THE CVM UNIVERSITY

Faculty of Commerce, Management and Law

S. G. M. English Medium College of Commerce and Management (SEMCOM)
A Constituent College of CVM University

M.COM Semester –II Paper Code: IBE Paper Title: Indian Business Environment

Module Title/Topic Content

No. Session
3 National Income : Concept and Methods of Measurement
Components of Aggregate Demand 09
Equilibrium in goods market
Money and its Function
Stylized facts about Indian Economy : Investment and
Unemployment Scenario of the county

Meaning and definition of National Income

National income means the value of goods and services produced by a country during a financial
year. Thus, it is the net result of all economic activities of any country during a period of one year
and is valued in terms of money. The National Income is the total amount of income accruing to a
country from economic activities in a year’s time. It includes payments made to all resources either
in the form of wages, interest, rent, and profits. The progress of a country can be determined by the
growth of the national income of the country.

Definition -NI the total market value of all the final goods and services produced within a
country during a financial year for a given time period.
Breaking down the Definition, the following things must be kept in mind while calculating the NI of
a country
 The word “domestic” in Gross Domestic Product pertains to the fact that only the goods and
services produced within a country are counted in the GDP. For example – an Indian company –
Haldiram produces potato chips and USA Company PespiCo also produces potato chips in India.
Since both these companies produce Chips within India – their product will be considered for
calculation of GDP of India. Similarly – Tata motors producing Car in Gujarat is counted in
India’s GDP. But, Tata motors producing Car in UK is not counted in India’s GDP

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 Only ‘final’ goods and services are included in the calculation of GDP. A final goods and
services means goods and services meant for final consumption (for final user). It is unlike the
intermediate goods and services which acts as component for final goods and services.
 Goods and Services produced during a certain period (usually an year) is counted. In India, GDP
is computed quarterly and yearly.
Various concept of National income

FACTOR INCOME : It refers to the income received by factors of production for rendering
their services in the production process. It is included in both National and Domestic Income. It
is Earning Concept. Received by factors of production (Land, labour, Capital and Entrepreneur)

TRANSFER INCOME: It refers to the income received without rendering any productive
services in return. It is neither included in National nor in Domestic Income. It is Receipt
concept. It is generally received by household and government.

Gross And Net: Gross means the value of product including depreciation. Net means the value
of product excluding depreciation. The difference between these two terms is depreciation.
Depreciation is the expected decrease in the value of fixed capital assets due to its general use.
It is the result of production process.

 Gross = Net + Depreciation

 Net = Gross – Depreciation

NATIONAL INCOME AND DOMESTIC INCOME

 National Income: It refers to net money value of all the final goods and services produced
by the normal residents of a country during an accounting year. It is written as NNP at
Factor Cost.
 Domestic Income: It refers to a total factor incomes earned by the factor of production
within the domestic territory of a country during an accounting year. It is written as NDP at
Factor Cost.
The difference between these two incomes is Net Factor Income from abroad (NFIA), which
is included in National Income and excluded from Domestic Income. NFIA is the difference
between income earned by normal residents from rest of the world and similar payments made to
Nonresidents within the domestic territory.

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NFIA = Income earned by Residents from rest of the world (ROW) – Payments to Non-
Residents within Domestic territory.
 National Income = Domestic Income+ NFIA
 Domestic Income = National Income – NFIA

Factor Cost And Market Price:

 Factor Cost (FC): It refers to amount paid to factors of production for their contribution
in the production process
 Market Price (MP): It refers to the price at which product is actually sold in the market.

The difference between these two is Net Indirect Taxes (NIT) which is included in MP and
excluded from FC. NIT is the difference between indirect taxes and subsidies. NIT = IT –
Subsidies

 Where, Indirect Taxes are the taxes which are levied by the government on production and
sale of commodity. Sales tax, excise duty, custom duty, etc. are some of the indirect taxes.
At present all types of Indirect Taxes is included in GST ( Goods and Service Tax).
 Subsidies are the cash grants given by the government to enterprises to encourage
production of certain commodities, to promote exports or to sell goods at prices lower than
the free market Price. In India, LPG cylinder is sold at subsidized rates for people of weaker
section.
 MP = FC + NIT (Indirect Taxes – Subsidies)
 FC = MP – NIT (Indirect Taxes – Subsidies)

