Delet e d

(I 0 1 )CJ) l I ;,,r n)

Part A: Introductory Macroeconom ics

Unit 2: Money and Banking
Topics
Control of Credit thro ugh Bank Rate, CRR , SLP, Pcf:JG ~a _
Open fViarket Op ra t ion s, Margin requirement.
Unit S: Balance of Payments
Topics
Bala nce of pa_y'~ er,ts d eficit-meaning.
D::-T1::-rmina ·0 r o' c /chan ge rate in a f ree market.

Part B: Indian Economic Devel opment

Unit 7: Current challenges faci ng Indian Economy
Topics
'.Jrovvtr of i:-r.A jC, ·,..)( r...,rcJr.Jr iri lndi i ill('" 1t1
1
t

Infrastructure: f r1r 'rJ J

 UNIT V: NATI ONAL INCO ME ACCO UNTI NG

avo = IC+ CFC + NIT + CP + OS + MISE

Sulcs 1 Change in Stock
-=-=

= (Dom~stic Sllles + Exports) + (Closing Stock - Openi ng Stock)

. Pnmar
. y Scctor + VO 111
. Secon d ary sc,·tot·
== VO m .., + VO in Tertiary Sector
GDP Mr = GVO - IC
= Sales + Chang e in Stock - IC
= NOP Ml' + CFC
NOP l•l . + NIT+ C FC
c:

= NNPn- - NFIA + NIT + CFC

= NNP - NFIA + CFC
Mr
= (YO in PS + VO in SS + VO in TS) - (IC in PS+ IC in SS + I.C . TS)
m
NOP Fe= GVO - IC - CFC - NIT
= GDPMl' - CFC - NIT
= GDPFC- CFC
= NNP 1.c- NFIA
= CE + OS + MlSE
= GNP M l' -
CFC - NFI.A -- NIT
NNPFc /NI = GVO - IC -CFC - NIT+ NFIA
= GDP M P - CFC- NIT+ NFIA
= GNPMP - CFC - NIT
= NDPf'C + NFIA
= (CE+ OS + MISE) + NFIA
i) Value o{ Output & Value Added ( Domestic Product) is the presen ce of
IC in the fom1er &
absence of JC in the lattei: GVO = GDP Ml'+ lC; GDP MP= GVO - IC
ii) Gross Domestic Product (GDP) & Net Domestic Product (NOP) is the presen
ce of CFC in
the former & absence in the latter. GDP = NOP+ CFC; NOP = GDP - CFC
iii) Market Price (MP) & Factor Cost (FC) is the existence of NIT in the forme r
& absenc e in the
latter.
GDP MP = GDPPC + NIT; GDPr,c = GDPMP - NIT
iv) National& Domestic Product is the existence of NFIA in the former & absen
L. ce in the latter.
NDPFC = NNPI'(' - NFIA; NNPl'C = NDPFC + NFIA
GDCF =NDC F + CFC
Or GDCF = NDFCF + CFC + Change in stock.
 M ET HO DS TO MEA SUR E NPCl" IONA L INCO
ME

- E
I VALU ADOl! O Mr I Hon I \ 1,~..•coM E M ETHO D 1 r EXP E NOrT URE METH OD
I
'
I 1 •

lovo... ,. •

~
-
v o ,. • v,>-. • vo, .
" " ' . . . . . <. llA NUf' ON
- t C•c.r t . • NI r •COr•O &•llmA t'
K TOO K
\ NVA ,c/NO P ,,.;101 •
COE+ OS+M IS E
\ \ GD P MP = C
G + (X- M)
'
+ I + \
- J
\~~~~~-=.tDp~P--J
.

[1yA MP= GVOM,; · I q

l--NVA
l M P = G VA M, , - c F c \ \ND P Fc = NO P MP \
I ~VA Fc - NVA M~ - N I 11 NIT i
-

- _- -
-
r NN PFc/ NI = NV A Fc + NF IA

R E LAT ED AGG REG ATE S OF NI

\ \ NN PFc/ NI =
ND PF_c + NF_ ~A
1
_

NATI ONAL- - \
INCO ME/N N Fl:_£._ ---1+ NIT
NNP MP J +NCT FROM
ROW .tNNDIJ
+CFC

•
r----:i
GND½
- NF I A

ND PFc OR DO ME STI C INC OM E

1 - (INC O ME F ROM G OVT AOMIN ISTRA T"IVE
SAVIN GS OF N O N DEPA RTME NTAL E NTE
DEPA RTME NTS +
RPRI SES)
NlP FcA CC RU ING TO PRI VAT E SE CT OR
+ NFIA+ NATIO NAL DEBT INTER EST +C
URRE NT TRAN SFER FROM GOVT .+
CURR ENTT RANS FER FROM ROW

