Multidisciplinary Economics Syllabus PDF

 SYLLABUS BINOD BIHARI MAHTO KOYALANCHAL UNIVERSITY FYUGP Under NEP 2020 w.e.f. 2023-27 SEMESTER – I Multidisciplinary Economics Full Marks: 75 Credit: 3 Pass Marks: 30...

 SYLLABUS BINOD BIHARI MAHTO KOYALANCHAL UNIVERSITY FYUGP Under NEP 2020 w.e.f. 2023-27 SEMESTER – I Multidisciplinary Economics Full Marks: 75 Credit: 3 Pass Marks: 30 Unit I: Introduction 1.1 Subject Matter and Methods of Economics 1.2 Nature and Scope of Economics 1.3 Central Economic Problems; Production Possibility Curve Unit II: Consumer Behaviour 2.1 Cardinal Utility Analysis: Law of Diminishing Marginal Utility; Law of Equi-marginal Utility, Consumer’s Equilibrium 2.2 Ordinal Utility Analysis: Indifference Curve and its Properties, Consumer’s Equilibrium 2.3 Individual & Market Demand and Supply; Determinants of Individual Demand and Supply 2.4 Law of Demand and Supply, Shifts in Demand and Supply Unit III: Money and Inflation 3.1 Money: Meaning and Functions of Money, Role of Money in Capitalistic, Socialistic & Mixed Economics 3.2 Quantity Theory of Money: Cash Transactions Approach and Cash Balance Approach 3.3 Definition, Types, Causes, and Effects of Inflation 3.4 Measures to Control Inflation Unit IV: Banking 4.1 Objectives and Functions of Central Bank 4.2 Quantitative and Qualitative Methods of Credit Control 4.3 Meaning, Types, and Functions of Commercial Banks  Unit – III Money: Meaning and Functions of Money Money serves as a crucial component of modern economies, facilitating transactions, serving as a store of value, and acting as a unit of account. Understanding the meaning and functions of money is essential for comprehending the workings of financial systems and economic activities. Meaning of Money: Money can be defined as any widely accepted medium of exchange that serves as a measure of value in transactions. It encompasses both physical forms, such as coins and banknotes, and digital forms, including electronic transfers and cryptocurrencies. Money plays a central role in facilitating economic transactions, allowing individuals and businesses to exchange goods and services efficiently. Functions of Money: Money performs several key functions within an economy, each of which contributes to its importance and utility:  Medium of Exchange: One of the primary functions of money is to serve as a medium of exchange, facilitating the buying and selling of goods and services. In a barter economy where goods are exchanged directly for other goods, transactions can be cumbersome and inefficient due to the double coincidence of wants problem—each party must want what the other has to offer. Money eliminates this problem by providing a universally accepted medium for transactions. Individuals can sell goods or services in exchange for money and then use that money to purchase other goods and services they desire. This function enhances the efficiency of trade and promotes economic specialization and division of labor.  Unit of Account: Money serves as a unit of account, providing a common measure of value for goods and services. By assigning monetary values to different products and services, money enables individuals and businesses to compare prices, assess relative value, and make informed economic decisions. Without a standardized unit of account, it would be challenging to determine the relative worth of different goods  and services, hindering the efficiency of economic transactions and resource allocation.  Store of Value: Money functions as a store of value, allowing individuals to save purchasing power for future use. Unlike perishable or highly perishable goods, money retains its value over time, making it a convenient asset for holding wealth. Individuals can save money in various forms, such as bank deposits, cash holdings, or financial assets, and access it when needed to make purchases or investments. While inflation and other factors may erode the real value of money over time, it generally maintains its relative stability compared to other assets.  Standard of Deferred Payment: Money serves as a standard of deferred payment, enabling individuals to enter into contracts and fulfill financial obligations over time. Loans, mortgages, bonds, and other financial instruments are denominated in monetary terms, allowing borrowers to repay lenders with money at a specified future date. The use of money as a standard of deferred payment facilitates credit markets, investment activities, and long-term financial planning. Types of Money: Money can take various forms, each serving as a medium of exchange and store of value. These include:  Commodity Money: Commodity money is a type of money whose value is derived from its intrinsic worth as a commodity. Examples include precious metals such as gold and silver, which have been used as money throughout history due to their scarcity, durability, and fungibility. While commodity money has intrinsic value, its use is limited by practical considerations such as transportability and divisibility.  Fiat Money: Fiat money is a type of money that has value solely because the government declares it to be legal tender. Unlike commodity money, fiat money has no intrinsic value and is not backed by a physical commodity. Instead, its value is based on the trust and confidence of the public in the issuing authority, typically the government or central bank. Most modern currencies, including the US dollar, euro, and yen, are fiat currencies.  