four main factors of production, namely land, labor, capital, and
enterprise, Firstly, in product market, the supply of a product is determined by its
marginal cost of production.

Land/Natural Resources - refers to all the natural resources. ...

Labor - as a factor of production, involves any human input. ...
Capital - refers to manufactured resources such as factories and machines. ...
Entrepreneurship.

Other Factors of Production and their Pricing -

Rent, wages, interest and profit

5 Rent -
The reward paid for use of land is called rent. It excludes return on investment

Rent theory Assumptions -

Land supply is fixed, land use, land differs in fertility, perfect competetion in market, theory
operates on long run

Wages -
 It includes all types of income earned by labour as a factor of production.
it may be paid per hour, day, week, month or annum

Nominal wages means money paid to labour as its price of service in the production process.
Real wages depends upon the money wages and general price level

Determinants of Real Wages -

Price level - purchasing power of money, Working condition, Trade expences, Incidental benefits
Possibility of extra earning, period of cost & training, Job nature, Promotion Possibility

Differences in wages -
Demand condition, Non monetary factors, imperfections in labour market, Non competing group,
Risk & uncertainity, Specificity of labour, Customs & Traditions, Artificia Restrictions
Collective bargaining & Wage Rate

Modern theroy of Wages -

Wage rate is determined by forces of demand for & supply of labour

6 Capital & Interest -

Capital is the man made factor of production. Capital goods have a long life and therfore the
time of expenditure and expecte receipts from them will have to be carefully predicted in making
decision of creation of them. This makes the problem more difficult & complicated

Interest is defined as reward paid to the capital for having used its services in production of
goods & services. - Price paid for capital used

7 Organisation & Profit -

Profit is regarded as the reward for entrepreneur

Functions of Entrepreneur -

Originating - Indroducing new products, new techniques pr production process and explores
new opportunities of earning profits
Risk Bearing - bears entire business risk. - originator & executor of business
Co-Ordinating - it is he who hires and employes the services of other factors of production.

Profits -
it is dynamic surplus. Disequilibrium in demand or supply will leads to profit or loss.
Profit as a reward for risk bearing.
 In competetive market, in the long run price equals average cost and no profit
Innovation is an important factor responsible for profit occurance.
Cost saving or demand boosting
Profits are earned till the effects of innovation remain
Profit of uncertainity is not analysed
Profit arise because of reduction of Risk. Some risks can be insured.
Profits are incentives to introduce innovations

Macro - Economics -

1 Functions & Roll of Money -

Money is often defined in terms of the three functions or services that it provides.Money serves
as a medium of exchange, as a store of value, and as a unit of account. Medium of exchage
Money's most important function is as a medium of exchange to facilitate transactions
Medium of exchange, Measurement of Value, Store of Value, Standard of deferred Payment

Functions of Money
Equalization of Marginal Utilities, Equalization of Marginal Productivity, Distribution of National
Income, Development of Credit System, Capital is given in liquid form, Full utilization of
resources
Demand for Money - Income, Business, Precautionary & Speculative Motive

2 Inflation -
Inflation is a key concept in macroeconomics, and a major concern for government
policy makers, companies, workers and investors. Inflation refers to a broad increase in prices
across many goods and services in an economy over a sustained period of time

There are two main types of inflation: demand pull and cost push. Fueled by income and
strong consumer demand, demand-pull inflation occurs when the economy demands more
goods and services than are available

There are four main types of inflation, categorized by their speed. They are creeping, walking,
galloping and hyperinflation

Causes of Inflationary Gap -

Alternatively when aggregate demand exceeds 'aggregate supply at full employment level the
demand is said to be an excess demand and the gap is calledinflationary gap. The gap is called
inflationary because it causes inflation (continuous rise in prices) in the economy.

Effects of Inflationary Gap -

The inflationary gap exists when the demand for goods and services exceeds production due
to factors such as higher levels of overall employment, increased trade activities or increased
government expenditure. This can lead to the real GDP exceeding the potential GDP, resulting
in an inflationary gap.