PRI VAT E INC OM E

l - COR PORA TION TAX- RETA INED E ARNI
NGSO F PVT. SECT OREN TS
PER SO NAL INC OM E
' - DIRE CT PERS ONAL TAX- MISC ELLE ANEO
US RECE IPTS OF GOVT -
PE RS Q NA L DIS PO SAB LE INC OM E

l\1ethods to meas ure Nati onal Income:

1. Value Added Meth od: NNP fc = Sales + Chan ge in Stoc k -
IC - Depr eciat ion - Net lndirect
Tax + Net Facto r lnco mc from Abro ad.
Sales = Price X Outp ut; Chang~ in Stock = Clos ing stock - Open
ing stock~ NIT = lndirectTax-
subs idies ; NFlA = Facto r lncom e from Abro ad-F acto r lnco me
to Abroad
2. Inco me Meth od : NNPfc.: = Com pens ation of emp loye es+ Oper
ating Surp lus+ Mixe d Income
+NF IA
COE = \1/ages & salar y + Emp loyer s contr ibuti on to socia l secu
rity sche me
Oper ating Surp lus = Rent -t- lnter est + Roya lty + Profi t
3. Expenditure Method: NNP fc = Priva te final cons ump tion
expe nditu re + Govt. final
cons ump tion expe nditu re + Gros s dom estic capit al form ation
+ Net Exp orts - Depreciarion-
Net lndirectTax + NFIA
 Related aggreg ate, ofNatl onal lnrome :
I. NDPfc Accruing lo Private sector NDP fc.: NfJP!c accruin g to (jo vt (fncome accruing
to GO\, l dc.-partme ntal enterpri se-. ➔ Savin~ of non ucpMtm<.:ntrtl enterpr ises)
2. Private Income = NDPfc accruin g to Private Sector ~ '°"t-1A +- C urrcnt transfer from
Govl. f- Net current lran~fcrs from abroad I fntcrcc,, t on '-J'1f1on a l Dcht
J. Personal lm:omc = Pri vate Income - Corporat.e Tax Net n.:taincd t=arning of private
corporate sec tor
4. Personal disposa ble income = Personal income - Per~onal tax - Miscell aneous
Payments to Govt. admini strative departments/ Con5umption expend iture + Household
savings
5. Net National Dispos able Income = NN Pmp + Net current tran~fe r from abroad
6. Gross National disposa ble income = GNPmp + Net current trans fer from abroad
Basic Rulet: I. Gross - Net = Depreciation: 2. Market Price - Factor Cost = N~t Indirect Tax;
3. National Produc t - Domes tic Product = NFIA; 4. Val ue of Output - Intermediate cost=
Valueadded
UNIT VI: ~IONE Y & BA:\K J~G
Money Supply (M) = Curren cy heJd with genera l public (C) 7 Demand deposits of general
public held by the Comm ercial Banks( DD)
Ml = C + DD + OD(Ot her Deposi ts held by RBI: M2= MI + Sa\·ings deposits of POSB. M3
=
MI + Nettirne deposits of Banks; M4= M3-i- Deposits of Post Oflice Saving Organization
Credit multiplier(K) = I/Legal Reserve Ratio X l 00: Total Initial Deposit = K X Initial
Deposit
UNIT VII: THEORY OF INCOME DETE R\ll~A TIOl\
MPC + MPS = J; MPC= I -MPS; MPS= 1-MPC ;MPC =t:iCl/1 Y; \1PS =t:iSi~ Y: \ PC = C/Y:
APS=S/Y;APC +APS= l;APC = 1-APS ;APS= 1-APC
lnvestmentMultiplier(K) =.1 Y/&I; K = 1/ 1 - MPC; K = I/MPS;

