Price and income effect

 Types of price effect

1. pcc is horizental :-price of x-goods changed but y-goods is constant

2. pcc is upward sloping :- x and y goods are complymentry

3. pcc is backward slopping :- if one goods is inferior

 Income effect

Types of Income effect         

normal goods

inferior goods

neutral goods

Fiscal and Monetary Policy

     Objectives of the monetary policy in developing countries
1. Development of Financial Institutions
2. Interest rate control
3. Debt / Loan Management
4. Credit (sakha) Control
5. Price Control
6. Increase in national income
7. Foreign Exchange rate stability

    Objectives  of Monetary policy
1. Neutrality of Money (mudra ko tathasta+ta)
2. Price stability
3. Exchange stability
4. Full Employment
5.Economic growth

           Significance and Objectives of Fiscal Policy
1. Capital formulation
2. Resource mobilisation
3. Price stability
4. Reduction in economic inequality
5. Promote employment opportunities
6. Economic stability
7. Correct adverse balance of payments
(praticul bhukatani santulan sachauna)

   Monetary policy used to solve the problems of depression
1. Decrease in Bank rate
2. Purchase government securities by central bank
3. Decrease in rate of interest
4. Expansion in credit ( sakha bestar)

  

Trade Cycle

     Different Phases of trade cycle
 1. Depression ( arthik mandi)
 2. Recovery
 3. Prosperity (samunnati)
 4. Boom
 5. Recession (susti)

Theory of employment and multiplier

     Say 's Law of Market
"Supply always creates its own demand "
     
        Implications of Say's law
1. Self-adjusting economy
2. No general over-production
3. No general unemployment
4. Wage-cut creates full employment
5. It pays society to employ the unemployment resources

     






       Leakage of Multiplier theory
1. Saving
2. Liquidity (taralta)
3. Time lag (antar)
4. Purchase of bond
5. Loan payments
6. Price rise
7. Taxation

          Operation / Limitations of multiplier
1. Regular investment
2. No change in MPC
3. Availability of consumer goods
4. Existence of closed economy
5. Existence of less then full employment
6. Constant price level
7. Existence of industrialised  economy

               here, K = multiplier  , y = Income  , I = investment  ,*y = change in income   ,
                         *I = change in investment
          We know that,        
           y = c + I  .........eq(1)
           c = a + by .........eq(2)
in the given eqn 1 and 2 let the change in consumption by *c , investment by *I and income by *y then eqn1 and 2 become
          y + *y = c + *c + I + *I   ........eq3
          c + *c = a + b ( y + *y)
          or c + *c = a + by + *y   ...........eq4
  subtract eqn 1 form eqn 3 and eqn 2 form eqn 4
          y + *y - y = c + *c + I +*I - c -I
           *y = *c + *I   ..........5
      now,     c + *c - c = a + by + b *y - a - by
            *c = b*y
  substitute the value of *c in eqn5
     *y = b*y - *I
     *y - b*y = *I
     *y (1-b) = 1/ (1-b)
      K = 1/ 1-mpc        where b = mpc
       K = 1/ mps

    Table of  Multiplier 
  MPC               K= 1/1-MPC
    0                         1
    0.25                    1.33
    0.50                    2
    0.75                    4
     1                        &

                                           

    Criticisms of Say's Law and Classical Theory of Employment
1. Supply does not create its own demand
2. Wage-cut will not cure unemployment
3. No perfect competition in the real world
4. Long -run is not important
5. Need to state intervention (hasthachep)
6. Economy is not self-adjusting
7. Assumption of full employment is unrealistic
8. Money is also demanded for speculative(sattapagi) motive

 

              Assumption of Keynes Theory of Employment
1. Short-run
2. Perfect competition
3. Law of diminishing returns
4. Closed economy
5. Aggregate concept
     Principle of effective demand

