Economics Bytes

Why is the government going for the speedy privatisation of the Banking Sector?

1. The government decision to merge some banks and keep only 4 major banks in the public sector has raised many questions.

2. All other banks will be sold to the private players in the banking sector and therefore India will go back to a period of pre-1969.

3. But as per financial experts, this step is not a solution for the prevailing problems of the banking sector rather than we are exposing our financial sector to a riskier situation.

4.The Financial Crisis of 2008 and in the other periods will explain to us why banks should not be privatised.

5.Between 2015 and 2020, public sector banks’ market share in advances plunged from 74.28 per cent to 59.8 per cent, while in deposits, the drop was from 76.26 per cent to 64.75 per cent.

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What is Decreasing Returns to Scale?

1.Decreasing returns to scale occurs in the long-run production function when changes in the output are less than the change in inputs.

2.This law is also known as the law of increasing cost because the less proportionate increase in the output causes the cost of production to rise.

3.Large scale of production creates the problem of lack of proper, larger bureaucracy, red-tapism, lengthy Chain of Communication and command between the top management and men on the production line.

4.As a consequence of the decrease in the efficiency of management, change in the output starts decreasing.

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What is the Consumption Function in Macroeconomics?

1.Expenditure on consumption is a very important concept in Keynesian economics because it is a part of Aggregate Income. Y=C+I.

2. According to Keynes, the performance of the economy depends on the behaviour of consumers. It is the fall in the aggregate consumption expenditure that leads to recession or depression.

3. Consumption function explains a functional relationship between consumption and income.

4. Initially consumption is more than income but after a point, income becomes more than consumption and the economy experiences saving.

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Why was a New Industrial Policy introduced in India in1991?

1.The New Industrial Policy of 1991 was announced at the time of the economic crisis of the 1990s.

2.Due to the large-scale changes, the Industrial Policy of 1991 represents a major change from the early policy of 1956.

3.The industrial policy of 1991 is the big reform introduced in the Indian economy since independence. The policy caused big reforms in the industrial sector.

4.These reform measures were made in different areas related to the industrial sector. As part of the policy, the role of the public sector has been redefined.


5.All the later reform measures were derived out of the new industrial policy and it has brought comprehensive changes in economic regulation in the country.

6.But the most important reform measure of the new industrial policy was that it ended the practice of industrial licensing in India. Industrial licensing represented red -tapismsm.

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What is the concept of Increasing Returns to Scale in the field of Production?

1.Long-run production function demonstrates three types of returns to the scale and increasing returns to scale is one of them.
2.In the long run, it is possible to change all the inputs as a result a firm can expand its output by adjusting a combination of factors of production.
3. When a firm feels to increase its output then it is possible to increase the amount of both labour and capital but factor proportion will remain constant.
4. There are several reasons for the law of increasing returns to scale such as the possibility of specialisation, economies of large scale production etc.

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What is the barter system of exchange?

1.Before the development of money, the exchange took place in the form of commodity to commodity.

2.The history of bartering dates back to 6000 BC. Introduced by Mesopotamia tribes, the barter system was adopted by Phoenicians. Phoenicians bartered goods to those located in various other cities across oceans.

3. The barter system has various limitations as it involved the high physical cost of waiting.

4. The barter system of exchange was relied upon by early civilizations. There are even cultures within modern society that still rely on this type of exchange.

5.Barter system of exchange has a psychological benefit because it can create a deeper personal relationship between trading partners than a typical monetized transaction.

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What is Human Capital Formation?

1.It is the process of acquiring and increasing the number of persons who have the skills, education and experience which are critical for the economic and political development of the country.

2.Human capital formation is thus associated with an investment in man and his development as a creative and productive resource.

3.The most important factor in human capital formation is the development of top skills. As this skill formation is a time-consuming process.

4.Health facilities and services, education, training, housing and migration are important components of human capital formation.

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What is Labour Leisure Trade-off?

1. In microeconomics trade-off between work and leisure is an important concept to be explained using the Indifference curve.

2. The work -leisure trade-off involves concepts of income and substitution effects and the strength of these two effects will determine the nature of the supply curve of the labour

3The tradeoff between working an additional hour for pay and taking one extra hour of unpaid time changes in favour of working depends upon the level of income and wage rate in the market.

4. If the income effect is stranger than the substitution effect then workers will prefer more leisure and if the substitution effect is powerful than the income effect then workers will work for an extra hour.

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What is the Trade Cycle in economics?

Business cycles are a type of fluctuation found in the aggregate economic activity of nations that organize their work mainly in business enterprises.

2.The business cycle, also known as the economic cycle or trade cycle, are the fluctuations of GDP around its long-term growth trend.

3.The Business cycle consists of expansions occurring at about the same time in many economic activities, followed by similarly general recessions, contractions, and revivals which merge into the expansion phase of the next cycle.

4.These fluctuations typically involve shifts over time between periods of relatively rapid economic growth (expansions or booms) and periods of relative contractions or recessions.

4.Business cycles are usually measured by considering the growth rate of real gross domestic product.

5.Despite the often-applied term cycles, these fluctuations in economic activity do not exhibit uniform or predictable periodicity.

6.The common or popular usage boom-and-bust cycle refers to fluctuations in which the expansion is rapid and the contraction severe.

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What are Land Reforms in India?

1. Since its independence in 1947, there have been voluntary and state-mediated land reforms in several states with the dual objective of efficient use of land and ensuring social justice. 

2. The most notable and successful examples of land reforms are in the states of West Bengal and Kerala.

3. Other than these state-sponsored attempts of reforming land ownership and control, there was another attempt to bring changes in the regime which achieved limited success.

4. Even though land reforms were the most desirable steps but they failed to give expected results as people found loopholes to hide the surplus land.

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What is Contractionary Monetary Policy and how does it affect GNP?

1.Monetary policy deals with the supply of money and credit in the economy and it can be both expansionary and contractionary.

2.A contractionary monetary policy aims at reducing the supply of money in the economy to achieve monetary and financial stability.

3.Monetary policy can be used under fixed exchange system to expand GNP and employment.

4. The effects of changes in the fixed exchange rate. These exchange rate changes are called devaluations.

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What is Green Revolution in India?

1.The initiatives resulted in the adoption of new technologies, including HYV chemical fertilizers, agrochemicals, and controlled water-supply, and newer methods of cultivation, including mechanization.

2.Mexico has been called the 'birthplace' and 'burial ground' of the Green Revolution. It began with great promise and it has transformed rural Mexico.

3. Norman Borlaug's approach was the introduction of HYV seeds expansion of irrigation infrastructure, modernization of cultivation techniques, and uses of chemical fertilizers and pesticides to farmers.

4.The green revolution spread only in irrigated and high-potential rainfed areas. The villages or regions without access to sufficient water were left out.

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