Unit - V

1. National Income. 2. Business Cycles. 3. Economic Systems. 4. International trade. 1) NATIONAL INCOME: 2) Definitions; 3) Concepts 5) Importance

1) Meaning;

5) Measurement

6) Problems in calculating National Income.

NATIONAL INCOME 1. Meaning: Total value of goods and services produced during a year with in the country is called National income. 2. Definitions: a) According to Marshall: Labour and capital of a country acting on its national resources produced annually a certain net aggregate of commodities, material and immaterial including services of all kinds and Net income due on account of Foreign investments must be add in.

This is true net national income (or) revenue of the country or National dividend. b) According to pigou The national dividend is that part of objective income of the community including of course income derived from abroad which can be measured in money. c) According to Fisher: The national dividend or income consists soley of services as received by ultimate consumer whether from their natural or from their human environments.

3. Concepts of National Income: i) Gross national product [C+T+G+ (X-M)] ii) Gross domestic product [C+I+G[ iii) Net National product [GNP Dep.] iv) National income at factor cost. v) Personal income. vi) Disposable income (Personal income Direct Taxes) vii) Per capital income, National income population.

4.

Measurement of National Income: i) Product method. ii) Income method. iii) Expenditure method.

5.

Importance of National income: i) To know the output of different sector. ii) To know distribution of income. iii) To know the national expenditure. iv) To know the percapita income. v) To know the economys progress. vi) To prepare economic plans. vii) Comparison of different countries.

6.

Difficulties in Calculating National Income: i) Difficulty in defining the nation. ii) Inapplicability of any one method. iii) Non-marketed services. iv) Which stage to choose. v) Identification of transfer payments. vi) Self consumed production. vii) Multiple occupations. viii) Income statistics.

Business cycles (or) Trade cycles: 1) Meaning of business Cycles: Regular fluctuations in economic activities are called business cycles. 2) Definitions of Business Cycles: According to Keynes A trade cycle is compared of periods of good trade characterised by raising prices and law unemployment percentages, altering with periods of bad trade characterised by falling prices and high unemployment percentages. According to Haberkr. The business cycle in the general sense may be defined as an alteration of prosperity and depression of good and bad trade.

3) Phases of Business Cycles: i) Expansion; Recession; iv) Contraction depression. v) Revival. 5) Causes of Business Cycles: i) Innovations theory; ii) Psychological theory; iii) Under Consumption Theory; iv) Monetary ii) Prosperity or boom; iii)

Causes. 5) Control of Business Cycles:

ECONOMIC SYSTEMS: 1) Meaning of Economic System: The term economic system refers to mode of ownership and management of the means of production in the country. It refers to the method of organisation, system of ownership of the firms, factories, forms trade, financial agencies in the country. 2) Types of Economics System: a) Capitalism; b) Socialism; c) Mixed economy

a) Capitalism: i) Meaning of capitalism. ii) Features of capitalism. iii) Advantages of capitalism. iv) Disadvantages of capitalism. i) Meaning of capitalism: An economic system in which the means of production are owned by private individuals and production is carried on by them with the object of making for them selves individual and private gains. (Benham)

ii)

Features of capitalism: a) Private property c) Competition e) Price mechanism b) Profit motive d) Economic freedom f) Class structure.

g) Sovereignty of consumer h) Unplanned economy. Advantages of capitalism: i) Increase in production. ii) Rise in standard of living. iii) Competition and economic efficiently. iv) Consumers sovereignty v) Freedom. vi) Optimum utilization of

Disadvantages: i) Economic inequalities. ii) Trade cycles. iii) Exploitation of labour. iv) Wastage of resources. v) Consumers sovereignty. vi) Class conflict. vii) Improper allocation of resources. 2) Features; Socialism: 1) Meaning; 3) Advantages; 4) Disadvantages.

Socialism: 1) Meaning: According to A.C. pigou A socilized system is one, the main part of whose productive resources are engaged in the socialized industries. 2) Features: a) No private property. b) State ownership of the means of production. c) Goal of social welfare. d) Planned economy. e) Equitable distribution of income. f) Equal opportunity. g) Social security. h) No windfall profits.

3) Advantages: a) No Trade cycles. b) Optimum utilization of resources. c) Social security. e) Equal incomes. d) Equal opportunities. f) No monopolies.

g) No exploitation of labour. h) No. Wasteful expenditure. 4) Disadvantages: i) Mal allocation of resources. ii) Lack or initiative. iii) No consumers sovereignty. iv) Lack of incentive vi) Economic v) State dictatorship. vii) Insufficient inequalities.

Mixed Economy: Mixed economy is an economic system which combines some of the features of capitalism and of socialism. It is a compromise between capitalism and socialism. It combines the merits of capitalism and socialism, without demerits of both. Features of mixed economy: 1) Co existence of public and private sectors. 2) Classification of industries. 3) Joint sector. 6) Control on private sector. 5) Planned economy. 6) Private property. 7) Preservation of freedom. 8) Reduction of economic.

Advantages: 1) Economic development 3) Preservation of freedom. 4) Consumers sovereignty. 5) Initiative & enterprise. 6) Less economic inequalities 8) Social Welfare. 8) Equal opportunities. Disadvantages: 3) Evils of both the systems. 4) Conflict between the two sectors. 5) Short lived nature. 10) Inefficient public sector. 4) Size of weakness. 6) Shortage of capital stability 2) Rapid economic

International Trade: 1) Meaning of Internal Trade. 2) Meaning of external trade. 3) Differences b/w Internal Trade and International Trade. 1) Meaning of Internal Trade: When trade takes place within the geographical boundaries of a nation, it is called internal trade, or home trade or interregional trade. 2) Meaning of External trade: When trade takes place among different nations across the political boundaries of a nation it is called external trade or international trade or foreign trade.

3) Differences b/w Internal Trade and International Trade: i) Mobility of factors of production. ii) Different currencies. iii) Different trade policies. iv) Differences in facilities. v) Trade restrictions. vi) Nature of markets. Explain Advantages and Disadvantages of I.T.: 1) Meaning of International Trade: Trade vch is taking place in between different countries of world is called international trade.

2) i) ii) iii) iv) v) vi) vii)

Advantages of I.T.: We can import goods from other countries. Lower prices of imported goods. Optimum consumption. It helps in economic development. Advantages of specialisation. Optimum utilisation of resources. Increased production.

viii) Increased incomes and employment.

3) Disadvantages: i) Rapid exhaustion of resources. ii) Prevents the growth of domestic industry. iii) Imbalance in industrial development. iv) Distribution of cottage and handicrafts. v) Import of harmful goods. vi) Transmission of business cycles. vii) War time difficulties.
Define the terms balance of Trade and Balance of payment:

2) Meaning of balance of trade: Difference between the value of export and import of goods is balance of trade

2) Meaning of balance of payment: Difference between the value of Export and import of goods and services is balance of payment. 3) Correction of disequilibrium in the balance of payments: a) Automatic (or) Self adjustment. b) Policy measures. a) Self adjustment: 1) Price changes 2) 4) Flexible Exchange Interest rate changes. 3) Changes in income. rate. b) Policy measures:

2) Meaning of balance of payment: Difference between the value of Export and import of goods and services is balance of payment. 3) Correction of disequilibrium in the balance of payments: a) Automatic (or) Self adjustment. b) Policy measures. a) Self adjustment: 1) Price changes 2) 4) Flexible Exchange Interest rate changes. 3) Changes in income. rate. b) Policy measures: