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INDIAN ECONOMY

Economic growth is a rate of expansion that can move an underdeveloped country from subsistence mode of living to higher level in a comparatively short period of time. Factors of economic growth: (i) Increase in GDP will give more accurate picture in comparison to GNP, (ii) Increase in per capita product and (iii) Equitable distribution of Income & Wealth POPULATION: Indias Population as on March 1, 2001 stood at 1027 millions (531.30 millions males; 495.7 millions females). India accounts for 16.70% of world population and 2.4% of surface area. During the decade of 1911-21 there was decrease in population because of high death rate, except that there is increase in population in every decade. Population Density: is defined as number of persons per sq. km. In India it is 324 per sq. km. Sex Ratio: The ratio is defined as the number of females per thousand males is an indicator to measure the extent of prevailing inequality between males and females in a society at a given point of time. The ratio is at 933 as per population of 2001 Population Theories: Malthusian Theory:- As per the Malthusian theory (Sir Thomus Robert Malthus), the production of food grains is subject to law of diminishing returns. Due to this reason, it increases in Arithmetical progression i.e. 1, 2, 3 etc. On the other hand, if population is left uncontrolled it grows in Geometrical progression i.e. 1, 2, 4, 8 .. etc. This means that the population growth is faster and food production is left behind. Over a time period, the gap between the two keeps on increasing. The imbalance is corrected by natural checks such as famine, flood, epidemics etc. or by man made checks such as late marriage, moral restraints etc. UNEMPLOYMENT IN INDIA: In developed countries unemployment assumed two forms i.e. (i) Keynesian in voluntary unemployment, (ii) temporary frictional unemployment, whereas unemployment in underdeveloped countries is both (i) Open unemployment and (ii) Disguised unemployment, India at present suffers structural unemployment which exists in open and disguised forms. Urban unemployment is classified as (i) Industrial unemployment; (ii) Educated unemployment, and Rural unemployment is classified as (i) Open unemployment (ii) Disguised unemployment. Types of Unemployment: Disguised unemployment (under-employment ): 1) A situation in less developed countries where people are apparently employed but are actually unemployed or under employed; for example, in agriculture in India. 2) A situation in advanced countries in which the employed resources are being employed in uses less efficient then normal for example, a doctor may be employed as a cab driver or as a compounder. Fictional unemployment :- Unemployment in the economic system due to frictions; laborers in the process of changing one job for another; imperfect Labour mobility due to lack of knowledge about job opportunities and other factors which prevent people from finding suitable jobs smoothly. INFLATION: is that state of affairs in which the prices of goods and services rise on the one hand and value of money falls on the other. Demand pull inflation is that inflation price rise due to increased input costs. On the other hand DEFLATION is that state in which the prices of goods and services fall and the value of money rises. Reflation: is a term used to denote inflation after.

GNP CONCEPT OF NATIONAL INCOME The various concepts of national income are as follows:1) Gross National product (GNP):- Gross National product refers to the money value of total output or production of final goods and services produced by the nationals of country during a given period of time, generally a year. As we include all final goods and services, produced by nationals of a country during a year, in the calculation of GNP, we include the money value of goods and services produced by national outside the country in calculation GNP. Similarly income received by foreign national within the boundary of the country should be excluded from GDP. In equation form: GNP GDP + X M, where X = Income earned and received by national with in the boundaries of foreign countries. M = Income received by foreign nationals from with in country. If X = M, Then GNP = GDP Similarly, in a closed economy where X = M = 0, Then also GNP = GDP Gross Domestic Product (GDP) is the total money value of all final goods and services produced with in the geographical boundaries of the country during a given period of time. 2) Net National Product (NNP):- NNP is obtained by subtracting depreciation value (i.e., capital stock consumption) from NP. In equation form : NNP = GNP Depreciation. 3) National Income:- GNP/NNP, explained above, is based on market prices of produced goods which includes indirect taxes and subsidies. NNP can be calculated in two ways:i) At market prices of goods and services ii) At factor cost When NNP is obtained at factor cost, it is known as National income. National income is calculated by subtracting net indirect taxes (i.e., total indirect tax-subsidy) from NNP at market prices. The obtained value is known as NNP at factor cost or National Income. In equation form:NNP at factor cost or National Income = NNP at market price (Indirect taxes subsidy) = NNP mp Indirect tax + subsidy. 4) Personal income:- Personal income is that income which is actually obtained by nationals. Personal Income is obtained by subtracting corporate taxes and payments made for social securities provisions from national income and adding to it government transfer payments, business transfer payments and net interest paid by the government. In equation form: Personal income = National income undistributed profits of corporation payment for social security provisions corporates taxes + government transfer payment + business transfer payment + net interest paid by government. It should always be kept in mind that personal income is a flow concept. 5) Disposable Personal Income:- When personal direct taxes are subtracted from personal income the obtained value is called disposable personal income (DPI). In equation form:[Disposable personal income] = [Personal income] [Direct taxes] According to Simon Kuznets, national income of a country is calculated by following mentioned three methods: 1) Product Method:- S. Kuznets gave a new name to this method, i.e., product service method. In this method net value of final goods and services produced in a country during a year is obtained and the total obtained value is called total final product. This represents Gross Domestic product

