Concepts Flashcards
Pigouvian Tax
A Pigovian (also spelled Pigouvian) tax is a tax on market transactions that create negative externalities, or adverse side effects, for those that are not directly involved in the transaction
Externality
An externality is a cost or benefit that is caused by one party but financially incurred or received by another
Price of SG=
Demand of other SG
Price of CG=
1/ demand of other CG (here = means proportional sign)
Law of Demand
Quantity demanded is inversely proportional to price at ceteris paribus
Herfindahl-Hirschman Index (HHI)
a common measure of market concentration and is used to determine market competitiveness, often pre- and post-merger and acquisition (M&A) transactions.
ICOR Formula
Investment % in GDP/
% Change in GDP
Philips Curve
The Phillips curve is an economic theory that inflation and unemployment have a stable and inverse relationship.
NSQF
Nat Skills Qualification Framework.
This organizes all qualifications/courses according to a series of levels of knowledge, skills and aptitude, in 10 levels.
Recognition of Prior Learning (RPL)
It recognizes the value of learning acquired outside a formal setting and provides a government certificate for an individual’s skills.
PMKVY
Pradhan Mantri Kaushal Vikas Yojana
Define
- Layoff
- Retrenchment
- Standing orders
- removal due to business cycle. Mass removal.
- removal due to any reason other than discipline. Mass removal.
- orders establishments give pertaining to classification of workers, wages, conditions of service. Only those est wh hv more than 300 workers.
How is poverty measured in India
through-
1. Headcount Ratio
- A Poverty line (PL) based on a poverty line basket of Tendulkar committee
- Applying PL on HCES- HH Consumption Exp Survey
- Mixed Recall Period
Recessionary Gap
- Four components of AD want to buy less than potential output
- GDP (blue line) is less than potential GDP (point where orange line is touching the x axis)
- Actual UE rate is more than natural rate of UE- cc
Inflationary Gap
- UE is less than natural rate
- GDP (blue line) is more than potential GDP
Fiscal Drag
means a slowdown of economic growth due to lack of spending as increased taxation reduces demand for goods and services. During a rapid expansion of the economy inflation results in high income an therefore individuals move to higher tax brackets and ultimately pay more of their income in taxes
Wage price spiral
Repo rate
Banks pay RBI
Reverse Repo
RBI pays banks
MCLR
Marginal Cost of Funds based Lending Rate.
Minimum lending rate below which banks are not allowed to lend.
Replaced earlier base rate system.
Takes into account repo rate, earlier system didn’t, now banks immediately reflect changes in repo rates.
Base rate, definition and formula.
Savings rate + costs of bank + profit
Min rate set by RBI below which banks can’t lend.
Since it didn’t take into account repo rate changes, now replaced by MCLR.
List 6 Qualitative tools of MP
- Moral Suasion
- Direct Action
- Credit Rationing
- Regulation of credit: loan to value ratio
- Priority Sector lending
- Market Sterilisation Scheme
In case of a liquidity crunch which rate is used by RBI
MSF- Marginal Standing Facility
In case of shortage or excess of liquidity what is used
Liquidity Adjustment Facility
List quantitative tools of MP
- OMOs
- Bank rate
- CRR
- SLR
- Liquidity Adjustment Facility- Repo and Reverse Repo.