Digital Money: Digital money refers to electronic forms of currency that exist solely in digital or electronic form. It includes bank deposits, electronic transfers, mobile  payments, and cryptocurrencies such as Bitcoin and Ethereum. Digital money enables seamless and instantaneous transactions across geographic boundaries, contributing to the globalization and digitalization of financial systems. In summary, money serves as a fundamental institution in modern economies, fulfilling essential functions as a medium of exchange, unit of account, store of value, and standard of deferred payment. Whether in physical or digital form, money enables individuals and businesses to conduct transactions efficiently, compare prices, save for the future, and fulfill financial obligations. Understanding the meaning and functions of money is crucial for comprehending the dynamics of financial systems, monetary policy, and economic activities. Role of Money in Capitalistic, Socialistic & Mixed Economics The role of money varies across different economic systems, reflecting the underlying principles and objectives of each system. In capitalist, socialist, and mixed economies, money plays distinct roles in facilitating economic activities, resource allocation, and the distribution of wealth and income. Understanding the role of money in these diverse economic systems provides insights into their functioning and outcomes. 1. Capitalistic Economy: In a capitalist economy, also known as a free-market or market-oriented economy, the role of money is central to facilitating decentralized decision-making, promoting competition, and allocating resources efficiently based on market forces. Some key roles of money in a capitalist economy include:  Allocation of Resources: Money serves as a medium of exchange, enabling individuals and businesses to buy and sell goods and services in markets. In a capitalist economy, prices are determined by supply and demand forces, reflecting the relative scarcity and value of goods and services. Through the price mechanism, money facilitates the allocation of resources to their most valued uses, as individuals and firms respond to price signals and adjust their production and consumption decisions accordingly.  Promotion of Competition:  Money incentivizes competition among producers and suppliers, leading to innovation, efficiency improvements, and the provision of higher-quality goods and services. In a capitalist economy, firms compete for market share and profits by offering better products at competitive prices. Money serves as a measure of success and performance, rewarding firms that meet consumer demands effectively and penalizing those that fail to do so.  Capital Formation and Investment: Money facilitates capital formation and investment by providing the means for individuals and businesses to save, invest, and accumulate wealth over time. In a capitalist economy, financial markets enable the allocation of savings to productive investments, such as new businesses, technologies, and infrastructure projects. Money serves as a medium for transferring funds between savers and borrowers, facilitating the flow of capital to where it is most needed and productive.  Wealth Accumulation and Distribution: Money plays a crucial role in wealth accumulation and distribution in a capitalist economy. Those who accumulate capital and generate profits are rewarded with higher incomes and wealth, while those who lack capital may struggle to earn a living wage. Money facilitates transactions in labor markets, where workers exchange their time and skills for wages, salaries, and other forms of compensation. However, wealth disparities and income inequality are common features of capitalist economies, as the distribution of resources and opportunities is influenced by market outcomes and individual capabilities. 2. Socialistic Economy: In a socialist economy, the role of money is fundamentally different from that in a capitalist economy, reflecting the centralization of economic decision-making, state ownership of key industries, and emphasis on social welfare and equality. Some key roles of money in a socialist economy include:  Centralized Planning and Allocation: Money serves as a tool for centralized planning and resource allocation in a socialist economy. Rather than relying on market forces to determine prices and allocate resources, socialist governments may use money as a means of  accounting and control in the planning process. Prices may be set by the state or determined through administrative mechanisms, with the goal of achieving social objectives such as equitable distribution of resources and balanced economic development.  State Provision of Goods and Services: In a socialist economy, the state plays a dominant role in providing essential goods and services, such as healthcare, education, housing, and utilities. Money serves as a means of payment for these goods and services, allowing individuals to access them based on their needs rather than their ability to pay. The state may subsidize the cost of essential goods and services, ensuring affordability and accessibility for all citizens.  