Control of Inflation -
The goal of a contractionary policy is to reduce the money supply within an economy by
decreasing bond prices and increasing interest rates, Reducing spending is important during
inflation, because it helps halt economic growth and, in turn, the rate of inflation

Methods to Control Inflation -

Monetary policy – Setting interest rates. Higher interest rates reduce demand, leading to
lower economic growth and lower inflation
Control of money supply – Monetarists argue there is a close link between the money supply
and inflation, therefore controlling money supply can control inflation.
Supply-side policies – policies to increase competitiveness and efficiency of the economy,
putting downward pressure on long-term costs.
Fiscal policy – a higher rate of income tax could reduce spending and inflationary pressures.
Wage controls - Trying to control wages could, in theory, help to reduce inflationary pressures.
However, apart from the 1970s, rarely used.

Monetary Policy -

In a period of rapid economic growth, demand in the economy could be growing faster than its
capacity can grow to meet it. This leads to inflationary pressures as firms respond to shortages
by putting up the price. We can term this demand-pull inflation. Therefore, reducing the growth
of aggregate demand (AD) should reduce inflationary pressures
The Central bank could increase interest rates. Higher rates make borrowing more expensive &
saving more attractive. This should lead to lower growth in consumer spending and investment
Making imports cheaper.
Reducing demand for exports and
Increasing incentive for exporters to cut costs.
If inflation expectations are low, it becomes easier to control inflation

Fiscal Policy -
 The government can increase taxes (such as income tax and VAT) and cut spending. This
improves the budget situation and helps to reduce demand in the economy.

Other Policies -

Wage Control - If inflation is caused by wage inflation (e.g. powerful unions bargaining for
higher real wages), then limiting wage growth can help to moderate inflation. Lower wage
growth helps to reduce cost-push inflation and helps to moderate demand-pull inflation.
Change Currancy,
Rising oil prices can lead to inflation and lower growth

3 Deflation -

In economics, deflation is a decrease in the general price level of goods and services.
Deflation occurs when the inflation rate falls below 0% (a negative inflation rate)
Deflation is distinct from disinflation, a slow-down in the inflation rate, i.e. when inflation
declines to a lower rate but is still positive

Causes of Deflation -

Deflation, or negative inflation, happens when prices fall because the supply of goods is higher
than the demand for those goods. This is usually because of a reduction in money, credit
or consumer spending

Falling Demand - Global reason, Fiscal austerity, Decline in confedence, Fall in Money Supply
Lower cost of Production - Lower Oil Prices, Improved Technology, Appreciation falling import

Effects of Deflation -

But, when prices begin to fall after an economic downturn, deflation may set in causing an
even deeper and more severe crisis. As prices fall, production slows and inventories are
liquidated. Demand drops and unemployment increases

Deflationary Gap -
 Deflationary gap is the amount by which actual aggregate demand falls short of aggregate
Supply at level of full employment'.
It is a measure of amount of deficiency of aggregate demand.

Measures to control Deflation -

Reduction in Taxation - Increase purchase power

Redistribution of Income - Increase aggregate demand
Repayment of Public Debt - increase purchase power
Subsidies - Increase investment
Public works programming -
Deficit Financing - Printing new money
Reduction in interest rate - expands economic activity
Credit expansion - increase productive performance
Foreign Trade Policy - increase exports
Regulation of Production - Problem of over production does not arise

Deficit Financing -

Deficit financing in advanced countries is used to mean an excess of expenditure over revenue
the gap being covered by borrowing from the public by the sale of bonds and by creating new
money. In India, and in other developing countries, the term deficit financing is interpreted in
a restricted sense.

The term ‘deficit financing’ is used to denote the direct addition to gross national expenditure
through budget deficits, whether the deficits are on revenue or on capital account.

