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MICRO ECONOMICS OR PRICE THEORY :The word " micro : mean little or small when we speak micro economics

we mean it is some small part of the whole economy we are analyzing. In micro economics we are chiefly concerned with the behavior of an individual house hold, individual producer. Micro analysis was mainly developed for studying process of valuation , allocation of resources and the determination of price of the factors of production. MACRO ECONOMICS OR THE THEORY OF INCOME AND EMPLOYMENT :Macro-Economic analysis is closely associated with the Keynes. Macro means large or great. It covers aggregate and averages such as national income, total employment, total savings, total investment and general level of prices. Macro economics seeks to explain as to why the problems like unemployment and inflation relating the overall performance of the economy occur. Macro economics also studies and explains the role of a government as solver of economic problems. We can say that macro -economics is a branch of economic theory which deals with the fluctuation of the economy as whole.

Gross domestic product (GDP) refers to the market value of all final goods and services produced within a country in a given period. GDP per capita is often considered an indicator of a country's standard of living

GDP = private consumption + gross investment + government spending + (exports imports), or

3 approach to calculate GDP-expenditure,income and production approach

NNP Net National Product 'Net national product is the net market value of
the goods and services produced by labor and property located in [a nation]. Net national product equals GNP [minus] the capital consumption allowances, which are decudted from gross private domestic fixed investment to express it on a net basis.'

An economic statistic that includes GDP, plus any income earned by residents from overseas investments, minus income earned within the domestic economy by overseas residents.

GNP is a measure of a country's economic performance, or what its citizens produced (i.e. goods and services) and whether they produced these items within its borders.

SLR. The amount of liquid assets, such as cash, precious metals or other short-term securities, that a
financial institution must maintain in its reserves. The statutory liquidity ratio is a term most commonly used in India
Repo (Repurchase) Rate Repo rate is the rate at which banks borrow funds from the RBI to meet the gap between the demand they are facing for money (loans) and how much they have on hand to lend. If the RBI wants to make it more expensive for the banks to borrow money, it increases the repo rate; similarly, if it wants to make it cheaper for banks to borrow money, it reduces the repo rate. Reverse Repo Rate This is the exact opposite of repo rate. The rate at which RBI borrows money from the banks (or banks lend money to the RBI) is termed the reverse repo rate. The RBI uses this tool when it feels there is too much money floating in the banking system If the reverse repo rate is increased, it means the RBI will borrow money from the bank and offer them a lucrative rate of interest. As a result, banks would prefer to keep their money with the RBI (which is absolutely risk free) instead of lending it out (this option comes with a certain amount of risk) Consequently, banks would have lesser funds to lend to their customers. This helps stem the flow of excess money into the economy Reverse repo rate signifies the rate at which the central bank absorbs liquidity from the banks, while repo signifies the rate at which liquidity is injected. Bank Rate This is the rate at which RBI lends money to other banks (or financial institutions . The bank rate signals the central banks long-term outlook on interest rates. If the bank rate moves up, long-term interest rates also tend to move up, and vice-versa. Banks make a profit by borrowing at a lower rate and lending the same funds at a higher rate of interest. If the RBI hikes the bank rate (this is currently 6 per cent), the interest that a bank pays for borrowing

money (banks borrow money either from each other or from the RBI) increases. It, in turn, hikes its own lending rates to ensure it continues to make a profit. Call Rate Call rate is the interest rate paid by the banks for lending and borrowing for daily fund requirement. Si nce banks need funds on a daily basis, they lend to and borrow from other banks according to their daily or short-term requirements on a regular basis. CRR Also called the cash reserve ratio, refers to a portion of deposits (as cash) which banks have to keep/maintain with the RBI. This serves two purposes. It ensures that a portion of bank deposits is totally risk-free and secondly it enables that RBI control liquidity in the system, and thereby, inflation by tying their hands in lending money SLR Besides the CRR, banks are required to invest a portion of their deposits in government securities as a part of their statutory liquidity ratio (SLR) requirements. What SLR does is again restrict the banks leverage in pumping more money into the economy.