Read each Aggregates of National Income by this Indicators

Letter G N P MP
Read as (Gross) ( National) (Product) at (Market Price)

Letter N D P FC
Read as (Net) (Domestic) ( Product) at (Factor Cost)
)
To obtain any Aggregate from Other Aggregates of Nation Income
1st Term Gross National Product at Market Price

2nd Term Net Domestic Product at Factor Cost

Difference Depreciation NFIA NIT

(CFC) (FIFA-FITA (IT-Subsidy)

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 CFC Consumption of Fixed Capital
NFIA Net Factor Income From Abroad
FIFA Factor Income From Abroad
FITA Factor Income paid To Abroad
NFITA Net Factor Income To Abroad(also called NFPA) = FITA – FIFA
NIT Net Indirect Tax
IT Indirect Tax (All Indirect Taxes has included in GST)
Abroad Rest of the World or All countries other than Domestic Country

To write definition of each Aggregates of National Income

1 2 3 4 5
G- Gross N -by Normal P At MP Market Value
Resident
N- Net D-within Domestic P At FC-Money Value
Territory
Format of It refers to 1 5 of all final goods and services produced 2 of a
Definition country in one accounting year.

1st Example It refers to Gross Market Value of all final goods and services produced
GNP at MP by Normal Resident of a country in one accounting year.
2nd Example It refers to Net Money Value of all final goods and services produced
NDP at FC within Domestic Territory of a country in one accounting year.

Aggregates of National Income

1. Gross Domestic Product at Market Price (GDP at MP): GDP at MP is defined as the gross
market value of the final goods and services produced within the domestic territory of a
country during an accounting year by all production units. ‘Gross’ in GDP at MP signifies
that depreciation is included, i.e., no provision has been made for depreciation. ‘Domestic’ in
GDP at MP signifies that it includes all the final goods and services produced by all the
production units located within the economic territory/Domestic territory (irrespective of the
fact whether produced by residents or non-residents). ‘Market Price’ in GDP at MP signifies
that indirect taxes are included and subsidies are excluded, i.e., it shows that Net Indirect
Taxes (NIT) have been included ‘Product’ in GDP at MP signifies that only final goods and
services have to be included and intermediate goods should not be included to avoid the
double counting.
2. Gross Domestic Product at Factor Cost ( GDP at FC): GDP at FC is defined as the gross
factor value/gross money value of the final goods and services produced within the domestic

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 territory of a country during an accounting year by all production units excluding Net
Indirect Tax. GDP at FC = GDP at MP – Net Indirect Taxes
3. Net Domestic Product at Market Price (NDP at MP). NDP at MP is defined as the net
market value of all the final goods and services produced within the domestic territory of a
country by its normal residents and non-residents during an accounting year. NDP at MP =
GDP at MP – Depreciation.
4. Net Domestic Product at Factor Cost (NDP at FC). NDP at FC refers to Net Money Value
of all final goods and services produced within the domestic territory of a country by its
normal residents and Non Residents during an accounting year. NDP at FC = GDP at MP –
Depreciation – Net Indirect Taxes. NDP at FC is also known as Domestic Income or
Domestic factor income.
5. Gross National Product at Market Price (GNP at MP) It refers to gross market value of all
final goods and services produced by Normal Resident during an accounting year. GNP at
MP = GDP at MP + NFIA. It must be noted that GNP at MP can be less than GDP at MP
when NFIA is negative. However, GNP at MP will be more than GDP at MP when NFIA is
positive.
6. Gross National Product at Factor Cost (GNP at FC) GNP at FC refers to gross factor
value/gross money value of all the final goods and services produced by the normal residents
of a country during an accounting year. GNP at FC = GNP at MP – Net Indirect Taxes
7. Net National Product at Market Price (NNP at MP). NNP at MP refers to net market value
of all the final goods and services produced by the normal residents of an country during an
accounting year. NNP at MP = GNP at MP – Depreciation
8. Net National Product at Factor Cost (NNP at FC). NNP at FC refers to net money value of
all the final goods and services produced by the normal residents of a country during an
accounting year. NNP at FC = GNP at MP – Depreciation – Net Indirect Taxes It must be
noted that NNP at FC is also known as National Income.

