Q: How do we measure growth and economic development, mention

any 2 government measure which can improved growth and

development
Economic Growth is a narrower concept than economic development.
It is an increase in a country's real level of national output which can be
caused by an increase in the quality of resources (by education etc.),
increase in the quantity of resources & improvements in technology or in
another way an increase in the value of goods and services produced by
every sector of the economy. Economic Growth can be measured by an
increase in a country's GDP (gross domestic product).
Economic development is a normative concept i.e. it applies in the
context of people's sense of morality (right and wrong, good and bad).
The definition of economic development given by Michael Todaro is an
increase in living standards, improvement in self-esteem needs and
freedom from oppression as well as a greater choice. The most accurate
method of measuring development is the Human Development
Index which takes into account the literacy rates & life expectancy
which affect productivity and could lead to Economic Growth. It also
leads to the creation of more opportunities in the sectors of education,
healthcare, employment and the conservation of the environment. It
implies an increase in the per capita income of every citizen.

Q; growth is necessary but not sufficient for development , critically
examine the statement.
Economic growth is basically defined as an increase of wealth of a
nation over time.
Development meanwhile can be described as a social condition within a
nation in which the authentic needs of its population are satisfied by the
rational and sustainable use of natural resources and systems. Economic
growth and development are closely intertwined. In fact, economic
growth is but a step in the direction towards development one of prime
significance, indeed a precondition to it, but by no means can it be
conceptualized as development itself. For a country to be generally
recognized as a developed one, it also needs to be able to provide its
citizens with as fair as it is possible a distribution of basic resources and
social amenities, such as healthcare and education.
The Gross National Product (GDP) is the primary indicator for
measuring economic growth. GDP represents the total value-added in
production of goods and services in a year, while GDP per-capita is the
economy-wide average. The major draw-back is that GDP leaves
out/does not deduct figures associated with environmental
consumption/damage, the informal sector and other social costs of
economic growth. Linking this to development, it is noteworthy that
neither income nor expenditure measures the wellbeing people obtain
from goods and services. Thus, GDP, a purely economic indicator, falls
short of providing a true picture of a countrys development or lack of it.
The concept of development spans far and beyond the realms of
economic wellbeing of individuals. For instance politics, human rights,
education and cultural conditions are all social variables that influence
development. Thus, based largely on the comparison between GDP and
the Human Development Index (HDI), it is argued that growth and
development, though interrelated, are actually two different phenomena.

RBI Announces Measures to Improve Liquidity Conditions
Starting with the Mid-Quarter Review of September 2013, the Reserve
Bank of India (RBI) began a calibrated withdrawal of exceptional
measures undertaken since July 2013. This was done with a view to
normalising liquidity conditions. Accordingly, the marginal standing
facility (MSF) rate was reduced by 75 basis points from 10.25 per cent
to 9.5 per cent. Furthermore, open market purchase operations of Rs.
9,974 crore were conducted today to inject liquidity into the system. On
a review of evolving liquidity conditions and in continuation of this
calibrated unwinding, it has been decided to:

Q: what has been the role of RBI in strengthening the liquidity of
commercial bank in recent times.
Reduce the marginal standing facility (MSF) rate by a further 50 basis
points from 9.5 per cent to 9.0 per cent with immediate effect.
Provide additional liquidity through term repos of 7-day and 14-day
tenor for a notified amount equivalent to 0.25 per cent of net demand
and time liabilities (NDTL) of the banking system through variable rate
auctions on every Friday beginning October 11, 2013. The notified
amount and tenor of the term repo auctions will be announced prior to
the dates of the auctions.
The RBI has also capped the daily support to banks under the central
bank's liquidity adjustment facility (LAF) at Rs 75,000 crore.
The RBI had also put up Rs 12,000 crore of government securities for
sale through an auction on July 18. However, it managed to sell less than
one-fifth of the target, as investors demanded higher interest rates.

