OBJECTIVE TYPE QUESTIONS ON MACRO ECONOMICS
1. Which of the following is not a method of estimating national income
a) Expenditure method
b) Matrix method
c) Income method
d) Output method
2. Difference in GNPFC GDPFC is equal to
a) Net foreign direct investment
b) Export - import
c) Net factor income earned from abroad
d) None of the above
3. In India agricultural income is calculated through
a) Expenditure method
b) Output method
c) Commodity flow method
d) Income method
4. Depreciation is loss of value of
a) Final goods
b) Machinery
c) Stock of inventory
d) Consumer goods
5. In India banking income is calculated through
a) Commodity flow method
b) Expenditure method
c) Income method
d) Output method
6. Is sale of second hand house included in national income ?
a) Wholly
b) Totally ignored
c) Partly
d) Depends on the situation
7. Contribution to national income by construction industry is calculated through
a) Income method
b) Output method
c) Commodity flow method
d) None of the above
8. Smallest national income accounting aggregates is usually
a) GDP MP
b) NNP FC
c) Personal income
d) Personal disposable income
9. Subsidies are payment by govt. to
a) State govt.
b) Firms
c) Rest of the world
d) Household
10. Transfer payment are payment by govt. to
a) Firms
b) Rest of the world
c) Household
d) None of the above
11. Grant in aid is transfer of funds from govt to
a) State govt
b) Firms
c) Household
d) None of the above
12. In India ,national income is estimated by
a) Planning commission
b) Central statistical organization
c) Finance commission
d) None of the above
13. Which Institute collect s statistical data for calculating contribution of organized sectors
a) Annual survey of industries
b) National sample survey organization
c) Central statistical organization
d) None of the above
14. In case of circular flow of income ,factor of production is received by
a) Household
b) Government
c) Capital market
d) Business
15. Which Institute collects statistical data for calculating contribution of unorganized sectors
a) National sample survey organization
b) Central statistical organization
c) Annual survey of industries
d) None of the above
16. Production capacity is a
a) Quasi stock concept
b) Stock concept
c) Flow concept
d) None of the above
17. National income is a
a) Flow concept
b) Quasi stock concept
c) Stock concept
d) None of the above
18. Transfer payments are issued by
a) Capital market
b) Business
c) Government
d) Household
19. Which of the following is not included while calculating national income?
a) Rent
b) Undistributed profit
c) Pensions
d) Imputed rent
20. Due to problem double counting national income gets
a) Correct estimate
b) Over estimated
c) Under estimated
d) Indeterminate
21. Which of the following is not included in calculating GNPFC by output method?
a) Unsold stock
b) Raw material
c) Output for self consumption
d) Finished goods
22. Relation between demand for final output and demand for all input was to determine macro economic consistency by
a) Leontieff
b) Marshall
c) Kuznets
d) Ricard stone
23. Consumption Expenditure + saving is equal to
a) NNPFC
b) GDPFC
c) Personal disposable income
d) Personal income
24. National income calculation ignores
a) Income from illegal business
b) Manufacturing
c) Work of house wife
d) Only a) & b)
25. In India,difference between GNP and GDP is insignificant because of
a) Export is insignificant
b) Net income earned from abroad is insignificant
c) Import is insignificant
d) Foreign investment is insignificant
26. India calculates national income by
a) Two method
b) One method
c) All the three method
d) Mixture of all the three
27. National income is
a) Govt revenue
b) Budget estimate
c) Revenue of firms
d) Sum total of income
28. All the private individuals, income added together will be called
a) NNPFC
b) GDPMP
c) Personal income
d) National income
29. Welfare as measured by rising per-capita income,will be better appreciated if it is achieved by
a) More leisures
b) Longer working hours
c) Shorter working hours
d) Both a) & b)
30. National income figures are
a) Very exact
b) Only estimates
c) Wrong
d) Practically exact
