Economic Assignment
This is my first economic assignment - with each brief notes consisting of 150 words and broad notes consisting of 400 - 600 words. They also carry 3×3 and 10+6 marks that makes 25 marks in total
Though it is difficult to categorically define and under-developed economy, the United Nations experts say an under-developed economy is one in which per capita real income is low when compared with the per capita real income of the
Hence main features of an under-developed economy are:-
- Low per capita income
- Deficiency of capital equipment
- Excessive dependence on agriculture
- Rapid rate of population growth
- Unemployment and under-employment
- Under utilization of natural resources
- Foreign trade orientation
- Low levels of technology and skills
- Economic backwardness
- Inequalities of income and wealth
- Dualistic economy
- Inadequate infrastructure
- Peculiar demographic features
National Income
There are various definitions of national income. But the definition given by Colin Clark, a renowned British economist is most complete. According to him “ The national income for any period consists of the money value of the goods and services becoming available for consumption during that period, reckoned at their current selling value, plus additions to capital reckoned at the prices actually paid for the new capital goods minus depreciation and obsolescence of existing capital goods and adding the net accretion of or deducting the net drawings upon stock, also reckoned at the current prices.”
In simple term, national income is the aggregate factor income which arises from current production of goods by the nation’s economy over a period of time minus depreciations, indirect taxes and subsidies.
Hence, National Income = (personal consumption expenditure + gross domestic private investment + export surplus + government expenditure) – (depreciation + indirect taxes + subsidies).
Problems of Unemployment
Human resource is one of the most important assets of a state and if the workforce can be utilized properly, it can develop the country quickly. Unfortunately, in developing countries like
There are many reasons for the problem of unemployment in these countries. Most important among them is lack of sufficient capital to invest in industries and thus create jobs. Also, most of the people are poor and hence can not go for higher or specialized education that would ensure jobs. The rate of population growth does not correspond with the rate of economic development. Shrinking land area and absence of alternative occupations also contribute to the problem. However, if the government is honest and persistent, it can somehow expedite development and create jobs.
Functions of Moneity:
According to Coulborn, “Money may be defined as the means of valuation and of payment: as both the unit of account and the generally acceptable medium of exchange.” While this definition gives an outline of the role and functions of money, it has various other functions too which are discussed as follow:-
1) Under the barter economy, people felt many difficulties and inconveniences which money has been able to solve as a perfect medium of exchange. Under money economy, a worker can sell his services and a producer his goods and both can get money which is a general purchasing power.
2) Money acts as a store of value too which enables someone to keep a portion of his assets liquid. In modern world, everybody has to keep some money with him for emergency purposes as the stream of income and that of expenditure do not keep time with each other.
3) Money also acts a standard measure of value which was difficult in a barter economy. With money, it is easy to compare relative values of commodity and services.
4) In today’s world, borrowing and lending is essential. But it is difficult to if we are to borrow an oxen and repay it in the same kind. But if we borrow in monetary form and return it in money, then we give back practically what we have borrowed. So money also acts as a standard of deferred payment.
5) It is also very easy for someone to shift his immovable assets to a different place by simply disposing them of for money and buy the same kind in his new place.
Thus functions of money can be summed up with the following couplet:-
“Money is a matter of functions four:
A medium, a measure, a standard, a store.”
Necessity of planning for securing economic development:-
An unplanned economy is like a ship moving rudderless on uncharted seas with no fixed destination and unlikely to reach it if there be any. Such an economy works blindly and haphazardly. So it is imperative for countries to plan their economy for sustained economic development. Many experts have put forward many arguments in favor of necessity of economic planning required for the development of a state which are discussed as follow:-
First and foremost, economic planning is necessary for optimum utilization of a country’s resources. A planning authority is able to lay down what is essential and what is non-essential activity, encouraging the former and sharply cutting down the latter. On the other hand private enterprise is guided by profit making tendency and only a planning authority can regulate these private entities from misusing national resources. Also a planned economy provides for co-ordination human resource, production, industry and all other aspects of an economy. This prevents confusion and chaos among producers and businessmen which arise in an unplanned economy. Greedy businessmen always look-out for profit by way of creating artificial shortages, cartels, price agreements and market sharing regardless of social benefits or evils. The planning authority can smash such evil designs by taking positive action in favor of the community. Planning also eliminates unnecessary competition which is wasteful most of the times. In a free market economic system, competition is the essence, but this competition should not be negative. So the state must regulate the level of competition that is good for the economy and society.
Planning also becomes necessary for equitable distribution of economic power. The price mechanism rewards people according to resources they posses but contains in itself no mechanism for equalization of the distribution of those resources. There is no wonder, therefore, that there are wide gaps between “haves” and “have-nots” which seriously offend against sense of social justice. Shocking economic inequalities are a marked feature of an unplanned economy. Reduction of inequalities in income, wealth and economic opportunities is, therefore, now the avowed aim of modern welfare state and it is impossible to achieve this without the instrument of planning. Planning also helps in keeping down social costs which come in the form of industrial diseases, accidents, overcrowding and unsanitary conditions and cyclical unemployment. These social costs are a by-product of capitalism. Since planning extends the sphere of public ownership and control, these social evils are mitigated.
It has been found that without planning, it becomes very difficult for a country to cope with major economic changes that takes place suddenly from time to time. Private enterprises alone can not deal with such changes and are thrown out of gear. But a planning authority with its various resources can control any such untoward situation that might arise suddenly. A planned action to speed up the movement of resources at times of major emergency is absolutely essential. Sometimes, even major changes can be anticipated. It is also through planning that a country can ensure that the terms of trade remain favorable to the country. The volume and direction of foreign trade in a country plays an important role in not only economic development but also in determining the level of general well being in a community. But handling of foreign trade by the market has proved inadequate. Foreign trade must be thoroughly planned if fruits of economic development are not to be thrown away.
Planning also results in raising the rate of capital formation. Private enterprise is more intent on immediate gain rather than on future good. It takes a short-sighted view of things. On the contrary, the planning authority, as the custodian of national interests, takes a far-sighted view. The surpluses of public undertakings add to the capital assets of the nation. That is why under planning capital formation receives a fillip.
From above arguments it is quite easy to understand that planning is of highest importance for a country’s balanced economic growth and for her people to reap benefit of it equitably. Without planning, the country’s economy will go haywire where private enterprises will rein supreme exploiting and wasting national resources along with depriving the society of their just share. Nowadays, many experts believe that the judgment of the state is far superior to that of the citizen, however wise or able he may be. The state looks at things from unbiased point of view and without any hidden interest. The only interest in the judgment of the state is for the development and well being of the country. Here we might cite what Arthur Lewis remarked, “The state now claims to know better than its citizens for how many years they should send their children to school, between what hours they should drink, what proportion of income should be saved, whether cheap houses are better than cigarettes and so on.” How true indeed. Economic development is a more serious matter and should not be left to the individual enterprises. It is only through a proper planning that the state can truly fulfill its potential of economic development and meet the aspirations of its citizens.