Q: what are the quantity weapons available to RBI to regulate
commercial banks
By Quantitative Credit Control we mean the control of the total quantity
of credit.
Different tools used under this method are:
Bank Rate: The bank rate is the rate at which RBI is prepared to buy or
re-discount bills of exchange or commercial papers.
Open Market Operations: Open Market Operations indicate the
buying/selling of government securities in the open market to balance
the money supply in the economy. During inflation, RBI sells the
government securities to the commercial banks and other financial
institution. This reduces their cash lending and credit creation capacities.
Thus, Inflation can be controlled. During recessions, RBI purchases
government securities from commercial banks and other financial
institution. This leaves them with more cash balances for lending and
increases their credit creation capacities. Thus, recession can be
overcome.
Repo Rates and Reverse Repo Rates: When banks require short term
money, RBI lends member banks against securities held by them. The
rate of interest charged on these loans is called Repo Rate.
Banks keep their surplus money with RBI and earn interest on this. The
interest rate on such amount is called Reverse Repo Rate.
Cash Reserve Ratio: Cash reserve Ratio is the amount of funds that the
banks have to keep with RBI.
Statutory Liquidity Ratio: Statutory Liquidity Ratio is the amount a
commercial bank needs to maintain in the form of cash, or gold or govt.
approved securities (Bonds) before providing credit to its customers.
Deployment of Credit: The RBI has taken various measures to deploy
credit in different of the economy. The certain percentage of bank credit
has been fixed for various sectors like agriculture, export, etc.

Q: explain taking any two instruments of as to how inflection can be
effetely manage
1. Quantitative or General Methods:
The methods used by the central bank to influence the total volume of
credit in the banking system, without any regard for the use to which it is
put, are called quantitative or general methods of credit control. These
methods regulate the lending ability of the financial sector of the whole
economy and do not discriminate among the various sectors of the
economy. The important quantitative methods of credit control are:
(a) bank rate,
(b) open market operations, and
(c) cash-reserve ratio.
2. Qualitative or Selective Methods:
The methods used by the central bank to regulate the flows of credit into
particular directions of the economy are called qualitative or selective
methods of credit control. Unlike the quantitative methods, which affect
the total volume of credit, the qualitative methods affect the types of
credit extended by the commercial banks; they affect the composition
rather than the size of credit in the economy. The important qualitative
or selective methods of credit control are;
(a) marginal requirements,
(b) regulation of consumer credit,
(c) control through directives,
(d) credit rationing,
(e) moral suasion and publicity, and
(f) direct action.

Q: Discuss the statement that changes in repo rate can insure price
stability in economic growth
Repo rate is the rate at which RBI lends to commercial banks generally
against government securities. Reduction in Repo rate helps the
commercial banks to get money at a cheaper rate and increase in Repo
rate discourages the commercial banks to get money as the rate increases
and becomes expensive. Reverse Repo rate is the rate at which RBI
borrows money from the commercial banks.
The increase in the Repo rate will increase the cost of borrowing and
lending of the banks which will discourage the public to borrow money
and will encourage them to deposit. As the rates are high the availability
of credit and demand decreases resulting to decrease in inflation. This
increase in Repo Rate and Reverse Repo Rate is a symbol of tightening
of the policy.
Impact of hike in repo rate to common men and economy
This hike in repo rates are passed on by the banks in form of increase in
borrowing rate to common men. So, cost of auto, education, home and
personal loans will increase correspondingly. Loans to companies for its
operations also increases which led to decline in borrowings. These
factors penalize Indian industry which has already slowed down.

Q: What has been the reason changes in monitory policy intro by
RBI to improve the profitability of commercial bank.
It has been decided to:
Repo Rate
reduce the policy repo rate under the liquidity adjustment facility (LAF)
by 25 basis points from 7.5 per cent to 7.25 per cent with immediate
effect.
Reverse Repo Rate
The reverse repo rate under the LAF, determined with a spread of 100
basis points below the repo rate, stands adjusted to 6.25 per cent with
immediate effect.
Marginal Standing Facility Rate
The Marginal Standing Facility (MSF) rate, determined with a spread of
100 basis points above the repo rate, stands adjusted to 8.25 per cent
with immediate effect.
Bank Rate
The Bank Rate stands adjusted to 8.25 per cent with immediate effect.
Cash Reserve Ratio
The cash reserve ratio (CRR) of scheduled banks has been retained at
4.0 per cent of their net demand and time liabilities (NDTL).

Q: enumerate 2 important causes of demand pull cost push
inflation, why is demand pull inflation is consider better of 2 evils.
Causes of Demand-Pull Inflation:
A quick increase in consumption and investment along with an
extremely confident firms
A sudden increase in exports which might lead to a huge under-
valuation of your currency
A lot of government spending
The expectation that inflation will rise often leads to a rise in
inflation. Workers and firms will increase their prices to catch up
to inflation
Excessive monetary growth when they is too much money in the
system chasing too few goods. The price of a good will thus
increase.
Causes of Cost-Push Inflation:
Increase in oil prices
Strength of labor unions, who can push for higher wages
A devaluation of the currency making import prices higher
An increase in commodity prices
An increase in indirect taxation
Productivity slow down, which would lead to production costs.


