Difference between Monetary policy and Fiscal policy?

Monetary policy:

Monetary policy is usually prepared by the control bank.

Definition of monetary policy:

Monetary policy is mainly concerned with the process to control money supply/credit money, in order to meet certain social and economic objecting.

Tools of monetary policy:

The tools of monetary policy is as under.

 i.                  open market operation:

It is the buying and selling of bonds and securities in the open market, so due to open market operation money Supply is controlled by the state bank.

 i.                  Bank rate:

It is the rate at which control bank provide loan to the commercial banks. Thus by raising or lowering their rate money supply is controlled by the state bank.

ii.                  Bank reserve ratio:

All the commercial banks are legally bound to keep a portion of their deposit in cash form with the control bank, is called bank reserve ratio, by raising or lowering the ratio a central bank can controlled the supply of money.

iii.                  Credit rationing:

The control bank in order to control money supply provides credit for specific or selected purposes.

iv.                  Moral persuation:

The control bank issue statistical review and information, in order and t provide a particular guide line to the commercial banks.

Objective of monetary policy:

The objective of monetary policy is as under:

    I.            To control the supply of money/credit money in the country.

   II.            To bring stability in the general price level.

   III.           To control inflationary or deflationary situation in the country.

   IV.           To promote employment opportunities in the country.

Fiscal policy:

Fiscal policy is prepared by the federal government.

Definition fiscal policy:

Fiscal policy is mainly concerned with the process of shaping government taxation and government spending so as to achieve certain objectives.

Tools of fiscal policy

The tools of fiscal policy as under;

 i.                  Taxation:

It one of the main source of revenue for the government. There are different kinds of tax as under:

a.              Direct tax:

It is directly paid by the tax payer like income tax.

b.              Indirect tax:

It is not directly paid by the tax payer like sale tax.

ii.                  Expenditure:

Government incurred a number of expenditure such as expenditure on keeping general administration, defences, development expenditure etc.

Objective of fiscal policy:

Following are the main objective of fiscal policy.

             I.            To remove regional disparity.

            II.            To eliminate or reduce the gap between   nice and poor.

           III.            To promote employment opportunities.

           IV.            To increase investment.

            V.            To promote social welfare.

           VI.            To increase employment opportunities.

          VII.            To accelerate economic growth

         VIII.            To make possible maximum
         IX.            Exploitation the available resource by increasing expenditure in the less development areas.  

What is rent? Differentiate between net and gross rent?

Generally rent is used in a more wider sense. It mean hiring charge e.g. the rent of a shop, car, Tonga, etc. in economics it is used as a reward paid for the use of land.

According to Ricardo

     “It is a payment made by a cultivator to the landlord for the use of original and indestructible powers of the land”.

It can also be defined as

     “The true surplus left after the expenses of cultivation”.

According to modern economists

     “Rent is a surplus or excess over the transfer evenings”.

Modern economists apply rent to all the factors of production which do not have a perfect elastic supply.

Net rent:

The amount paid by the cultivators to the landlord for the use of land only. It does not include other payments. It is just a reward for the use of land.

Gross rent:

Gross rent is consists of net rent as well as other kind of payments. They are as under.

                                                       i.            Wages:

A landlord usually keeps employees for collection of rent, and look after of land. The wages, which are paid to such workers by the landlord, is also charged with net rent from the cultivator, when we add such wages with net rent that become gross rent.

                                                     ii.            Interest:

If a landlord invests a certain amount for the leveling of land, purchase of implements or installation of tube wells. The reward of such investment is charged in the form of interest with the net rent, which constitute gross rent.

                                                  iii.            Profit:

When a landlord invests a certain amount on land, he undertakes risk. It is not necessary that he may recover the amount invested. So some extra payment is charged by the landlord in the form of profit. When we add such a profit with net rent that constitute gross rent.

Explain the characteristic of Economic Laws and Discuss Importance of studying economics?

Economics like other subjects has its own set of generation or loans. In everyday life, we see man is always busy in satisfying his un-limited wants with limited means. In doing so, he acts upon certain principle. These principles which an average man follows, when he is engaged in economic activity are named as “economic laws”.

Following are the main characteristics of economic laws:

1.                 Lack of exactitude:

The nature of economic laws is that they are less exact as compared to the laws of pure science, like physic, chemistry etc. the economist cannot predict with surety as to what will happen in future in the economic domain. They can only say what likely to happen in the near future. According to law of demand when price increase, demand will decrease. Here we cannot predict with surety that an rise the price will be followed by decrees in demand.

2.                 Economic laws are hypothetical:

Economic laws are hypothetical as they are based in certain condition. If these conditions are fulfilled wise they will not hold good.

3.                 Economic laws are qualitative not quantitative:

Economic laws are qualitative in nature. They cannot be expressed in quantitative term. The laws of economics only tell the direction of change not the amount of change. E.g. according the laws of demand, the quantity demanded arises inversely with price. We do not say 10% rise in price will lead to 20% fall in quantity demanded.

