Explore topic-wise InterviewSolutions in Current Affairs.

Socialistic Economy (Socialism):

1. The Father of Socialism is Karl Marx. Socialism refers to a system of total planning, public ownership and state control on economic activities. 

2. Socialism is defined as a way of organizing a society in which major industries are owned and controlled by the government. 

3. A Socialistic economy is also known as ‘Planned Economy’ or ‘Command Economy’. 

4. In a socialistic economy, all the resources are owned and operated by the government. 

5. Public welfare is the main motive behind all economic activities. It aims at equality in the distribution of income and wealth and equal opportunity for all.

6. Russia, China, Vietnam, Poland and Cuba are the examples of socialist economies. But, now there are no absolutely socialist economies.

Macro economics suffers from certain limitations. They are:

1. There is a danger of excessive generalisation of the economy as a whole. 

2. It assumes homogeneity among the individual units. 

3. There is a fallacy of composition. What is good of an individual need not be good for nation and vice versa. And, what is good for a country is not good for another country and at another time. 

4. Many non-economic factors determine economic activities; but they do not find place in the usual macroeconomic books.

A perfectly competitive market is dominated by the presence of a large number of buyers and sellers of a commodity, which means that there is no such buyer or seller in the market whose purchase or sale is so large as to impact the total sale or purchase in the market. Each buyer/seller has only a fractional share in the market demand/market supply. 

Hence, the price is determined by the forces of market demand and market supply. No individual buyer or seller has any control over it. Each buyer/seller has to accept the price as it is in the market.

List out the assumptions of Say’s law. 

The Say’s Law of market is based on the following assumptions:

1. No single buyer or seller of commodity or an input can affect price. 

2. Full employment. 

3. People are motivated by self interest and self – interest determines economic decisions.

4. The laissez faire policy is essential for an automatic and self adjusting process of full employment equilibrium. Market forces determine everything right. 

5. There will be a perfect competition in labour and product market.

6. There is wage-price flexibility. 

7. Money acts only as a medium of exchange. 

8. Long – run analysis. 

9. There is no possibility for over production or unemployment.

In situations with high risks, credit might create further problems for the borrower. This is also known as a debt-trap. Taking credit involves an interest rate on the loan and if this is not paid back, then the borrower is forced to give up his collateral or asset used as the guarantee, to the lender. Thus, in situations with high risks, if the risks affect a borrower badly, then he ends up losing more than he would have without the loan.

(c) Individual series

Money solves the problem of double coincidence of wants by acting as a medium of exchange. Double coincidence of wants implies a situation where two parties agree to sell and buy each other's commodities., i.e., what one party desires to sell is exactly what the other party wishes to buy. Money does away with this tedious and complex situation by acting as a medium of exchange that can be used for one and all commodities. For example, if an ice-cream vendor wants a bicycle but the bicycle manufacturer wants clothes, and not ice-creams, then the vendor can use money to obtain a bicycle. He does need to adhere to the bicycle man's needs because money acts as the common medium of exchange. Similarly, the bicycle manufacturer can then use the money to buy clothes.

Lencho lives with his family on top of a hill. It is the only house in the entire valley. His elder sons help him in the fields. His wife cooks meals at home. When the hailstorm strikes, he is worried about his family. He fears that his family will go hungry that year. To find a solution to his problem, he writes a letter to God and the very next morning goes to post it. In the letter he requests Him to grant him some money to feed his family and sow his field again. 

This illustrates human values of love and responsibility. The sons love their father; therefore help him in the fields. The mother cooks meals because she cares about her family. She also performs her duties. Lencho is the bread winner of the family. He loves his family and feels responsible for them. Hence, writes to God to help him.

The postmaster was a fat amiable fellow. He broke out laughing upon seeing the envelope addressed to God. But, immediately calmed down and admired the writer’s firm faith in God. As he was a sympathetic person, he decided to write to Lencho in order to retain his faith in God.When he got to know that the writer needed monetary help and not just goodwill, he decided to help him. He gave a part of his salary and also collected money from his employees and friends. 

From this behavior it can be understood that he was generous, sympathetic, kind and a softhearted person. He had an option of ignoring the letter and putting it in the bin, but he did not do so. 

He had decided to answer the letter upon receiving the envelope. After realizing that the writer needed money, he did not change his stance. He decided to keep his promise and also give money to the writer. This shows that the postmaster also possessed the value of integrity.

