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9035001996
Macroeconomics
The study of the economy as a whole, and the variables
Macroeconomic Variables
Economic output
Inflation
Employment
Interest rates
Government finances
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The growth in real GDP and the rate of unemployment are interrelated.
Greater output is associated with high levels of employment. It therefore follows that
increases in real economic growth would be associated with reductions in the rate of
unemployment.
The dilemma posed by the curve is that the economy must accept inflation in order
to achieve full employment or to accept a high unemployment rate to control
inflation.
Interest rates & inflation rate are interrelated
Usually, high interest rates lead to lower rates of inflation
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Income approach:
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Assumes that there are savings thereby necessitating the third sector - Financial.
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The preferences for money over other kinds of assets is known as the
preference of liquidity.
Liquidity describes the readiness with which an asset can be converted
into cash without any significant loss in value.
Wealth held in the form of money provides people with the maximum
freedom of action, because it is readily convertible into any other type of
asset.
It is usual to distinguish three reasons why people want to hold their
assets in the form of money, which are transaction, precautionary and
speculative motives.
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Monopolistic Competition
Oligopoly
Market Structure Continuum
Pure
Competition
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Monopolistic
Competition
Oligopoly
Pure
Monopoly
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Price Maker
Blocked Entry
Non-price Competition
Two types:
Regulated Monopolies
Unregulated monopolies
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Patents - Pharmaceuticals
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Monopolistic Competition
Most firms have distinguishable rather than standardized products
and have some discretion over the price they charge.
Competition often occurs on the basis of price, quality, location,
service and advertising.
Entry to most real-world industries ranges from easy to very
difficult but is rarely completely blocked
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Oligopoly
An oligopoly is a market dominated by a few producers, each of
which has control over the market. It is an industry where there is
a high level of market concentration.
Normally an oligopoly exists when the top four firms in the market
account for more than 60% of total market demand/sales.
In some situations, the firms may employ restrictive trade
practices (collusion, market sharing etc.) to raise prices and
restrict production in much the same way as a monopoly. Where
there is a formal agreement for such collusion, this is known as a
cartel. A primary example of such a cartel is OPEC which has a
profound influence on the international price of oil.
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Benefits of GST
The biggest benefit is that multiple taxes that currently exist will no longer remain
in the picture. This means that taxes like octroi, CENVAT, central sales tax, state
sales tax, entry tax, license fees, turnover tax etc will no longer be present and all
that will be brought under the GST.
Under GST, the taxation burden will be divided equitably between manufacturing
and services, through a lower tax rate by increasing the tax base and minimizing
exemptions.
It is expected to help build a transparent and corruption-free tax administration.
GST will be levied only at the destination point, and not at various points (from
manufacturing to retail outlets).
Currently, a manufacturer needs to pay tax when a finished product moves out
from a factory, and it is again taxed at the retail outlet when sold.
It is estimated that India will gain $15 billion a year by implementing the Goods
and Services Tax as it would promote exports, raise employment and boost
growth.
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Tapering
Tapering is a term that exploded into the financial lexicon in May 2013, when
U.S. Federal Reserve Chairman Ben Bernanke stated that Fed may taper - or
reduce - the size of the bond-buying program known as quantitative easing (QE).
The program, which is designed to stimulate the economy, has served the
secondary purpose of supporting financial market performance in recent years.
While Bernanke's surprising pronouncement led to substantial turmoil in the
financial markets during the second quarter (even Indian Stock Market was
affected negatively), the Fed did not officially announce its first reduction in QE
until December 18, 2013, at which point it reduced the program to $75 billion per
month from its original level of $85 billion.
The second round of tapering has just started now the Fed will buy bonds worth
$ 65 billion a month.
Tapering isnt an immediate, dramatic event. Instead, it is likely to take place
gradually throughout 2014 so as to create minimal market disruption.
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To be continued
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