31. Greatest part of country’s out put is normally used for
a) Public consumption
b) Private consumption
c) Investment
d) L Export
32. Balance sheet of the company is a
a) Flow
b) Stock
c) Quasi stock
d) Change in stock
33. ‘profit and loss’account of the company is a
a) Change in stock
b) Stock
c) Flow
d) Quasi stock
34. National Income statistics can help
a) To formulate trade policy
b) Calculate poverty
c) Economic planning
d) All the above
35. Keynes only considered
a) Induced investment
b) Autonomous investment
c) Both a) & b)
d) None of the above
36. Impact of income influencing was first pointed out by
a) J.M.Keynes
b) J.M Clark
c) Marshall
d) None of the above
37. Induce investment is influenced by
a) Business expectations
b) Rate of interest
c) Income level
d) None of the above
38. Autonomous investment is determine by
a) Income
b) Government policy
c) Rate of interest
d) Technology
39. In the relation between autonomous investment and national income ,investment curve is
a) Horizontal line
b) Vertical line
c) Positive slope
d) Negative slope
40. Increase in rate of interest will lead to
a) Downward shift in investment curve
b) Increase in investment
c) Upward shift in investment curve
d) Decrease in investment
41. Capital is a
a) Flow concept
b) Stock concept
c) Quasi flow concept
d) None of the above
42. Investment is a
a) Flow concept
b) Stock concept
c) Quasi flow concept
d) None of the above
43. Which of the following is true
a) K1999 - K2000 = I
b) K2000 – K1999 =I
c) K2000 + K1999 = I
d) None of the above
44. Net investment – Depreciation = Gross investment,this equation
a) False
b) True
c) Partly true
d) Can’t say
45. Concept of marginal efficiency of capital was introduced by
a) J.M.Keynes
b) Clark
c) Marshall
d) I M D.Little
46. In case of depreciation ,investment is
a) Fairly responsive to rate of interest
b) Highly responsive to rate of interest
c) Can’t say with certainty
d) Not responsive to rate of interest
47. Rlation between income and consumption is called
a) Accelerator
b) Investment function
c) Saving function
d) Consumption function
48. Relation between income and investment is usually
a) Positive
b) Negative
c) Not related
d) Can’t say with certainty
49. Desired capital level in the economy is reached
a) Exactly one year
b) Within six months
c) In more than one year
d) None of the above
50. Desired investment level in the economy is reached
a) Within six months
b) With in a year
c) In more than one year
d) None of the above
51. Capital – output is usually greater than
a) One
b) Infinity
c) Zero
d) Negative
52. Capital – output ratio is greater than one because
a) Income is a flow concept
b) Capital is a stock concept
c) Both a) & b)
d) None of these
53. In case of accelerator principle,a 10% rate of growth of income will lead to
a) Greater than 10% rate of growth of capital
b) Less than 10% rate of growth of capital
c) Equal to 10% rate of growth of capital
d) Indeterminate
54. The productivity of capital refers to
a) Gross return
b) Pure return
c) Economic profit
d) Net return
55. It pays to purchase further unit of capital whenever
a) Rate of interest exceeds marginal efficiency of capital
b) Market rate of interest exceeds average efficiency of capital
c) Average efficiency of capital exceeds market rate of interest
d) Marginal efficiency of capital exceeds rate of interest
56. Internal rate of return is measured from efficiency of
a) Capital
b) Labour
c) Land
d) None of the above
57. Return on the marginal increase of capital is called
a) Net return
b) Interest rate
c) Marginal efficiency of capital
d) None of the above
58. y = C+I is
a) an equation
b) a function
c) a formula
d) an identity
59. According to Keynes consumption is a function of
a) Income
b) Saving
c) Investment
d) Capital
60. Change in capital stock is called
a) Cost
b) Income
c) Production
d) Investment
61. Change in capital can be negative because of
a) Investment < depreciation
b) Depreciation < investment
c) Income < investment
d) Income > investment
62. Investment can be increased by
a) Decrease in consumption
b) Increase in saving
c) Decrease in rate of interest
d) None of the above
