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
Economics Concepts
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
Concept of Economies and Diseconomies of Scale in Managerial Economics
In the process of production a firm enjoys several advantages or experience several disadvantages which are either the result of the scale of operation or due to the location of the firm. The advantages and disadvantages thus experienced are reflected in the cost of production. The average cost of production is favorably affected when a firm starts enjoying economies, whereas the average cost begins to rise when the firms experience diseconomies. Those advantages or disadvantages that accrue to a firm from within, as a result of its scale of operation are summarily referred to as Internal economies and diseconomies, whereas those advantages or disadvantages which come to the firm from outside and are experienced by the industry as a whole mainly due to localization are referred to as External economies and diseconomies respectively. Internal Economies Internal Economies are those advantages which a firm enjoys from within itself by way of Continue reading
Principles of Supply-Side Economics
Supply side economics, also known as Reaganomics, is a form of economic theory that emphasizes the importance of incentives for individuals and businesses in order to increase economic growth. This theory is based on the idea that the supply of goods and services determines the overall health of an economy. In this article, we will explore the main principles of supply side economics, its history, and its impact on the economy. The main principles of supply side economics can be summed up as follows: Tax cuts: The theory asserts that tax cuts, especially for businesses and the wealthy, will lead to increased investment and growth. The idea is that lower taxes will encourage individuals and businesses to work harder and invest more in the economy. Deregulation: Deregulation is another key principle of supply side economics. The theory argues that too much government regulation can stifle economic growth. Deregulation allows businesses Continue reading
Measuring Depreciation – How to Calculate Depreciation
Economists consider depreciation as capital consumption. For them, there are two distinct ways of measuring depreciation either by assuming the value of depreciation of equipment to its opportunity cost or to its replacement cost that will produce comparable earning. Opportunity cost of equipment is the most profitable alternate use of that is foregone by putting it to its present use. The problem is to measure the opportunity cost. One method of measuring the opportunity cost, as suggested by Joel Dean, is to measure the fall in value during a year. By using this method cannot be applied when capital equipment has no alternative use, like a thermal-power project. In such cases, replacement cost is an appropriate measure of depreciation. Under this method, the cost of the new asset and the residual value of the old asset are taken as the depreciation of the asset. But depreciation is recorded only at Continue reading