Roll No.

64
SAP ID: 500076620

UNIVERSITY OF PETROLEUM AND ENERGY STUDIES

Mid Semester Examination, October 2020
Open Book – Through Blackboard Learning Management System

Course: Business Economics-II Course Code: CLNL2001

Programme: BA LL.B (Hons.) Batch 2 Semester: III

Time: 02 hrs. Max. Marks: 50

Instructions:
As this examination is in open-book format, the students are expected to demonstrate a very high degree of
Academic Integrity and not copy contents from resources referred. Instructors would look for
understanding of the concept by the students and any similarity found from resources online/ offline shall
be penalized in terms of deduction of marks and even cancellation of paper in requisite cases. The online
examination committee of the School would also look for similarity of two answer scripts and if answer
scripts of two or more students are found similar, both the answer scripts shall be treated as copied and
lead to cancellation of the paper. In view of the aforesaid points, the students are warned that they should desist
from using any unfair means.

Instructions:

S. No. Marks CO
1 How is discipline Economics associated with Law? How is studying Economics
10 CO1
beneficial for Law students? Critically discuss.
Ans.

2 What are important macroeconomic indicators? Discuss various macroeconomic

20 CO1
indicators in detail and the current macroeconomic situation in the country.
Ans.
3 What are the injections and leakages in a modern economy ? How do they regulate
the economy ? What measures would you suggest in the recent economic recession
20 CO2
during pandemic in the injections and leakages framework to revive the economy ?
Critically discuss.
Ans.

I, ……………Nainshree Joshi………………………………., understand that submitting

work that isn’t my own may result in failure in this paper and I may also be subject to
Disciplinary Proceedings as per the Academic Integrity policy of the University.
Ans 1)
ASSOCIATION OF DISCIPLINE ECONOMICS WITH LAW:
 Both Law as well as economics offers a general theory of law as well as
conceptual tools for the clarification and improvement of its practices.
 The general theory is that law is best viewed as a social tool that promotes
economic efficiency, that economic analysis and efficiency as a perfect can guide
legal practice.
 It also considers how legislation should be used to improve market conditions in
return. Law and economics offers a framework with which to model legal
outcomes, and customary objectives with which to unify disparate areas of legal
activity.
 The bringing together of legal theory and economic reasoning has also created
new research agendas within the fields of behavioural economics: how rationality
affects people’s behaviour within legal scenarios;
public choice theory and the way collective behaviour should have an impact on
legislation;
and game theory:
understanding strategic action during a legal context.

 Law and economics stresses that markets are more efficient than courts.
 When possible, the system , consistent with the positive theory, will force a
transaction into the market. When this is often impossible, the system attempts to
“mimic a market” and guess at what the parties would have desired if markets
had been feasible.
 The second characteristic of law and economics is its emphasis on incentives and
people’s responses to those incentives.
 For example, the aim of injury payments in accident (tort) law isn't to
compensate injured parties, but rather to supply an incentive for potential injurers
to require efficient (cost-justified) precautions to avoid causing the accident.
 Law and economics shares with other branches of economics the idea that
individuals are rational and answer incentives.
 When penalties for an action increase, people will undertake less of that action.
 Law and economics is more likely than other branches of legal analysis to use
empirical or statistical methods to live these responses to incentives.

WHY ECONOMICS IS BENEFICIAL FOR LAW STUDENTS?

 A better understanding of society (through a better understanding of
economics) could help law students to better understand the design of the
legal system.
 It would help them to model/predict the practical implications of legal
changes
 It could help them to find potential improvements of the law.
  Although the usefulness of analysing economics may also almost seem
self-evident thinking about this robust relationship with law.
 A higher perception of society (through a better appreciation of
economics) may want to assist you to better apprehend the sketch of the
criminal system.
 It would assist you to model/predict the sensible implications of prison
changes.
 It could assist you to find plausible upgrades of the law.
 Lawyers are appointed for big companies to solve various corporate
legal issues and hence they must have knowledge on various issues
pertaining to taxes, government’s stand on corporate affairs which are
well covered in subjects like public finance, Indian economy. Being a
legal arm for the firm, a lawyer should understand the external and
internal economic environment in which the firm is working and hence
they study various concepts in macro economics and micro economics.
 InIn many cases, felony decisions are made on grounds of financial
efficiency. Hence, a sturdy historical past in economics can help understand
how criminal decisions stem from monetary issues thereby providing a
better indication as to how courts will probable rule.