Income Redistribution and Social Welfare: Money is used in a socialist economy to redistribute income and promote social welfare objectives. Progressive taxation and social welfare programs funded by government revenues aim to reduce income inequality and provide a safety net for vulnerable individuals and groups. Money collected through taxes is used to finance public services, social assistance programs, and income transfers to low- income households, fostering social cohesion and solidarity.  Control of Financial Assets and Resources: In a socialist economy, the state may control financial assets and resources, including banks, enterprises, and natural resources. Money serves as a means of exchange and payment within the state-controlled sector, facilitating transactions and economic activities. The state may use monetary policy tools, such as interest rates and credit allocation, to regulate economic activity and achieve macroeconomic objectives such as price stability and full employment. 3. Mixed Economy: A mixed economy combines elements of both capitalism and socialism, incorporating market mechanisms and state intervention to achieve economic growth, social welfare, and stability. In a mixed economy, the role of money reflects a combination of market forces and government intervention. Some key roles of money in a mixed economy include:   Market-Based Allocation and Competition: Money facilitates market-based allocation and competition in sectors where private ownership and market mechanisms prevail. Prices are determined by supply and demand forces, guiding resource allocation and production decisions. Private firms compete for market share and profits, driving efficiency and innovation in the economy. Money serves as a medium of exchange and a measure of value in market transactions, enabling individuals and Quantity Theory of Money: Cash Transactions Approach and Cash Balance Approach The Quantity Theory of Money (QTM) is a fundamental concept in monetary economics that seeks to explain the relationship between the quantity of money in an economy and the level of prices. There are two main approaches to the Quantity Theory of Money: the Cash Transactions Approach and the Cash Balance Approach. Both approaches provide insights into the determinants of the price level and the role of money in the economy. 1. Cash Transactions Approach: The Cash Transactions Approach, also known as the Fisherian Approach, is based on the equation of exchange proposed by the American economist Irving Fisher. The equation of exchange is expressed as: MV=PT Where:  M represents the quantity of money in circulation,  V represents the velocity of money (the average number of times a unit of money is spent within a given time period),  P represents the price level, and  T represents the volume of transactions or real output in the economy. According to the Cash Transactions Approach, the total value of transactions in an economy (PT) is equal to the total quantity of money (M) multiplied by the average number of times each unit of money is used to make transactions (V). In other words, the quantity of money multiplied by its velocity equals the total value of goods and services exchanged in the economy. Explanation: The Cash Transactions Approach suggests that changes in the quantity of money or its velocity can lead to changes in the level of prices (P) or the volume of transactions (T). If the quantity of money increases while the velocity of money and the volume of transactions remain constant, the price level will rise to maintain equilibrium in the equation of exchange. Conversely, if the quantity of money decreases, the price level will fall. Assumptions:  The Cash Transactions Approach assumes that the velocity of money and the volume of transactions are relatively stable over short periods.  It also assumes that changes in the quantity of money directly affect the price level without causing changes in real output or the velocity of money in the short run. Implications:  According to the Cash Transactions Approach, changes in the quantity of money can lead to changes in the price level, but they do not affect real output or employment in the long run.  The approach suggests that changes in the quantity of money are the primary cause of inflation or deflation in the economy.  It emphasizes the importance of controlling the money supply to maintain price stability and prevent excessive inflation or deflation. 2. Cash Balance Approach: The Cash Balance Approach, also known as the Keynesian Approach, builds on the ideas of British economist John Maynard Keynes and focuses on the demand for money rather than the quantity of money itself. According to this approach, individuals and firms hold money balances for transactions and precautionary motives, as well as for speculative purposes. Explanation: The Cash Balance Approach starts with the demand for money function, which specifies the amount of money that individuals and firms wish to hold at a given point in time. The demand for money is influenced by various factors, including the level of income, the interest rate, and expectations about future economic conditions. The demand for money function can be expressed as: Md=kPY Where:  Md represents the demand for money,  k represents the proportion of income that individuals and firms wish to hold as money balances,  P represents the price level,  Y represents real income, and  M/P represents real money balances (the purchasing power of money). According to the Cash Balance Approach, individuals and