METHODS OF CLACULATING NATIONAL INCOME

1. Product method or value added method

2. Income method
3. Expenditure method

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 VALUE ADDED / OUTPUT / PRODUCTION METHOD :

In this National Income is measured as money value of flow of goods and services produced
within domestic territory of country in one accounting year in a country.

STEPS OF VALUE ADDED METHOD:

The main steps for estimating national income by Value Added Method are:
Step 1: Identify and classify the production units
Step 2: Estimate Gross Domestic Product at Market Price: In the second step, Estimate
Gross Domestic product at Market Price. ƩGVAMP = GDPMP. (by adding Value Added
at market price of all sectors)
Step 3: Calculate Domestic Income (NDPFC): Calculate Domestic Income (NDP FC) = NDP
FC = GDPMP – Depreciation – Net Indirect Tax i.e. NDPFC = GDPMP – Depreciation – Net
Indirect Taxes.
Step 4: Estimate net factor income from abroad (NFIA) to arrive at National Income: In the final
step, Estimate net factor income from abroad (NFIY) to arrive at National Income. (NNP FC) =
NDPFC + NFIA

CALCULATION THROUGH VALUE ADDED METHOD–

GVAMP of Primary Sector

+ GVAMP of Secondary Sector

+ GVAMP of Tertiary Sector

= Gross Domestic Product at Market Price (GDPMP)

(-) Depreciation

= Net Domestic Product at Market Price (NDPMP)

(-) Net Indirect Tax

= Net Domestic Product at Factor Price (NDPFC)

(+) Net factor Income from Abroad

= Net National Product at Factor Price (NNPFC)

Value of Output = Sales + Change in Stock

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 Value Added = Value of Output – Intermediate Consumption

Value of Output = Domestic Sales + Export + Change in Stock (if Domestic sale given

Example From the following data about a firm ‘X’ for the year, Calculate the net value added
at a market price during the year.

Particular Rs. in Crores

Sales 90
Closing stock 25
Opening stock 15
Indirect taxes 10
Depreciation 20
Intermediate Consumption 40
Purchase of raw materials 15
Rent 5
Solution:

Net value added at market price = Sales + (Closing stock- Opening stock) – Intermediate
consumption – Depreciation

= 90+ (25-15) -40 – 20

= 40 crores

Production of Services for self-consumption (Domestic Services) is not included. Domestic

services like services of a housewife, kitchen gardening, etc. are not included in the national
income since it is difficult to measure their market value. These services are produced and
consumed at home and never enter the market place and are termed as non-market transactions.
It must be noted that paid services, like services of maids, drivers, private tutors, etc. should be
included in the national income.

Production of Goods for self-consumption will be included in the national income as they
contribute to the current output. Their value is to be estimated

Precautions of Value Added Method: The various precautions to be taken in Value Added
Method are:

1. Intermediate Goods are not to be included in the national income since such goods are
already included in the value of final goods. If they are included again, it will lead to double
counting.
2. Sale and Purchase of second-hand goods is not included as they were included in the
year in which they were produced and do not add to current flow of goods and services.
3. However, any commission or brokerage on sale or purchase of such goods or imputed as they
are not sold in the market.

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4. Imputed value of owner-occupied houses should be included. People, who live in their own
houses, do not pay any rent. But, they enjoy housing services similar to those people who
stay in rented houses. Therefore, value of such housing services is estimated according to
market rent of similar accommodation. Such an estimated rent is known as imputed rent.
5. Change in stock of Goods (inventory) will be included. Net increase in the stock of
inventories will be included in the national income as it is a part of capital formation

INOCME METHOD
In this method National Income is measured as flow of factor Incomes earned within
domestic territory of country during one accounting year

STEPS OF INCOME METHOD:

Compensation of Employees

+ Operating Surplus

+ Mixed Income

= Net Domestic Product at Factor Cost (NDPfc) = Domestic Income

(+) Net factor Income from Abroad

= Net National Product at Factor Price (NNPFC)

= National Income

Compensation of Employees – It includes (1) Wages and Salaries in Cash; (2) Wages and
Salaries in Kind; (3) Employer’s contribution in Social Security Schemes.