(i) Climate change causes irreparable damage to our environment. Rising temperature has serious effects on the ecosystem. It results in rising sea level, severe weather events, destruction of various natural habitats etc.

(ii) The rise in temperature on the earth’s surface is primarily caused due to the use of fossil fuels. The burning of fossil fuel releases carbon dioxide and other greenhouse gases into the atmosphere. These gases have heat trapping abilities. The greenhouse gases that are present in the atmosphere has resulted in a thick blanket surrounding the planet, trapping all the heat. This results in warming of the planet and extreme climatic changes.

(iii) The melting of the polar ice caps due to warmer climate is leading to rise in the sea level. Global warming also results in destruction of habitat, which affects the survival of various species dependent on it. These two examples illuminate the adverse effects of global warming.

(iv) Global warming increases the temperature of the earth. This leads to destruction of habitat and causes disturbance in the ecosystem. This results in the extinction of many species that depend on their natural habitat. For instance, the threat to the survival of polar bears due to the loss of their habitat is a repercussion of global warming. It has led to the extinction of the species.

(v) Nations around the world have taken the threat of global warming seriously and are undertaking measures to fight it. In 2015, at the Paris climate summit, 195 countries signed a historic agreement to reduce their carbon emissions. They have decided on a goal to limit the warming of the planet any further.

(vi) We as individuals can take various steps to reduce the carbon dioxide, which in turn will help to reduce global warming. The energy we use to power our homes, cars and smart phones, contribute towards climate change. First step in order to make a difference is to cease the extensive use of technology that is not eco-friendly. There is a need to invest in energy efficient appliances. Driving a fuelefficient vehicle will also help reduce the emission of pollutants. Opting for public transport or opting to go without a vehicle to nearby places will help to reduce our carbon footprint.

(vii) The rise in temperature leads to melting of ice caps in the polar region, which in turn leads to rise in the sea level. The average global sea level is expected to rise 723 inches before the end of this century which is dangerous, as more than half of the world’s population lives within 37 miles of the sea. It poses a great danger to one’s life.

(viii) Global warming leads to extreme weather conditions. Apart from the rise in heat, it also leads to drought, flood, hurricane, extreme cold, tornado and earthquake. It also leads to changes in precipitation patterns all over the world.

(i) The Women Reservation Bill proposes to reserve 33% of all seats in the Lok Sabha, Rajya Sabha and in all state legislative assemblies for women. It also proposes a reservation for the women from scheduled caste and scheduled tribes. Lastly, it aims to improve participation of women in the government.

(ii) The proposed Women Reservation Bill was first introduced in the Lok Sabha on 12^th September, 1996. It was first drafted by the H. D. Deve Gowda-led United Front government. Since then, the Bill has been introduced in the Parliament several times, but could not be passed.

(iii) There are many arguments in favor of the bill. The bill once passed will ensure equal participation of men and women in the decision making process. It will work towards strengthening of the democracy and help in a balanced and proper functioning of the society. Incorporation of ideas of women and their participation at all levels of decision making will help achieve a balanced development in the society.

(iv) Many people argue that the increased representation of women in governing bodies does not ensure empowerment of women. Women elected through reservation might not fight for the issues of women. It cannot affirm that having more women in the Parliament will improve the status of women across the country. It will not give power to the women to fight against social evils like dowry, female infanticide and harassment.

(v) Out of the 543 seats in the Lok Sabha there were only 59 women member in the 15^th Lok Sabha. As per the reservation policy 181 seats are for the women. Even the current number of women representatives in the parliament indicates that there is no equal participation of women in the parliament.

(vi) Once the bill is passed, the Women Reservation Bill will bring about empowerment of women. It will ensure gender equality. It will help to improve the situation of women in India. Preferential treatment to women will ensure a level playing field for all the citizens. It will help women to fight the abuse, discrimination and inequality that they suffer from.

(vii) In India, women participating in politics and social causes have to bear various cultural and societal barriers. Violence or the threat against the female, lack of self-confidence due to the societal outlook etc. discourages many women from entering into politics. Discrimination is a widespread barrier. The problems of illiteracy, burden of work within households, lack of family support and attitude towards female leaders are the reasons why many women do not participate in politics.