firms adjust their money holdings in response to changes in the price level, real income, and the opportunity cost of holding money (i.e., the interest rate). When the price level increases, the real value of money decreases, leading to an increase in the demand for money to maintain desired real money balances. Similarly, an increase in real income or a decrease in the interest rate leads to an increase in the demand for money. Assumptions: The Cash Balance Approach assumes that individuals and firms adjust their money holdings to maintain a desired level of real money balances, which depends on the price level, real income, and the interest rate. It also assumes that the velocity of money is not constant and may vary over time due to changes in economic conditions and expectations. Implications: According to the Cash Balance Approach, changes in the demand for money can lead to changes in the velocity of money and, consequently, changes in the level of prices and economic activity. The approach suggests that changes in the quantity of money may not have a direct and proportional effect on the price level, as other factors such as the demand for money and the velocity of money also play a role. It emphasizes the importance of managing aggregate demand and stabilizing the economy through monetary and fiscal policy measures. Comparison: While both the Cash Transactions Approach and the Cash Balance Approach seek to explain the relationship between the quantity of money and the level of prices, they differ in their theoretical foundations and assumptions: 1. Theoretical Foundation:  The Cash Transactions Approach is based on the quantity theory of money, which emphasizes the role of changes in the quantity of money in influencing the price level.  The Cash Balance Approach is based on the Keynesian theory of liquidity preference, which focuses on the demand for money and the factors that influence individuals' and firms' decisions to hold money balances. 2. Assumptions:  The Cash Transactions Approach assumes that the velocity of money and the volume of transactions are relatively stable over short periods and that changes in the quantity of money directly affect the price level.  The Cash Balance Approach assumes that individuals and firms adjust their money holdings to maintain desired real money balances, which depend on the price level, real income, and the interest rate. 3. Policy Implications:  The Cash Transactions Approach suggests that changes in the quantity of money are the primary cause of inflation or deflation and emphasizes the importance of controlling the money supply to maintain price stability.  The Cash Balance Approach suggests that changes in the demand for money can lead to changes in the velocity of money and the level of prices, and emphasizes  the role of managing aggregate demand through monetary and fiscal policy measures. The Quantity Theory of Money, as embodied in both the Cash Transactions Approach and the Cash Balance Approach, provides insights into the relationship between the quantity of money in an economy and the level of prices. While the Cash Transactions Approach focuses on changes in the quantity of money as the primary determinant of the price level, the Cash Balance Approach emphasizes the role of changes in the demand for money and the velocity of money. Both approaches have implications for monetary policy and the management of economic stability and inflation. Understanding these approaches helps economists and policymakers formulate effective strategies to achieve their macroeconomic objectives. Definition, Types, Causes, and Effects of Inflation Inflation is a sustained increase in the general price level of goods and services in an economy over a period of time, resulting in a decrease in the purchasing power of money. It is a key macroeconomic phenomenon that has significant implications for individuals, businesses, and policymakers. Understanding inflation requires examining its definition, types, causes, and effects. 1. Definition of Inflation: Inflation refers to the rise in the average level of prices of goods and services in an economy, leading to a decrease in the purchasing power of money. It is typically measured using various price indices, such as the Consumer Price Index (CPI) or the Producer Price Index (PPI), which track changes in the prices of a basket of goods and services over time. 2. Types of Inflation: Inflation can be classified into different types based on its causes, duration, and severity. Some common types of inflation include:  Demand-Pull Inflation: Demand-pull inflation occurs when aggregate demand exceeds aggregate supply in an economy, leading to upward pressure on prices. This type of inflation is often associated with strong economic growth, increased consumer spending, or expansionary fiscal and monetary policies.   Cost-Push Inflation: Cost-push inflation occurs when the cost of production increases, leading to higher prices for goods and services. Factors such as rising wages, higher input costs (e.g., raw materials or energy), or supply disruptions can contribute to cost-push inflation.  Built-In Inflation: Built-in inflation, also known as wage-price spiral or inflationary expectations, occurs when workers demand higher wages to keep up with rising prices, leading to a continuous cycle of wage and price increases. This type of inflation is often fueled by inflation expectations and can become self- reinforcing.  