Purposes of Deficit Financing -

To finance defence expenditures during war

To lift the economy out of depression so that incomes, employment, investment, etc., all rise
To activate idle resources as well as divert resources from unproductive sectors to productive
sectors with the objective of increasing national income and, hence, higher economic growth
To raise capital formation by mobilizing forced savings made through deficit financing
To mobilize resources to finance massive plan expenditure

4 Savings & Investments -

Savings is whatever is left over after income is spent on consumption of goods and services,
Investment is what is spent on goods and services that are not 'consumed', but are durable

Savings & Types of Savings -

Saving is income not spent, or deferred consumption. Methods of saving include putting
money aside in, for example, a deposit account, a pension account, an investment fund, or as
cash. Saving also involves reducing expenditures, such as recurring costs.

Bank Deposits.
National Savings Rate.
Cash Investment.
Deposit.

Determinants of Savings -

The determinants of savings generally and the specific effects of government policies on
savings and consumption are pivotal forces in investment and economic growth. The Hall
hypothesis states that consumption is a function of lifetime (“permanent”) income, rather than
income in each period independently.

The Importance of Saving Money -

Saving money can help you become financially secure and provide a safety net in case of an
emergency. Here are a few reasons why we save: Emergency cushion - This could be any
number of things: a new roof for your house, out-of-pocket medical expenses, or sudden loss
of income

Investment -

an investment is the purchase of goods that are not consumed today but are used in the
future to create wealth. In finance, an investment is a monetary asset purchased with the idea
that the asset will provide income in the future or will later be sold at a higher price for a profit.
Investment is often modeled as a function of income and interest rates

Types of Investments -

It include residential investment in housing that will provide a flow of housing services over an
extended time, non-residential fixed investment in things such as new machinery or factories,
human capital investment in workforce education, and inventory investment
 Bank Products. Banks and credit unions can provide a safe and convenient way to accumulate
savings and some banks offer services that can help you manage your money. ...
Bonds. ...
Stocks. ...
Investment Funds. ...
Annuities. ...
Saving for College. ...
Retirement. ...
Options.

Determinants of Investments -

A change in the interest rate causes a movement along theinvestment demand curve
The other determinants of investment include expectations, the level of economic activity,
the stock of capital, the capacity utilization rate, the cost of capital goods, other factor costs,
technological change, and public policy

To replace existing capital

To expand capacity
To increase efficiency

Relationship between Savings and Investments -

Investment determines output, while saving responds precisely to income changes

saving must equal investment. This is a simple matter of definition and is known as
saving-investment equality (identity
saving = income (Y) – consumption
saving = desired investment
Decisions to save and invest are constantly being made by different groups of people at
different times and for different reasons
When any discrepancy between the plans to save and invest occurs a change in the level of
income brings about a state of disequilibrium, and as income continues to change so do these
plans get readjusted until a level of income is reached where planned saving and investment
are once more equal to each other.

5 Components of Economy -

Output and income.

Unemployment.
Inflation and deflation.
Aggregate demand–aggregate supply.
IS–LM.
Growth models.
Monetary policy.
Fiscal policy.

Households
Firms
The government
Financial institutions
Exporters and importers
The rest of world
Labor Market

Primary Sector -

The primary sector of the economy extracts or harvests products from the earth, such as
raw materials and basic foods. Activities associated withprimary economic activity include
agriculture (both subsistence and commercial), mining, forestry, grazing, hunting and gathering,
fishing, and quarryin

Secondary Sector -

The secondary sector of the economyincludes industries that produce a finished, usable
product or are involved in construction. Many of these industries consume large quantities of
energy and require factories & machinery to convert the raw materials into goods and products

Tertiary Sector -

The tertiary sector or service sector is the third of the three economic sectors of the
three - sector theory. The others are the secondary sector (approximately the same as
manufacturing), and the primary sector (raw materials). The service sector consists of the
production of services instead of end products.

Informal sector in Urban Economy -

The informal sector, informal economy, or grey economy is the part of an economy that is
 neither taxed nor monitored by any form of government. Unlike the formal economy,
activities of the informal economy are not included in a country's gross national product (GNP)
or gross domestic product (GDP).

