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IMPORTANT TOPIC ON ECONOMICS Characteristics of Consumption Function:
1. Most poor people find it difficult to save because they spend the major portion of their income on consumption goods. So income must reach a minimum level for any saving to occur. In other words, there is a break-even level of income. It is the level of income at which households spend all of their income on consumption goods, neither more nor less, i.e., at which saving is zero.
2. Below the critical (break-even) level people plan to spend in excess of their current income.
This can be done in two ways:(a) Either by borrowing or(b) By dissaving, i.e., by spending out of wealth accumulated in the past.However, there is a limit to the extent to which this process can go. People cannot consume indefinitely by borrowing or by reducing the stock of wealth. Since the stock of wealth is limited it will get exhausted sooner or later. This is why this type of consumption behaviour is unlikely to be observed in the long run.
3. Once income crosses the break-even level, people plan to consume only a portion of their income and to save the remaining portion of it.
4. If income increases (decreases), consumption spending will also increase (decrease) though not proportionately. For example, if India’s national income increases by Rs. 1 crores per annum consumption spending of all households might increase by Rs. 80, 00,000 and saving by Rs. 20, 00,000.
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Demand and Supply for SEBI GRADE A 2020
Demand and Supply
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IMPORTANT TOPIC ON ECONOMICS Different Concepts of National Income
National income is an important concept of Macro Economics. There are number of concepts pertaining to national income.
1) Gross National Product (GNP)Gross national product is the total measure of the flow of goods and services, at market value resulting from current production, during a year in a country, including net income from abroad.GNP =C+I+G+(X-M)+(R-P)
2) Gross National Product at Market Price (GNP (MP))It means the gross value of final goods and services produced annually in a country, which is estimated according to the price prevailing in the market. Market price including cost of production + indirect taxes.GNP (MP) = C + I + G + (X-M) + (R-P)C = Private Consumption ExpenditureI = Domestic Private InvestmentG = Government's Consumption & Investment Expenditure.(X-M) = Net Export Value. (Value of exports Value of imports)(R-P) = Receipts from Property abroad - Payments to abroad.MP = Production at Market Price.
3) Gross National Product at Factor Cost: (GNP (FC))Gross national product at factor cost is the sum of the money value of the income, produced by and accruing to the various factors of production in one year in a country.In order to arrive at GNP at factor cost, we deduct indirect taxes from GNP at market prices and add subsidies to GNP at Market. Prices.GNP(FC) = GNP(MP) - Indirect Taxes + Subsidies
4) Gross Domestic Product at Market Price (GDP (MP))Gross domestic product at market price is the gross market value of all final goods and services produced within the domestic territory of a country, during a period of one year.• The term gross implies that it includes depreciation.• GDP at market price includes amount of indirect taxes paid and excludes amount of subsidy received, that is, net indirect taxes are included. GDP(MP) = GNP - Net Income from abroad.\GDP(MP) = C + I + G + (X-M)
5) Gross Domestic Product at Factor Cost (GDP (FC) )Gross domestic product at factor cost is the gross money value of all final goods and services produced within the domestic territory of a country, during a period of one year.GDP at factor cost includes amount of subsidy, but excludes amount of indirect taxes paid.GDP (FC) = GDP (MP) - Indirect Taxes + Subsidies\ GDP(FC)=C+I+G+(X-M)-IT+S
6) Net Domestic Product at Market Price (NDP (MP)):Net domestic product at market price is the net market value of all final goods and services produced, within the territorial boundaries of a country, during a period of one year.NDP (MP) = GDP (MP) - Depreciation
7) Net Domestic Product at Factor Cost (NDP (FC)):Net domestic product at factor cost is the net money value of all final goods and services produced, within the territorial boundaries of a country, during a period of one year.NDP (FC) is also known as domestic income or domestic factor income.NDP (FC) = GDP (MP) - Net Indirect Taxes - Depreciation
8) Net National Product at Market Price (NNP (MP)):Net national product at market price is the net market value of all final goods and services produced, by the residents of a country, during a period of one year. If we deduct depreciation from GNP at market prices we get NNP at market prices.NNP (MP) – GNP (MP) = Depreciation
9) Net National Product at Factor Cost (NNP (FC)):Net national product at factor cost is the net money, value of all final goods and services produced by the residents of a country, during a period of year.It includes income earned by factors of production.NNP (FC) - NNP (MP) - Indirect Taxes + Subsidies
10) National Income at Factor Cost (NI (FC)): National income at factor cost means the sum of all incomes, earned by resource suppliers for their contribution of land, labour, capital and entrepreneurial ability, which go into the year's net production.NI (FC) = NNP (MP) - Indirect Taxes + Subsidies.
Personal Income (PI):Personal income is the sum of all incomes, actually received by all individuals or households from all the sources during a given year. It may be earned or unearned.
Personal Disposable Income:Personal disposable income is that part of personal income which is left behind after payment of personal direct taxes like income tax, personal property taxes, etc.
Mutual Funds and Role Of SEBI
India is going through a phase of Demographic Dividend, where the working population forms nearly 65% of total population, the venture of investments in the Bond market like Mutual Fund (MF) provides for ample opportunities of growth in India’s financial sector.However, due to the recent Franklin Templeton Crisis, the Mutual Fund industry is currently experiencing a state of flux. This incident could well trigger a systemic crisis of confidence for investors and there are concerns over its possible ripple effects on the overall financial market.
Franklin Templeton Mutual Fund Crisis
§ Franklin Templeton Mutual Fund has decided to wind up six debt schemes that held more than Rs 27,000 crore.§ The fund house held that investors will not be able to redeem their investments for the time being as the fund§ house has barred both purchases and redemptions.§ This decision was taken as the value of Mutual funds was getting eroded following the lack of liquidity on account of the Covid-19 impact on markets.§ The Reserve Bank of India’s decision to open a special facility to ensure the availability of adequate liquidity for the mutual fund industry is a timely move in signalling to investors that the central bank is alert to the need to preserve financial stability in these challenging times.§
RBI has assigned ₹50,000 crore exclusively for commercial banks to lend to mutual funds. With this step, RBI wants to contain any liquidity crunch in the mutual fund market.
§ SEBI should revise rules to crack down on mis-labelling and mis-selling, and segregate debt funds run for institutional and retail investors.§ Regulatory reforms, such as a simplified KYC to make onboarding hassle-free; making Aadhar interchangeable with PAN; and allowing investments on the basis of Bank KYC, should be taken.§ Technology will be the biggest enabler for growth as mutual funds are already noticing increasing traction from online channels like fintech platforms, mobile apps and websites.§ There is a need to fix the accountability of credit-rating companies and fund companies.o This can be done by linking their income to returns and/or certain outcomes.There is a need to engage domestic investment in India’s financial market. This will reduce dependence on the foregin investment (hot money), which in turn, will curb volatility and provide stability to Indian financial market.
Accounting as a Financial Information System:
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