2) 3)

(GDP). Net income earned in foreign boundaries by national is added and depreciation is subtracted form GDP. Income Method:- In this method, a total of net incomes earned by working people in different sectors and commercial enterprises is obtained. National Income=Total Rent + Total wages + Total interest + Total profit. Consumption Method:- It is also called expenditure method or saved. Hence national income is the addition of total consumption and total savings.

Demand Theory Demand:- For demand of a product a consumer must have definite will and sources to purchase that products. Law of Demand:- It shows relation between quantity demanded and prices of that particular commodity. As per Marshal if other things remain constant relation between prices and quantity demanded of a commodity is negative i.e. If prices rise quantity demanded falls and if prices falls quantity demanded rises. The other things which must remain constant I) No change in income and taste of consumer ii) No change in prices of other commodities iii) No chance of change of prices of that commodity in future. Exceptions to law of demand:- There are certain exceptions to law of demand i.e. slope is positive, which are:- I) As per Marshal there are certain goods whose demand increases with increase in prices and demand falls with fall in prices and he called these goods as Giffen Goods. Demand curve in these cases is positively slopped. Substitute Good (+) In case of substitute goods slop of demand curve is positive i.e. increase in price of one product causes increase in demand of another product. Complementary Goods (-) Complementary goods are those which are used jointly like pen and ink. In these cases slop of demand curve is negative i.e. increase in price of one commodity causes decrease in demand of other commodity. Elasticity of Demand Price Elasticity of demand (EP) Price Elasticity of demand (EP) is the ratio of the %age change in the quantity demand to % age change in prices. It can be denoted as under: __q/ __ p * p/q Where __is Change in q=quantity demanded and p = Price of that commodity. Cross elasticity of demand:- Cross elasticity of demand refers to proportional change in quantity demanded of one commodity to proportional change in price of other substitute commodity. (Substitute goods are those which can be used in place of each other e.g. tea and coffee. Income elasticity of demand:- Income elasticity of demand refers to proportional change in quantity demanded and prop change in income of consumer Micro and Macro Economics Micro economics:- It can seen that micro economics is the study of individual units, small variables and individual pricing. But it is helpful in understanding the working of whole economy and including of private sector. Macro economics:- The macro economic on the other hand, takes into account the entire economy. Accordingly, it deals with employment theory, income theory, theory of price level, theory of growth and