(viii) In various countries across the world, women are underrepresented in the government. However, a lot of changes are taking place. Increasing number of women are being elected to represent the state and the countries as a head. Currently, women hold the office as the head of the government in more than 20 countries. The participation rate of women in parliaments globally is nearly 20% and many countries are exploring measures to encourage female participation in the government from local to national.

(i) Management is basically a process of dealing with controlling things or people. It is a process of reaching organisational goals with the help of people and using the organisational resources. It is a continuous process consisting of four basic functions – Planning, Organising, Directing and Controlling.

(ii) Management is similar to art as it is personalised application of general principles. Similar to an artist, a manager has to know how to apply the principles in order to become a successful manager. Management like art involves use of creativity. It involves the creative use of resources to achieve the desired results. Each manager adopts a management style and approach that is his own.

(iii) Management and science, both relate to a specific field of study that contains general facts, which explains a phenomenon. In management, there is availability of systematic and organised study material. Management principles like scientific principles are derived through experimentation and research. Scientific principles lay down cause and effect relationship between variables which is true for management too. Like science, management also contains some fundamental principles which can be applied universally.

(iv) The study of science is different from the study of art. Learning of science includes learning principles whereas art involves continuous practice. Art is subjective whereas science is objective. Art expresses knowledge whereas science is the system of acquiring knowledge. Science provides the knowledge and art involves application of knowledge. These are some of the differences between art and science.

(v) Scientific principles are derived through experimentation and research. Same way, management principles are also researched. For e.g. research relating to motivation and employee performance. Management principles study the cause and effect relationship, like the relation between wages and productivity, lack of balance between authority and responsibility; all express the cause and effect relationship.

(vi) Profession is an occupation backed by specialised knowledge and learning. Similarly, management also requires specialised knowledge to manage people. It requires formal education and training. Hence, it can be considered as a profession.

(vii) Professionals require compulsory registration with his/her association before practicing their profession. However, registration of managers with the various management associations is legally not compulsory for one to become a manager. In every profession, there is a set of ethical code that is binding for all the professionals of that profession. Managers are expected to follow ethical behaviour, however, they are not legally bound to follow any code of conduct. These points distinguish management from profession.

(viii) In management, one has to understand and use the organised body of universally accepted knowledge. The manager has to use this as the foundation and use his own personal style in applying this knowledge, in achieving the desired goals. Hence, science is the root that gives us the input and which we use in our own way to get the fruit of effective results i.e. art.

(i) Internet has revolutionised the way we think, the way we do things and the way we get information. It has given us the most important and powerful tool of communication. The World Wide Web has increased our access to infinite database of information. It has changed the way we do our daily tasks, like getting the current news, doing shopping, banking activities etc. Hence, it has brought a powerful change in our lives.

(ii) Information age is also known as the computer age or digital age. Its advent is marked by the wide usage of personal computers and one’s access to the internet. The inclusion of internet on our mobile phones and portable devices has further modernised our way of life.

(iii) Internet has given rise to information-intensive industry. There has been rise in number of companies dealing with information like banking, insurance, computer programming which are some of the information intensive industries that gained importance during the internet age. With the rapid increase in demand for information, their processing and the demand for these industries are also growing tremendously.

(iv) In India, the internet was formally launched on 15^th August, 1995 by Videsh Sanchar Nigam Limited (VSNL). In 1986, an early form of internet was launched in India known as Educational Research Network (ERNET). It was meant for the use of educational and research purpose only. In 1988, NIC Net was launched to improve communication between government institutions. Post the launch of the internet, VSNL managed to add 10,000 internet users in just six months. Twenty years later, India has a total of around 302.35 million internet subscribers in India.

(v) India has a total of around 302.35 million internet subscribers in India. In 2014, India was the third largest online market ranked only behind China and the United States. The highest number of users in India belong to the age group of 25-34 years. Internet users in the country spend an average of 5.1 hours online daily.

(vi) Internet brings along with it a lot of dangers and disadvantages. Virus and malware are always a threat to the computer. The loss of important data due to such malwares proves to be very costly to the businesses. There is a huge risk of leakage of private information. Online transactions attract debit and credit card frauds. Addiction to internet and exposure to inappropriate data are also some of the dangers that the users are exposed to.