Parasitic Components in Urban Economy -

Urban generation and parasite theory and its impact on rural development. This functional
economic growth and spread it to the areas out of urban centre. This way people in every region
or country and it is included fifth component such
Urban economics is broadly the economic study of urban areas; as such, it involves using the
tools of economics to analyze urban issues such as crime, education, public transit, housing,
and local government finance

6 GDP ( Gross Domestic Product ) -

The Gross Domestic Product measures the value of economic activity within a country.
Strictly defined, GDP is the sum of the market values, or prices, of all final goods and services
produced in an economy during a period of time

GNP ( Gross National Product ) -

GNP is an economic statistic that is equal to GDP plus any income earned by residents from
overseas investments minus income earned within the domesticeconomy by overseas residents

Gross Domestic Product (GDP) and Gross National Product (GNP) both try to measure the
market value of all goods and services produced for final sale in an economy. GNP measures
the levels of production of all the citizens or corporations from a particular country working or
producing in any country

Capital Formation -

Capital formation is a concept used in macro economics, national accounts and financial
economic. In this usage, it refers to any method for increasing the amount of capital owned or
under one's control, or any method in utilising or mobilizingcapital resources for investment
purposes

Capital formation is a term used to describe the net capital accumulation during an accounting
period for a particular country, and the term refers to additions of capitalstock, such as
 equipment, tools, transportation assets and electricity

Capital formation involves making of morecapital goods such as machines, tools, factories,
transport equipment, materials, electricity, etc., which are all used for future production of goods

7 Parallel Economy -

Parallel Economy can be defined as the tax evated money which is generated by secret or
unreported activities. Parallel economy or so called 'shadow economy' is basically the system of
all the illicit and illegal activities in the economic system along side the accounted one

Causes & Effects of Parallel Economy -

Duel Economy
Under Estimation
Loss of revenue to Government
Undetermining the equity
Widening gap between rich & poor people
Lavish Consumption Spending
Distortion of Production Pattern
Deteriorate the General Moral Standards of the Society
Average Effect on Production

Elimination of black money is of utmost importance in real estate

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Micro - Economics

Adam Smith, Production, Consumption, Indifference Curve, Consumer's Equilibrium, Consumer's

Surplus, Elasticity means Price Demand Relationship,
Unitary Elastic Demand = 1, Perfectly Elastic - infinity, Perfectly Inelastic - 0, Price Mechanism
Law of Demand, Market Price, Marshal - Importance of Time element, Perfect Competetion,
Imperfect Competetion, Monopoly, Factors of Production - Land, Labour, Capital, Rent, Wages,
Capital, Profit - Reward to entrepreneur,

Macro - Economics

Money - Medium of exchange, value Store, account unit, Inflation - Demand Pull & Cost Push,
Inflation Types - creeping, walking, galloping & hyper, Causes of Inflationary gap
Inflation - rise in prices, Control of Inflation, Monetary policy - Higher interest rate, money supply
control, competative policies, Fiscal Policy - higher income tax, Wage control, import cheaper,
reducing demand for export, Deflation - decrease price level, Causes of deflation - Credit,
higher suply, Global reason, Improved technology, Effects of Deflation - demand drop and
unemployment increases, Deflation Control - Reduce Tax, Repayment of public debt, subsidies,
Printing new money, Reduction in interest rate, credit expansion, increase export,
Deficit Financing - Expenditure more over revenue - sale of bonds
Purposes of Deficit Financing - war, lift economy out of depression, employment generation,
Savings - left over income, Investment - spent on goods or services not consumed but are durable
Primary Sector of economy - agricultre, mining, forestry, hunting, fishing, quarry - Raw Materials
Secondary Sector of economy - Finished usable product - convert raw to finished - Manufacture
Tertiaty Sector of Economy - Service sector
GDP - Gross Domestic Product - sum of market values of all final goods & Services
GNP - Gross National Product - GDP + Income earned
Capital Formation, Parallel Economy - Illegal activities
but are durable
 1 - Principles of Economics