Bank rate
Unsecured long term loan given by RBI
Opposite of Quantitative Easing is
Federal Tapering
Expansionary MP- what happens to MS, IR, C, I, AD, GDP/Growth, PL, Inflation
MS In
IR Dec
C In
I In
AD In
Growth/ GDP In
PL In
Inflation In
Contractionary MP- what happens to MS, IR, C, I, AD, GDP/Growth, PL, Inflation
MS Dec
IR In
C Dec
I Dec
AD Dec
Growth/ GDP Dec
PL Dec
Inflation Dec
UPI Lite is for
Low value transactions
No need of pin
Speedy transactions
Low network areas
Below 1000 ₹
UPI LiteX
Offline payments
Used Near Field Communication Tech
Made by NPCI
UPI LiteX
Offline payments
Used Near Field Communication Tech
Made by NPCI
Full form of NEFT + made by
National Electronic Fund Transfer
Made by RBI
Full form of RTGS + made by
Real Time Gross Settlement
Made by RBI
UPI , IMPS made by
NPCI- National Payments Corporation of India
Deposits are what for the banks
Liability
Loans are what for the banks
Assets
RBI’s powers come from which acts
- RBI Act of 1934
- Banking Regulation Act of 1949
Define
Nominal and Real int rates
- Nominal interest rate is the percentage increase in money that the borrower pays the lender, not accounting for inflation.
- The real interest rate is the nominal interest rate adjusted for inflation, reflecting the true cost of borrowing.
Who keeps these
CRR
SLR
CRR - RBI
SLR- Banks
Repo rate is decided by
Monetary Policy Committee MPC
Advances mean
Loans
What affects money multiplier
CDR and RDR
Two types of RDR
CRR and SLR
If CRR is reduced show effect on Ms via formulae
If CRR has reduced then RDR reduces
Since RDR is inversely proportional to m, m increases
m is directly proportional to Money supply, so Ms increases
PSL
Priority sector lending
Fixed cost
Constant regardless of how much is produced
Variable cost of output
Directly linked to level of production
Explicit cost
Involve actual money payments
Implicit cost
Doesn’t involve actual money payments.
Eg: opportunity costs
Real sector
Economic activities that involve production of goods and services
Financial sector
Institutions/ markets facilitating the flow of funds.
Includes banking system, insurance funds, investment firms, stock exchanges, etc.
Fixed capital
Long term asset
Needed to est and operate a business
Working asset
Money put in company’s current assets
Used to finance day to day operations.
Capital is
Provided future stream of benefits
Opportunity cost of freebies for public and govt
- Zero- as they don’t give up anything
- Tax payers money
Opportunity cost
Opportunity cost refers to the value of the next best alternative that must be foregone when making a choice. It represents the benefits an individual, business, or government misses out on when choosing one option over another. Essentially, it’s the cost of what you give up in order to pursue a particular decision or course of action.
Social capital
Social capital refers to the networks of relationships, trust, and shared values that individuals or groups can draw upon to achieve collective or individual goals.
It includes social connections, community engagement, cooperation, and mutual support that enhance societal or organizational functioning.
Social capital often leads to improved access to resources, better communication, and more effective collaboration within a group or society.
Inferior goods
Whose demand decreases when income increases
Substitute goods are
Replacements of e/o
Complementary goods are
Consumed together
Recession is
When aggregate demand ( C,I,G ) are low
Interest rates are
Price of money
Increase in savings leads to increase in investment which increases capital formation but it may not always increase output when
There is high capital output ratio.
OFU: To assess economic growth and impact of given factors on it, draw
Aggregate demand and supply curve
X axis= real GDP
Y axis= price levels
In middle the X of AD and AS
A major component of investment is
Gross Fixed Capital Formation.
Productoon
income elasticity of income
As income rises, the proportion of total consumer expenditures on necessity goods typically declines. Inferior goods have a negative income elasticity of demand; as consumers’ income rises, they buy fewer inferior goods. A typical example of such a type of product is margarine, which is much cheaper than butter.
M2 Formula
M2=M1+ Time Liabilities Portion of Savings Deposits with the Banking System + Certificates of Deposit issued by Banks + Term Deposits of residents with a contractual maturity of up to and including one year with the Banking System.
M3 formula
M3=M2+ Term Deposits of residents with a contractual maturity of over one year with the Banking System + Call/Term borrowings from ‘Non-depository’ financial corporations by the Banking System.
M1 formula
M1 = Currency with the Public + Demand Deposits with the Banking System + ‘Other’ Deposits with RBI