Q: what are the different phases of trade cycle which of them can
monetary policy effectively manage.
There are four main stages in a trade cycle or business cycle.
Growth
GDP is rising
Unemployment is falling
Business are experiencing rising profits
Feel good factor among the people as their incomes are rising.
Boom
Results from too much spending.
Economy experiences rapid inflation
Factors of production become expensive
Recession
Results from too little spending.
GDP is falling
Demand in the economy will fall leading to closure of firms and
unemployment
Slump
High level of unemployment.
Business will rapidly close down creating serious consequences for
the economy.


Q: What are the different roles to be performed by government in
mixed economy.
A. to regulate, promote, police, and serve the economy while still
allowing as much free enterprise as possible
B. to control all or most aspects of economic activity within the
society
C. to stay completely out of the economy so that the law of supply
and demand can work without interference
D. to reward those who produce goods and services for the betterment
of society.

Q: Explain the concept of inequality of income in detail, Is taxation
an ideal tool to remove inequality
The unequal distribution of household or individual income across the
various participants in an economy. Income inequality is often
presented as the percentage of income to a percentage of population.
For example, a statistic may indicate that 70% of a country's income
is controlled by 20% of that country's residents.
It is often associated with the idea of income "fairness". It is generally
considered "unfair" if the rich have a disproportionally larger portion
of a country's income compared to their population.
Tax policy is a powerful tool that governments use. In the case of
income tax, the government taxes those earning higher incomes at
higher rates, while those below a threshold are exempt from paying
income tax. Wealth tax is also levied on wealth above a certain
threshold. The government may also use taxes on items that are
consumed by the rich such as taxes on consumption in five-star
hotels.

Q: What are the keynes chain solution to lift the economy from the
depression of 1930. Can same tool be applied to improve recession in
India
An economic theory of total spending in the economy and its effects
on output and inflation. Keynesian economics was developed by the
British economist John Maynard Keynes during the 1930s in an
attempt to understand the Great Depression. Keynes advocated
increased government expenditures and lower taxes to stimulate
demand and pull the global economy out of the Depression.
Subsequently, the term Keynesian economics was used to refer to
the concept that optimal economic performance could be achieved
and economic slumps prevented by influencing aggregate demand
through activist stabilization and economic intervention policies by
the government. Keynesian economics is considered to be a demand-
side theory that focuses on changes in the economy over the short
run.