theory of distribution. As a result, it studies national income , national output, national expenditure, the level of saving and investment and level of employment. Consumer Surplus Utility:- Utility of a commodity is the quality of that commodity which can satisfy wants of a consumer. Total utility:- Simple sum of utility derived from use of different units of a particular commodity. Marginal utility:- With the increase of consumption of one unit, the incremental increase in utility is called marginal utility. Law of Diminishing marginal utility:- The law was 1st developed by H.H. Gossen. It is also called Gossens 1st law. As per this law when we continue to enjoy consumption of a particular commodity, without any interruption, marginal utility decreases with each extra consumption until a satisfaction point is reached thereafter it becomes negative. The law is applicable provided consumption is continuous, prices are constant, consumer is rational and commodities are not scarce commodities. Gossens 2nd law:- As per marshal when a consumer is having a commodity which is having different uses, he will consume it in such a way that marginal utility from all consumptions is equal Consumer surplus:- The concept was 1st time originated by a Francis economist Dupuit. There after in 1895, Marshalll completed it. As per Marshall the excess of price which he would be willing to pay rather than go without the thing, over that which he actually does pay is consumer surplus. Numerically consumer surplus = Total utility Marginal utility (or price) * total units of a commodity. Indifference curve analysis An indifference schedule is a list of two or more combinations and a consumer is indifferent to all combination as each combination gives equal satisfaction to the consumer. Equilibrium of Firm & Industry Equilibrium of firm:- A firm is said to be in equilibrium when it is not interested in changing its level of production. A firm is in equilibrium when (i) MC curve = MR curve and (ii) MC cuts MR from below and MR is above MC after this equilibrium point. The conditions are applicable in case of perfect competition, monopoly and monopolistic competition. (MC= marginal cost and MR = marginal revenue. Equilibrium of industry: An industry will be in equilibrium when I) No firm is entering in the industry and no firm is leaving the industry ii) Every firm is in equilibrium state. (In a perfect competition when MC=AC=AR then industry is in equilibrium state.) Both conditions (i) and (ii) apply to perfect competition only in other cases i.e. monopoly and monopolistic competition when AR is above MR therefore only (i) condition shall apply. Short term equilibrium:- In short run an industry is in equilibrium when total production is constant, firms may or may not be in equilibrium. Some may be earning abnormal profits and some may be in losses. Long term equilibrium:- In long term all firms in the industry will be in the state of equilibrium and will be earning normal profits. No new firm will be entering into the industry and no existing firm will have tendency to leave the industry. Long term equilibrium is when LMC=MR=AR(Price)=LAC are at a minimum point. Long term price of industry is determined by total demand and supply of industry. As per Marshall, in long run price is determined by average costs. The firm which is having lowest average

cost more than price shall incur loss and will eliminate in long run as in long run normal profits to every firm are necessary. Representative/Optimum firm Representative firm:- The concept of representative firm was developed by Marshall. As per Marshall it is neither a new firm struggling for its establishment nor a firm having wide spread business with large workshops. It is a firm which is in business for sufficiently long time, is being managed with normal ability, is having normal access to internal or external economies. It is in existence despite entry and exist of other firms until external environment is completely changed, and is getting benefit of internal and external economies on permanent basis. It is earning normal profits. Optimum firm:- Concept was developed by E.A.G. Robinson. In an industry, at one time, there is a firm which is more efficient than the others. It is producing goods at long term average cost. It is neither increasing, nor is decreasing the production. It is earning normal profits. However because of innovations, invention and good credit facilities an optimum firm may increase or decrease its size. Isoquants or Isoproduct curves:- A curve which represents different combinations of capital and Labour which are producing same quantity. Different Kind of goods

a) b)

c)

d)

e)

Superior goods: There is positive co-relationship between income and demand for superior goods. With increase in income the demand for such goods increases. However, there is negative correlation with price as, with increase in their price, the demand goes down. Inferior goods:- These goods are generally the goods for mass consumption such as vanaspati. There is inverse relationship between the demand for inferior goods and increase in income of consumer as the consumers shift their preferences in favor of superior goods with increase in income. Complementary goods:- These are the goods that are used with a particular another commodity (for instance the pen and ink, bread and butter). With increase in price of a commodity, the demand of complementary goods decreases along with the demand for the original goods. (Say with increase in price of bread, demand for butter goes down) Substitute goods:- These goods are the goods that can be used as an alternative to particular goods, such as tea and coffee. In case of increase in the price of particular commodities, the demand for the substitute goods increases because the consumers would give preference to use the alternative goods, available at a lower price. Independent goods:- These are the goods which are not related to each other such as books and clothes. The price change or income change of such goods does not effect the demand for other goods.