The foreign exchange market (forex, FX, or currency market) is a global, worldwide decentralized financial market for trading currencies. Foreign direct investment is investment of foreign assets into domestic structures, equipment, and organizations. It does not include foreign investment into the stock markets. Foreign direct investment is thought to be more useful to a country than investments in the equity of its companies because equity investments are potentially "hot money" which can leave at the first sign of trouble, whereas FDI is durable and generally useful whether things go well or badly

An investor or investment fund that is from or registered in a country outside of the one in which it is currently investing. Institutional investors include hedge funds, insurance companies, pension funds and mutual funds. The term is used most commonly in India to refer to outside companies investing in the financial markets of India. International institutional investors must register with the Securities and Exchange Board of India to participate in the market. One of the major market regulations pertaining to FIIs involves placing limits on FII ownership in Indian companies.

inflation is a rise in the general level of prices of goods and services in an economy

over a period of time.[1] When the general price level rises, each unit of currency buys fewer goods and services. Consequently, inflation also reflects an erosion in the purchasing power of money a loss of real value in the internal medium of exchange and unit of account in the economy.[2][3] A chief measure of price inflation is the inflation rate, the annualized percentage change in a general price index (normally the Consumer Price Index) over time.[4] Inflation's effects on an economy are various and can be simultaneously positive and negative. Negative effects of inflation include a decrease in the real value of money and other monetary items over time, uncertainty over future inflation may discourage investment and savings, and high inflation may lead to shortages of goods if consumers begin hoarding out of concern that prices will increase in the future. Positive effects include ensuring central banks can adjust nominal interest rates (intended to mitigate recessions),[5] and encouraging investment in nonmonetary capital projects.

recession is a business cycle contraction, a general slowdown in economic activity.


During recessions, many macroeconomic indicators vary in a similar way. Production, as measured by gross domestic product (GDP), employment, investment spending, capacity utilization, household incomes, business profits, and inflation all fall, while bankruptcies and the unemployment rate rise. Recessions generally occur when there is a widespread drop in spending, often following an adverse supply shock or the bursting of an economic bubble. Governments usually respond to recessions by adopting expansionary macroeconomic policies, such as increasing money supply, increasing government spending and decreasing taxation.

depression is a sustained, long-term downturn in economic activity in one or more

economies. It is a more severe downturn than a recession, which is seen by some economists as part of the modern business cycle. Considered, by some economists, a rare and extreme form of recession, a depression is characterized by its length, by abnormally large increases in unemployment, falls in the availability of credit often due to some kind of banking or financial crisis, shrinking output as buyers dry up and suppliers cut back on production, and investment, large number of bankruptciesincluding sovereign debt defaults, significantly reduced amounts of trade and commerceespecially international, as well as highly volatile relative currency value fluctuationsmost often due to devaluations. Price deflation, financial crises and bank failures are also common elements of a depression that are not normally a part of a recession. The best-known depression was the Great Depression, which affected most national economies in the world throughout the 1930s. This depression is generally considered to have begun with the Wall Street Crash of 1929,

A period of slow economic growth, especially one that follows a period of robust growth. Unlike a recession, economic growth during a slowdown is not necessarily negativ

Money is any object or record that is generally accepted as payment for goods and services [1][2][3]
and repayment of debts in a given country or socio-economic context. The main functions of money are distinguished as: a medium of exchange; a unit of account; a store of value; and, occasionally in the past, a standard of deferred payment.[4][5] Any kind of object or secure verifiable record that fulfills these functions can serve as money

A hedge is an investment position intended to offset potential losses that may be incurred
by a companion investment. A hedge can be constructed from many types of financial instruments, including stocks, exchange-traded funds, insurance, forward contracts, swaps, options, many types of over-thecounter and derivative products, and futures contracts. Public futures markets were established in the 19th century[1] to allow transparent, standardized, and efficient hedging of agricultural commodity prices; they have since expanded to include futures contracts for hedging the values of energy, precious metals, foreign currency, and interest rate fluctuations.

Insider trading is the trading of a corporation's stock or other securities (e.g. bonds or
stock options) by individuals with potential access to non-public information about the company. the term is frequently used to refer to a practice in which an insider or a related party trades based on material non-public information obtained during the performance of the insider's duties at the corporation, or otherwise in breach of a fiduciary or other relationship of trust and confidence or where the non-public information was misappropriated from the company.[1] Sections 16(b) and 10(b) of the Securities Exchange Act of 1934 directly and indirectly address insider trading.

Liquidity-The degree to which an asset or security can be bought or sold in the market without
affecting the asset's price. Liquidity is characterized by a high level of trading activity. Assets that can be easily bought or sold, are known as liquid assets.

2. The ability to convert an asset to cash quickly. Also known as "marketability". There is no specific liquidity formula, however liquidity is often calculated by using liquidity ratios.

3. It is safer to invest in liquid assets than illiquid ones because it is easier for an investor to get his/her money out of the investment. 4. Examples of assets that are easily converted into cash include blue chip and money market securities.