Hyperinflation: Hyperinflation is an extreme form of inflation characterized by extremely rapid and uncontrollable increases in prices. It typically occurs when a country's monetary system collapses due to excessive money printing, loss of confidence in the currency, or political instability. Hyperinflation can have devastating effects on an economy, leading to hyperinflationary crises, economic chaos, and social unrest. 3. Causes of Inflation: Inflation can be caused by a variety of factors, including:  Monetary Factors: Monetary factors, such as increases in the money supply or expansionary monetary policy, can lead to inflation by boosting aggregate demand relative to aggregate supply. When the central bank engages in quantitative easing, lowers interest rates, or purchases government securities, it injects liquidity into the economy, potentially fueling inflationary pressures.  Fiscal Factors: Fiscal factors, such as government spending or taxation policies, can also contribute to inflation. Expansionary fiscal policies, such as deficit spending or tax cuts, can stimulate aggregate demand and lead to demand-pull inflation. Conversely, contractionary fiscal policies, such as austerity measures or tax hikes, can reduce inflationary pressures.  Supply-Side Factors: Supply-side factors, such as changes in production costs or supply disruptions, can lead to cost-push inflation. Increases in wages, raw material prices, energy costs, or transportation expenses can raise production costs for businesses, leading to higher prices for goods and services. Supply  shocks, such as natural disasters, geopolitical events, or trade disruptions, can also disrupt supply chains and drive up prices.  Inflation Expectations: Inflation expectations, or the anticipation of future price increases, can influence current inflationary dynamics. When individuals, businesses, or policymakers expect prices to rise in the future, they may adjust their behavior accordingly, leading to self-fulfilling prophecies of inflation. 4. Effects of Inflation: Inflation has various effects on individuals, businesses, and the economy as a whole:  Decreased Purchasing Power: Inflation erodes the purchasing power of money, reducing the real value of savings and income. As prices rise, consumers can buy fewer goods and services with the same amount of money, leading to a decline in their standard of living.  Redistribution of Income and Wealth: Inflation can redistribute income and wealth within society. Debtors benefit from inflation as the real value of their debt decreases over time, while creditors suffer losses. Similarly, individuals with fixed incomes, such as retirees or pensioners, may experience a decline in their purchasing power.  Uncertainty and Risk: Inflation can create uncertainty and risk in the economy, making it difficult for businesses and households to plan and make informed decisions. High and volatile inflation rates can lead to economic instability, financial market turbulence, and reduced investor confidence.  Menu Costs and Resource Misallocation: Inflation imposes costs on businesses, such as menu costs (the costs of changing prices) and resource misallocation. Firms may incur expenses to adjust prices frequently, leading to inefficiencies in resource allocation and reduced competitiveness.  Interest Rates and Investment: Inflation can influence interest rates and investment decisions. Central banks often raise interest rates to combat inflationary pressures, which can increase borrowing costs for businesses and individuals, dampen investment, and slow economic growth. Conversely, lower interest rates may stimulate borrowing and investment but can also fuel inflationary pressures.   International Competitiveness: Inflation can affect a country's international competitiveness by altering relative price levels and exchange rates. High inflation rates can erode a country's competitiveness in global markets, leading to a deterioration in trade balances and a loss of export competitiveness. Inflation is a complex economic phenomenon with various causes and effects. It can be driven by monetary, fiscal, supply-side, and expectations factors, leading to changes in the general price level and purchasing power of money. Understanding the different types, causes, and effects of inflation is essential for policymakers, businesses, and individuals to formulate appropriate strategies to manage inflationary risks and maintain economic stability. Central banks and governments often use monetary and fiscal policy tools to regulate inflation and achieve price stability, aiming to promote sustainable economic growth and prosperity. Measures to Control Inflation Controlling inflation is a key objective of monetary policy for governments and central banks worldwide. While moderate inflation is considered beneficial for economic growth and stability, high or volatile inflation can have adverse effects on the economy, leading to reduced purchasing power, uncertainty, and distortions in resource allocation. Various measures can be employed to control inflation and maintain price stability. These measures can be broadly categorized into monetary policy measures, fiscal policy measures, and supply-side measures. 