Ans 2)
MACROECONOMIC INDICATORS
 Macroeconomic indicators are records or statistics readings that reflect a particular
country, region, or sector’s financial circumstances. They are used by way of analysts
and governments to check the economy and financial markets’ cutting-edge and
future health.
 There are three types of economic indicators: leading, lagging, and coincident.
1. Leading indications point to future adjustments in the economy. They are on hand for
momentary predictions of financial tendencies because they normally trade earlier
than the economic system changes.
2. Lagging indications normally come after the financial system changes. They are
usually most helpful when used to verify particular patterns. You can make economic
predictions based on the patterns, but lagging symptoms can’t be used to predict
economic exchange directly.
3. Coincident warning signs supply treasured information about the modern country of
the financial system within a specific area because they manifest concurrently as the
modifications they signal.

KEY MACROECONOMIC INDICATORS OF THE INDIAN ECONOMY

1. GDP (GROSS DOMESTIC PRODUCT)
Gross home product (GDP) is one of the most common symptoms used to song the health of
a nation’s economy.
The calculation of a country’s GDP considers various distinctive factors about its economy,
including its consumption and investment. It represents the complete dollar price of all items
and services produced by way of an economic system over a particular period. As a
measurement, it is regularly described as calculating the total size of an economy.

2. INDUSTRIAL PRODUCTION
The industrial manufacturing index (IPI) is a monthly monetary indicator measuring actual
output in the manufacturing, mining, electric, and fuel industries, relative to a base year.
The Federal Reserve Board (FRB) publishes the industrial production index (IPI) in the
center of every month, and revisions to preceding estimates are released at the end of every
March. The IPI measures manufacturing tiers by using the manufacturing sector, mining –
which include oil and gasoline field drilling services – and electrical and gasoline utilities.

3. RETAIL SALES
Retail income music consumer demand for completed items through measuring long lasting
and non-durable goods over a described period.
Retail income are a true indicator of the economy’s pulse and its projected path towards
growth or contraction. As a leading macroeconomic indicator, healthy retail sales figures
typically elicit advantageous movements in equity markets.

4. INTEREST RATES
Interest charges are a lagging indicator of financial growth.
When activity costs increase, borrowers are greater reluctant to take out loans. This
discourages buyers from taking on debt and companies from expanding, and as a result, GDP
boom may additionally come to be stagnant.
If pastime charges are too low, that can lead to an expanded demand for money and elevate
the likelihood of inflation. Raising inflation can distort the financial system and the fee of its
currency.
Current pastime fees are indicative of the economy’s modern situation and can also suggest
the place the economy may behead.

5. CONSUMER PRICE INDEX (CPI)

It is a lagging indicator. CPI measures changes in expenditures paid for items and services by
urban shoppers for a special month. It is in actuality a measure of the value of dwelling
changes. It affords a gauge of inflation as it relates to buying those items and services.
The Consumer Price Index (CPI) is a measure that examines the weighted average of costs of
a basket of consumer items and services, such as transportation, food, and clinical care. It is
calculated through taking charge modifications for each object in the predetermined basket of
goods and averaging them.

6. STOCK MARKET
Stock markets are the place character and institutional investors come collectively to buy and
promote shares in a public venue. Share expenses are set by way of supply and demand in the
market as shoppers and agents vicinity orders.
The stock market is viewed a suitable predictive indicator of financial health, because market
participants spend their time assessing the fitness of agencies and the economy, so are
properly placed to decide future growth.

7. HOUSE PRICES
The housing market is widely regarded a leading indicator, because the facts can inform the
country of the economy months in advance.

8. BOND YIELDS
A bond’s yield is the profits that a trader can anticipate to acquire in return for buying and
holding a bond. A bond market is concept to be a properly main indicator, but the entire
market is just based on investors’ and traders’ expectations of future economic
circumstances.

9. PRODUCTION AND MANUFACTURING INFORMATION

Production and manufacturing facts can be one of the best and quickest ways to get leading
data on the country of the economy. An amplify in production and manufacturing outputs
tends to have a fantastic impact on gross home product (GDP) figures, which is considered as
a signal of increased consumption and superb monetary growth.