CONSLMPTIO~ FUNC TION: C = Co + bY, where C is Consum ption ~xp~m.litun:: CO

=
ption
Autonomous Consumption ie Consumption at zero Je,·el of income : 'b · is slop~ of consum
curv edwu ~nt which is equal to~C/~ Yie MPC; Y is Natio11<1l Income
1-b) is
SAVING FUNCTION: S = - Co + ( 1-b)Y. where Sis Savings, - Co is auton0mt,us saving. (
MPS i~1lopc ofsaving curve, Y is National Income
UNIT VIII: GOVERNJ\,1ENT BUDG ET & ECO~ OMY
le\ enuc deficit = Revenue expenditure > Revenue Receip ~
f iscal Deficit = Tocal Expenditure - Total Receipt ( Net of Borrow ings)
Primary Deficit = Fiscal Deficit - Interes t Payments
UNIT IX: BALA NCE OF PAY1\1El\TS
Balance ofTrade = Value of Exports - Value oflmpo rts
Surplus BOP= International Receipts > International Payme nts
Defac.itBOP = Intemat.1onaI Rec e1pts .
. < lntematmnal Payme nts
 MACRO ECONOMICS (50 MARKS)

UNIT-V
NATIONAL INCOME ACCOUNTING

t<EvcoNCEPT
Macro Econom_ics: -.It is that branch ofl·conomics which studies the aggregates of a_n economy
the larger untts ot an economy. The main objective of Macroeconomic study JS 'how the
:;come & employment of an economy is determined?' This branch of economics deaJJ with the
fuller utilization ofresources.
National Income: - It can be defined as the net value of aJI final goods & services produced by
die 110m1al residents in the 'domestic territory of a country in an accounting year (NVA.-c). and
adding net tactor income from abroad(NFIA).NJ= NVA,c + NFIA
Depreciation or Consumption of Fixed Capital (CFC): - It refers to the Joss of value of fixed
assets due to nonnal wear & tear.
Normal Residents: -This refers to those individuals & institutions who normally re.~ide in a
country for more than one year, and whose centre of economic interest lies in that country.
Economic Territory: - Besides the landmass lying within the political frontier of a country.
includes 200 nautical miles of the sea from the front.
Net Indirect Tax: - It refers to the difference between Indirect Tax paid by the ent.erprises to the
Govt. & the Subsidies paid by the Govt. to some ofthe enterprises.
Operating Surplus (OS): Operating Surplus is defined as the sum oflncome from property &
Income from entrepreneurship.
Mixed Income of Self Employed: - it refers to the profits & dividends earned by the
unincorporated & household enterprises, & the income earned by the self-employed viz.
Doctors,Architects, Engineers, Professors, Teachers & other professionals.
Private income: - private income refers to the income which accn1es to private sector from all
sources within and outside the country.
Personal income: - personal income is the sum total of all the incomes that are actually received
by households from all the sources.
Personal disposal Income: - it refers to that part of personal income which is actually available
at the disposal of households. lt is that part of personal income which is left with the households
after making payments of taxes, tee and other miscellaneous receipts of the government.
National disposable income: - national disposal income refers to the income which is a\1lilable
to the whole country for disposal. It includes both factors income and transfer income.
 r Production Activity

- _- J-
I
1
By Whom?
J- - - .
~
__ _
ormal Resl~e: ts ~f the
i oup!rv _____ __
7 J
~ ~n-~:sld;n,~ ~ the cou;;,~-1

- ______J __ --- -·--,

l Included in National Produ~~ (~ Nof~nclude[ ii.Na~ionai
L_____Pro~uct _ _ _)
,

1
I Consumer Goods
I
I I I
Durable Goods Semi-durable
goods
Non-durable
goods
---
[ Services

VALUE OF OUTPUT GROSS

INTERMEDIATE
+ CONSUMPTION
+ DEPRECIATION

VALUE ADDED NET

NATIONAL MARKET PRICE

+ NFIFA
- + NET INDIRECT TAXES
-
DOMESTIC FACTOR COST
L~ co , -t t: ~I ETHO D

--a ge s~
saaa,;es ., the +
form cl cash and Compensation of
ks1d Employees
~
eantrlJutiontD
Sod afS ecd 'ty
+
Op era tin g -----f►
► Rent

Royalty
Surplus ► Inte res t Corporate Tax
h
+ Dividends+
+
Mixed Inc om e of
► Pr of it- - U ndfstri but ed
profits

