Failures of Planning and India’s 1991 LPG Economic Reforms
Failures of Pre-1991 Economic Planning
Increase in Poverty
- The number of people who fail to get the basic necessities of life was increasing.
- The policies adopted by the government till 1990 were very rigid and were unable to generate sufficient employment opportunities and income.
High Rate of Inflation
- Despite some progress shown by policies undertaken by the government till 1991, it was observed that the government could not control the persistent rise in prices.
- The price level increased from nearly
Global Economic Balances: Deficits, Surpluses, and Interest Parity
Balance of Payments: Deficits & Surpluses
If we sum all debits and credits in the current account, private capital account, and public capital account, the total should theoretically be zero. However, this seldom happens in practice. Numerous transactions are missed or intentionally hidden from the accounting process.
If the sum of credits and debits in the current account, private capital account, and public capital account is not zero, an offsetting entry, known as the *statistical discrepancy*
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Product Mix Strategy & Customer Perception
The products or services of an organization help to create the firm’s image in the mind of the customer. This image is reflected in the customers’ perceptions and feelings about its products or services. It is important, since experience with only one of a firm’s products or services can affect a person’s attitude toward the firm’s other offerings. This can apply even if the customer has never used the other products.
Products are more than tangible
International Trade, Globalization, and Environmental Policy
Ricardian Model of International Trade
The Ricardian model explains international trade as a result of differences in labor productivity. It highlights:
- Market mechanisms that allow specialization in sectors with a comparative advantage.
- How international trade is organized for mutual benefits.
Let’s imagine that the world only produces cheese and wine, and is composed of two countries: the domestic and the foreign one. There are obvious gains from trade if the domestic country can only produce cheese
Read MoreMacroeconomic Models: Classical Theory & Policy Interactions
Classical Economic Principles
In the classical system of economics, the major determinants of output and employment are supply-side factors such as:
- Labor
- Capital
- Technology
- Natural Resources
According to classical economists, these factors determine the aggregate supply, which in turn decides the level of output and employment in an economy. They believed in the concept of full employment, meaning all resources, including labor, are fully utilized. The labor market is assumed to always clear due to flexible
Read MoreNational Economic Measures: GNP, GDP, and Balance of Payments
Gross National Product: Definition and Scope
Gross National Product (GNP) is defined as “the value of all final goods and services produced by the country’s factors of production and sold in the market in any given period” (Krugman, 2015).
To measure a country’s total output, we sum the market value of all goods and services produced.
Avoiding Double Counting in GNP
When calculating GNP, it is crucial to avoid double counting. This means not accounting for intermediate goods.
For example, if a
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