CURRENT MACROECONOMIC SITUATION OF INIDAN ECONOMY

 According to the International Monetary Fund (IMF), the Indian economy grew via
4.2% in 2019, towards 6.1% in 2018, forcing policymakers and markets to rethink
India’s economic outlook.
 Slower domestic consumption dragged on growth, and tighter savings stipulations led
to weaker personal investment, which has translated into fewer jobs.
 As such, the authorities has introduced a slew of reforms to jump-start the economy.
According to the up to date IMF forecasts from 14th April 2020, due to the outbreak of
the COVID-19, GDP increase is expected to fall to 1.9% in 2020 and pick out up to
7.4%, difficulty to the post-pandemic international financial system recovery.
 India’s authorities deficit stood at – 7.4% by way of the stop of 2019 and should
reduce barely in 2020 and 2021, achieving -7%.
 According to the IMF, the inflation fee multiplied from 3.4% to 4.5% in 2019, though
it is predicted to limit to 3.3% in 2020 and barely enlarge to 3.6% in 2021.
 Moreover, as the Reserve Bank of India has reduce its key coverage hobby fee five
times in the first ten months of 2019, the room for economic coverage maneuvering
has also narrowed.
 Public debt stages stay high, at 70%, and need to continue along that fashion in the
upcoming years. IMF anticipates the authorities debt degree at 68.5% of GDP in 2020
and 67.7% in 2021.
 India continues to suffer from a low GDP per capita, and nearly 25% of the
population nevertheless lives beneath the poverty line (about one-third of the world’s
populace living on beneath USD 1.90/day lives in India), and the country’s
inequalities are very strong: the richest 1% of the populace owns 53% of the country’s
wealth.

Ans 3)

Injections:
 Injections basically means additions to the circular flow of income, i.e. introduction of
income into the flow.
 When households and firms borrow the savings(S) for investment, they constitute
injections.
 Injections can take the forms of investment (I), exports (X) and government spending
(G).
 They increase the flow of income in the economy.
 Injections in modern economy means introduction of income into the economic flow.
It consists of Investment, government spending and export. It increases the flow of
income .
 Formula :

Injection = I+G+X, where I stands for Investment, G stands for Government spending
and X stands for Export.

Leakages:
  While leakages basically means withdrawal from the circular flow of income.
 When households and firms save part of their incomes, it constitutes leakages.
 They may be in form of tax payments (T) and imports (M) also .
 Leakages reduce the flow of income in the economy.
 Leakages in modern economy means the income or capital that deviates from
the economic loop. It consists of saving , Taxes and import. It means
withdrawal from the flow. It reduces the flow of income.
 Formula :

Leakages = S+T+M, where S stands for savings , T stands for Taxes and M
stands for import.

They regulate the economy collectively through round drift of earnings and expenditure.
 When the leakage is more than injection , the economic activities are low due
to less money and thus, Gross Domestic Product i.e., GDP is low whereas
when the injection is greater than leakage then, the monetary activities are
excessive due to greater cash in the u . s . a . which increases the GDP.
 That is , when Injection> Leakages , GDP is high
 When Injection < Leakages , GDP is low
 When the leakages are equal to the injections the economy is in a constant
nation of equilibrium.
 If Leakages > Injections the stages of income, output, expenditure and
employment will fall causing a contraction in the general financial activity.
But then if Leakages < Injection the stages of income, output, expenditure and
employment will upward push causing an expansion in monetary activity.
 This is how they regulate the economy.