1. Revenue Deficit:
The excess of expenditure on revenue account over receipts on
revenue account measures revenue deficit.
Receipts on revenue account include both tax and non-tax revenue
and also grants. Tax revenue is net of States share as al so net of
assignment of Union Terri Tory taxes to local bodies. The non-tax re
venue includes interest receipts, dividends and profits, and non-tax
receipts of Union Territorys Grants include grants from abroad also.
Expenditure on revenue account includes both Plan and Non-Plan
components. Thus, the Plan component includes Central Plan and
Central Assistance for States and Union Territory Plans.
Non- Plan expenditure includes interest payments, defence
expenditure on revenue account, subsidies, debt-relief to farmers,
postal services, police, pensions, other general services, social
services, economic services, non-plan revenue grants to States and
Union Territories, expenditure of Union Territories with legislature,
and grants to foreign governments.
Revenue deficit means dissavings on government account and the use
of the savings of other sectors of the economy to finance a part of the
consumption expenditure of the government.
An important objective of fiscal policy should be to ensure surplus in
the revenue budget so that the government also contributes to raising
the rate of saving in the economy.
In 2008-09, revenue deficit of the central government is at Rs. 2,
41,273 crore (Revised estimates) as compared to Rs. 52,569 crore in
the previous year. In percentage terms, the revenue deficit is 4.5 per
cent (RE) of the gross domestic product in 2008-09, registering an
increase of 3.4 per cent from the previous year.
2. Capital Deficit:
The excess of capital disbursements over capital receipts measures
the capital deficit.
Capital Deficit = Expenditure on Capital Account Capital Receipts
Plan capital disbursements include those on Central Plan and
Assistance for States and Union Territories. Non-Plan Capital
disbursements include defence expenditure on Capital account, other
non-plan capital outlay, loans to public enterprises, States and Union
Territory Governments, foreign governments and others; and non-
plan capital expenditure of Union Territories without legislature. The
items of capital receipts include recoveries of loans extended by the
centre itself, but only net receipts of loans raised by it.
It may be noted that receipts on account of sale of 91 days treasury
bills and drawing down of cash balances do not form a part of capital
receipts. However, net receipts on account of sale of 182 days and
364 days treasury bills and sales proceeds of government assets are
included in capital receipts.
3. Fiscal Deficit:
Fiscal deficit is the difference between revenue receipts plus certain
non-debt capital receipts and the total expenditure including loans net
of repayments.
Fiscal Deficit = Total Expenditure (Revenue Receipts + Non-debt
Capital Receipts)
In short, fiscal deficit indicates the total borrowing requirements of
the government from all sources. This may also be called Gross Fiscal
Deficit (GFD). It measures that portion of government expenditure
which is financed by borrowing and drawing down of cash balances.
It should be noted that in India, borrowings are net amounts (that is,
gross borrowings less repayments). Similarly, loans extended by
Government of India are included on the expenditure side of capital
account while recoveries are included on the receipts side.
Therefore, the amount of loans and advances by Government of India
is also reduced.
It is often stated that fiscal deficit measures an addition to the
liabilities of Government of India. In 2008 -09, fiscal deficit was at a
figure of Rs. 3, 26,515 crore (RE) which is 6.1 per cent of Gross
Domestic Product.
Fiscal deficit was of the order of 4 per cent of gross domestic product
(GDP) at the beginning of 1980s, and was estimated at more than 8
per cent in 1990-91. The growing fiscal deficit had to be met by
borrowing which led to a mammoth internal debt of the government.
The servicing of this debt has become a serious problem. Public debt
in India is mostly subscribed to by commercial banks and financial
institutions. A judicious macro-management of the economy requires
a progressive reduction in the fiscal deficit and revenue deficit of the
government.
4. Primary Deficit:
It is simply fiscal deficit minus interest payments. In the 2008-09
budget, primary deficit was shown at a figure of Rs. 1, 33,821 crore
(Revised estimates).
This measure is also referred to as Gross Primary Deficit (GPD).
Measures of deficit described above (except capital deficit) include
payments and receipts of interest. These transactions, however, reflect
a consequence of past actions of the government, namely, loans taken
and given in years prior to the one under consideration.
Exclusion of interest transactions would, therefore, enable us to see
the way the government is currently conducting its financial affairs.
Accordingly, Primary deficit is defined as Fiscal Deficit less net
interest payments, (that is less interest payments plus interest
receipts).
Net primary deficit is obtained by subtracting Loans and Advances
from net fiscal deficit. It is also equal to Fiscal Deficit less interest
payments plus interest receipts less loans and advances.
The primary deficit which was 4.3 per cent of GDP during 1990-91
came down to 1.5 per cent of GDP during 1997-98 and in the revised
estimates for the year 2008-09 it was 2.5 per cent of GDP.
5. Monetised Deficit:
Besides ways and means advances, the Reserve Bank of India also
supports the governments borrowing programme. Monetised deficit
indicates the level of support extended by the Reserve Bank of India
to the governments borrowing programme.
Monetised deficit is defined as net increase in net Reserve Bank of
India credit to central government. The rationale for this measure of
deficit flows from the inflationary impact which a budgetary deficit
exerts on the economy.
Since borrowings from Reserve Bank of India directly add to money
supply, this measure is termed monetised deficit. It is obvious that
monetised deficit is only a part of fiscal deficit.

measure to reduce fiscal deficit.
Government has imposed economy measures like rationalization of
expenditure and optimization of available resources with a view to
improve macroeconomic environment. These include a ban on
holding of meetings and conferences at five star hotels, restrictions on
foreign travel and ban on creation of Plan and Non-Plan posts.
Ministries/Departments have been advised that posts that have
remained vacant for more than a year shall not be revived except
under very rare and unavoidable circumstances and after seeking
clearance of the Department of Expenditure.
Apart from the measures indicated above, the Government has
taken the following steps to contain fiscal deficit:
i) Government has reverted back to the path of fiscal consolidation
with gradual exit from the expansionary measures in calibrated
manner. The reduction in fiscal deficit from 5.9 per cent of GDP
estimated in RE 2011-12 to 5.1 per cent of GDP in BE 2012-13 is
designed with a mix of reduction in total expenditure as percentage of
GDP and improvement in gross tax revenue as percentage of GDP.
ii) Government has also introduced Medium-term Expenditure
Framework Expenditure Statement, setting forth a three-year rolling
target for expenditure indicators with a view to undertaking a de-novo
exercise for allocating resources for prioritized schemes and weeding
out other that have outlived their utility. It would also encourage
efficiencies in expenditure management.
iii) Government will also endeavour to contain the expenditure on
Central subsidies.