(vii) India lags behind in providing good quality internet infrastructure. Internet penetration as a percentage of total population is low. Monthly cost of broadband internet services is high. As a result, India lacks the conditions that are required for successful internet adoption.

(viii) India needs to extend the internet infrastructure beyond Tier-one cities. It should be expanded to reach semi urban and rural areas. Access to internet and its usage should be made less expensive. Digital literacy should be encouraged on a larger scale. Internet based applications in various sectors of the economy, including agriculture should be introduced. A favourable and supportive environment should be created for internet business.

(i) LPG stands for Liberalisation, Privatisation and Globalisation. It was introduced with the aim of accelerating the growth of the Indian economy and making it globally competitive. Liberalisation freed Indian business from unnecessary control. Privatisation involved giving greater role to the private sector. Globalisation involved integrating the Indian economy with the world economy with the help of the liberalisation and privatisation policies.

(ii) The government put various barriers on foreign trade and investment in order to protect its domestic industries from foreign competition. During the 1960’s and 1970’s, the Indian industries were just coming up and any exposure to foreign competition would have been a death blow to those industries. After 1991, with the support of international trade organisations, India removed these barriers and opened up its economy for the global market.

(iii) FDI stands for Foreign Direct Investment. It is an investment made by a company in one country, into a company in another country. It refers to capital inflow into the country. Post globalisation many multinational companies (MNCs) entered the Indian market. It bought about a dramatic increase in the investment activity. According to The Financial Times, the FDI in India in 2015, overtook China and the US. In the first half of 2015, India attracted FDI of about $31 billion. With liberalisation and opening up of the Indian economy, the Indian government has liberalised the FDI regime.

(iv) Globalisation has affected the Indian economy tremendously. The consumers of India are the most benefited of the lot as they have got easy access to a wide variety of quality foreign products post globalisation. Increased investments by the MNCs have increased job opportunities. Increased competitions have forced the domestic companies to improve the quality of their products and to adopt new technology. Foreign collaboration with Indian companies has resulted in inflow of capital, technical knowhow, technology and better production methods.

(v) The growth rate in agriculture has declined post globalisation. The support of the government to the agricultural sector has declined gradually since the reform period. In 1951, agriculture contributed 59% of the GDP which went down drastically to 22% in 2006-07. This increased the disparity between rural and urban areas. Overall, the impact of globalisation on agriculture is bad.

(vi) Globalisation has brought a huge disparity between urban India and rural India. It has affected the growth of agricultural sector negatively. It has also resulted in rising competition, which has threatened the existence of many small scale industries. They lack the capital to meet the international giants and thus, many of them are driven to shut down their business.

(vii) Globalisation leads to integration of markets globally as it gives an opportunity for producers to reach a wide global market, crossing the international boundaries. Consumers in the country get to choose from a wide variety of products produced in different countries. For example, Volkswagen the biggest German automobile company entered Indian market in 2007. Hence, it has helped to merge the emerging and developing economies with the world economy.

(viii) Government should take measures to ensure rapid development in education, health, labour and employment. A strong foundation is essential before the country starts enjoying the benefits of globalisation. Also, steps should to be taken to reduce the gap between urban and rural areas by creating employment opportunities in the rural sector. Growth of agriculture should be emphasised, so that the positivity of globalisation touches upon this section too.

Barriers to foreign trade and foreign investment were put by the Indian government to protect domestic producers from foreign competition, especially when industries had just begun to come up in the 1950s and 1960s. At this time, competition from imports would have been a death blow to growing industries. Hence, India allowed imports of only essential goods. Later, in the 1990s, the government wished to remove these barriers because it felt that domestic producers were ready to compete with foreign industries. It felt that foreign competition would in fact improve the quality of goods produced by Indian industries. This decision was also supported by powerful international organisations.

Globalisation in today's world has come to imply many things. It is the process by which the people of the world are unified into a single society and function together. This term is also often used to refer to economic globalisation: the integration of national economies into the international economy through trade, foreign direct investments, capital flows, migration and the spread of technology.

Answer :
(i) Majority of the credit needs of the poor households are met from informal sources.
(ii) High costs of borrowing increase the debt-burden.
(iii) Reserve Bank of India issues currency notes on behalf of the Central Government.
(iv) Banks charge a higher interest rate on loans than what they offer on deposits.
(v) Collateral is an asset that the borrower owns and uses as a guarantee until the loan is repaid to the lender.