4.                 Applies on the average in normal conditions:

Economics laws do not deal with any particular. firm, commodity etc. it takes an average economic unit. It also applies in normal conditions.

5.                 Laws of economics are exact than the laws of other social sciences.

Importance of studying of Economics

The significance and utility of the subject of economics can be judged from the fact that it is now considered to be one of the most important and useful subject as compared to any other branch of knowledge.

The reason of its great importance is that its primary aim is the welfare of mankind.

According to Malthus:

“Political economy is maybe the only science of which it may be said that the ignorance of it is not merely a deviation of good but produces great positive evils”.

It has certain theoretical and practical importance.

1.                 Theoretical importance:

Following are main theoretical importance of studying economics.

                               i.            Broaden outlook:

The knowledge of economics broadens our outlook, sharpens our intellect inculcates in it’s the habit of balanced thinking.

                             ii.            Increases our knowledge:

The study of economics enhances our knowledge. We can easily understand our economic problems. E.g. changes in prices, export and import policy etc.

Practical importance:

The practical importance of economics is greater than its theoretical advantages. These advantages can be looked from individual and community point of view.

1.                 Useful of the consumers:

The study of economics is very useful for consumer. If the consumer knows the principle of economics he can adjust his expenditure in a better way. Acting upon the low of equi-margin. Utility, he can get maximum satisfaction out of his available resources.

2.                 Useful for the producer:

Economics is very useful for the producers. It guides him that how he should combine the four factors of production and minimize the cost of production.

3.                 Importance for a common man:

The study of economics is very useful for a common man. It enables him to understand and exit lies government policies.

4.                 Importance for the businessman:

A businessman can learn the principle of businessman organization. He will be able to plan has business well and taken his business problem successfully.

Importance for the labour:

It guide the labour how they can get maximum wages and useful in all matter for them.

1.                 Useful for finance minister:

Thy study of economics is very important for the finance minister. He has to raise revenue by imposing taxes on the income of the people for meeting the necessary expenditure of the government.

Economics guides him that how he should frame tax policy and monetary policy.

2.                 Poverty and development:

The study of economics helps in removing poverty from the country. developing countries are facing many problems like un-employment, over population, low per capita income etc. economics is immensely important in solving those problems.

Explain Micro vs Macro Economics?

Micro- economics:

Micro is a Greek word which means small micro economics is the study of the smallest part of the economy. It is the study of individual decision making units. i.e. price of a particular commodity, a consumer, income, etc. the microeconomics or the price theory thus is the study of individual parts of the economy. It is economic theory in microeconomics we set, consider whet determine the price of land and capital and enquire into the strength and weakness of market”.

According to Leftwich

“Microeconomics theory or price theory deals with the economic behavior of individual decision making units such as consumers, firs etc”.

Macro-economics:

Macro is a Greek word, which means large. Macro economics is the study of aggregate. It studied the economic system as a whole. It deals with total or big aggregates such as national income, aggregate saving and investment etc.

 According to Boulding.

“Macro economics deals not with single quantities, but with aggregates to these quantities in short macro-economics is the study of the structure and performance of national economics”.

Explain in detail the Nature and Scope of Economies?

Nature of economies:

By nature of economies, we mean the behaviours of economies i.e. to whom we are concerned with in economies in economic we studied mankind and his economic behaviour. We studied that behaviour of mankind concerned with un-limited wants and limited resource. As mankind is a social animal, so there is no uniformity in the economic behaviour of mankind. Those laws and principle which we studied in economics, does not provide us exact and accurate results. There is lack of definiteness and exactness in the laws of economics.

Scope of economics:

By scope of a subject, we mean the length and boundaries of a subject. I.e. from where a subject starts, where it ends. What we studied in it and what we do not. So from scope of economics. In other word from scope of economics we mean to know that what we studied in economics and what we do not, from where it starts and where it ends. In order to know the scope of economics one must have the answer of these questions.

The questions are:

                    

                        i.    Subject matters of economics.

                        ii.    Is economics studied individual action or social action of mankind.

                        iii.   In economics a science or an Art.

i.                        Subject matter economies:

Subject matter mean all those principles and activities studied in a subject is called its subject matter. Every subject has its own subject matter. E.g. what we studied in biology. We do not studied them in political science. In the same manner the subject matter of economics is different from other subjects. The subject matter economics is to studied all those activities which are concerned with un-limited wants and limited resources.

ii.                        Is economics studied individual or social action of mankind:

In economics we studied the social behaviour of mankind not the individual. We have no concerned that how a particular individual can satisfied his un-limited wants from limited resource we studied that how the society as a whole can satisfied their un-limited wants from limited resources. This is because, if we face on the behaviour of individual, then it will be different for us to formulate economics laws, because individual study sometime provides incorrect results.

iii.                        In economics a science or an Art:

Economics is a science as well as an art. Because for the solution of any economic problem, fire we find out its reasons and causes then give suggestion for overcoming economic problems economics at that time become an a science. After finding cause and suggestion, we practically art on the suggestion economics at that become an art so we can conclude that economics is a science as well as an art.