Every organization needs to calculate future revenues in order to help the managers carry out their operations effectively. Cost volume is the approach used for this purpose. Cost Volume Profit analysis or CVP analysis helps in identifying the operating activity levels with a purpose to avoid any kind of losses and achieve profits. Moreover, it also helps the companies to plan their future operations and see whether their organizational performance is going on the right track or not. While conducting a business, the companies also have to face various risks and in order to counter those risks, CVP analysis is an effective tool. Cost volume profit analysis can also help the organizations in calculating the breakeven point which is the point at which the profits become equal to zero. This can be done by finding the break even volume and then using it to make graphical representations. The break even Continue reading
Managerial Economics
Managerial Economics generally refers to the integration of economic theory with business practice. It deals with the use of economic concepts and principles of business decision making. Managerial Economics is thus constituted of that part of economic knowledge or economic theories which is used as a tool of analyzing business problems for rational business decisions. Managerial economics can be viewed by most modern economists as a practical application of economics theory in using effectively the firms scarce resources.
Importance of Capital Controls in Economic Policy
Globalization of capital investment and finance has surfaced for a long period of time in the world of global financial market. Capital flow liberalization has brought up the importance of capital controls for some countries to achieve their economic growth. The Description of Capital Controls Since the failure of Bretton Woods system in 1971, the international capital movements within developed and developing countries become unstable and for some countries the capital flows need to be controlled. Capital controls are restrictions to regulate the movement of capitals which are flowing in or out of the country. Capital flows may be in forms of bank loans, portfolio investment and foreign direct investment. The controls of short terms portfolio investment and bank loans are quite necessary since they are quite risky because of the roll-over risks. For long term credits and FDI are less risky if they are politically guaranteed. Looking back to Continue reading
Inflation: Meaning, Causes, and Effects
Inflation can be characterized as a rise in the general value level and therefore there is a fall in the estimation of cash. Inflation happens when the measure of purchasing power is higher than the yield of merchandise and ventures. Inflation additionally happens when the measure of cash surpasses the measure of enterprises accessible. Regarding whether the falling the estimation of cash will influence the elements of cash relies upon the level of the fall. Fundamentally, alludes to an expansion in the supply of money or credit with respect to the accessibility of stock and venture, bringing about higher costs. In this manner, expansion can be estimated as far as rates. The rate increment in the value list, as a rate for every penny per unit of time, or, in other words, years. The two fundamental cost lists are utilized when estimating inflation, the Producer Price Index(PPI) and the Consumer Continue reading
Role of Fiscal Policy in Economic Development
Fiscal policy refers to the guiding principles of the financial work which are constituted by the state based on political, economic and social development tasks under a certain period. Its purpose is to regulate aggregate demand through government’s spending and tax policies. On the one hand, an increase in government spending will stimulate aggregate demand and increase the national income. Correspondingly, a decrease will depress aggregate demand and reduce national income. On the other hand, a tax is a kind of contraction strength to national income. Therefore, the aggregate demand and the national income will be restrained though increasing government revenue. And they will be increased due to reducing in government revenue as well. The fiscal policy with a distinct class character is formulated by the state, represents the will and interests of the ruling class, and is subject to a certain level of development of social productive forces and Continue reading
Objectives of Fiscal Policy
By  fiscal policy  we mean, the government’s tax efforts, public expenditure and public borrowing. Through these the government can effectively encourage consumption, investment and savings habits and also restrict them. For example, suppose there is  inflation in a country.  Inflation  implies that the people have high  purchasing power  and so they demand goods. To curb this, the government may raise the personal tax and also the corporate tax.  Similarly, by altering its expenditure on various public projects, the government would be able to influence the prevailing economic condition.  Public borrowing  involves government issuing bonds and encouraging common public and other institutions to buy them. By this, the government would be able to bring down the  level of purchasing power in the economy  and  control the inflation. The following are the objectives of fiscal policy: Maximization of the aggregate saving is the first objective. Tins are achieved by encouraging people Continue reading
The Principle of Equity in Taxation
Taxation traces its origin to the ancient times as a major source of revenue needed for governance. Kingdoms, monarchies and even dynasties had an elaborate form of taxation imposed on their subjects to source funds that were used to run affairs of the government. These taxes were subjective and biased depending on those in power. Advancement in education led to important studies on the possible forms of taxation that reflected the aspirations and welfare of the people. Owing to this therefore, Adam Smith, accredited as the “Father of modern political Economy” carried out an extensive study in Public Finance seeking to give an in-depth analysis of taxation. Smith documented the findings in his book known as “Wealth of Nations” in 1776. It is in this book that Smith scripted the four maxims of taxation which were later globally adopted as the Canons of Taxation which are summarized as Equity, Certainty, Continue reading