Se lf-e mp loy ed
NDPFc
+ NFIFA
NNP

f:X PE ]\-01.TURE METH OD :

Exp eld ture on

o..a ble and non Private Final Consumption
-Durable Goods Expenditure
fxp elld ib.- e on +
C.o nsu mer Go ver nm ent Final Consumption
Ser vice s Expenditure Gross Dom esti c Axe d cap ital
Net OOl11eSUc
~
fannation
.,_ _____ +
Gross Dom est ic cap ital _ _....,
Formation
.
For mat ion
Cha nge in stoc k

Net Acq uisi tion of Valuables

+ +
- Imp orts
Ne t Exp orts _ _ _ __,.. Exports
GDPMP
- Depreciation
NDPMP
- Ne t Ind irec t Taxes
NDPFC
+ NFIFA
NNPFC
 Personal Final Consum ption Expendi ture
+
Govern ment Final Consum ption Expendi ture . F' d Investm ent
r+ Business 1xe
+ + Invento ry Investm ent
Investm ent Expendi ture
Residential Constru ction
+ + Investm ent

'+ Public Investm ent

Net Exports - - - - - - - - . : Exports - Imports

GDPMP
- Depreci ation
NDPMP
- Net Indirect Taxes
NDPFc
+ NFIFA

NNPFc

Value of Output
Value-Ad ded By Primary Sector
In Primary Sector
- Interme diate
+
Value-Ad ded by Seconda ry Sector
Consum ption
+
Value-Ad ded by Tertiary Sector
GDPMP
Deprecia tion

- Net Indirect Taxes

NDPFc
+ NFIFA
NNPFc
 DETER\tlNATIOT\ Of INCOl'vlE
AN D EMPLOYMr:NT

,\C,(,IU-.l ,.\ rt. ~l iPPLY

MiC,REG .\TE DEl\fAt\D

CO>lSL: 1\-IPTIOJ\

rKVESTI-IEl\"T GOVER~""\1P.,,
C0\5L-'\IPT!ON ~ET EXPORTS
· El'El\Dll LR F EPf::.NDITliRl:
• !J:Fi\Dl fl iRf (X-:\·f)

--
';_,,( () 1 !I) LG)

PROl'ENSlfY
-1 ,i \1PC 1- \.f rs = I
l'IWPE~SITY TO
SAVE
TO CO\"SW,-IE

-
,\PC +A PS = J

-
pa ym ent (or Go od s an d Servic
es

Goods and Services

Saving
Saving
• HO US EH OL D
FIRMS FINANCIAL SY ST EM '•
Borrowings Bo rro win gs

Fac tor Services

Factor Pay me nt
 Domestic Produ ct
Ot
Oome stk lncom e(NOP ,c)

lnm.11 e flon, Donlel 1k.

tu_.. -~
Produc t Acaui nl ,ncome f r o m ~ '1n,du d ~
to~S edo f

NRA•

CTP •
Income from ,i-opet ty Mtd
entre pr~d lip acautn s
to Gcwem ment
admm ktradw ~
s.•------. . .
d e , - ~ fAfl . . - .
(.ml

(PE)
NCTP--•
•llllbest on nationa J debt =

Prwab ! fncom e-

Undis trhrted profits -

Corpor ate tax =

Person al Income -

Direct Taxes -

-
Mlsce laneou s n::cetp ts of the govt.

P~ID ispos abletn come

C S
 UN fT- VI
MONEY & BANKING

KEY CONCEPTS 85 a common rnediUJn of~ell.