1 Consumption the use of goods and services by households

2 Indifference Curves Two goods which yield same level of satisfaction - convex to origin
3 Consumer Surplus Law of dimilishing utility
4 Elasticity of Demand Measure of demand to price change
5 Price mechanism Supply & Demand operation - price incentive to consumer & producer
6 Law of Demand Demand & Price inverse relationship - Alfred Marshall
7 Price elesticity of demand Perfectly Elastic e = infinity, Perferctly Inelastic e = 0
8 Supply Law - Limitations Auction Sale, Stock clearance, Out of fashion, perishable goods
9 Perfect Competetion Many Sellers & Buyers - Price depends on Force of supply & demand
10 Monopoly Single seller, no substitute to product - Monopolist is price maker
11 Dumping selling same product in foreign market at lower price - Price discrimination
12 Oligopoly Few sellers, many buyers, similar Product - Price rigidity
13 Duopoly Two sellers selling identical products
14 Production Factors Land, labour, Capital, Entrepreneur
15 Factors Primary - Land & Labour, Secondary - Capital & Entrepreneur
16 Theory of Rent Ricardo Theory - Difference existing in productiveness - determines rent amount
17 Ricordo - Rent produce of earth, Fertlity & situation advantages. Superior lands command higher rent
18 Marginal land No loss no profit - no rent land, superior land pays surplus
19 Subsistance theory wages population increase at faster rate, food products law of dimilishing returns
20 Sunsistance level wages just sufficient to meet necessaries of life
21 Defects in subsistance the Supply side, pessimestic, long period, no historical evidence, no diffeerence in wages
22 Marginal Productivity Labour paid according to his contribution in production - labours rewarded
23 Capital financial/physical assets, debt & equity, net worth, capital stock
24 Fixed capital does not change form - land, building, machines
25 Circulating Capitals goods in process, raw materials, finished goods stock
26 Types of Capital Working capital, Equity, senoir debt, mezanine debt
27 Working Capital = Current Assets - Current Liabilities
28 Equity Value of ownership stake or interest in property - Risk/liable capital
29 Senior Debt Paid first liability - prioritized over investments/creditors
30 Mazanine Debt Corporations asset
31 Net Interest = Payment for use of Capital
32 Gross interest = Net interest + Rewards for risk, inconvenience, management
33 Entrepreneur's Functions Decision making, Management control, income division, uncertainity taking, Innovation
34 Profit Net Income - Outgoings
35 Hawley's theory of profit Reward of risk taking in business
36 Carver theory Superior entrepreneurs are able to reduce the risks
37 Professor Knight Uncertainity - Fair degree of accuracy - risk taking which is insurable
38 Francis A Walker Profit theory Profits are same genius as rents - reward of diferential business ability
39 Marginal Productivity Perfect competetion - high needed for entreppreneur

1 - Principles of Economics

40 Dynamic profit theory entrepreneur confronted with continuous unpredictable changes in demand
41 Schumpeter Reward for innovation - eye on future demand of products
42 Monopoly Profit theory give rise to profits - greater control over price - restricting output level raise prices
43 Money ( Macro Econ) Asset, exchange medium, fully liquid
44 Functions of Money Exchange medium, value store, unit of account
45 Role of Money Buyers/sellers come together, currency, deposi, loan
46 Inflation Broad price increase over a sustain time period
47 CPI Consumer price index - measure of inflation - consumers economy
48 PPI Producer price index - tracks prices for produce
49 Cost push inflation inflation caused by price rise in goods & services
50 Demand pull inflation price rise due to aggressive demand - demand excess of agreegate supply
51 Inflationary Gap - Keynes = Aggregate demand - Full capicity Output
52 Inflation Control Measures of Monetary, Fiscal & Direct
53 Monetary Measure Measures taken by Govt, increase interest rate on borrwings - save money, credit capacity reduce
54 Fiscal Measures Govt reduce private spending or decreasing govt expenditure
55 Direct Measures tax increase on profit, spending decrease, price control
56 Deflation Reduction of prices of goods, services - significant unemployment, wage drop
57 Deflation cause Easy debt, increased productivity, currency supply decrease, govt business low
58 Deflation effects Reduce business revenue, wage drop, reduce stake investment, reduce credit
59 Deflationary Gap Equlilibrium income level while full emplyment output
60 Deflation Control Monetary Policy, Fiscal Policy
61 Monetary Policy cheap money policy, reduce interest rate, extend credit facilities
62 Fiscal policies Increase in public expenditues, tax reduction, rasi national income, employment, output
63 Deficit Financing Govt spends more money than receives money
64 Savings Income - Cost, Personal - avoid consuming income & National savings
65 Savings Determinants Income level, Absolute income, Relative Income
66 Consumption Motivations Saving is the residual part of income left after consumption
67 Wealth Holding wealth or liquid asset affects consumption decisions
68 Habit Major determinant of consumption pattern
69 Investments Financial investment does not affect employment in the economy
70 Investments depends on Expected profit rate, Rate of interest
71 Marginal capital efficiency profit rate exoected from extra unit of capital asset
72 National Income = Consumption + Savings
73 Economy Components Primary - Raw Materials, Secondary - Manufacture, Tertiary - Commercial services
74 Gross Domestic Product GDP = Consumption + Investment + Govt expence + (Export - Import)
75 Gross National Product GNP = GDP + NFIS ( Net Factor Income from Abroad) - Total market value of final goods/services
76 Parallel Economy Based on Black/unaccounted economy - Taxes not paid on this money
 1 - Principles of Economics