The law of variable proportions/Law of returns:- The law states that if technique and other factors of production remains constant and units of one particular factors are increased, proportional increase in production will be more in initial stage, after a certain point proportional increase in production shall be lesser thereafter, it will be negative. There will be 4 stages: Stage 1:- Proportional increase in production shall be more than the increase in one variable factor. This stage is called stage of increasing marginal returns. Stage 2:- With the change in quantity of a variable factor of production, no change will take place in average and marginal product. It is called constant marginal returns. Stage 3:- Proportional increase in production shall be lesser than the increase in one factor. The stage is called stage of decreasing marginal returns.

Stage 4:- There will be proportional decrease in production. The stage is called stage of negative marginal returns. Returns to Scale Increasing returns to scale: With quantity of all the factor of the production, when increased simultaneously in a particular ratio, when the quantity of production increases in greater proportion, the situation is called increasing returns to scale. Constant returns to scale: When quantity of production increases in the same ratio in which the factors of the production are increased in a given proportion, the situation is called constant returns to scale. Diminishing returns to scale: When the quantity of the production in creases in a proportion less than the increase in quantity of all factors of the production simultaneously, it is a situation of diminishing returns to scale. Price Theory Price Theory:- Marshal was 1st economist who analyzed importance of time element in price theory. On the basis of demand and supply Marshal divided price theory in four elements (1) Market period (ii) Short period (iii) Long period and (iv) Secular period. Brief explanation is as under:i) Market period:- Market period is very short period in which supply of a particular commodity is constant and price is determined by demand only. ii) Short period price:- Short period leads to some months period. During this period supply can be increased/decreased with the increase/decrease in variable factors of production only. iii) Long period price or normal price:- Long period leads to years in which supply can be changed completely according to demand. Different Types of Costs

a) b) c) d)
Markets

Opportunity costs: Opportunity cost of any thing is the last best alternative that could have been produced by the same factors or by equivalent group of factors costing the same amount of money. Fixed costs:- Are the costs which do not change with the change in production in short term. As per Marshall these are supplementary costs. Rent, interest on capital, Depreciation, wages of permanent staff are fixed costs. These are called overhead costs by the traders. Variable costs:- Are the costs which change with the change in production. Marginal costs:- When one unit of total production is increased, the incremental increase in total cost, is called marginal cost.

Perfect competition:Perfect competition is a situation when for every producer demand is perfectly elastic. Every producer is not so big that could influence the market. Price is determined completely by market, every producer is to sell product on the price which is determined by market and every consumer is to buy goods from market at that price. There is large number of buyer and seller, every firm is free to enter or exit from the market, there is perfect mobility of goods that too without any additional cost on transportation etc, and every seller/buyer is having complete knowledge of market.

Monopoly:Monopoly is a position where there is only one seller and a number of buyers. Price Discrimination:- The act of selling the same article, produced under single control, at different prices to different buyers, is known as price discrimination. Dumping:- When a firm is having monopoly in domestic market and competition in foreign market, it will sell its products at highest prices in domestic market and lowest prices in foreign market. Monopsony:- Is a position of market where there is number of sellers but only one buyer there is monopoly in purchasing the goods. Bilateral monopoly:- Is a position of market where there is single purchaser and single seller. Both works to maximize their individual profits, and price depends on bargaining power of both parties. Duopoly:- Is a position of market where there are only two seller, who are selling exactly same product. Both are independent and are having no formal or informal agreement between both of them. Oligopoly:- Is a position of market where there are small number of sellers which are selling homogeneous or differentiated products. It is also called competition among the few. If an industry is producing homogenous goods, it is called pure oligopoly, If it is producing differentiated product, it is called impure oligopoly. Monopolistic Competition Is a position of market where there are several firms selling differentiated products, which are close substitutes to each other. PRODUCTION Factors of production:- According to economists any thing which assits in production, is known as a factor of production. The production is the result of combined effort of various factors of production. There are four factors of production i.e. land, labour, capital and enterprise. Capital:- Capital is an important factor of production and it is in the form of wealth. Capital Formation:- Capital formation is the addition to the capital stock in an economy which is the refult of excess of the income over consumption. Economies of Scale:- By use of various factors of production at a large scale, the effective utilization of such factors improves due to which there are certain benefits or economies, which become available to a firm operating at large scale. These economies can be internal economies, which are available to a firm largely because of the efforts made by a the firm or the external economies which are available to an industry including the individual firms, because of their being part of the industry. Product Product means the volume of goods or commodities produced by a firm or different firms. Product can be categorized in three parts i.e. marginal product, total product and average product. Total Product:- It is total volume of goods or commodities produced during a period with the given quantity of factors of production. Average Product:- Average product is the per unit product of a variable factor.