Operating Surplus – It includes (1) Factor Payment like Rent, (2) Royalty, (3) Interest and (4)
Profit (Profit Includes Dividend, Corporation Tax and Retained Earning)

Mixed Income – Income from Self employment

STEPS - Following are the main steps involved in estimating national income by income
method:

 Identify enterprises which employ factors of production (land, labour, capital and
enterprise).
 Classify factor payments into various categories like rent, wages, interest, profit and mixed
income (or classify factor payments into compensation of employees, mixed income and
operating surplus).
 Estimate amount of factor payments made by each enterprise.
 Sum up all factor payments made within domestic territory to get Domestic
 Income (NDP at FC).
 Estimate net factor income from abroad which is added to Domestic

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  Income to derive National Income.
Q2. From the following data calculate the National Income during the year.

Particular Rs. in crores

Compensation of Employees 100
Rent 25
Interest 15
Dividend 10
Depreciation 20
Profit 85
Net Factor Income from abroad 15
Mixed Income 50
NDPFC = Compensation of Employees + Operated Surplus + Mixed Income

NDPFC = 100 + (25 + 15 + 85) + 50

NDPFC = 275

NNPFC = NDPFC + NFIA NNPFC = 275 + 15 NNPFC = 290 CR

PRECAUTIONS –

For correct computation of national income by income method, following

precautions need to be taken:

1. Only factor incomes which are earned by rendering productive services are included. All
types of transfer income like old-age pension, unemployment allowance, etc. are excluded.
2. Sale and purchase of second-hand goods are excluded since they are not part of production
of current year but commission paid on sale of second- hand goods is included as it is
reward for rendering productive services. Likewise, sale proceeds of shares and bonds are
not included.
3. Imputed rent of owner occupied dwellings and value of production for self-consumption is
included but value of self-consumed services like those of housewife is not included.
4. Incomes from illegal activities like smuggling, black-marketing, etc. as well as windfall
gains (e.g., from lotteries) are excluded.
5. Direct taxes such as income tax which are paid by the employees from their salaries and
corporate tax, which is paid by the joint stock company from its profit, are included. But
wealth tax and gift tax are excluded since they are deemed to be paid from past savings and
wealth. Similarly, indirect taxes like sales tax, excise duties, which tend to increase market
prices, are not included

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 EXPENDITURE METHOD *
In this method National Income is measured as flow of expenditure within domestic
territory of country during one accounting year.

STEPS OF VALUE ADDED METHOD

C+ G+ I+ (x-m) = GDP at MP

Private Final Consumption Expenditure (C)

+ Government Final Consumption Expenditure (G)

+ Gross Domestic Capital Formation (I)

+ Net Export (x-m)

= Gross Domestic Product at Market Price (GDPMP)

(-) Depreciation

= Net Domestic Product at Market Price (NDP MP)

(-) Net Indirect Tax

= Net Domestic Product at Factor Price (NDPFC)

(+) Net factor Income from Abroad

= Net National Product at Factor Price (NNPFC)

PFCE – Consumption Expenditure by House Hold

GFCE – Consumption Expenditure by Govt.

GDCF = Net Domestic Capital Formation + Depreciation

GDCF = Net Domestic Fixed Capital Formation + Change in Stock + Depreciation

GDCF = Gross Domestic Fixed Capital Formation + Change in Stock

Net Export = Export – Imports

STEPS OF EXPENDITURE METHOD:

Step 1: Identify the Economic Units incurring Final Expenditure - All the economic units,
which incur final expenditure within the domestic territory, are classified under 4 groups:
Household sector; Government sector; Firm (Producing) sector; Rest of the world sector
(Abroad).

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Step 2: Classification of Final Expenditure – Final expenditures incurred by the above
mentioned economic units are estimated and classified as (1) Private Final Consumption
Expenditure (PFCE); (2) Government Final Consumption Expenditure (GFCE);(3) Gross
Domestic Capital Formation (GDCF); (4) Net Exports (X-M). The sum total of four
components of final expenditure gives Gross Domestic Product at Market Price (GDPmp), i.e.
GDP mp = PFCE + GFCE + GDCF + (X-M)

Step 3: Calculate Net Domestic Income at Market Price (NDP mp) - By subtracting the amount
of depreciation from GDP mp, we get Net Domestic Income, i.e. NDP mp = GDP mp –
Depreciation.

Step 4: Estimates Net domestic Income at Factor Cost (NDP fc) – By subtracting the amount of
net indirect taxes from NDP fc, we get Net Domestic Income at factor cost, i.e. NDP fc = NDP
mp – Net Indirect Taxes.