Money: - Money is anything that has the genera) ac~eptabiJity ~ Kt
.
& as 8 common•measure of the vaJue ofthe commodrt,es. other words, it refers to thed·
Barter system: - It refers to the exchange ofgoods for goods. In 'l'cct !
.
exchange ofgoods & services with another. omy at any pomt oftirnc. hcl ,
Money Supply: - It refers to the total stock of money in an econ d~ I
. . . . .
the general public. M =C + DD tution which perfo nns the
Com mer cial bank: - A Commercial bank is a financial msti
s. .
function of accepting deposits from the public & ad~ancing loannet demand & time dcpo · /
Legal Reserve Ratio: It refers to the minimum portion of total '/
BanJc & themselves as cash ~;t., ~
Commercial Banks which have to be maintained with Central quid
assets.
net deposits of Cornrnerc~1
Cash Lfq_ufdfty Ratio: It refers to that minimum portion of total
Banks which have to be maintained with Central Bank. sits whic_h_ have to be maintaillcd
Statutory Lfq uf~ Ratio: It refers to that portion oftotal ~epo
the secu nhes ofGovt. & RBI
by the Banks themselves in the form ofliquid cash assets agamst
s to RBI against the loan~ &
Repo raterefers to the interest paid by the Commercial Bank
advances taken by iliem ftom RBI to meet the short term needs
mercial Banks from the Central
Reverse Repo Rate refers to the interest received by the Com
banks against the parking offunds by the commercial banks.
Credit MultipJier refers to the amount by which the initial
deposit multiplies into a larger
iplier is inverse to LRR .
amount of final deposits. It is equal to 1/LRR. Thus, credit mult
H,u r.cnr.J llCL't'Jlf3bihry as u comnk'II medium
MONfY ... NU HANkl' -l, of c:,.:llanjj,: & f()l)lffll'll mc:3~ure or V31uc

M'1NFY 'il 'Pl•f V Ul•(TII A I. IIANK

.,_ COOMM;r•
.(iovt's lienLer,
•ffankds Bank. Control CreJit
~ ,nanJ.-J
lkp.,siu Of
foc:oerafpubhc
hdJl>y
Comm~,, a.1J banl< ~o:::.. .-, ,....._ __,

·•k>n: of ialuc,
.,,anJard c>r dclf,mtd rormenr,, 11►.p.,.,1, :.c, cuno (l c>Jtl "'"'"""II
·l!WJSlcr ,,f Iii~

~ 1
~~
01L1 I11a1iw /tCtl«ti 1-'eJrnt'lhod.

Chang.: 111 Bank Open Mari.cf Chansr \.f'lr.llliuds1on ck Dire~, ,knon Fiuuon ,,f
ll•IC! Rep11 fllll:.' Opcmflon~ in I RI!
.:rc<l1t (}uoU
~ vmr Rrp> r:ilc
 Macro Economics
e & Em plo ym en t (1\,· ·
Unit-VII: Determination of incom

KEY CONCEPTS: l of demand

ma nd (A D) / Ag gre gat e ExpendJture: -It refers to the sum tota
Aggregate De of time. It can be a)s(> de.fned
economy at a given point
made by all the economic units in the . government. & enterprises of the eco
nomy
itu re inc urr ed by the hou seh old
as the total expend
at a given point of time. ers to the ratio of change in consumption by
Co nsu me (M PC ): It ref
Marginal Propensity to lies between O and 1 i.e. O<MPC<l.
e. Th e val ue of MP C alw ays
change in disposable incom
It is obtained by AC/AY ratio of total consumption by total dis
posable
ens ity to con sum e: It refers to the
Average Prop
income. APC = C/ Y tion of commodities in the economy at a giv
en
-It ref ers to the tota l pro duc
Aggregate Supply:
me asu red in term s of val ue add ed or the total income generated. AS =
point of time which is
~ therefore, AS = C + S. iture by the
an d/i nfa tio n: -Ex ces s of Mo ney supply due to excess expend
Excess dem
by the Commercial Banks.
Government & excess credit creation n requirements refers to the differenc
e
n Re qu ire me nts : Th e ma rgi
Regulation of Margi ns granted.
en curren t val ue of the sec uri ty offered for loans and the value of loa
bet we
tion of cre dit quo ta for differ ent industries is called as rationing of
Rationing of Credit: The fxa commercial
er to res tric t the fow of cre dit for speculative activities in a sector, the
credit. In ord
bank will introduce rationing credit.
ERMINATION
UNIT VII : THEORY OF INCOME DET

Equilibrium of an economy

Surn rotol ofdcm:md 11V10t

! _____ Tlltal Oulpul produc.:d by all
lhc fimis
by all !he rcsidcnsl I + - - - - - AD • AS
C•I ~ C:•·S