Boom and bust

A credit boom-bust cycle is an episode characterized by a sustained increase in several economics indicators followed by a sharp and rapid contraction. Commonly the boom is driven by a rapid expansion of credit to the private sector accompanied with rising prices of commodities and stock market index. Following the boom phase, asset prices collapse and a credit crunch arises, where access to financing opportunities are sharply reduced below levels observed during normal times. The unwinding of the bust phase brings a considerably large reduction in investment and fall in consumption and an economic recession may follow.

purchasing power parity (PPP) is a condition between countries where an amount

of money has the same purchasing power in different countries. The prices of the goods between the countries would only reflect the exchange rates

The concept is based on the law of one price, where in the absence of transaction costs and official trade barriers, identical goods will have the same price in different markets when the prices are expressed in the same currency.[3] Another interpretation is that the difference in the rate of change in prices at home and abroad the difference in the inflation ratesis equal to the percentage depreciation or appreciation of the exchange rate. Deviations from parity imply differences in purchasing power of a "basket of goods" across countries, which means that for the purposes of many international comparisons, countries' GDPs or other national income statistics need to be "PPP adjusted" and converted into common units. The best-known purchasing power adjustment is the GearyKhamis dollar (the "international dollar"). The real exchange rate is then equal to the nominal exchange rate, adjusted for differences in price levels. If purchasing power parity held exactly, then the real exchange rate would always equal one. However, in practice the real exchange rates exhibit both short run and long run deviations from this value, for example due to reasons illuminated in the BalassaSamuelson theorem.

Typeof economies-

A) capitalist economic system, production is carried out to maximize private

profit, decisions regarding investment and the use of the means of production are determined by competing business owners in the marketplace; production takes place within the process of capital accumulation. The means of production are owned primarily by private enterprises and decisions regarding production and investment determined by private owners in capital markets. The range of capitalist systems range from lassiez-faire, with minimal government regulation and state enterprise, to regulated and social market systems, with the stated aim of ensuring social justice and a more equitable distribution of wealth (see welfare state) or ameliorating market failures

B) socialist economic system, production is carried out to directly satisfy

economic demand by producing goods and services for use; decisions regarding the use of the means of production are adjusted to satisfy economic demand, investment (control over the surplus value) is carried out through a mechanism of inclusive collective decision-making. The means of production are either publicly owned, or are owned by the workers cooperatively. A socialist economic system that is based on the process of capital accumulation, but seeks to control or direct that process through state ownership or cooperative control to ensure stability, equality or expand decision-making power, are market socialist systems.

ANOTHER CLASSIFICATIONMarket Economy - Where consumers decide which goods and services they want and businesses provide these. Most businesses in a market economy are privately owned. The USA is an example of a market economy.

Command economy - Where the government owns most businesses. The government decides what and how much will be produced. Russia and China used to have planned economies.

Traditional economy - an economic system in which people make economic decisions based on customs and beliefs that have been handed down from one generation to the next.

US subprime crisis/subprime mortgage crisis

The U.S. subprime mortgage crisis was one of the first indicators of the late-2000s financial crisis, characterized by a rise in subprime mortgage delinquencies and foreclosures, and the resulting decline of securities backed by said mortgages.

The ratio of lower-quality subprime mortgages originated rose from the historical 8% or lower range to approximately 20% from 2004-2006, with much higher ratios in some parts of the U.S.[1] A high percentage of these subprime mortgages, over 90% in 2006 for example, were adjustable-rate mortgages.[2] These two changes were part of a broader trend of lowered lending standards and higher-risk mortgage products.[2][3] Further, U.S. households had become increasingly indebted, with the ratio of debt to disposable personal income rising from 77% in 1990 to 127% at the end of 2007, much of this increase mortgage-related.[4] After U.S. house sales prices peaked in mid-2006 and began their steep decline forthwith, refinancing became more difficult. As adjustable-rate mortgages began to reset at higher interest rates (causing higher monthly payments), mortgage delinquencies soared. Securities backed with mortgages, including subprime mortgages, widely held by financial firms, lost most of their value. Global investors also drastically reduced purchases of mortgage-backed debt and other securities as part of a decline in the capacity and willingness of the private financial system to support lending. Concerns about the soundness of U.S. credit and financial markets led to tightening credit around the world and slowing economic growth in the U.S. and Europe.

Fringe Benefits Tax (FBT) was the tax applied to most, although not all,
fringe benefits. A new tax was imposed on employers by India's Finance Act 2005 was introduced for the financial year commencing April 1, 2005. The Fringe Benefit Tax is abolished in the Finance Bill of 2009 by Finance Minister Pranab Mukherjee. The following items were covered:

Employer's expenses on entertainment, travel, employee welfare and accommodation. The definition of fringe benefits that have become taxable has been significantly extended. The law provides an exact list of taxable items. Employer's provision of employee transportation to work or a cash allowances for this purpose. Employer's contributions to an approved retirement plan (called a superannuation fund). Employee stock option plans (ESOPs) have also been brought under Fringe Benefits Tax from the fiscal year 2007-08.

