Satya Ki Pathshala

Home
Economics

What is Indian Economy | Economy and its Measuring Tools | Classification of Economy | Satya Ki Pathshala

What is the Indian Economy: The economy is a framework, within which economic activities are carried out, such as investment, production, consumption,

What is the Indian Economy: The economy is a framework, within which economic activities are carried out, such as investment, production, consumption, etc.

What is Economics

Economics is a social science that studies human activity to satisfy needs. The basic units of an economy are households and production units. Household is to provide factors of production to firms' outputs and production is the transformation of inputs into outputs.

What is Indian Economy | Economy and its Measuring Tools | Classification of Economy | Satya Ki Pathshala

The term economic process refers to those activities, through which goods and services aimed at satisfying human needs are produced, distributed, and used.

(toc)

The economy is the financial condition of the different sectors of the country. The study of the economy of any country helps us find out the financial condition of the population and the different working sectors of the economy. It also helps in comparing the economic condition of two different countries

Economics includes the study of labor, land, and investments of money, income and production, and taxes and Government Expenditure.

Adam Smith, known as the father of Economics, defined Economics as, "the science relating to the Laws of production, distribution, and exchange".

A modern economy is a complex machine. Its job is to allocate limited resources and distribute output among a large number of agents mainly individuals, firms, and Governments allowing for the possibility that each agent's action can directly (or indirectly) affect other agents' actions.

What is the Classification of Economy

The economy can be classified as:

📍Centrally Planned Economy or Socialist Economy:

In this type of economy, the Government is most dominating and the problems of what, how, when, and for whom are decided by the Government or by Government Agencies. Under this type of economy, the resources are the property of the Government. In a Centrally Planned Economy, the Government or the central authority plans all the important activities in the economy. 

All important decisions regarding the production, exchange, and consumption of goods and services are made by the Government. The closest example of a centrally planned economy is the Soviet Union for the major part of the 20th century. The reason for government control is to ensure equitable distribution of resources and the bring a socialistic pattern to society.

📍Market Economy or Capitalist Economy:

In this type of economy, the central problems of the economy i.e., what, how, when, and for whom to produce are decided by the market forces, and market forces are reflected in the price mechanism i.e.,  there is no interference by the government and price mechanism operate through the forces of demand and supply.

In the United States of America, the role of the government is minimal and thus, it is the best example of a market economy.

📍Mixed Economy:

It refers to an economy, that is neither fully socialist nor fully capitalist i.e., some means of production are in government ownership and some are in private ownership. In reality, all economics are mixed economies where some important decisions are taken by the government, and the economic activities are by and large conducted through the market.

The only difference is in terms of the extent of the role of the government in deciding the course of economic activities. In India, since independence, the government has played a major role in planning economic activities.

What are the Branches of economics

📍Macroeconomics:

It is concerned with how the overall economy works it studies such things as employment gross domestic product and inflation the stuff of news stories and government policy debates.

It studies the economy as a whole and its features like national income employment poverty balance of payments and inflation.

📍Microeconomics:

It is concerned with how supply and demand interact in individual markets for goods and services. It examines the economic behavior of individual actors such as consumers and businessmen households to understand how decisions are made in the face of scarcity and what effects they have.

A closed economy such economies depends exclusively on their own internal domestic resources no foreign trade.

📍Open economy:

No restrictions on trade with the areas outside that economy.

What is the National income?

National income is the total net value of all the final goods and services produced within a country during a financial year. It is a flow concept. In India the financial year is from first April to 31st March the national income is calculated annually.

According to the National income committee (1949), a national income estimate measures the volume of commodities and services turned out during a given period counted without duplication.

National income = C + I + G + (X - M)

Where C = Total consumption expenditure

I = Total investment expenditure

G = Total government expenditure

X = Export

M = Import

National Wealth

National wealth refers to the total value of the commodities assets and properties of a country at a given point of time minus the debts or liabilities that is it is normally estimated as of 31st March every year.

What is the Gross Domestic Product of a Country

Economics uses many abbreviations. One of the most common is GDP. Which stands for the gross domestic product. It is often cited in newspapers, in the television news, and in reports by governments, Central banks, and the business community. 

It is widely used as a reference point for the health of national and global economies. When GDP is growing, especially when inflation is not a problem, workers and businessmen are generally better of than when it is not.

GDP measures the monetary value of final goods and services i.e., those that are bought by the final user; produced in a country in a given period of time. It counts all of the output generated within the borders of a country. GDP is composed of goods and services produced for sale in the market and also includes some non-market production, such as defense or education services provided by the government.

The word gross means no deduction for the value of expenditure on capital goods for replacement purposes is made. Because income arising from investments and positions old abroad is not included, only the value of the flow of goods and services produced in the country is estimated; hence, the word domestic is distinguish it from the gross national product.

GDP at Market Price (GDP - MP)

It refers to the total value of all goods and services at market price produced during a year within the geographical boundaries of the country. Market Price refers to the actual transacted price and it includes indirect taxes such as Excise Duty, VAT, Service Tax, Customs Duty, etc, but it excludes Government Subsidies.

GDP at Factor Cost (GDP - FC)

GDP can be calculated at factor cost. This measure more accurately reveals the income paid to factors of production. The factor cost means the total cost of all factors of production consumed or used in producing a good or service. It includes Government Grants and Subsidies but it excludes Indirect Taxes.

The difference between Market Price and Cost Price is because of Indirect Taxes and Subsidies.

GDP (fc) = GDP (mp) - Indirect Taxes + Subsidies

In terms of value addition, the Gross Domestic Product of the economy is the sum total of the net value-added and depreciation of all the firms of the economy.

GDP = Net Value Added + Depreciation