1 Gross National Product GNP = GDP + NR - NP

2 Demand Law Price increase demand decrease
3 Ricardian theory of rent Population, unearned income, surplus above cost
4 Money Exchange Value, Store Value, Standard of deffered payment
5 Demand Pull wage increase, Increase in wage, salary, govt spending, export
6 Primary Sector Mining, Forestry, piskiculture
7 Secondary Sector Food Processing
8 Working Capital Asset of company to build business
9 standard current ratio is 2:1 it gives solvancy condition of company
10 authorized capital of a company is not added in its balance sheet It is actual capital & not raised capital
11 Window dressing Action taken or not taken
12 Solvency Ability to meet llong term financialObligations
13 Credit risk Unable to pay by borrower
14 Parallel Economy Black money with accounted money
15 Black money Not reported to authorities
16 Average propensity to consume (APC) is defined as Consumption / Income
17 Average propensity to save (APS) is defined as Saving / Income
18 Marginal propensity to consume (MPC) is the proportion Consumption / Income
19 Marginal propensity to save (MPS) is the ratio of Saving / Income
20 Disposable income (DI) equals Consumption + Saving
21 Metalic Money Gold & Silver
22 Money legal tender for settlement of all debts Flat Money
23 Broad Money Currancy + All Bank deposits
24 national income divided by the nations population Per Capita Income
25 National Income = GNP - Depreciation
26 Inflation A continuous rise in general price level
27 The inflation is estimated based on the movement in Wholesale price index
28 Consumer price index (CPI) is used to Living changes - dearness allowance
29 Hyperinflation is phenomenon where the rate of inflation is around 1000%
30 The inflation which is low and which moves up and down slowly Crowling
31 The inflation whose rate falls within one digit to the low two digits per year Low Inflation
32 High inflation for for few years Galloping
33 three digit rate per year High Inflation
34 Stabilizing Policy Monetary policy , Fiscal policy and Direct controls are the main instruments of
35 Deflation Entirely different of Inflation
36 Deflation spread -------- impact than inflation Worst
37 ------- is an important method of overcoming deflation Deficit Budgeting
38 Compensatory spending and pump priming are Public expenditure
39 The long-run objective of financial management Maximise firms common stock
 1 - Principles of Economics

40 Risk-return trade off implies Balance between risk & return

41 Average Cost is defined as Total Revenue / Units sold
42 Competetive Market No restraints on demand & supply
43 Micro Economics deals with Production & Cost
44 Factors of production Land, labour, capital
45 maximum number of firms Monopolistic
46 Change in total revenue from an additional unit sold is Marginal revenue
47 increase in prices induces them to purchase Veleban Effect
48 Giffen Effect Price fall demand fall, vice a versa
49 How are indifference curve sloped Negatively
50 In the concept of Marginal Rate of Substitution Same satisfaction level
n instruments of