Answer :
(a) Banks might be unwilling to lend to small farmers for lack of a collateral or asset on the part of the farmers.
(b) The other sources from which the small farmers can borrow are moneylenders, relatives or friends, self-help groups and cooperative banks.
(c) The terms of credit can be unfavourable for the small farmer if he has a bad crop, and is forced to either surrender his collateral (if he borrowed from a bank) or sell off a part of his land (if he borrowed from the informal sector), in order to repay his loan.
(d) Self-help groups and cooperative banks do not require a collateral as a guarantee; hence, they can provide cheap credit to the small farmers.

Average fixed cost (AFC) is the fixed costs of production (FC) divided by the quantity (Q) of output produced. Fixed costs are those costs that must be incurred in fixed quantity regardless of the level of output produced. It is derived by dividing the Total Fixed Cost by quantity of output produced. 

That is, AFC=TFC/Q 

Where, TFC represents Total Fixed Cost. 

Q represents units of output produced. 

Average fixed cost is high at relatively small output quantities and low at relatively large output quantities. The reason, of course, is that as output increases, a given fixed cost is spread more thinly over a larger quantity. 

Secondly, average fixed cost remains positive, it never reaches a zero value, because average fixed cost is a rectangular hyperbola. This happens because AFC is defined as the ratio of TFC to output. We know that TFC remains constant throughout all the output levels and as output increases, with TFC being constant, AFC decreases .When output level is close to zero, AFC is infinitely large and by contrast when output level is very large, AFC tends to zero but never becomes zero. AFC can never be zero because it is a rectangular hyperbola and it never intersects the x-axis and thereby can never be equal to zero.

Answer : 

Manav needs a loan to set up a small business. Manav will decide on whether to borrow from the bank or the moneylender on the basis of various factors. Firstly, he must have a collateral or asset which can guarantee his loan. If he lacks such an asset, Manav cannot get a loan from a bank. In this scenario, he will have to go to a moneylender, even though the latter charges a higher interest rate. Secondly, if Manav is not aware of the banes of borrowing from the informal sector, he might not even consider taking a bank loan. Thirdly, if there are no banks in or near his area of residence or work, then Manav will borrow from a moneylender

Under perfect competition there are no barriers to entry and exit of firms into/from industry. When in short run there are abnormal profits, new firms enter. This will increase market supply and price will fall. This process continues till abnormal profits reduce to normal profits.

Similarly if firms are incurring losses, firms will start leaving. This reduces market supply and price will rise till losses are wiped out.

(a) Discrete frequency distribution

(a) Deflationary

State Industrial Development Corporations (SIDCOs): 

1. The Industrial Development Corporations have been set up by the state governments and they are wholly owned by them. 

2. These institutions are not merely financing agencies; they are entrusted with the responsibility of accelerating the industrialization of their states.

SIDCO (Small Industrial Development Corporation):

1. SIDCOs provide financial assistance to industrial concerns by way of loans guarantees and underwriting of or direct subscriptions to shares and debentures. 

2. In addition to these, they undertake various promotional activities, such as conducting technoeconomic surveys, project identification, preparation of feasibility studies and selection and training of entrepreneurs. 

3. They also promote joint sector projects in association with private promoter in such type of projects.

4. SIDCOs take 26 percent, private co-promoter takes 25 percent of the equity, and the rest is offered to the investing public. 

5. SIDCOs undertake the development of industrial areas by providing all infrastructural facilities and initiation of new growth centers. 

6. They also administer various State government incentive schemes. 

7. SIDCOs get refinance facilities form IDBI. 

8. They also borrow through bonds and accept deposits.

(d) Frequency

Flexible Exchange Rates: Under the flexible exchange rate (also known as floating exchange rate) system, exchange rates are freely determined in an open market by market forces of demand and supply.

Functions of Central Bank (Reserve Bank of India): The Reserve Bank of India (RBI) is India’s central banking institution, which controls the monetary policy of the Indian rupee.

1. Monetary Authority: It controls the supply of money in the economy to stabilize exchange rate, maintain healthy balance of payment, attain financial stability, control inflation, strengthen banking system.

2. The issuer of currency: The objective is to maintain the currency and credit system of the country. It is the sole authority to issue currency. It also takes action to control the circulation of fake currency.