Step 5: Estimate Net National Product at Factor Cost / National Income –

By adding the amount of Net Factor Income from Abroad / subtracting the amount of Net
Factor income Paid to abroad from NDP fc, we get Net National Product at Factor Cost /
National Income i.e. NNP fc = NDP fc + Net Factor Income from Abroad / NDP fc – Net
factor income paid to abroad

Calculate National income by Expenditure Method.

S. No Items Amount (in

(i) Private Final Consumption Expenditure cr.)
440
(ii) Gross Domestic fixed Investment 860
(iii) Net Indirect Taxes 180
(iv) Government final Expenditure 700
(v) Change in Stock -20
(vi) Depreciation 20
(vii) Net Exports 30
(viii) Net Factor Income From Abroad 50

GDPMP = Private Final Expenditure + Government Final Expenditure + Gross Domestic Capital
Formation + Net Exports
GDPMP = 440 + 700 + (860 + -20) + 30
GDPMP = 1010

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NNPFC / NATIONAL INCOME = GDPMP –
DEPRECIATION + NFIA – NIT NNPFC / NATIONAL
INCOME = 1010 – 20 + 50 – 180
NNPFC = 860 CR
PRECAUTIONS OF EXPENDITURE METHOD:
1. The various precautions to be taken while using the Expenditure Method are:
2. Expenditure on Intermediate Goods will not be included in the national income as it is
already included in the value of final expenditure. If it is included again, it will lead to
double counting of expenditures.
3. Transfer Payments are not included as such payments are not connected with any productive
activity and there is no value addition.
4. Purchase of second-hand goods will not be included as such expenditure has already been
included when they were originally purchased. Such goods do not affect the current flow of
goods and services. However, any commission or brokerage on such goods is included as it
is a payment made for productive service.
5. Purchase of financial assets (shares, debentures, bonds etc.) will not be included as such
transactions do not contribute to current flow of goods and services. These financial assets
are mere paper claims and involve a change of title only. However, any commission or
brokerage on such financial assets is included as it is a productive service.
6. Expenditure on own account production (like production for self-consumption, imputed
value of owner occupied houses, free services from general government and private non-profit
making institutions serving households) will be included in the national income since these
are productive services

COMPONENT OF AGGREGATE DEMAND,

Aggregated demand means the total demand for final goods & services in an economy. It is
actually Total (Final) Expenditure of all the units of the economy i.e. Households, Firms,
Government & Rest of the World.
AD refers to the total value of final goods and services which all the sectors of an economy are
planning to buy at a given level of income during a period one accounting year. AD is called

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Aggregate expenditure.AD is the Aggregate expenditure that different sectors of the economy
are willing to incur during a given period.
Aggregate expenditure is the planned expenditure and not the actual expenditure
FOLLOWING ARE THE VARIOUS COMPONENTS OF AGGREGATE DEMAND:
AD = C + I + G + (X-M)
(a) PRIVATE (HOUSEHOLD) CONSUMPTION EXPENDITURE (C)
 It comprises a household’s expenditure on the consumption of goods and services.
 These goods can be durable, semi-durable or non-durable.
 Consumption of households depends upon their Disposable Income & MPC.
(b) INVESTMENT EXPENDITURE (I )
 It refers to the expenditure incurred by firms on the purchase of capital goods like
machines, plant, equipment, etc. to increase the production capacity.
 Investment decision depends upon the relative values of MEI (Rate of Return) & Rate of
Interest.
(c) GOVERNMENT EXPENDITURE (G)
 It refers to expenditure incurred by the government on the purchase of consumer goods
and capital goods to satisfy the collective wants of the society. For example– Public
parks, Public hospitals, Roads, etc.
 Government expenditure depends upon the priorities of the government.
(d) NET EXPORTS (X-M)
 It is the difference between exports and imports.
 It reflects the net demand for a domestic product by rest of the world.
 Net exports depend upon many things like Foreign Trade Policy, Foreign Exchange Rate,
Comparative Prices & Quality, etc.
AGGREGATE DEMAND in a Two –Sector Model (AD = C +I) Two sector model consider
only the Consumption Expenditure of Households and Investment Expenditure of Firms.