63. Shift in investment function occurs because of
a) Reduction in thrift
b) Change in wealth
c) Expectation of rise in profit
d) None of the above
64. Return on saving is called
a) Wages
b) Rent
c) Profit
d) Interest
65. User of investment ultimately earns
a) Profit
b) Rent
c) Wage
d) Interest
66. In India,major portion of saving is done by
a) Public sector undertakings
b) Business
c) Government
d) Household
67. In USA,major portion of saving is done by
a) Business
b) Government
c) Public sector undertakings
d) Household
68. If It = d(yt – y t-1) then d is called
a) Consumption coefficient
b) Investment coefficient
c) Saving coefficient
d) Acceleration coefficient
69. Acceleration principle was used to explain trade cycle by
a) Hicks
b) Arrow
c) Keynes
d) None of the above
70. Interaction between the Multiplier Analysis and the principle of Acceleration was formulated by
a) Harrod
b) Samuelson
c) Simon Kuznets
d) Milton Friedman
71. Concept of permanent consumption was introduced by
a) Milton friedman
b) Harrod
c) Samuelson
d) Kuznets
72. Keynesians hold that consumption function is
a) Unstable
b) Partially stable
c) Stable
d) Uncertain
73. Neo-monetarist hold that consumption is
a) Unstable
b) Stable
c) Partially stable
d) Not certain
74. Permanent consumption function takes in to account
a) Income
b) Wealth
c) Both a) & b)
d) None of the above
75. Which economist provided empirical evidence regarding proportionality relationship between income and consumption
a) Milton friedman
b) Kuznets
c) Hansen
d) Solow
76. Keynesian holds than consumption function is
a) Proportional
b) Non proportional
c) Both of the above
d) None of the above
77. Monetarist hold that consumption ifunction is
a) Non – proportional
b) Proportional
c) Both of the above
d) None of the above
78. In case of proportionality relation between consumption and income,absolute propensity to consume will be
a) APC = MPC
b) APC < MPC
c) APC > MPC
d) APC = MPS
79. In formulating,consumption function,Keynes ignored the impact of
a) Wealth
b) Income
c) Both a) & b)
d) None of the above
80. Which economist held that Keynes theory is the moving equilibrium analysis
a) Alvin Hansen
b) James Tobin
c) Marshall
d) James Duesenberry
81. Attempt on the part of consumers to save more out of any given income results in the actual decrease in the amount they succeed in saving.This paradox is called
a) Paradox of investment
b) Paradox of thrift
c) Paradox of saving
d) Paradox of consumption
82. In case of underdeveloped countries rate of growth of income can be increased by increasing
a) Savings
b) Consumption
c) Both
d) None of these
83. In case of developed countries,rate of growth of income can be increased by
a) Increasing consumption
b) Increasing saving
c) Decreasing consumption
d) Decreasing saving
84. Increase in inequality of income will lead to
a) Increase in consumption
b) Increase in saving
c) Increase in investment
d) None of the above
85. Investment multiplier was first introduced by
a) Keynes
b) Hansen
c) R.F.Khan
d) None of the above
86. Interest rate in Keynes theory is a
a) Monetary phenomenon
b) Real sector phenomenon
c) Both a) & b)
d) None of the above
87. Liquidity preference is a theory of
a) Supply of money
b) Saving
c) Investment
d) Demand for money
88. Interest rate in classical theory is a
a) Monetary phenomenon
b) Real sector phenomenon
c) Both a) & b)
d) None of the above
89. In case of classical theory interest rate is related to
a) Money supply
b) Money demand
c) National income
d) Saving
90. In case of Keynes theory ,interest rate is related to
a) Saving
b) National income
c) Money supply
d) Money demand
91. Money supply is autonomously determined in case of
a) Keynes theory
b) Classical theory
c) IS-LM theory
d) None of the above
92. Transaction demand for money is proportional to
a) Investment
b) Rate of interest
c) Money supply
d) Income
93. Speculative demand for money is inversely related to
a) Rate of interest
b) Money supply
c) Investment
d) Income
94. In case of Keynes theory ,money supply curve is
a) Upward sloping
b) Downward sloping
c) Horizontal
d) Vertical
