Black money is generated due to the following reasons: The people do not pay their taxes. Even if they pay taxes, they are not in correct proportions to their incomes. The tax evasions by corporate and industrial houses are to the tune of billions of rupees. These firms are able to make clever usage of the income tax rules and hence, they save taxes. This tax evasion leads to the generation of black money. The black money is earned by gifts, hawala transactions and illegal foreign exchange deals. These deals are not scrutinized by the government simply because these are without any documentary evidences. The procedures of over billing or under billing and exaggeration of expenses lead to the generation of black money. The sale and purchase of assets also lead to the generation of black money. The value of the property is shown to be very low in the Continue reading
Managerial Economics
Managerial Economics generally refers to the integration of economic theory with business practice. It deals with the use of economic concepts and principles of business decision making. Managerial Economics is thus constituted of that part of economic knowledge or economic theories which is used as a tool of analyzing business problems for rational business decisions. Managerial economics can be viewed by most modern economists as a practical application of economics theory in using effectively the firms scarce resources.
Discounting Principle in Managerial Economics
One of the fundamental ideas in economics is that a dollar tomorrow is worth less than a dollar today. This seems similar to the saying that a bird in hand is worth two in the bush. A simple example would make this point clear. Suppose a person is offered a choice to make between a gift of 100$ today or 100$ next year. Naturally he will choose the 100$ today. This is true for two reasons. First, the future is uncertain and there may be uncertainty in getting 100$ if the present opportunity is not availed of. Secondly, even if he is sure to receive the gift in future, today’s 100$ can be invested so as to earn interest, say, at 8 percent so that. one year after the 100$ of today will become 108$ whereas if he does not accept 100$ today, he will get 100$ only in the Continue reading
Why Competition may Sometimes be Helpful?
Market structures refer to a total number of businesses in the market, their share and extent of competition in those businesses. Competition is a crucial aspect which cannot be overlooked in business. This is because human needs are many but resources for satisfying them are limited. As a result, firms have to compete to ensure they provide required services at certain cost. The major objective to operate a successful business is to earn a profit. In this process, resources are deployed to generate profits and thus businesses have to allocate resources strategically to ensure maximum benefits are achieved. In some business models, competition is steep while in others, they serve as a monopoly. Monopoly markets exist where there is no competition from the outside. The business operates solely in the market and thus they can control the flow of goods and services. To prevent customer exploitation, the government has to Continue reading
Indian Perspective on Capital Account Convertibility
Just like in any other country, India’s foreign exchange transactions (transactions in dollars, pounds, or any other currency) are also broadly classified into two accounts, namely, the current account transactions and capital account transactions. A “current account transaction” could be exemplified where an Indian citizen needing foreign exchange of smaller amounts, say $3,000, for travelling abroad or for educational purposes, can obtain the same from a bank or a money-changer. On the other hand, a “capital account transaction” involves someone who wants to import plant and machinery or invest abroad, and needs a large amount of foreign exchange, say $1 million. But, the importer will have to first obtain the permission of the Reserve Bank of India (RBI) only then that the transaction becomes a “capital account transaction”. This means that any domestic or foreign investor has to seek the permission from a regulatory authority, like the RBI, before carrying Continue reading
Trade Cycle or Business Cycle Concept in Managerial Economics
Definition of Trade Cycle or Business Cycle According to Keynes, “A trade cycle is composed of periods of good trade characterized by rising prices and low unemployment percentage, alternating with periods of bad trade characterized by falling prices and high unemployment percentage. “ Characteristics of Trade Cycles From the above definition, it should be clear that trade cycle is the rhythmic fluctuations of the economy, that is, periods of prosperity followed by periods of depression. However, the waves of prosperity and depression need not always be of the same length and amplitude. Further, trade cycles varied tremendously in magnitude. While some have smaller cyclical fluctuations in economic activity, others have great intensity of fluctuations. Expansion in some cycles reaches the full employment level and stays there. However, in some cycles, the peak is reached even before full employment. Sometimes, the cyclical fluctuations may be prolonged for one reason or the Continue reading
Different Exchange Rate Systems
Countries of the world have been exchanging goods and services amongst themselves. This has been going on from time; immemorial. The world has come a long way from the days of barter trade. With the invention of money the figures and problems of barter trade have disappeared. The barter trade has given way ton exchanged of goods and services for currencies instead of goods and services. Different countries have adopted different exchange rate system at different time. The following are some of the exchange rate system followed by various countries: A. The Gold Standard Many countries have adopted gold standard as their monetary system during the last two decades of the 19th century. This system was in vogue till the outbreak of World War 1. Under this system the parties of currencies were fixed in terms of gold. There were two main types of gold standard: 1. Gold specie standard: Continue reading