3. The issuer of Banking License: As per Sec 22 of Banking Regulation Act, every bank has to obtain a banking license from RBI to conduct banking business in India.

4. Banker to the Government: It acts as banker both to the central and the state governments. It provides short-term credit. It manages all new issues of government loans, servicing the government debt outstanding and nurturing the market for government securities. It advises the government on banking and financial subjects.

5. Banker’s Bank: RBI is the bank of all banks in India as it provides loan to banks, accept the deposit of banks, and rediscount the bills of banks.

6. Lender of last resort: The banks can borrow from the RBI by keeping eligible securities as collateral at the time of need or crisis, when there is no other source.

7. Act as clearing house: For settlement of banking transactions, RBI manages 14 clearing houses. It facilitates the exchange of instruments and processing of payment instructions.

8. Custodian of foreign exchange reserves: It acts as a custodian of FOREX. It administers and enforces the provision of Foreign Exchange Management Act (FEMA)  1999. RBI buys and sells foreign currency to maintain the exchange rate of Indian rupee v/s foreign currencies.

9. Regulator of Economy: It controls the money supply in the system, monitors different key indicators like GDP, Inflation, etc.

10. Managing Government securities: RBI administers investments in institutions when they invest specified minimum proportions of their total assets/liabilities in government securities.

11. Regulator and Supervisor of Payment and Settlement Systems: The Payment and Settlement Systems Act of 2007 (PSS Act) gives RBI oversight authority for the payment and settlement systems in the country. RBI focuses on the development and functioning of safe, secure and efficient payment and settlement mechanisms.

12. Developmental Role: This role includes the development of the quality banking system in India and ensuring that credit is available to the productive sectors of the economy. It provides a wide range of promotional functions to support national objectives. It also includes establishing institutions designed to build the country’s financial infrastructure. It also helps in expanding access to affordable financial services and promoting financial education and literacy.

13. Publisher of monetary data and other data: RBI maintains and provides all essential banking and other economic data, formulating and critically evaluating the economic policies in India. RBI collects, collates and publishes data regularly.

14. Exchange manager and controller: RBI represents India as a member of the International Monetary Fund [IMF], Most of the commercial banks are authorized dealers of RBI.

15. Banking Ombudsman Scheme: RBI introduced the Banking Ombudsman Scheme in 1995. Under this scheme, the complainants can file their complaints in any form, including online and can also appeal to the Ombudsman against the awards and the other decisions of the Banks.

16. Banking Codes and Standards Board of India: To measure the performance of banks against Codes and standards based on established global practices, the RBI has set up the Banking Codes and Standards Board of India (BCSBI).

1. Primary Functions: 

(i) Money as a medium of exchange: This is considered as the basic function of money. Money has the quality of general acceptability, and all exchanges take place in terms of money.

(ii) Money as a measure of value: The second important function of money is that it measures the value of goods and services. In other words, the prices of all goods and services are expressed in terms of money. Money is thus looked upon as a collective measure of value.

2. Secondary Functions: 

(i) Money as a Store of value: Savings done in terms of commodities were not permanent. But, with the invention of money, this difficulty has now disappeared and savings are now done in terms of money. Money also serves as an excellent store of wealth, as it can be easily converted into other marketable assets, such as, land, machinery, plant etc.

(ii) Money as a Standard of Deferred Payments: Borrowing and lending were difficult problems under the barter system. In the absence of money, the borrowed amount could be returned only in terms of goods and services. But the modem money-economy has greatly facilitated the borrowing and lending processes.

(iii) Money as a Means of Transferring Purchasing Power: The field of exchange also went on extending with growing economic development. The exchange of goods is now extended to distant lands.

3. Contingent Functions: 

(i) Basis of the Credit System: Money is the basis of the Credit System. Business transactions are either in cash or on credit.

(ii) Money facilitates distribution of National Income: The task of distribution of national income was exceedingly complex under the barter system.

(iii) Money helps to Equalize Marginal Utilities and Marginal Productivities: Consumer can obtain maximum utility only if he incurs expenditure on various commodities in such a manner as to equalize marginal utilities accruing from them. Now in equalizing these marginal utilities, money plays an important role, because the prices of all commodities are expressed in money.