Marginal Product:- Marginal product is addition to the total product, due to increase of one unit of a variable factor or production and it can be worked out by dividing the increase in total product by increase in units in variable factor. Relationship between total, average and marginal product 1) 2) 3) 4) Total product increases with increase in quantity of variable factor Total product is highest, when marginal product is Zero. While total product and average product can not become zero, the marginal product can be zero or negative even Initially, the total product increases at increasing rate and in the end it increases at a diminishing rate. Theories of Distribution In economics distribution of income is personal and functional. Personal distribution of income refers to distribution of national income between different segments of society. It deals with unequal distribution of income, its effects, and efforts to abridge this gap. On the other side, functional distribution refers to reward to various factors of the production like labor is getting wages, capital is getting interest, land is getting rent and entrepreneur is getting profits. Gini Multiplier It is coefficient of measuring the centralization of a frequency distribution. For equal distribution, it is zero. This coefficient rises with the increase in disparities. It will be equal to 1 in case of perfect centralization. Gini multiplier Gini mean difference /2* Arithmetic Mean Factor pricing: i) Demand of factors is derived demand, it depends upon the demand of goods it produces ii) Supply of a factor depends upon it opportunity cost, the minimum income which a factor can earn from 2nd best alternative iii) Price of entrepreneur and labor also depends on social and human factors. The classical or Ricardian theory:- As per Ricardo entire land is used for production and total produce is divided among Land lord, Capitalist and Labour. He divided factors in 3 groups i) Landlord getting rent; ii) Capitalists getting-profit and iii) Labor getting wages. The Marxian Theory:- Marxian theory is based on surplus value. As per Marx, when a laborer is working for 10 hours, he is being paid up to 6 hours of work of i.e. the payment which is necessary to sustain him in his life. Remaining labor of 4 hours goes to profit, interest and rent. Major thrust of a capitalist is always to increase this surplus value. Marginal productivity theory of distribution:- It is also called neo=-Classical theory of distribution. As per this theory, reward of a factor of production is equal to its marginal productivity. Marginal production is that increase in total production, which has been achieved by increasing one unit of a particular factor, when other factors remained constant. It is also called Marginal Physical Product (MPP) if we multiply the increased production with market price, then comes the Marginal Value of Product. (MVP or MRP). WAGES Payment for any physical or mental labor or service is called wages.