C=<, +bY - - - - - - - -
-- ...~iii ~ S=--C, q l-bJY

j Conswnption Funcrioo I Jnvn1mo:n1 Funclion

Savin , Fwiclion

✓ '-.& / ~ /~ 5
Ars- V
Aff'(.' r. ~ Af'Cs ~ ROI ! MEC Mrs• AY liS ·
/ lnJuroJ
Aulono111ou1
Jnv,..rmcnr II,) . lnv.,.lmcnl (I,)

lnvc.1nicn1 Multiplier (K )-- f

I
Q-
1-MPf
-
Pquilibrium of 1111 rcono my

AI>-AS ----- AS >AD + flcfrcimrl'lemllnd

AD>AS ➔ F.xctul>cnwnd ---

Al over full (mpluymcnl lrv~I ~ Al Full rmploy~

j Al l lndrr cmploym.:nl lavrl

!
!
!
lnn11ion~ry Gap
Deflationary <hp
 CETERr.1IN/-,.TION OF INCO Mr
AND ErJI PLOYME NT

· .. :~-·.-: "' .. -
:.•;::..: ·.: - _=.:_

P RCH'f N',IIV l( J
',AVi

- EQUILIBRIUM LEVEL OF OUTPUT

(AS PER PROF, KEYNES)

I
I I
AD
(AGGREGATE DEMAND)
- AS
(AGGREGATE SUPPLY)

I I
I
(PlANN ED INVESTMENT) - s
(PLANNED SAVINGS)

K = 1/ 1- MPC

INVESTMENT MULTIPLIER ~-----1

(K}
K=.£ \Y/.1 1

K= 1/MP S

- - - --- ·1

EUIUBRJUM LEVEL OF
,,,,,,,-~ ----~T ~U~ EM~ ~ME NT LEVEL J
"1
OUTPUt
- - - -- -- --- -- --- ---
/fl UNDEREMPLOVMENT LEVEL I
AO=AS
CAN BE ATV\INED
- --- - - - ·- _, _
- - - ··· - _
__)
I
--- -- -- -

-- . - __________ ·1
, ; AT OVER FUU E~PI.OYME,.; LE~~
-- _;
 • ALL ABLE AND WILL ING TO DO THE WORK ARE
FL'I L FT\11 'LOYT \IF\!T EMPL OYED AT THE EXJST ING WAGE RATE.

\ 'OLL: \TARY • NOT WLLL ING TO DO THE WORK EVEN THOU GH

1'Nl'\IP L< >Y\·lFN T WORK JS AVAIL ABLE AT THE EXIST ING WAGE RATE

INVOL L.:\TA RY • ABLE AND WlLLI NG TO DO WORK AT THE EXIST ING

I ''.'ff\lP LOY\, ll::NT WAGE RATE DO NOT FIND WORK

EXCESS DEM AND AND DEFI CIEN T DEM AND

I EFFECT ON
T
I
I
I I

OUTPUT PRICE
EMPLOYMENT

I I I
EXCESS DEMAND
Actual AD > AD require d to establis h
WILL NOT WILL NOT

• •
full employ ment equilibr ium •
I I I
DEFICIENT DEMAND
Actual AD < AD require d to establis h
full employ ment equilibr ium
.. . .
EXESS DEMA ND DEFIC IENT DEMAND
TOOLS (Deflationary Gap)
(lnflaLionary GapJ

I FISCA L TOOL S I
In
I
TAXES

PUBLIC DEBT (INTERNAL)

I I
I I
•• I I
I I
♦
♦

•
ii)

iii) PBLIC EXP. I I ♦ I I

Should not be restictcd
IV) DEFICIT FINANCING
I I Should be rcsticred
I I
MONE ATAR Y POLIC Y I
I) BANK RATE I
♦ I I ♦
ii) CRR I
Iiii) SLR

1iv) REPORATE
I
I
•♦
I I
I I
♦
♦
IV)
[ vi)
MARGJN REQUIREMENT

MORAL SUASION
I
I
•
Request to contract credit
I I ♦

I I Request to cxland
credit

Con be raken Can be taken

r i) DIRECT ACTION
I I I I
 UNIT-Vlll
GOVE.RNMENT BUDGET & THE ECONOMY

- KEYCONCEPTS:
ch word 'Bougett' W?ich refers
Govt. Budget: - The tem1 budget has been derived from the Fren
to 'a small bag'. A govt. budget is an annual statement
of estimated receipts & expenditure of the
govt during a financial year.
not create any liability & do not
Revenue receipts: -It refers to those money receipts which do
reduce assets. These are non - redeemable receipts of the govt.
over revenue receipts.
Revenue deficit: - it refers to the excess ofrevenue expenditure
the sum of revenue receipts and
Fiscal deficit: - it refers to the excess of total expenditure over
capital receipts excluding borro\.\1 ings.
Primary deficit: - it is defined as fiscal deficit less interest payments.
receipts are equal to the public
, BaJ~nced budget: - it refers to the budget when the public
which public receipts exceeds the
expenditure. Surplus budget: -Surplus budget is the one in
public expenditure.
nditure exceeds its receipts.
Deficit budget: -Deficit budget is the one in which the govt. expe