(iv) Money Increases Productivity of Capital: Money is the most liquid form of capital. In other words, capital in the form of money can be put to any use.

4. Other Functions: 

(i) Money helps to maintain Repayment Capacity: Money possesses the quality of general acceptability. To maintain its repayment capacity, every firm has to keep assets in the form of liquid cash. The firm ensures its repayment capacity with money.

(ii) Money represents Generalized Purchasing Power: Purchasing power kept in terms of money can be put to any use. It is not necessary that money should be used only for the purpose for which it has been served. 

(iii) Money gives liquidity to Capital: Money is the most liquid form of capital. It can be put to any use.

(c) Either (a) or (b)

1. Under this system the Central Bank controls credit by changing the Cash Reserves Ratio. 

2. For example, if the Commercial Banks have excessive cash reserves on the basis of which they are creating too much of credit,this will be harmful for the larger interest of the economy. 

3. So it will raise the cash reserve ratio which the Commercial Banks are required to maintain with the Central Bank.

(b) Rate at which the RBI is willing to lend to commercial banks.

During depression the level of economic activity becomes extremely low.

(c) Geographical 

Commercial bank refers to a bank, or a division of a large bank, which more specifically deals with deposit and loan services provided to corporations or large/middle-sized business – as opposed to individual members of the public/small business.

Keynes’s Law is based on the following assumptions: 

(i) Ceteris paribus (constant extraneous variables): The other variables such as income distribution, tastes, habits, social customs, price movements, population growth, etc. do not change and consumption depends on income alone.

(ii) Existence of Normal Conditions:

• The law holds good under normal conditions.
• If, however, the economy is faced with abnormal and extraordinary circumstances like war, revolution or hyperinflation, the law will not operate. 
• People may spend the whole of increased income on consumption.

(iii) Existence of a Laissez-faire Capitalist Economy:

• The law operates in a rich capitalist economy where there is no government intervention.
• People should be free to spend increased income. 
• In the case of regulation of private enterprise and consumption expenditures by the State, the law breaks down.

Subjective Factors: 

1. The motive of precaution: To build up a reserve against unforeseen contingencies. e.g. Accidents, sickness. 

2. The motive of foresight: The desire to provide for anticipated future needs. e.g. Old age. 

3. The motive of calculation: The desire to enjoy interest and appreciation.

Objective Factors: 

1. Income Distribution: If there is large disparity between rich and poor, the consumption is low because the rich people have low propensity to consume and high propensity to save.

2. Price level: Price level plays an important role in determining the consumption function. When the price falls, real income goes up; people will consume more and propensity to save of the society increases.

3. Wage level: Wage level plays an important role in determining the consumption function and there is positive relationship between wage and consumption. Consumption expenditure increases with the rise in wages. Similar is the effect with regard to windfall gains.

1. The introduction of money as a medium of exchange was one of the greatest inventions of mankind. 

2. Before money was invented, exchange took place by Barter, that is, commodities and services were directly exchanged for other commodities and services.

3. Under the barter system, buyers and sellers of commodities had to face a number of difficulties. 

4. Surplus goods were exchanged for money which in turn was exchanged for other needed goods. 

5. Goods like furs, skins, salt, rice, wheat, utensils, weapons, etc. were commonly used as money. 

6. Such exchange of goods for goods was known as “Barter Exchange” or “Barter System”.

(b) Internet Banking

(c) Individual

Objective Factors: 

(i) Income Distribution: 

• If there is large disparity between rich and poor, the consumption is low because the rich people have low propensity to consume and high propensity to save.

(ii) Price level: 

• Price level plays an important role in determining the consumption function. 
• When the price falls, real income goes up; people will consume more and propensity to save of the society increases.

(iii) Wage level:

• Wage level plays an important role in determining the consumption function and there is positive relationship between wage and consumption.
• Consumption expenditure increases with the rise in wages. 
• Similar is the effect with regard to windfall gains.

(iv) Interest rate:

• Rate of interest plays an important role in determining the consumption function. 
• Higher rate of interest will encourage people to save more money and reduces consumption.

(v) Fiscal Policy: When government reduces the tax the disposable income rises and the propensity to consume of community increases.

(vi) Consumer credit: 

• The availability of consumer credit at easy installments will encourage households to buy consumer durables like automobiles, fridge, computer. 
• This pushes up consumption.