    Weakness of Keynes theory
1. Incomplete treatment of unemployment
2. Assumption of full employment
3. Relationship between effective demand and volume of employment
4. Too much aggregative
5. Short-run concept
6. Wage and employment

     
      Keynes theory of employment superior to Classical theory
1. Realistic and practical approach
2. Dynamic Theory
3. Support of state Interference (sarkari hastachep ko samarthan)
4. An importance place to fiscal policy (beteya neti)  in place of monetary policy(maudric neti)
5. Opposes(aabarodh) wage reduction(rass)  policy

Loanable Fund & Liquidity preference

According to J.M.Kens " Interest is the reward paid for parting which liquidity for a specific time."
   Motive for Liquidity / Demand for money
1. karobar motive
2.  purba+satarkata motive
3. sattabagi motive
 
Criticisms of Liquidity preference theory
1. Ignored real factors
2. No liquidity without saving
3. Desire for liquidity
4. Use of the term liquidity
5. Short term concept

 Loanable funds theory of interest
   SUPPLY of loanable funds
1. Savings
2. Discarding(aachanchay)
3. Bank money
4. Disinvestment
     DEMAND
1. Investment demand
2. Consumption demand
3. Demand for hoarding(chanchay)                                                                                                                                                                                                                                                                                                  Equilibrium between demand for and supply of loanable funds             

           
 

Criticism of Indifference curve & consumer equilibrium

Criticisms of   Indifference curve
 1. Tells nothing new
 2. Not easy to indicate the preference
 3. Complexity
 4. Unrealistic assumption of economic rationality
 5. Limited empirical ( prayog shedha) nature                                                                                                6.   Relation to Transivity ( paribartaneya sambandha)

 
 

Demant / Elasticity of demand

Imp / Use of  Demand Analysis
1. Maximize profit
2. Know consumer's and producers goods
3. Show the relationship between demand and revenue
4. Production decision
5. Financial decision
6. Increase demand
7. Sales forecasting and profit calculation

Determinant of  Demand
1. Change in price
2. Change in income
3. Change in taste
4. Change in price of related goods
5. Size of population
6. Weather and climate
7. Government

Imp / Use of Income elasticity
1. Estimination of  demand for goods the long-run
2. Know the change in business activities
3. Know the market activities

Imp / Use of  Price elasticity
1. Price determination
2. Determination of tax
3. Monopoly price
4. Pricing of factor of production
5. Wage determination
6. Determination of rate of foreign exchange
7. Formulation of economic policies

 Imp / Use of Cross elasticity
1. Know the effect
2. Know the price
3. Know the complementary and substitutes goods
4. Determination of limitation

Types /map of otal outlay method

price             Demand         Total cost        Elasticity of Demand
10                  10                     100
9                    20                     180
8                    30                     240
7                    40                     280            Elasticity of demand Greater than  unity, Eq > 1
6                    50                     300
5                    60                     300            Elasticity of demand Equal to unity, Eq = 1                                  
4                    70                     280                                                                                                               3                    80                     240            Elasticity of demand less than unity, Eq < 1

                                          

Micro n Macro economic use/imp n Types

Use / Imp. of Micro Economics
 1. Price Determination
 2. Formulation of economic policies
 3. Optimum allocation resources
 4. Understand the condition of economies and welfare
 5. International trade

Use / Imp. of Macro Economics
 1. Study of the economy in totally
 2. Formulation of economic policies of the government
 3. Know the situation of the economy
 4. Develop and expand of the micro economics
 5. Know the material welfare of the nation

                                Types of  Macroeconomics

consumption function taple and map

Determinants of consumption function 

 Subjective factor  

 1. Security motives

2. Demonstration effect

3. Desire for improvement

4. Financial prudence(chaturya)

Objective factors

1. Distribution of income

2. Corporate financial policies

3. Consumer's liquid asset

4. Rate of interest

5. Fiscal policy

6.Wage level

7. Future expectations(aapecha)

                                                                        

Paradox fo Thrift

price determination under long-run and short-run