Q. What is GoYt. Budget?

'Bougett' which refers to 'a small
Ans : The terrq budget has been derived from the French word
receipts & expenditure of
bag'. A govt. budget is an annual statement of estimated
the govt. during a financial year.
Q. Explain the objecth·es of GoYt. Budget.
Ans : The govt. prepares budget with the following objec
tives:
the important objectives of
1. Proper Allocation/Reallocation of resources is one of
rces through its budgetary
govt. budget. l11e govt. makes a proper allocation of resou
t maximi7.ation & social
policy so as to make a balance between the goals of profi
of resources which can
welfare. In other words, there is a justifiable allocation
promote the welfare of the common mass. _
y of the govt. During the
2. Ec~nomic Stabili?' is· ano_ther ~bjective of budgetary polic
y of deficit & surplus
penod . of depres~ton & mflation, govt. adopts the polic
gh budget to save the
budgettng respecttvely. The govt. adopts certain policies throu
economic stability is
~co_nomy from the c!utche~ of busi~ess c~cles. The
which further raises the
mdispensable f~r the st1mulat10n of savmgs & mvestment
level of economic growth & development.
s of the govt. budget.
3. Eco~omic Growth is one of ' the important objective
Government prepares such a favorable budget which can create conduc·1ve cond"t· I ions
t · •
· "the Ievel ot·· savmgs & mves tmen t on whic h the econ omic growth of a country
o nus~ .,- . .
depends.
ber':impo,rt~nt. objective of g_.nvt b d t ·
◄. Economic Equality is· aiiot
· · ·nh - ·' . Y • u ge as econ omic
d. 1spanty 1s I erent ~c~~~n:i1c system whic h is politicaJiy & socia
!n _a?~ lly
-...
 mic inequality to a socinlly
undcsirnbk ft11' u hcnlthy nation. In order to cui:b t~c ecotlO•nt through which the govt.
· r, Iuy ns un c,ffect1vc
- . po 1icy
acceptnhle level, t1scal . mstruine
. .
• iistribut1on .
o f mcomc &.
•
exercise. with Lhe help ot tnxntu)n · & p -nd1turc
e_x r..: • & economic justice w 11c 1s an
m re< · · I· · h ·
wealth in the ec('lnomy. This helps to bnng socm 1
important ekmcnt of nny ·welfare stntc. .
e of tht: objectives. so as to
5. Management of Puhlir Entcrprisc_s has hecn 8 1so ont blish~d in social interest in
increase the growth of these enterprises 8 ~ th esefi are es l\produce at a lower averuge
the form ('If naturnl monopolies where n single irnt can
cost.
COMPONENTS OF UUDllriT

+·
_________LI- - - --::~•
E:XPl3Nf>1TURE
RECEIPTS

Rrcn.u.:: l:':-.pq 1djllll'C l';mitn!rlltl)\lj\im;

RcvcllUl' RL'i.'cipls Cupitnl Rc\',illt:-
I I .Expenditure incurred on
1 . 1.RCL'{'l~t'r}ot' loan~ I.Suhsidies
11cq11isi1ion Clfthc.-d llSSCIS
Tu RC\."Cipls Non • lll:oc Rcccir>ts like hmd builllin~s ch:.
. ♦
D1rttt taxes
I
♦
lndil'C'Ct t:1x r .c~)llln1Cl'l:ial
!
l'C\"CIIUC 2.nom1wi11g :md linbilitics ~.Expendi1u1-c incurred on
the normul n11111ing ol'thc 2.Lmans and 11dvnncci

l l
1.wvcmmc:111 dt·r '.11111c11ts t)nd gnu1ted by lhc ccntn,t
pmvisinn ofvnnous scrv11:cs govcmn1cn1 to the.- slulc
govc:mmcnla und union
tcrritcwics

