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    Nature of Economy

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    Akhilesh Anjan
    Based on per capita income, countries are broadly classified as: a) low income economies-per capita income GNI of $875 or less in 2005. There were 54 low income economies and 57 high income economies. Difference in income levels between countries is not a true reflection of the purchasing power or living standards of people. To overcome such problems it has become common to measure the GNP and per capita income in purchasing power parity also.

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    Nature of Economy

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    Akhilesh Anjan
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    Based on per capita income, countries are broadly classified as: a) low income economies-per capita income GNI of $875 or less in 2005. There were 54 low income economies and 57 high income economies. Difference in income levels between countries is not a true reflection of the purchasing power or living standards of people. To overcome such problems it has become common to measure the GNP and per capita income in purchasing power parity also.

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    Based on per capita income, countries are broadly classified as: a) low income economies-per capita income GNI of $875 or less in 2005. There were 54 low income economies and 57 high income economies. Difference in income levels between countries is not a true reflection of the purchasing power or living standards of people. To overcome such problems it has become common to measure the GNP and per capita income in purchasing power parity also.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    31 views20 pages

    Nature of Economy

    Uploaded by

    Akhilesh Anjan
    Based on per capita income, countries are broadly classified as: a) low income economies-per capita income GNI of $875 or less in 2005. There were 54 low income economies and 57 high income economies. Difference in income levels between countries is not a true reflection of the purchasing power or living standards of people. To overcome such problems it has become common to measure the GNP and per capita income in purchasing power parity also.

    Copyright:

    Attribution Non-Commercial (BY-NC)
    Download as PPTX, PDF, TXT or read online from Scribd
    Download as pptx, pdf, or txt
    of 20

    AMAR PANDAY

    Lecture 4

    Nature of the economy..


    Based on per capita income, countries are broadly classified as: a) Low income economies-per capita income GNI (GROSS NATIONAL INCONE)of $875 or less in 2005. There were 54 low income economies b) High income economies-per capita GNI of $10726 or above in 2005. There were 57 high income economy. There are mainly two categories industrial economy and oil exporters.

    C) Middle income economies-(total 98) C.1 Lower middle income-per capita income $875 and $3465( 59 economies) C.2 Upper middle income-per capita income $3466-$10275(39 economies).

    Difference in the income levels between countries is not a true reflection of the purchasing power or living standards of people. To overcome such problems it has become common to measure the GNP and per capita income in purchasing power parity also.

    Purchasing power parity..


    The exchange rate adjusts so that an identical good in two different countries has the same price when expressed in the same currency. For example, a chocolate bar that sells for C$1.50 in a Canadian city should cost US$1.00 in a U.S. city when the exchange rate between Canada and the U.S. is 1.50 USD/CDN. (Both chocolate bars cost US$1.00.)

    Developing and developed economies. Income, sectoral distribution of income and employment generation, social development indicators etc are considered to decide whether an economy is developed or developing one.

    Characteristics of developed economy..


    Widespread use of modern and sophisticated technology Continuous innovation Fast diffusion of new ideas and technologies Low share of primary sector Dominance of tertiary sector and secondary sector. Market friendly economic policy Comparative open trade and investment policies Democratic rights Competition and consumer choice.

    Characteristics of developing economy..


    Low income leading to prevention of access of basic necessities Inequality in the distribution of income Large proportion of the population lives in poverty. High birth and population growth countries Death rates are also higher. Prevalence of traditional methods and obsolete technologies.

    Least developed economies..


    A very low GNP per capita Exposure to natural disaster e.G Bangladesh, Sudan, Uganda etc.

    Newly industrializing economy- Experiencing a rapid rate of industrialization like Hong Kong, Singapore, South Korea Transition economies-Transition from centralized economy to market economy. European countries.

    Economic growth V/s Development. Increase in income is an indication of economic growth. Besides growth economic development also includes distribution of income, standard of living, composition of output, character of working conditions, overall economic welfare.

    In a developing economy low income may be the reason for very low demand. A firm is unable to increase the demand for its product. Hence it may have to reduce the price to increase sales. To reduce the price, cost of production has to be reduced. It necessities the development of a new product, package. In developed economy replacement demand whereas in developing economy it is least.

    Structure of the economy..


    Contribution of different sectors-primary, secondary and tertiary Large, medium, small and tiny sectors contribution Their linkages and integration in the world economy. As the economy develops, the share of the primary sector in the GDP reduces. After a certain stage, the share of the secondary sector also reduces.

    Contribution of services to value added as a percentage of GDP


    Region/country World High income countries 1980 56 59 1990 60 64 2007 69 72

    Low and middle income economies


    India

    42
    39

    46
    42

    59
    53

    Economic policies..
    Industrial policy: Defines the scope and role of different sectors like private, public, joint and cooperative, location of industry, choice of technology, scale of operation, product mix etc. 1991 liberalization opened our industrial sector to the outside firms and business conglomerates.

    Trade policy: Often integrated with the industrial policy significantly affect the fortune of firms. Restrictive import policy to safeguard the indigenous industries. As a part of economic liberalization and WTO compliance, India has very substantially liberalized imports. Domestic firms are now facing growing competition from imports. Firms that do not stand in quality standards, cost, marketing, after sales service etc will not survive.

    Foreign exchange policy: Exchange rate policy and the policy in respect of cross border movement of capital are important for business. Foreign investment and technology policy: A liberal foreign investment and technology policy will increase the domestic competition and would put many domestic firms which were shielded from foreign competition.

    Fiscal policy: tax structure, subsidy Monetary policy: CRR, bank rate etc.

    Economic condition..
    Economies pass through periods of boom and recession. A boom is characterised by high level of output, employment and rising demand and prices. A recession has the opposite of these characteristics. A region depends to a significant extent on any particular industry or sector, business in that region would significantly affected by the fortunes of that industry.

    US economy accounts for well over one fourth of the global economy. This implies that the growth trend of the US economy can affect the overall growth trend of the global economy by more than 25%.

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