IGCSE ECONOMICS

Wednesday, 29 January 2014

GOLD!!!! GOLD!!!! GOLD!!! : Why and How does it impact the Indian Economy?

Dear IBDP & IGCSE Economics students you can refer this reflection & can relate to the topic "Balance of Payment", "Foreign Exchange", "Inflation" and "Macro Economic Policies"

GOLD!!!! GOLD!!!! GOLD!!! : Why and How does it impact the Indian Economy?

Hi Guys,

Indian Economy has not been in a very good shape recently. All the economic articles in Newspapers and websites have been reporting gloominess. In the recent months, many of us would have come across this statement multiple times – ‘Please Stop buying Gold’. Our Finance Minister and his team didn’t know a quicker way to stop the decreasing the Current Account Deficit. The import duty on Gold went up from 4% at the starting of this year to 10% step by step. 20% of the Gold imports needs to be exported back again with some value addition.

So, what has been happening? Why all this measures all of a sudden? I decided to look into the issue and what has been happening over the years.

In 2001, the total world production of Gold was 3764 tonnes and India imported 462 tonnes, which turns out to be 12.27% of the total production. In 2012, the total production was 4130 tonnes. India imported 1079 tonnes which turns to be 26.12%. India has consumed one-fourth of the total gold production.

What could be the main reasons? Traditionally, Indians always have an affinity towards Gold Jewellery. In the recent years, we have started moving from the concept of Gold Consumption (buying for Jewellery) towards Gold Investment (buying for future benefits). In 2011-2012, 56% of Gold Imports happened through Banks. It is said that Gold has been purchased more due to the high returns it offers. But if we compare the returns between the period of April 2003 and March 2013, Rs.1000 investment would have given Rs. 5267 in Gold, Rs. 6158 in Sensex, Rs. 5746 in Nifty (Bank deposit at 8% would have given Rs. 2337). So, comparatively stock market has given more benefits.

Stock markets have remained out of reach for most of our population. Many of our fellow citizens are unaware of the stock market. There are many intricacies in dealing with our stock market and hence it is an unviable option for most of our citizens. Though stock markets have given better returns, Gold wins in terms of the consistency. If we draw a graph between stock and Gold, the growth of Gold will be more linear and stock market would be filled with crests and troughs.

Gold is considered more liquid compared to Real estate. It also doesn’t require huge investment. Typically, it is said Peasants are the largest consumers of Gold. It protects them from Inflation. It is said to the best Hedge from uncertainties. It has been found that for every 1 % increase in income, gold consumption increases by 1.5%. India’s Golden period also happened between 2003 and 2010 when the GDP growth was spectacular and the per capita income increased tremendously. Also the MNREGA scheme increased the income of Rural masses and their primary investment turned out to be Gold.

Why has this become a big issue all of a sudden? To know this, we need to know what Current Account Deficit is. Current Account is the difference between a country’s Total Exports to Total Imports. If we have more exports compared to imports, we have Current Account Surplus. If we import more, we have Current Account Deficit (CAD). If we have CAD, we need to use our Forex reserves to settle and in the process, we deplete the Forex reserves. If it continues, in the long run we might not have money to get imports.

From 2007 to 2012, CAD has increased from 1.3 to 4.2% of GDP. Net Gold imports has increased from 1.1 to 2.7% of GDP. Net Gold to Current Account Balance has hovered around 70%. Gold export as percentage of Gold Import has decreased from 41% in 2008-09 to 29% in 2011-12. Gold has remained as one of the chief contributors to CAD. In brief, if we stop importing gold, our CAD would become 1.2% of GDP.

India imports three things mainly – Crude Oil, Cooking Oil and Gold. The first two are essentials. Gold is considered to be Non-essential. So our Government wants to reduce the import of Gold. There are many shortfalls in this appeal.

We do not have a safe investment medium compared to Gold. As I mentioned above, it is so easy to buy and sell Gold. People do not trust the other alternatives. The increase in import duties and other restrictions, increase the scope of smuggling. It has already increased. The difference between prices in India and Nepal is 750 Nepalese Rupee per gram (which is nearly INR 468). Recently, 35 kg of Gold has been caught when it smuggled from Nepal into India. Pakistan’s gold imports have increased all of a sudden. Sri Lanka has mirrored India in the Imports Duty rate due to fear of Smuggling.

