a n2 Gina | question Bank for Mea, Its common measure is money. Value of all in terms of money. Total value of all the fi year is called national income. Definitions: The term ‘National Income’ has been defined as under: ‘Anational income estimate measures the volume of commodities and services that are turned out during a given period counted without duplication’ —National Income Committee of India, 1951 ‘National income is the net output of commodities and services flowing during the year from the country's productive system into the hands of the ultimate consumers or into net additions to the country’s stock of capital goods’ Rial “The national dividend is that part of the objective income of the community including of course, the income derived from abroad which can be measured in money! A.C. Pigou “The labour and capital of the country acting on its natural resources produce annually a certain net aggregate of commodities, material and immaterial, including services of all kinds. This is the true net annual income or revenue of the country or the national dividend’ —Allfred Marshall ‘Thus, national income means the sum total of value of all the final goods and services produced in an economy during one year. Q.2. How will you measure the national Income in India? Ans. Measurement of National Income in India: For the purpose of measurement of national income, Central Statistical Organisation (CSO) has divided whole of the economy into 14 sectorsas follows: 1. Agriculture, 2. Forestry and logging, 3. Mining and quarrying, 4, Fishing, 5. Registered manufacturing, 6. Unregistered manufacturing, 7. Electricity, gas and water, 8. Construction, 9. Transport, communication and storage, 10. Trade, hotels and restaurants, Real estate, ownership of dwellings and business services, i 13. Publicadministration and the goods and services produced in an economy is inal goods and services produced in an economy during one ‘There are three methods of measuring national income of a country: 1. Net output method, 2. Income method and 3. Expenditure method. In India, it is not possible so far to estimate national income by anyone of these methods because of non-availability and ‘unreliability of data.14 (Gye: | Question Bank for Man, ‘Inflation is an expansionary trend of purchasing power that tends to be the effect of an increase in price level’ —Paul “Inflation isa stage when value of money and credit relative to available goods result in a substantia} and continuing rise in the general price level! —Webster “The stage in which there is over issue of currency is called inflation” ‘Thus we see that Hawtrey defines inflation as the ‘Issue of too much currency’ and Coulbourn has defined fafletion as "Too much money chasing too few goods’ These definitions seek to establish cate ‘and effect relationship between supply of money and the price level. According to these definitions, the rise in the prices is caused by an increase in the supply of money. The increase in the supply of money is the cause, the rise in the price level is the effect. Q.5. What are the causative factors to the inflation? (2006-07) ‘Or Write note on causes of inflation. (2009-10) Ans. Causes of Inflation: Increase in money income and low production are the two main factors responsible for inflation. These can be described as follows: L Increase in Money Income Following are the factors that help in increasing money income: 1. Credit Policy of Bank: The Central Bank's policy of rate of interest, purchase and sale of securities in the open market affects the amountof credit. Ifthe bank lowers the rate of interest, it will lead to increase in the demand of loan which creates inflation. Similarly, when bank “ increases currency in the open market by purchasing securities, it again results in inflation. | 2, Deficit Financing: When government resorts to deficit financing to meet its budget deficit, it ; creates inflationary conditions in the country. “Government Policy: When the government tides over the crisis in the country through ‘of fresh notes, the quantity of money exceeds its requirement and inflationary as are thereby created. Jin Velocity: The velocity of money affects the supply sides of money which es inflation by raising the prices of goods and services. ‘ inflation stems from natural factors, such as: famines,16 Gye. | Question Bank for 4, Definitions: The term ‘trade-cycle’ has been defined as under: ‘A trade-cycle is composed of periods of goods trade thatis characterised by rising prices and.low ‘unemployment percentages altering with period of bad trade characterised by falling prices and higher unemployment’ —Keynes ‘The business-cycles in general sense may be defined as an alteration of period of prosperity ang depression of good and bad trade’ } ‘Business-cycles are a series of fluctuations in the economic activities of organised communities: —Mitchett ‘Cyclical fluctuations are characterised by alternative waves of expansion and contraction. They do not have a fixed rhythm but they are cyclic in that the phases of contraction and expansion recur — frequently and in fairly similar patterns? On the basis of above definitions, it can be concluded that business cycles are the