MEASURES:-
 In this time of Pandemic , there has been a remarkable economic recession . the GDP
of the country has long gone down.
 Normally there would be many approaches to extend the GDP, however in this
pandemic situation, this is very difficult.
 To get over the recent monetary recession and revive the financial system , the
injection will have to be made extra than the leakages in the monetary framework .
 Increasing the injection capacity an increase in the Investment , Government spending
and export.
 The first step that is funding is now not viable in this time because there is no cash left
to invest due to the fact of lockdown , very low glide of earnings and unemployment
 The 2nd option is Government spending however once more government spending is
no longer feasible because the authorities is left with very less cash and hence cannot
spend it in large amount.
 Government-provided comfort will become all the greater very important. This has
been solely hope, specially free food grains to poor households; and credit score
guarantees to banks for lending to small and medium firms, the place the take down
has been patchy.
 The government’s reluctance to do extra nowadays looks partly due to the fact it
wishes to preserve sources for a viable future stimulus.
 The ultimate option left is Export , although we don’t have any problem in exporting
but the other countries have additionally been hampered badly due to pandemic and
are dealing with low GDP, they will attempt no longer to ship money out of their
country and purchase things inside the us of a to make bigger the GDP and revive
their financial prerequisites .
 Thus, the three considerable picks cannot be put into work now during these
instances to revive economic system through increasing the injections in the circular
go with the flow of income .
 If we take the economy as a patient, relief is the gas the patient desires whilst on the
sickbed and conflict the disease. Without relief, households omit meals, pull their
adolescents out of faculty and ship them to work or beg, pledge their gold to borrow,
let EMIs and rent debts pile up.
 Similarly, barring relief, small and medium corporations put off employees, cease
paying workers, let debt pile up, or close permanently. Essentially, the patient
atrophies, so by means of the time the disorder is contained, the patient has end up a
shell of itself.
 Now we take economic inducement as a boost. When the disease is defeated, it can
help the affected person get out of her sickbed faster. But if the patient has half-
starved, inducement will have little outcome. Even if they begin earning, indebted
households will not devour freely, specifically if they trust they have to control
similarly periods besides livelihoods or administration help. Likewise, even small and
medium firms that have stayed open but have big unpaid payments and activity will
now not be capable to function well. Without relief measures, the growth manageable
of the economic system will be seriously damaged.
 The government will have to make bigger the resource envelope in each and every
way possible, and spend as cleverly as possible. It additionally has to take every
action that can move the economy ahead except extra spending. On the useful
resource front, India could borrow extra except scaring the bond markets if it
committed to return to fiscal viability over the medium term – for example, by means
of putting future debt reduction targets
 Through legislation, and committing to trustworthy and obvious fiscal numbers with a
watchdog unbiased fiscal council. In addition to borrowing, it have to prepare public
region firm shares for on faucet sale, to take benefit of each and every duration of
market buoyancy. The modern period of buoyancy already appears like a overlooked
opportunity. Many government and public region entities have surplus land in prime
urban areas, and these too must be readied for sale. Even if sales do not take area
immediately,
 Preparations for sale, as properly as an announced time table, will provide bond
markets higher conviction the government is serious about restoring fiscal stability.
 The private region should also be urged to supply a supporting hand. Cash-rich
systems like Amazon, Reliance, and Walmart may want to help smaller suppliers get
lower back on their feet, even funding some of them. All giant corporations have to be
incentivized to clear their receivables quickly.
 As the a range of payment moratoria come to an end, a quantity of entities will be
unable to repay. Instead of reacting in a piece-meal way, the government need to have
a well-thought-out layout to deal with the coming economic distress.
 A range of structures have to be in area to help debtors and claimants such as
landlords and banks attain agreements to restructure obligations, which include
having unpayable amounts written off.
 A variety of arbitration boards need to be set up to renegotiate claims of a range of
sizes. Civil courts, debt restoration tribunals, and the NCLT ought to be beefed up to
supply fast back-up judgments. Given the depth of the contraction, stimulus will
additionally be needed, specifically funding in infrastructure construction which
creates jobs and increases demand for all manner of inputs like cement and steel.
 The core must fill up the coffers of the country governments, which normally spend
more on infrastructure. This can be accounted for as section of the GST dues the core
owes the states. In addition, the middle have to notify shelf-ready initiatives that are in
the National Infrastructure Pipeline for implementation. Given the lead time for such
spending, all this ought to appear now.
 Reforms can be a form of stimulus, and even if not carried out immediately, a
timeline to undertake them can raise modern investor sentiment. The world will
recover earlier than India, so exports can be away for India to grow.
 For that to happen, the authorities has to reverse its latest raising of tariffs so that
inputs can be imported at low cost. Once it resets tariffs, the authorities must make it
tougher to trade them at whim, else corporations will no longer have the self belief to
make investments in export production, given how competitive the world is.
 To enhance our competitiveness, lengthy debated reforms to land acquisition, labor,
power, and the monetary region should be implemented, as have to currently
announced reforms in agriculture.
 Temporary half-baked “reforms”, such as the current suspension of labor protections
in a range of states, will do little to enthuse enterprise or workers, and give reforms a
horrific name.