Theories of Wages Marginal productivity theory:- Demand for a labor is not direct demand. It is derived demand and depends upon the demand of end product it produces. Demand for a labor is because of its productivity. RENT Rent, an economic surplus means the earning of a factor of production in excess of the minimum amount to keep it in present use. As per Marshall The income derived from the ownership of land and other free gifts of nature is called Rent. Recardian theory of rent:- Rent is that portion of the produce of the earth which is paid to the land lord for the use of the original and indestructible powers of the soil Ricardo. Modern theory of Rent:- As per modern economists, rent is emerging as land is scarce and there are alternative uses of land. Therefore rent will depend on demand and supply of land and its transfer earnings. Quasi Rent:- As per Marshal, there are certain man made things, supply of which can not be increased in short term e.g. some machines, ships, skilled Labour etc. Due to sudden increase in demand since supply is stagnant, the factors get surplus for a short period. Since it is not actual rent, it is called quasi rent. It is economic rent in short term (since supply is inelastic) and transfer earning in long term (supply is elastic) In short term, when supply is inelastic, transfer earnings are zero, therefore actual earning is rent, in long term, when supply is complete elastic, actual earning will be equal to transfer earnings, therefore rent will be zero. INTEREST Interest is paid for the use of capital. As per Marshall, interest is remuneration for waiting. In addition to principal, whatever amount is paid by debtor, is called interest. Time preference theory:- As per fisher, interest is an index of the communitys preference for a dollar of present over a dollar of future income. It tells that people have preference of present income over future income of an equal amount and equal certainty. As per this theory rate of interest depends upon rate of impatience and marginal return over cost. The classical theory of interest:- Rate of interest is determined by demand and supply of capital. Supply depends upon time preference and demand as per marginal productivity of capital. Says law of market:- In 19th century, Frances economist propounded the theory that every supply creates its own demand. As per him, every factor of production gets its share in production, therefore demand goods from market. With the every increase in supply, more share goes to different factors of production, which creates more demand. Hence for overall economy, every increase creates its own demand. The loan able funds theory:- Interest depends on demand and supply of loan able funds. Demand for loan able funds is from govt., businessmen and consumers. Supply of loan able funds depends on private saving and saving from businessmen. Lastly major source of supply is bank credit. Liquidity preference theory:- As per Keynes interest is premium which has to be offered to induce people hold the wealth in some form other than hoarded money.

Supply of money for all purposes is total of currency in a country. Since it can not be change din short time, it is treated as completely inelastic. Demand, as per Keynes is for i) Transaction motive ii) Precautionary motive and iii) Speculative motive. PROFIT As per Marshall, profit is a remuneration which is necessary to keep entrepreneur in industry. The Dynamic Theory:- The theory was propounded by J.B. Clark. As per Clark, difference between price of a product and production cost, is profit. Innovation theory:- The theory was propounded by Prof. Shumpitar. As per Shumpitar, whenever an entrepreneur operates for any innovation, his surplus increases. Risk theory:- The theory was propounded by F.B. Hawley. As per Hawley, profit is an excess of payment above the actuarial value of the risk. Uncertainty Theory:- The theory was propounded by Prof. Frank. H Knight. As per Knight, profit is reward for these risk and uncertainties, which can not be insured. Expectations theory:- The theory was propounded by Prof. Shackle. As per Shackle, every factor of production is having expectations, and every factor tries to get maximum. It is the ability of entrepreneur to manage all the things. When he pays lesser than marginal productivity of factors, he earns profit otherwise incur losses. Concept of normal profits:- As per Marshall normal profits are supply price of average business ability and energy. It is rate which is necessary to keep entrepreneur in the market for long run. It is the an amount which a firm gets when industry is in equilibrium. It is position which comes in long run. Pure Profits:- Profit earned by an institution less remuneration for managing the business. Different concept of costs and revenues Average cost (AC):- Total cost divided by total units of production is average cost for all units. The curve of average cost is U shaped. It shows that when we increase production, to start with average cost falls at a certain level which is min8imum, thereafter it starts increasing. Marginal cost (MC):- When one unit of total production is increased, the incremental increase in total cost is, marginal cost. It is also U shaped. Relation between AC and MC:- There is positive relationship between AC and MC. When AC declines. MC declines and lies below it, when AC is minimum, MC is equal to it. When AC increases, MC increases more sharply and lies above it. Average Revenue:- Total revenue divided by total number of units sold. The curve of average revenue is __ shaped. It shows that to start with average revenue increases, then it reaches at a maximum point and thereafter starts decreasing. Marginal Revenue:- With the increase in one unit sold, the incremental increase in total revenue, is called marginal revenue. The curve is ___ shaped. Relation between AR and MR:- Relation is positive. When AR increases, MR also increases and it is above it, at certain level when AR is maximum, MR is equal to it, when AR starts decreasing. MR decreases more sharply and fell below it. Breakeven point:- Output at which average revenue equals average total cost. In economics, break even point does not imply zero profits. In it, total costs include normal profit also. Important terms used in Economics Budget surplus:- Budget in which total revenue exceed total expenditure. Capital:- A man-made factor of production, a means of further production; 1) also defined as physical real assets that yield an income; 2) has money representing businessmens fund used to produce capital goods; 3) also net worth or shareholders equity investment in business.