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 Income (Y) Consumption (C) Investments (I) AD=C+I
(in Crore) (in Crore) (in Crore) (in Crore)
0 40 20 60
100 120 20 140
200 200 20 220
300 280 20 300
400 360 20 380

In the given schedule and diagram it can be observed that: Even at zero levels of income,
consumption of `40 Crore and Investment of `20 Crore prevails which is autonomous
consumption and autonomous investment. AD is a sum of consumption and Investment which is
`60 Crore. Every time with the increase in income by `100 crores, consumption is also increasing
by `80 crore but Investment being autonomous remains the same at all levels of income. AD,
which is the sum of C and I, also changes but after zero levels, it fully depends upon
Consumption expenditure. So, with an increase in income AD also increases, but the rate of
increase in AD is less than the rate of increase in income.

EQUILIBRIUM IN THE GOODS MARKET

According to the Keynesian Theory, equilibrium condition is generally stated in terms of
aggregate demand (AD) and aggregate supply (AS). An economy is in equilibrium when
aggregate demand for goods and services is equal to aggregate supply during a period of time.
So, equilibrium is achieved when: AD = AS … (1)

We know, AD is the sum total of Consumption (C) and Investment (I): AD = C + I … (2)

Also, AS is the sum total of consumption (C) and saving (S): AS = C + S … (3)

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Substituting (2) and (3) in (1), we get: C + S = C + I Or, S = I

Equilibrium in the market for goods and services occurs when the aggregate demand for goods
and services.

It refers to the point that has come to be established under the given condition of aggregate
demand and aggregate supply, and has tendency to stick to that level under this given condition
where Aggregate Demand (AD) = Aggregate Supply (AS).

If due to some disturbance, we divert from that position, the economic forces will work in such a
manner so as to drive us back to the original position, i.e., Saving is equal to Investment.

Income Consumption Saving Investment Remark

(Y) (C) (S) (I)
0 40 -40 40
100 120 -20 40 S<I
200 200 0 40
300 280 20 40
400 360 40 40 S=I
500 440 60 40 S>I
600 520 80 40

In the above figure, the equilibrium level of national income is attained at point E, where saving
= investment which is derived from a point where S = I.

If due to some disturbance we divert from our position like when investment > saving [at Y2],
then production will have to be increased to meet the excess demand. Consequently, national
income will increase leading to rise in saving until saving becomes equal to investment. It is here

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that equilibrium level of income is established because what the savers intend to save becomes
equal to what the investors intend to invest.

As against it, when saving > investment [at Y1], then there would be stockpiling and producers
will produce less. National income will fall and as a result saving will start falling until it
becomes equal to investment. It is here the equilibrium level of income is derived.

MEANING AND DEFINITION OF MONEY

The word ‘money’ is derived from the Latin word ‘Moneta’ which was the surname of Roman
Goddess of Juno. Money was coined in her Temple at Rome

Money is define as anything that is generally acceptable as a means of exchange and that at the
same time act as a measure and as a store of value.  Money has three important functions i.e
medium of exchange, a standard value and a store value.

Evolution of money

DEFINITIONS OF MONEY

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Functional definition

 According to Coulborn , ‘Money may be defined as the means of valuation and payment”.
 According to Hartley Withers, “Money is what money does”.  According to Thomas, “It is
a means to an end not for its own sake but as a means of obtaining other articles or of
commanding the service of others.”

Legal definition

 According to Knapp, “Anything which is declared by state as money , becomes money”.

Common acceptability definitions

 According to Seligman , “ Money is one thing that possesses general acceptability.

 According to G.D.H Cole , “ Money is simply purchasing power something which buys
thing, it is anything which is habitually or widely used as a means of payment and is
generally acceptable in the settlement of debts.”
 According to Keynes, “ Money is that by delivery of which debt contracts and price
contracts are discharged and in the shape of which a store of general purchasing power is
held.”

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Functions of money

Primary functions

1. Medium of Exchange: Money act as a medium of exchange. It has the quality of general
acceptability. In modern days, exchange is the basis of entire economy and money makes this
exchange possible. It was on account of the difficulties and inconveniences (lack of double
coincidence of wants) of Barter system the money came into existence.

2. Measure of Value: Money acts a unit of measure of value. In other words, it acts as a
yardstick of standard measure of value to which all other things can be measured. Value of all
goods and services is expressed in terms of money.

Secondary function

Standard of Deferred Payments: Money has proved to be a suitable standard of deferred

payment as it is more durable and stable compared to values of other commodities. It has the
quality of general acceptability. Hence it is always desirable.