I read another interesting perspective a few days back. If the investment in Gold goes down, the consumption in Economy increases. It leads to higher liquidity in the economy. The inflation goes up. This is mainly due to the lack of investment interest in other alternatives.

In the short run, Government should aim for decreasing other non-essential imports. Here are values (in Rs. Crore) of some of the non-essential imports published in the Economic Times 2 days ago. Apples: 1152, Booze: 1150, Cashew: 5433, Dolls: 431, Mobile Phones: 25835, Spectacles: 366, Cosmetics: 2173, Almonds: 2105 among many others. Government should try and increase the domestic production of these goods. It could create employment, curb imports and boost exports.

Increase in Gold Imports has been a trend over the past few years and stopping it all of a sudden is not possible. Government should try and create alternatives for Gold in the long run. Otherwise, people are not going to stop buying Gold just because the Finance Minister is saying.

Happy Reading!!!

P.S: Though I have referred many articles for writing this post, the main reference is a RBI report on Study ofIssues related to Gold Imports. You will find many informative data and graphs in this report. If you want more insight, read this report. The URL is http://rbidocs.rbi.org.in/rdocs/PublicationReport/Pdfs/RWGS02012013.pdf

Monday, 27 January 2014

HUMAN DEVELOPMENT INDEX(HDI)

Q) What is HDI and how it is calculated?

HDI is human development index. It is a tool to measure and compare the economic development of various countries. It is a part of United Nations Development Program (UNDP). It was introduced by a Indian economist Artya Sen and a Pakastani economist Mehbob-Ul-Hak in 1990. It is used to measure the social and economic development by using three factors:
- Education Index (EI)
- Life Expectancy Index (LEI)
- Income Index (II)

It is calculated by using the following formula:

It is measured in the range of 0-1, closer to 0 is less developed and closer to 1 is highly developed. Norway is first in the HDI ranking and India is ranking 136th.

Wednesday, 4 December 2013

Dear Students of IGCSE IX D,
Solve these questions & submit hard copy to me on Monday 9th December 2013

PODAR INTERNATIONAL SCHOOL

GRADE : IX(IGCSE)

SUBJECT: ECONOMICS(0455) Topic: Economic Growth

_________________________________________________________________________

Using the above table calculate GNP, NNP, National Income, Personal Income and Disposable income.

Ans:

GNP = NNP =

NI = PI =

DI =

2. Explain and define what NNP is.

3. Define GNP and GDP. Explain the difference between GNP and GDP. Why is the difference between GNP and GDP small for most countries?

4. Explain the difference between GNP and NNP. Explain why NNP is sometimes a better measure of how the economy is doing than GNP is.

5. Explain how using GDP may not be a very good measure of overall social welfare.

6. Assume that GDP is $9 Trillion, receipts of factor income from the rest of the world are $2 Trillion, and payments of factor income to the rest of the world are $1 Trillion. Calculate GNP from this information.

7. Assume that you are given GDP and depreciation data for 1998. Explain why this is not enough information to calculate Net National Product.

8. If NNP is $7 trillion, net investment is $500 billion and gross investment is $1 trillion determine the level of GNP.

9. Write out the equation for calculating national income as derived from NNP.

10. If real GDP and nominal GDP both rise by 10% and 15% respectively from one year to the next what can we say is true about production and inflation between these two years and why?

11. If nominal GDP is $8 trillion and real GDP is $5 trillion, calculate the value of the GDP deflator.

12. How would you adjust GDP to make it a better measure of social welfare?

13. Give an example of how real GDP could be increased even though no more output is produced.

Costs and Benefits of Economic Growth For 9D & 9F

Costs and Benefits of Economic Growth

The advantages and disadvantages of economic growth are fiercely debated by economists, environmentalists and other commentators. In this note we consider some of the economic and social costs and benefits from expanding levels of production and consumption. In particular we focus on the idea of sustainable growth.