1. Monetary Policy Measures: Monetary policy involves managing the money supply, interest rates, and credit conditions to achieve macroeconomic objectives, including price stability. Central banks typically use the following monetary policy tools to control inflation:  Interest Rate Policy: Central banks adjust short-term interest rates, such as the policy rate or the federal funds rate, to influence borrowing and lending behavior in the economy. To combat inflation, central banks may raise interest rates to discourage borrowing and spending, thereby reducing aggregate demand and inflationary pressures. Higher interest rates increase the cost of  borrowing for businesses and consumers, leading to reduced investment, consumption, and aggregate demand.  Open Market Operations (OMOs): Open market operations involve buying or selling government securities (bonds) in the open market to influence the money supply and interest rates. Central banks use OMOs to inject liquidity into the banking system or withdraw excess liquidity, thereby affecting short- term interest rates. By selling government securities, central banks reduce the money supply and increase interest rates to curb inflationary pressures.  Reserve Requirements: Central banks may impose reserve requirements on commercial banks, mandating them to hold a certain percentage of their deposits as reserves. By adjusting reserve requirements, central banks can influence the lending capacity of banks and the money supply. Increasing reserve requirements reduces the amount of money banks can lend, thereby restraining credit expansion and inflation.  Forward Guidance: Central banks use forward guidance to communicate their monetary policy intentions and future actions to the public and financial markets. By providing clear guidance on future interest rate decisions and policy direction, central banks can influence expectations and anchor inflation expectations. Forward guidance helps to shape market expectations and guide financial decisions, contributing to the effectiveness of monetary policy in controlling inflation. 2. Fiscal Policy Measures: Fiscal policy involves government spending, taxation, and borrowing decisions aimed at achieving macroeconomic objectives, including price stability. While monetary policy is primarily controlled by central banks, fiscal policy is set by governments. Fiscal policy measures to control inflation include:  Fiscal Restraint: Governments can adopt fiscal restraint measures, such as reducing government spending, raising taxes, or cutting subsidies, to reduce aggregate demand and inflationary pressures. By reducing government expenditures or increasing tax revenues, fiscal restraint measures aim to curb excess demand and prevent overheating in the economy.   Supply-Side Policies: Supply-side policies focus on improving the efficiency and productivity of the economy to address inflationary pressures originating from the supply side. Governments can implement supply-side measures, such as deregulation, investment in infrastructure, labor market reforms, and technological advancements, to enhance production capacity and reduce production costs. By increasing the economy's potential output, supply-side policies help alleviate inflationary pressures and support sustainable economic growth. 3. Supply-Side Measures: Supply-side measures target the root causes of inflation by addressing supply-side constraints and bottlenecks in the economy. Supply-side measures to control inflation include:  Investment in Infrastructure: Governments can invest in infrastructure projects, such as transportation networks, energy facilities, and telecommunications systems, to improve the economy's productive capacity and efficiency. Infrastructure investments enhance the economy's ability to produce goods and services, reduce production costs, and alleviate supply constraints, thereby curbing inflationary pressures.  Enhancing Productivity: Policies aimed at enhancing productivity through education, training, innovation, and technology adoption can boost the economy's efficiency and competitiveness. By investing in human capital and technological advancements, governments can improve labor productivity, reduce unit costs of production, and increase output levels, helping to mitigate inflationary pressures.  Supply-Side Reforms: Structural reforms aimed at removing regulatory barriers, reducing red tape, and promoting competition can enhance market efficiency and flexibility. Supply-side reforms, such as deregulation, privatization, and trade liberalization, create a more competitive business environment, stimulate investment, and foster innovation, leading to increased supply responsiveness and reduced inflationary pressures.   Price Controls: Price controls involve government intervention to limit or regulate the prices of goods and services in the economy. While price controls may provide short-term relief from inflationary pressures, they can distort market signals, discourage investment, and lead to shortages or surpluses in affected markets. Price controls are often considered a temporary and less effective measure to control inflation. Controlling inflation is essential for maintaining price stability, promoting economic growth, and preserving the purchasing power of money. Governments and central banks employ various measures, including monetary policy, fiscal policy, and supply-side measures, to address inflationary pressures and achieve macroeconomic stability.