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Capitalism:- Economic system featuring private property in means of production, commodity production and profit as the guiding motivation force of production. Communism:- An economic and social system which, according to Karl Marx, is a classless society and in which people work according to the principle, from each according to his ability, to each according to his need. Deflation:- 1) Decline in the general price level of goods and services leading to rise in the value (purchasing power) of money. 2) A method of statistical conversion of a series of data to compensate for the general rise in prices. Giffen paradox;- The law of demand does not operate in case of inferior goods. Here the demand of commodity goes up with rise in price. This strange phenomenon was observed by Giffen in Bruitain, when due to increase in price of bread, the working class reduced their consumption of meat in order to be able to spend more on bread. Real income:- Purchasing power of money income; quantity of real goods and services that money income can buy; contrasted with money income. GLOSSARY OF ECONOMIC TERMS Ad valorem tax:- tax based on the value (or assessed value) of property. Aggregate demand is the sum of all demand in an economy. This can be computed by adding the expenditure on consumer goods and services, investment, and not exports (total exports minus total imports). Aggregate supply is the total value of the goods and services produced in a country, plus the value of imported goods less the value of exports. Bretton Woods: An international monetary system operating from 1946-1973. The value of the dollar was fixed in terms of gold, and every other country held its currency at a fixed exchange rate against the dollar; when trade deficits occurred, the central bank of the deficit country financed the deficit with its reserves of international currencies. The Bretton Woods System collapsed in 1971 when the US abandoned the gold standard. Countervailing duties: duties (tariffs) that are imposed by a country to counteract subsidies provided to a foreign producer Current account: Part of a nations balance of payments which includes the value of all goods and services imported and exported, as well as the payment and receipt of dividends and interest. A nation has a current account surplus if exports exceed imports plus net transfers to foreigners. The sum of the current and capital accounts is the overall balance of payments. Double taxation: Corporate earnings taxed at both the corporate level and again as a stockholder dividend Economic growth: Quantitative measure of the change in size/volume of economic activity, usually calculated in terms of gross national product (GNP) or gross domestic product (GDP). Engelss Law: Ernest Engel, the 19th century German Statistician who analyzed the budget data of working families and established a relationship between the families income and expenditure on different items. According to the Law, when a familys income increases the percentage of its income spent on food decreases. Fixed exchange rate: The exchange value of a national currency fixed in relation to another (usually the U.S. .dollar), not free to fluctuate on the international money market. International Labor Organization (ILO) One of the functional organizations of the United Nations, based in Geneva, Switzerland, whose central task is to look into problems of world labor supply, its training, utilization, domestic and international distribution, etc. Its aim in this endeavor is to increase world output through maximum utilization of available human resources and thus improve levels of living. International Monetary Fund (IMF) An autonomous international financial institution that originated in the Bretton Woods Conference of 1944. Its main purposes to regulate the international monetary exchange system, which also stems from that conference but has since been modified. In particular, one of the central tasks of the IMF is to control fluctuations in exchange rates of world currencies in a bid to alleviate severe balance of payments problems. Income Consumption Curve: In indifference curve analyses a line connecting the tangency point of price lines and indifference curve upon changes of income, with no change in prices; a link which

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shows the amounts of two commodities that a consumer will combine when his income changes which price remains constant. Merchandise exports and imports: All international changes in ownership of merchandise passing across the customs borders of the trading countries. Exports are valued f.o.b. (free on board). Imports are valued c.i.f. (cost, insurance, and freight) Official development assistance (ODA) Net disbursements of loans or grants made on concessional terms by official agencies of member countries of the Organization for Economic Cooperation and Development (OECD).

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