The Benefits of Economic Growth

Improvements in living standards: Growth is an important avenue through which better living standards and lower rates of poverty can be achieved. This is particularly true for countries who regard growth as a key route for poverty reduction among their population. According to a report published in August 2004 by the Asian Development Bank (ADB), rapid growth in many of the countries in the Asian region has reduced the number of people living on less than $1 a day fell to 22% of the region's population in 2002. That compares with 34% in 1990 and shows "considerable progress in the fight against poverty."

Rising Employment: Growth stimulates higher employment. As we can see from the chart below, the sustained growth in the British economy since 1993 has helped to bring about a large rise in total employment, the number of people in work has risen from 2.53 million at the start of 1993 to nearly 29 million thirteen years later. This is a very impressive employment creation record, much better than most other countries in the European Union.

The accelerator effect of growth on capital investment: Rising AD and output encourages investment in capital machinery – this helps to sustain growth by increasing LRAS.

Greater business confidence: Growth has a positive impact on company profits & business confidence – good news for the stock market and for the growth of small and large businesses.

The “fiscal dividend” to the government: Government finances are cyclical in nature because a growing economy boosts the tax revenues flowing into the Treasury and it also provides the government with more money to finance spending projects.

Potential environmental benefits – richer countries have more resources available to invest in cleaner technologies. And, as nations move to later stages of development, energy intensity levels start to fall. Much depends on how many resources an economy is willing to devote to environmental improvement and protection. Over the last thirty years, the ratio of energy consumption per unit of GDP has fallen quite significantly. The reduction in energy intensity is a reflection of improvements in production technologies and also a gradual switch towards a low carbon economy. Much more progress needs to be made. Organisations such as the Carbon Trust sponsor research into low carbon technologies and many

The Disadvantages of Economic Growth

Economic growth does not come risk-free. Although our material progress can be measured in part by the growth of national output, income and spending, if the economy grows too quickly, it can bring about short and long-term problems.

Inflation risks: There is the danger of demand-pull and cost-push inflation if demand grows faster than long run productive potential High and rising inflation can be destabilizing for an economy because it puts pressure on interest rates to rise and can cause a loss of competitiveness for domestic businesses in international markets

The environment: Economic growth cannot be separated from its environmental impact. Fast growth of production and consumption can create negative externalities such as increased noise and air pollution and road congestion. Environmental damage can have a negative effect on our quality of life and limits our sustainable rate of growth. For example, road transport is responsible for 25% of UK CO2 emissions once emissions from fuel processing and vehicle manufacturing are taken into account.

Inequalities of income and wealth: Not all of the benefits of growth are evenly distributed. We can see a rise in real GDP but also growing income and wealth inequality in society which is reflected in an increase in relative poverty. The Gini coefficient is one way to measure the inequalities in the distribution of income and wealth in different countries. The higher the value for the Gini co-efficient (the maximum value is 1), then greater the inequality. Countries such as Japan, Denmark and Sweden typically have very low values for the Gini coefficients; whereas African and South American countries have an enormous gulf between the incomes of the richest and the poorest elements of the population.

Regional disparities: Although average living standards may be rising, the gap between rich and poor can widen leading to an increase in relative poverty and a widening of the gap between different regions.

Sustainability of Economic Growth

Many of the world’s most valuable finite resources are being extracted at such a rapid rate that it questions the long-term sustainability of growth. Renewable resources are also being depleted because of over-consumption. Examples include the destruction of rain forests, the over-exploitation of fish stocks and loss of natural habitat created through the construction of new roads, hotels, retail malls and industrial estates. Some of the main environmental threats include:

The depletion of global resource base and the impact of global warming. There are plenty of examples around of the “tragedy of the commons”, the permanent loss of what should be renewable resources that result from over-extraction of some of our environmental resources.
A huge expansion of waste and pollution of the environment
Over-population (particularly in urban areas) putting pressure on scarce land and other resources
Species extinction leading to a loss of bio-diversity

The current Government supports the concept of sustainable development and focuses on four main objectives set out below:

Social progress which recognises the needs of everyone: Everyone should share in the benefits of increased prosperity and a clean and safe environment. Needs must not be met by treating others, including future generations and people elsewhere in the world, unfairly.
Effective protection of the environment: We must limit global environmental threats, such as climate change to protect human health and safety from hazards such as poor air quality and toxic chemicals and to protect things which people need or value, such as wildlife, landscapes and historic buildings.
Prudent use of natural resources: We need to make sure that non-renewable resources are used efficiently and that alternatives are developed to replace them in due course. Renewable resources, such as water, should be used in ways that do not endanger the resource or cause serious damage or pollution.
Maintenance of high and stable levels of economic growth and employment, so that everyone can share in high living standards and greater job opportunities.

