Correction of Balance of Payments (BoP) Deficit

Balance of Payments Adjustments

The short-term and small deficits in balance of payments are quite likely to emerge in wide range of international transactions. These deficits do not call for immediate corrective actions. More importantly, irregular short-term changes in the domestic economic policies with a view to remove the short-term deficits in balance of payments may do  more  harms than good to the economy. Since these changes cause dislocations in the process of reallocation of  resources  and short-term fluctuations in the economy. Therefore, short-term deficits of smaller magnitude are not a serious concern to the policy makers. A constant deficit indicates that the country’s imports dominates exports  or depreciation of its foreign exchange and gold reserves.… Read the rest

Measuring National Income – Three Methods of Measuring National Income and Output

National income can be defined as the part of the objective income of the community including income derived from abroad which can be measured in money i.e the money value of goods and services which is produced and made available for consumption in an economy for a particular period which is usually a year.  National income, also known as Gross Domestic Product (GDP) is very helpful to the economists to track the economic growth’s rate, average living standard in one country as well as the distribution of income between different groups of population (i.e. inequality gap).

For  measuring  the national income, the national economy is viewed as follows:

  • The national economy is considered as an aggregate of producing units combining different sectors such as agriculture, mining, manufacturing and trade and commerce.
Read the rest

What is National Income?

National income is the final outcome of total economic activities of a nation. Economic activities generate two kinds of flow in a modern economy namely, product-flow and money-flow. Product-flow refers to flow of goods and services from producers to final consumers. Money flow refers to flow of money in exchange of goods and services. In this exchange of goods and services, money income is generated in the form of wages, rent, interest and profits, which is known as factor earning. Based on these two kinds of flows, national income is defined in terms of:

  • Product flow
  • Money flow
National Income in Terms of Product Flow

National income is the sum of money value of goods and services generated from total economic activities of a nation.… Read the rest

Administered Price Mechanism

The concept of Administered Price was first introduced by famous British Economist, John Maynard  Keynes for the prices charged by a monopolist. A monopolist can be a price maker and he consciously administered the price of his product irrespective of the cost of production. Competitive prices are determined by the interplay of forces of demand and supply in the market whereas administered prices according to Keynes were associated with monopolists’ decision regarding price fixation irrespective of the market forces of demand and supply.

However, in India the meaning of Administered Price has been quite different. In India, Administered Prices refer to prices which are fixed and enforced by the Government.… Read the rest

Effects of Inflation on Different Groups of Society

It is true that in times of general rise in the price level, if all groups of prices, such as agricultural prices, industrial prices, prices of minerals, wages, rent and profit rise in the same direction and by the same extent, there will be no net effect on any section of people in the community. For example, if the prices of goods and services, which a worker buys rises by 50 per cent and if the wage of the worker also rises by 50 per cent then there is no change in the real income of the worker, ie., his standard of living will remain constant.… Read the rest

Exchange Rate Adjustment as an Economic Stabilization Measure in 1991

The Indian rupee is linked to a basket of important currencies of the country’s major trading partners. The major objective of exchange rate policy is to adjust exchange rates in such way as to promote the competitiveness of Indian exports in the world market. Adjustments in the external value of the rupee are therefore made from time to time. The Reserve Bank of India effected an exchange rate adjustment on 1 July, 1991 in which the value of the rupee declined by about 7 to 9 per cent against the major currencies (the Pound Sterling, the US Dollar, the Deutschmark, the French Franc and the Yen).… Read the rest