regular and frequent fluctuations in the economic activities of a country. It may also be defined as a period of prosperity followed by a period of depression. | Q.9. What are the main causes for giving birth to trade-cycles? Ans. Important causes giving birth to trade-cycles may be explained as follows: 1, Mal-adjustment between Demand and Investment: If there is mal-adjustment between ‘and investment, it causes trade-cycles. When there is over investment, it leads to the phase of cy and when there is under-investment, it leads to the phase of depression.18 | Gia | Question Bank for M.8.8 Q.12. Which is the best method that you would recommend to be used for forecasting business cycles? (2013-14) ‘Ans. Method for Forecasting Business Cycles: The suitable method for forecasting business cycles is trend projection method that can be estimated by using one of these methods: 1. Least Square Method: It is based on the assumption that past rate of change is at the variable under study and will continue in the future. It is a mathematical procedure for fitting a line to a set of observed data points such that the sum of the squared differences between the calculated and the observed value is minimised. This method is used to project dependant variable in the future. 2. Time Series Data: It refers to data collected over a period of time recording historical changes in price, income and the other variables influencing demand for a commodity. The analysis is related to, the determination of change in a variable in relation to time. 3. Moving Average Method: This method is used to compute the moving average of the sales of the past. years. The computed average is taken as forecast for the next year or period. This is the process of computiiig average of leaving the oldest observation and including the next one. 4, Exponential Smoothing: It is a popular technique for short-run forecasting and uses a weighted average of past data as a basis for a forecast. The method is known to be effective when there is randomness and no seasonal fluctuations in the data. SectionfA | LONG EUR QUESTIONS ae by Gross National Product (GNP)? How is It different from Net National (2005-06) (2006-07) GDP, GNP and NNP. (2014-15) — il Income124 Gira | question Bank for M8. 4, Non-monetised Sector: About 70% of our total population is still living in villages. In some villages, barter system of exchange is still in use, It means that some transactions do not enter into monetary sector and thus, these transactions are excluded from national income. 5. False Information Regarding Production and Income: Some individuals, households and producers do not keep proper and fair accounts of their income. They destroy facts and provide false information about their production and income. They do so to evade income tax and wealth tax, etc. 6. Problem of Double Counting: Problem of double counting isa serious problem in the: estimation of national income in India. Many goods and services are used for more than one time in the process of production. It is not always possible to make a clear and specific distinction between intermediate goods and final goods. For example, wheat is a final product for a consumer but for flour mill, it is a raw material. In such cases, it becomes difficult to estimate real contribution of each of these units to the national income. Il. Conceptual Problems Important problems of this category are as follows: —~ _ 1.Problem of New Goods and Services: National income estimates are prepared at current and constant prices. There are some commodities that are produced now but were not produced in the base year. Problem arises as to how to fix the base year price for such commodities. 2. Problem of the Constituents of National Income: There isa difference among ‘different countries __ on the issue of constituents of ‘national income. Some countries include services also in national income countries do not include services. Due to this reason, national income data of different (2010-11)130| Gyre. | Question Bank for Mi8.A, Q.8. Give the measures to control the trade-cycle. Ans. Control on Trade-Cycles Measures to control trade-cycles can broadly be divided into two parts: I, Preventive measures, UL, Formal measures. Details in this regard are as follows: |. Preventive Measures : Preventive measures are not the measures to control trade-cycles, These are the measures which are adopted to minimise the possibility of occurrence of trade-cycles. Important preventive measures are as follows: All the business and industrial activities should be strictly controlled. . Monetary and fiscal policies should be well regulated and controlled. All the efforts should be made to maintain proper balance between demand and supply. Wherever necessary, industries should be nationalised. Speculative trend should be checked. . Inequalities in the distribution of income and wealth should be reduced to minimum. Agriculture should not depend upon rainfall. Adequate irrigation facilities should be developed in the country, "Il, Formal Measures Fc Ime: es are the measures which cannothelp in removing the fundamental cause of trade- but can minimise them. Important formal measures are as under: Noneene