Question

SECTION B.

ANSWER ALL THE QUESTION.

Read the Case study below and answer ALL questions in answer sheet.

A major change in the Indian economy

A major change in India has been the decrease in the primary sector and an increase in the manufacturing sector. Agriculture’s share of India’s national output has dropped from 40% in 1980 to 17% in 2010. For the first time, the primary sector is smaller than the secondary sector (manufacturing and construction). As a result, even more workers are leaving the land to work in the secondary sector.

There has been a large increase in investment in new plant and machinery in the manufacturing sector and much of this has been due to multi-national firms deciding to locate in India. In April 2008, the Indian Government passed the National Rural Employment Guarantee Act. This promised those living in the rural areas at least 100 days’ work each year at a minimum wage. A local trade union leader stated that “people here are feeling a sense of security for the first time.” A major problem for India, however, is inflation. The prices of many items have been rising significantly. The price of sugar, for example, rose by 35% in 2010. The Reserve Bank of India, the country’s central bank, has announced that it will need to change the rate of interest.

a) Explain the FOUR (4) macroeconomics policy objective.

b) Explain why workers might decide to move from the primary sector to the secondary sector of an economy.

c) What are the advantages of the Indian Government promising employment in rural areas?

d) Analyse how a change in India’s interest rate might influence its inflation rate.

e) Discuss whether it is always a benefit to a developing economy when a multi-national firm decides to locate there.

Answer 1

a) Extensively, the objectives of macroeconomic policies is to amplify the degree of national salary, giving monetary development to raise the utility and way of life of members in the economy. There are likewise various optional targets which are held to prompt the expansion of salary as time goes on. While there are varieties between the targets of various national and worldwide elements, most follow the one's point by point underneath:

Maintainability - a pace of development which permits expansion in expectations for everyday comforts without undue basic and ecological troubles. 'Financial development' will be concentrated later on in this book.

Full business - where the individuals who are capable and ready to have an occupation can get one, given that there will be a sure measure of frictional, occasional and auxiliary joblessness (alluded to as the common pace of joblessness).

Value soundness - when costs remain generally steady, and there isn't quick swelling or collapse. Value security isn't really equivalent to zero swellings, however rather consistent degrees of low-moderate expansion is frequently viewed as perfect. It is important that the costs of certain merchandise and enterprises frequently fall because of efficiency enhancements during times of expansion, as swelling is just a proportion of general value levels. Be that as it may, expansion is a decent proportion of 'value dependability'. Zero swellings is regularly unfortunate in an economy. ("Inner Balance" is utilized to portray a degree of financial movement that outcomes in full work with no expansion.)

Outside Balance - balance to be determined of instalments without the utilization of fake imperatives. That is, the estimation of fares being generally equivalent to the estimation of imports as time goes on.

Impartial conveyance of salary and riches - a decent amount of the national 'cake', more fair than would be on account of a totally free market. Like the other financial goals, the conveyance of salary is a somewhat abstract or regulating issue

Expanding Productivity - more yield per unit of work every hour. Likewise, since work is nevertheless one of the numerous contributions to deliver merchandise and ventures, it could likewise be depicted as yield per unit of factor inputs every hour.

Warm Equilibrium - balance in a critical position of instalments without the utilization of fake imperatives. That is, sends out generally equivalent to imports as time goes on.

b) The workers might decide to move from the primary sector to the secondary sector of an economy due to following reasons -

1) Uncertainty in the primary sector due to climatic fluctuations.

2) Lack of resources in the primary sector. Such as lack of irrigation facilities and uneven land for cultivation.

3) Fixed wages provided in the secondary sector which gives a sense of financial security to a worker

4) Lack of capital/ finances to survive in the primary sector. Whereas, there is no such requirement to survive in the secondary sector.

5) Middlemen's and commission seekers in the primary sector who are a real threat for labourers in the primary sector.

c) The advantages of the Indian Government promising employment in rural areas are -

1) Reduction in out-migration.

2) Development of rural areas.

3) A decrease in regional disparities.

4) Employment generation and can lead to a boost in an economy's GDP.

5) Self-reliance.

d) Inflation and interest rates are regularly connected and as often as possible referenced in macroeconomics. Inflation alludes to the rate at which costs for products and enterprises rise.The interest rate is the benefit after some time because of monetary instruments. In a credit structure at all, the loan fee is the distinction (in rate) between cash took care of and cash got before, keeping into account the measure of time that slipped by.

India’s interest rate might influence its inflation rate in the following way, as the interest rate is decreased, more individuals can get more cash. The outcome is that shoppers have more cash to spend, making the economy develop and inflation to increment.

The contrary remains constant for the increasing interest rate. As financing costs are expanded, customers will in general spare as comes back from investment funds are higher. With less discretionary cashflow being spent because of the expansion in the loan cost, the economy eases back and inflation diminishes.

e) Establishing of a multi-national company is beneficial for a developing economy is the following ways -

1) It generates employment.

2) It leads to upgradation in technology.

3) It leads to a better lifestyle of the natives.

4) It leads to enhancement in infrastructure.

5) It helps in avoiding brain drain.