(Fringe benefit/Employee benefits and (especially in British English) benefits in kind (also called fringe benefits, perquisites, perqs or perks) are various non-wage compensations provided to employees in addition to their normal wages or salaries.)

Fiscal policy can be contrasted with the other main type of macroeconomic policy, monetary
policy, which attempts to stabilize the economy by controlling interest rates and spending. The two main instruments of fiscal policy are government expenditure and taxation. Changes in the level and composition of taxation and government spending can impact the following variables in the economy:

Aggregate demand and the level of economic activity; The pattern of resource allocation; The distribution of income.

Monetary policy is the process by which the monetary authority of a country controls
the supply of money, often targeting a rate of interest for the purpose of promoting economic growth and stability.[1] [2] The official goals usually include relatively stable prices and low unemployment. Monetary theory provides insight into how to craft optimal monetary policy. It is referred to as either being expansionary or contractionary, where an expansionary policy increases the total supply of money in the economy more rapidly than usual, and contractionary policy expands the money supply more slowly than usual or even shrinks it. Expansionary policy is traditionally used to try to combat unemployment in a recession by lowering interest rates in the hope that easy credit will entice businesses into expanding. Contractionary policy is intended to slow inflation in hopes of avoiding the resulting distortions and deterioration of asset values. Monetary policy differs from fiscal policy, which refers to taxation, government spending, and associated borrowing.[

The gold standard -is a monetary system in which the standard economic unit
of account is a fixed mass of gold. There are distinct kinds of gold standard. First, the gold specie standard is a system in which the monetary unit is associated with circulating gold coins, or with the unit of value defined in terms of one particular circulating gold coin in conjunction with subsidiary coinage made from a lesser valuable metal. Similarly, the gold exchange standard typically involves the circulation of only coins made of silver or other metals, but where the authorities guarantee a fixed exchange rate with another country that is on the gold standard. This creates a de facto gold standard, in that the value of the silver coins has a fixed external value in terms of gold that is independent of the inherent silver value. Finally, the gold bullion standard is a system in which gold coins do not circulate, but in which the authorities have agreed to sell gold bullion on demand at a fixed price in exchange for the circulating currency.

Barter System-is a method of exchange by which goods or services are directly

exchanged for other goods or services without using a medium of exchange, such as money.[1] It is usually bilateral, but may be multilateral, and usually exists parallel to monetary systems in most developed countries, though to a very limited extent. Barter usually replaces money as the method of exchange in times of monetary crisis, such as when the currency may be either unstable (e.g., hyperinflation or deflationary spiral) or simply unavailable for conducting commerce

euro (sign: ; code: EUR) is the official currency of the eurozone: 17 of the 27 member
states of the European Union. It is also the currency used by the Institutions of the European Union. The eurozone consists of Austria, Belgium, Cyprus, Estonia, Finland, France, Germany, Greece, Ireland, Italy, Luxembourg, Malta, the Netherlands, Portugal, Slovakia, Slovenia, and Spain.[2][3] The currency is also used in a further five European countries (Montenegro, Andorra, Monaco, San Marino and Vatican City) and the disputed territory of Kosovo. It is consequently used daily by some 332 million Europeans.[4] Additionally, over 175 million people worldwide use currencies which are pegged to the euro, including more than 150 million people in Africa. The euro is the second largest reserve currency as well as the second most traded currency in the world after the United States dollar.[5][6] As of July 2011, with nearly 890 billion in circulation, the euro has the highest combined value of banknotes and coins in circulation in the world, having surpassed the U.S. dollar.[note 14] Based on International Monetary Fund estimates of 2008 GDP and purchasing power parity among the various currencies, the eurozone is the second largest economy in the world.[7] The name euro was officially adopted on 16 December 1995.[8] The euro was introduced to world financial markets as an accounting currency on 1 January 1999, replacing the former European Currency Unit (ECU) at a ratio of 1:1. Euro coins and banknotes entered circulation on 1 January 2002.[9]

Esperanto (helpinfo) is the most widely spoken constructed international auxiliary

language.[1] Its name derives from Doktoro Esperanto (Esperanto translates as 'one who hopes'), the pseudonym under which L. L. Zamenhof published the first book detailing Esperanto, the Unua Libro, in 1887. Zamenhof's goal was to create an easy-to-learn and politically neutral language that transcends nationality and would foster peace and international understanding between people with different regional and/or national languages. Estimates of Esperanto speakers range from 10,000 to 2,000,000 active or fluent speakers, as well as native speakers, that is, people who learned Esperanto from their parents as one of their native languages. Esperanto is spoken in about 115 countries. Usage is particularly high in Europe, east Asia, and South America