I. Income tax I.Excise duty :!.lnlcrt·st und divid..:nds 3.0th..:r n:cd1,1s li~t· Publk 3.111k·1-cs1 on dcbl incurred hy
tin investment mndc b~· Sector Units disinwstmenl the govcrnmcnl
govcmml'llt
-H irJnl to st111c govc:mmcnt
2.Wcalth tu 2.Scrvice tux 3.Administmli\c revenue
➔ Fees
➔ E$chcats
➔ Fines nnd pc1111lti.:s
➔ Forfcittu'C
J.lntcrest rax J.Salcs 111:t

4.Corponatc: 4.Custom
WI duty

The govt budget consists of two parts viz. Receipts & Expenditures.
Receipts refer to estimated revenue of the govt. from various sources in a fscal yeat The
receipts are classifed as Revenue Receipts and Capital Receipts.
Rcc-c1j,t'i
t *
Rewnue Re~/pts +
t
t Capital R~lpts
+ ♦
TaxRwenue Non Tax R1wnu1
+ + Borrowings: External
Income T,n. Corpora/ion fo.\', Profits & Di,·idends ofGovt. Emerprise.t; .◄ssista11ct•; Recoveries
Disinwslment; 0.fu>an.f;
Custom Duties, Expe11di111re Tax. Fee & Spt~cia/ Assessment · Gij 1, , & G
Provident · ._.. rC1nts;
Sn1allSm ·i11gs;
Ercise Duties, Wea/ti, Tax etc.:. Interest Recdpts; Fi11es & Pen<1/ties;
Deposits; Fund · & Other
Rec:eiptfromjisc:<1/, ec.:onomic: & enen
Sen·ices elc. g u/
 UNIT-IX
BALA NrR of PAYMENTS

KEY CONCEPTS
Balance of Payments: - It is a systema tic record of all econom ic transacti ons between the
resident s ofa country & rest of the world during a financial year.
Balance of Trade: - It refers to the systema tic record of visible items in a financia l year. In other
words, it is the value ofimpor ts and exports ofcommodities.
Autonomous items refer to those items which are taken with the motive of profit maximization.
These transacti ons are not related to the country's BOP position. It is, therefor e, these items are
called as autonom ous items.
Accommodating items refer to those items which are undertak en by the govt. to keep the BOP ·
balanced . These items are transacte d when a country faces disequil ibrium in the B@P. Through .
these transacti ons, the go\-1. or monetar y authorities settle the deficit or surplus in the BOP. ·

BALANCE OF PAYMENT

BALANCE OF PAYMENT ACCOUNTS

CURRENT ACCOUNT CAPITAL ACCOUNT OTHER ITEMS

SIBLE ITEMS OF PRIVATE TRANSACTIONS

DE
ERRORS & OMISSIONS
FFICIAL TRANSACTIONS
FFICIAL RESERVE
RANSACTIONS
_ ... •IRECT INVESTMENT

PORTFOLIO INVESTMENT

CAUSES OF DISEQUILIBRIUM IN THE BALANCE OF

PAYMENTS
l
I I I
i ECONOMIC FACTORS I I PoLmCAL FACTORS I 1r----;s~oc::::.,:-:-A:-:LF~A-CTi-0-RS----
1
 FOREIGN EXCHAN GE RATE

KEY CONCEPTS:
· · f ncy of a country ·
Foreign Exchange Rate: - It refers to the rate at which one unit ~ curr.e . IS
exchanged for the currency ofother country. In other words, it is the pnce ot one currency tn terms
ofanother currency.
Foreign Exchange Market: - It refers to the rate at which one unit _of currency of a co_untty is
exchanged for the currency ofother country. In other words, it is the pnce ofone currency m terms
ofanother currency. , .

Fixed exchange rate: - Fixed Exchange Rate System refers to the system in which the rate of
exchange is determined by govt. or monetary authorities. It can be classified into Gold Standard
System or Mint Parity of Exchange & Adjustable Peg System.
Flexible Exchange Rate System: - Flexible Exchange Rate System refers to such a rate of
exchange which is determin~ by the demand for & supply of the foreign exchange in the foreign
exchange market. Under this system, the govt. or central bank does not intervene in the
determination ofexchange rates.
Deprec~ation: - Depreciation means decline in external value of a domestic currency in relation
to a foretgn currency.