State the main
functions of the commercial banks in india.
-
Commercial banks can contribute to the development of a country in the
following ways:-
a) Capital formation
- It is
the most important role of the commercial banks and capital formation has three
main stages:-
1.
Generalisation of savings.
2. Mobilisation of savings.
3. Canalisation of savings.
b) Encouragement to entrepreneurs.
- They
facilitate entrepreneurs with bank loans, thus helping them help the economy
with their investment processes.
c) Monetisation of money.
-
Commercial bank are the distributors of money. They monetise debts and spread
their branches in rural and backward areas.
d) Influence economic activity
- Banks can directly influence economic
activity and hence the pace of development through its influence on the rate of
interest and availability of credit.
e) Implementation of monetary policy
- Control
and regulation of credit by the monetary authority is not possible without the
active participation of the banking authority in india.
f) Promotion of trade and industry.
-The use
of bill of exchanges by banks have revolutionised both internal and external
trade, which in turn has encouraged specialisation and accelerated the pace of
industrialization.
g) Encouragement to trade and industry.
- Banks
provIde financial resources to the right type of industries to secure
necessary material, machines and other inputs.
h) Regional development.
- Banks transfer surplus capital from the
developed regions to the regional
sectors where it is scarce.
i) Development of agriculture
-Banks
have diversified role in extending credit to trade and also to provide
medium-term and long-term loans to industry and agriculture.
Explain the
absolute cost advantage theory. Discuss the economic effect of imposition of
tariff.
- In Adam
Smith's model of international trade or absolute advantage theory of Adam
smith every one will be better off. According to him,the basis of international
trade is a territorial division of labour and specialisation . Each country
should produce and export a commodity in whose production she has a cost
adbvantage. Adam Smith's theory can be explained as follows:-
Let us
suppose that there are two countries : country X and country Y, producing two
commodities A and B .Let us suppose that in the production of both the
commodities, labour is the only factor of production . The value of any
commodity is assumed to be determined by the amount of labour required to
produce one unit of that commodity. this is known as the labour theory of
value.
Let us suppose that to produce one unit of A, country
X requires 5 units of labour and to produce one unit of B, she requires 10
units of labour. On the other hand, in country Y, the production of one unit of
A requires 10 units of labour and production of 1 unit of B requires 5 units of
labour. The unit labour costs are shown in the following table:-
Here it is seen that the commodity A can be produced
at a lower cost in country x than in country Y. On the other hand, commodity B
can be produced at a lower cost in country Y than in country x. country X is
then said to enjoy an absolute advantage in the production of A and country Y
is said to enjoy an absolute advantage in the production of B. According to
Adam smith, in this case, country X should specialise in the production of A
and country Y should specialise in the production of B. country X should export
A and country Y should export B. Both the countries will benefit as a result of
trade.
Here it is assumed that each country has an absolute
advantage in the production of one commodity only.
Public Expenditure
-In
simple words, public expenditure refers to the expenses incurred by the
government for the maintenance of the government and to preserve the society as
a whole. In other words, it refers to the expenses made by the public
authorities to satisfy the wants of the people which they cannot satisfy
individually. It is for protecting the citizens and/or for promoting their
economic and social welfare.
Public
expenditure has to play an active role in reducing regional
disparities,developing social overheads, creation of infrastructure, education
and training, growth of capital goods industries, researcch and development etc
in developing economies. On the other
hand, in a well advanced economy, public expenditure maintains a smooth rate of
economic growth in order to get the stabilisation and stimulation of economic
activities. Thus, public expenditure has a greaat role to play in the form of
stimulated saving and capital accumulation.t can accelerate the pace of
economic growth by narrowing down the diffrence between social and marginal productivity
of certain investment. Therefore, economists like Prof.Dalton and A.C.Pigou have suggested the
principle of public expenditure, popularly known as "Principle of Maximum
Social Advantage or Benefit."
Areas on which public expenditure is implemented are
as follows:-
1. Welfare states
2. To meet defence needs.
3. Development of agriculture.
4. Urbanisation.
5. Democratic and social structure of the government.
6. Rural development schemes.
7. Industrial development.
8. Rising population.
9. Growth of transport and communication.
10. To check business.
11. Adoption of planning.
12. Increase in national income.
13. Expansion of traditional functions.
14. Social progress.
15. Defective administration.
Personal income
- In
the national income analysis, the term ‘personal income’ denotes the total
monetary funds received by all the individuals during the course of a financial
year. It is not equal to the NNP. It includes the transfer payments also but it
doesn’t include the corporate undistributed profits, which are included in the
NNP, as the latter do not actually come at the hands of the people in the year
under consideration
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