1. Store of Value: Money can be stored for future use. It has this merit because its utility is
never lost. It serves as an excellent store of wealth, as it can be easily converted into other
marketable assets, such as land, machinery, plant etc.
2. Transfer of Value: Money is a liquid means of exchange. Hence purchasing power of
money can easily be transferred from one person to another and from one place to another.

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Other functions

1. Basis of Credit: At present credit is used as money on the basis of money, Bank and
Financial institutions create credit on the basis of money.
2. Basis of Distribution of Social Income: Total output of the country is jointly produced
with the help of different factors of production (Land, Labor, Capital and Enterprises).So,
the output should be distributed among them. Money helps in the distribution of the national
product in the form of Rent, Wage, Interest and Profit, which are expressed in money terms.
3. Basis of Maximum Satisfaction and Production: A Consumer maximizes his satisfaction
by equating the prices of each commodity (in terms of money) with its marginal utility.
Similarly, a Producer maximizes his satisfaction by equating the marginal productivity of a
factor with price of that factor.
4. Helpful in Making Capital Liquid and Mobile: Money makes capital liquid and mobile.
5. Guarantee of Solvency: Money acts as a guarantee of solvency for an individual or
institution. Every individual or institution prefers to keep some money ready as cash
deposits. Money deposits serve as a guarantee against solvency.
6. Bearer of Option: Money serves as a bearer of option which implies that accumulating
wealth in the form of money, any individual can change their decision regarding the goods
and services as and when the situation demands.

STYLIZED FACTS ABOUT INDIAN ECONOMY : INVESTMENT AND

UNEMPLOYMENT SCENARIO OF THE COUNTY

The unemployment rate in India, amidst lockdown and restrictions on mobility, is 12.81% as of
June 8th 2021 based on the data provided by the CMIE. Earlier, the unemployment rate in India
shot up from 6.5 per cent in March 2021 to 8 per cent in April 2021, to 14.7% by May end, while
the employment rate fell from 37.6 per cent in March to 36.8 per cent in April, says the report of
CMIE – Centre For Monitoring Indian Economy.

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In 2020, the unemployment rate in India fell to 7% in September 2020 from the record high of
29% since the country went into lockdown from March 2020, However, it later increased to
9.1% in December 2020.

The unemployment rate again declined to 6.5 per cent in January 2021 from 9.1 per cent in
December 2020, while the employment rate surged to 37.9 per cent as compared to 36.9 per cent.

The lockdown to contain the coronavirus outbreak has forced many industries to shut down thus
increasing unemployment across the country.

The unemployment in India stood at 6.1% in the financial year 2018 mentions the NSSO –
National Sample Survey Organisation Report 2019
India is presently known as one of the most important players in the global economic landscape.
The country is growing rapidly and is expected to become a US$ 5 trillion economy by 2025.
The Union Budget presented on 1st February by Finance Minister Nirmala Sitharaman
highlighted the policies and investment incentives to look forward to in the next year:

 The Union Budget 2022-23 highlights the outlay for capital expenditure at Rs. 750,000
crore (US$ 100 billion), a 35.4% increase from Rs. 554,000 crore (US$ 74.09 billion) in
2021-22.
 Increased government investment is expected to attract private investments, coupled with
the government's key Production-linked Incentive Scheme (PLI) providing significant
support. The PLI scheme in 14 different sectors can lead to additional production of Rs. 30
lakh crore (US$ 401 billion) over the next five years, as well as create employment for 60
lakh people.
 Additionally, to help India move towards a more sustainable economy, the PLI scheme sets
aside Rs. 19,500 crore (US$ 2.6 billion) for the manufacturing of high-efficiency solar
modules to meet India’s goal of 280 GW of installed solar power by the year 2030.
 In order to boost India’s digital economy, the Reserve Bank of India (RBI) will be launching
the Central Bank Digital Currency (CBDC) as India’s official digital rupee.
 According to the Union Budget 2022-23, India’s economic growth in 2022-23 is estimated
to be 9.2%, which will be the highest among all large economies. The growth in the
economic recovery is backed by the government’s continued efforts to accelerate
vaccination coverage among citizens.
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Note: Conversion rate used for February 2022 is Rs. 1 = US$ 0.013

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