Key points

Economic growth provides important long-term benefits for the population of a country. It can be a route out of poverty and it creates jobs and wealth.
Inequalities in income and wealth mean that, in many countries, the benefits from growth are not distributed evenly. This raises questions of equity (fairness) and impacts on our interpretations of how to measure standards of living.
The environmental consequences of growth cannot be ignored.
Sustainable growth meets the needs of the present without compromising the ability of future generations to meet their own needs.
There are environmental benefits from countries becoming richer
However, there are major concerns about the impact of fast growth on the world’s environmental resources.
Economic growth is just one indicator of a country’s economic performance. Alternative measures, such as the United Nation’s Human Development Index & the Index of Sustainable Economic Welfare, take account of other indicators.

Thursday, 28 November 2013

Advantages & Disadvantages of Large Scale Production

Q Explain Advantages & Disadvantages of Large Scale Production.

Advantage of Large scale production:
Efficient use of capital equipment: There is large scope for use of machinery, which results in lower costs. A Large producer can install an up-to- date and expensive machinery. He can also have own repairing unit. Specialized in machinery can be employed for each job. The result is that production is very economical. Small producer with small markets can't keep the machinery continuous working. Keeping it idle is uneconomical. A large Producer can work it continuously and reap resulting economies.
Using of specialized labor: Specialized labor produce a large output and of better quality. It is only in a large business organization that every person can be put on the job that he can best perform.
Better utilization of special in management: The use of capable manager's time in an enlarged scale production. His assistance and specialized may be used in a large-scale production where his ability is more fruitful.
Economies of buying and selling: While purchasing raw material and other accessories, a big business can secure especially favorable term an account of its large custom. He can attract customer by offering a greater variety and by ensuring prompt execution of the orders, placed with it when he selling a product.
Economy in rent: A large-scale producer makes a saving in rent too. If the same factory made to produce a large Quantity of goods, the same amount of rent is divided over a large output. This means a smaller addition to the cost per unit in the form of rent.
Experiment and research: A large concern can afford to spend liberally on research and experiments. Successfully research may lead to the discovery of cheaper process.
Advertisement and salesman ship: A big concern can afford to spend large amount of money on advertisement and salesmanship. Amount of money spent on advertisement per unit comes to a low figure when production is on large scale. Salesman can make a careful study of individual markets and thus acquire a hold on new market or strengthen it on old ones.
Utilization of by-products: A big producer will not have to throw away any of it's by products or waste products. It will be able to make an economical use of them.
Meeting adversity: A big business can show better resistance in times of adversity.
It has much better recourses. Losses can easily bear.
Cheap credit: A large business can secure credit facilities at cheap rate. Its credit in the money market is high and banks are only two willing to give advance. Low cost of credit reduces cost of production.

Disadvantage of large-scale production:
Over-worked management: A large-scale producer cannot pay off that you can think of full attention to every detail. Costs often rise on account of the employees or waste of material by them. This is due to the lack of supervision. Owing to laxity of control costs of production go up. The management is overworked.
Individual tastes ignored: Large-scale production is a mass production or standardized production. Goods of uniform quality are turned out irrespective of the preferences of individual customers. Individual tastes are not therefore, satisfied. This results in a loss of custom.
Personal element: Paid employees generally manage a large-scale business. The owner is usually absent. The sympathy and personal touch, which ought to exit between the master and the men, are missing frequent misunderstandings lead to strikes and lack outs. This is positively harmful to the business.
Possibility of depression: large-scale production may result overhead production. Production may exceed demand and cause depression unemployment. It is not always easy or profitable to dispose of a large output.
Dependence on foreign market: A large-scale producer has generally to depend on foreign markets. The foreign markets may be cut off by war or some other political upheaval this makes the business risky.
Cut throat competition: Large-scale producers must fight for the markets. These are wasteful competition, which does not to society. Many promising businesses are ruined by senses competition. There is also competition and biddings for resorts and inputs.
International complications and war: When the large-scale producer operates on an international scale, their interest clash either on the score of markets or of materials. These complications sometimes lead to armed conflicts. Many a modem war a rose on account of scramble for materials & markets.
Lack of adaptability: A large scale producing units find it's very difficult to switch on from one business to another, in a depression small firms are able to move away from declining trades to flourishing ones easily. In this way they are able to avoid losses. This adaptability is lacking in a big business.