(vii) Demographic factors:

• Ceteris paribus, the larger the size of the family, the grater is the consumption. 
• Besides size of family, stage in family life cycle, place of residence and occupation affect the consumption function.

(viii) Duesenberry hypothesis: Duesenberry has made two observations regarding the factors affecting consumption.

• The consumption expenditure depends not only on his current income but also past income and standard of living. 
• Consumption is influenced by demonstration effect. The consumption standards of low income groups are influenced by the consumption standards of high income groups..

(ix) Windfall Gains or losses: Unexpected changes in the stock market leading to gains or losses tend to shift the consumption function upward or downward.

1. In India, currency notes are issued by the Reserve Bank of India (RBI) and coins are issued by the Ministry of Finance, Government of India (GOI). 

2. Besides these, the balance is savings, or current account deposits, held by the public in commercial banks is also considered money. 

3. The currency notes are also called fiat money and legal tenders.

(a) Manifold-division

Important initiatives by the Government towards Industrial Policy:

The policy has brought changes in the following aspects of industrial regulation.

1. Industrial de – licensing. 

2. De – reservation of the Industrial Sector. 

3. Public sector policy, (de – reservation and reform of PSE ) 4. Abolition of MRTP Act. 

5. Foreign Investment policy and foreign technology policy.

Industrial delicensing policy:

1. The most important part of the new Industrial policy of 1991 was the end of the Industrial licensing or the license raj or red tapism.

2. The Industrial licensing policies, private sector firms had to secure licenses to start an Industry.

De – reservation of the Industrial Sector:

1. The public sector was given reservation especially in the capital goods and key Industries. 

2. Industrial deregulation, most of the Industrial Sectors were opened to the private sector as well. 

3. The new Industrial policy, only three sectors atomic energy, mining and railways will continue as reserved for public sector.

Reforms related to the Public Sector enterprises:

1. Reforms in the public sector were aimed at enhancing efficiency and competitiveness of the sector. 

2. The government identified strategic and priority areas for the public sector concentrate.

Abolition of MRTP Act:

1. The New Industrial Policy of 1991 has abolished the Monopoly and Restrictive Trade Practices Act 1969. 

2. In 2010, the Competition Commission has emerged as the watch dog in monitoring competitive practices in the economy.

Eoreign Investment Policy;

1. Foreign investment including FDI and FPI were allowed.

2. In 1991, the government announced a specified list of high technology and high investment priority Industries. 

3. Foreign direct investment upto 51 percent foreign equity. 

4. Foreign Investment Promotion Board has been set up to negotiate with International firms and approve direct Foreign Investment.

In Micro Economics , we study of Individual Unit . 

Fiscal Instruments: Fiscal Policy is implemented through fiscal instruments also called ‘fiscal tools’ or fiscal levers: Government expenditure, taxation and borrowing are the fiscal tools.

(i) Taxation:

1. Taxes transfer income from the people to the Government.

2. Taxes are either direct or indirect. 

3. An increase in tax reduces disposable income. 

4. So taxation should be raised to control inflation. 

5. During depression, taxes are to be reduced.

(ii) Public Expenditure:

1. Public expenditure raises wages and salaries of the employees and thereby the aggregate demand for goods and services. 

2. Hence public expenditure is raised to fight recession and reduced to control inflation

(iii) Public debt:

1. When Government borrows by floating a loan, there is transfer of funds from the public to the Government. 

2. At the time of interest payment and repayment of public debt, funds are transferred from Government to public.

1. To ensure reduction of tariff and other barriers. 

2. To eliminate discrimination in trade. 

3. To facilitate higher standard of living. 

4. To facilitate optimal use of world’s resources. 

5. To enable the LDCs to secure fair share in the growth of international trade. 

6. To ensure linkages between trade policies, environmental policies and sustainable development.

(c) Chronological 

1. Money supply means the total amount of money in an economy. 

2. It refers to the amount of money which is in circulation in an economy at any given time. 

3. Money supply plays a crucial role in the determination of price level and interest rates. 

4. Money supply viewed at a given point of time is a stock and over a period of time it is a flow.

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A).

Production Possibility Curve (PPC) graphically represents the various possibilities of production of two commodities which can be produced with the given Resources and given State of Technology, assuming that the Resources are Fully Employed, Fully Utilized and Efficiently used.