Sunday, 27 October 2013

Go through the Link, It will help you to understand about Obamacare(Reasons for recent US Govt. Shut down) and its impact on the economy as a whole!!!!

http://useconomy.about.com/od/healthcarereform/f/What-Is-Obama-Care.htm

Diwali Vacation Home Work for Grade VIII-E

Question 1:
Read the following Case Study and answer the following Questions:

A GERMAN TRAVEL COMPANY CONSIDERS ITS FUTURE

A German travel company decides to stop selling holidays in Italy and instead to offer holidays in a new destination. This is the Maldives, a group of island in the Indian Ocean, famous for their long hours of sunshine and sandy beaches.

Tourism is a fast growing industry. Not all families, however, are able to go on holidays whether at home or abroad. Most of those who take holidays would like to have more holiday breaks.

a 1. What evidence is there in the passage of scarcity? (3)

2. Using examples identify three factors of production involved in providing holidays in the Maldives? (6)

c 3. (i) Explain the difference between economic goods & free goods. (4)

(ii) Identify a free goods from the passage. (1)

d 4. Explain the relevance of opportunity cost for a travel firm in deciding how to use its resources. (6)

Question 2:

A. Using the information given in the table below, fill in the blanks and Show your calculations for the following: [10]

(a) Fixed cost for 0 units of output per week.

(b) Variable cost of 6 units of output per week.

(d) Marginal cost of 5 units of output per week.

(e) Average cost of 8 units of output per week.

Units of output (per week)	Fixed Costs $	Variable costs $	Total Cost $	Marginal Cost $	Average Cost $
0		-	1000	-	-
1		350			1350
2			1560
3		740		180
4		1000			500
5			2400		480
6	1000			600
7			3850		550
8		3960

B. The price of a firm’s product is $5. It sells 1000 units.Calculate the firm’s total revenue (TR) and average revenue (AR). (Show your calculations) [2]

C. Singapore Airlines cancelled thousands of flights between April and August 2000 because of crew shortages, bad weather and technical problems with aircraft. There was also a 3% reduction in flights because pilots refused to work overtime.

(a) Explain the difference between a fixed cost and a variable cost. [4]

(b) Discuss whether the cancellation of a flight would have affected the fixed and variable costs of Singapore Airlines. [6]

Question 3:

Q. A. Explain advantages & disadvantages of market economy. [10]

Q.B. Distinguish between free market & Mixed economy. [6]

C. Why mixed economy is considered as the best economic system? [8]

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IGCSE ECONOMICS

Wednesday, 29 January 2014

GOLD!!!! GOLD!!!! GOLD!!! : Why and How does it impact the Indian Economy?

Dear IBDP & IGCSE Economics students you can refer this reflection & can relate to the topic "Balance of Payment", "Foreign Exchange", "Inflation" and "Macro Economic Policies"

GOLD!!!! GOLD!!!! GOLD!!! : Why and How does it impact the Indian Economy?

Hi Guys,

Monday, 27 January 2014

HUMAN DEVELOPMENT INDEX(HDI)

Wednesday, 4 December 2013

Costs and Benefits of Economic Growth For 9D & 9F

Thursday, 28 November 2013

Advantages & Disadvantages of Large Scale Production

Sunday, 27 October 2013

Go through the Link, It will help you to understand about Obamacare(Reasons for recent US Govt. Shut down) and its impact on the economy as a whole!!!!

Diwali Vacation Home Work for Grade VIII-E

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