95. People save more because of higher rate of interest is explained by
a) Time preference theory
b) Liquidity preference theory
c) Both a) & b)
d) None of the above
96. In classical theory investment is related to
a) Money supply
b) Money demand
c) National income
d) Interest rate
97. In Keynes theory,consumption is a function of
a) Money demand
b) Money supply
c) Interest rate
d) National income
98. IS-LM curve was introduced by
a) J.R.Hicks
b) Paul samuelson
c) Hansen
d) Keynes
99. In case of IS-LM curve ,interest rate is a
a) Real sector phenomenon
b) Monetary sector phenomenon
c) Both a) & b)
d) None of the above
100. Which of the following are the motives for holding money according to liquidity preference
a) Speculative motive
b) Transaction motive
c) Both a) & b)
d) None of the above
101. The time preference theory is formulated by
a) Sismondi
b) Marshall
c) J.B.Say
d) Irving fisher
102. Unsold stock is a part of
a) Actual investment
b) Planned investment
c) Both a) & b)
d) None of the above
103. the book ‘Money,Interest and Price’ was written by
a) D.Pattinkin
b) J.R.Hicks
c) W.Mitchell
d) M.Muller
104. Mr.Keynes and Classicals was written by
a) Hicks
b) Friedman
c) D.Dillard
d) R.Stone
105. A Guide to Keynes was written by
a) A.H.Hansen
b) E.Shapiro
c) J.R.Hicks
d) Kalecki
106. Invesment curve is down ward sloping because of decrease in
a) Marginal efficiency of capital
b) Marginal productivity of capital
c) High capital-output ratio
d) None of the above
107. IS – LM curve is represented in the y –axis by
a) Interest rate
b) Income
c) Consumption
d) Investment
108. IS – LM curve is represented in the x-axis by
a) Interest rate
b) Consumption
c) Investment
d) Income
109. Saving curve shows the relation between
a) Income and consumption
b) Income and saving
c) Interest and saving
d) Interest and investment
110. Difference between planning investment and actual investment is called
a) Inventory
b) Realized investment
c) Export
d) Import
111. Investment curve shows the relation between
a) Income and investment
b) Income and consumption
c) Interest and saving
d) Interest and investment
112. Locus of those pairs of interest rate and income level at which saving is equal to interest is called
a) IS curve
b) LM curve
c) Saving curve
d) Investment curve
113. Locus of those pairs of interest rate and income level at which demand for money equals the supply of money is called
a) Investment curve
b) Saving curve
c) IS curve
d) LM curve
114. In case of IS curve,
a) Saving equals = investment
b) Md = Ms
c) National income = consumption
d) None of the above
115. LM curve is sloped
a) Positive
b) Negative
c) Horizontal
d) Vertical
116. IS curve is sloped
a) Negative
b) Positive
c) Horizontal
d) Vertical
117. IS – LM curve is
a) Opposed to Keynes and classical theory
b) Synthesis to Keynes and Classical theory
c) Closer to Keynes theory
d) Closer to Classical theory
118. In case of recessionary condition ,money demanded for speculative porpose trnds to
a) Rise
b) Fall
c) Remain constant
d) Indeterminate
119. In order to maintain price stability,classical economists advocate
a) Stability of money supply
b) Stability of money demand
c) Stability of saving
d) Stability of interest rate
120. Keynes theory can’t be applied to India because of
a) Structural problem
b) High rate of interest
c) High increase in money supply
d) Low investment
121. Keynes theory is applicable to
a) Developed countries
b) Underdeveloped countries
c) Rural sector
d) Urban sector
122. In case of Keynes theory,rise in saving rate lead to
a) Decrease in interest rate
b) Increase in income
c) Increase in interest rate
d) Fall in income
123. In case of Keynes theory ,as money supply is increased ,rate of interest will
a) Fall
b) Rise
c) Remain constant
d) Can’t say with certainty
124. Money supply is governed by
a) Central bank
b) Planning commission
c) Individuals
d) Companies
125. Slope of the saving curve is
a) Positive
b) Negative
c) Horizontal
d) Vertical
126. Slope of the investment curve is
a) negative
b) positive
c) horizontal
d) vertical
127. As interest rate increases ,money supply tends to
a) Remain constant
b) increase decrease
c) decrease
d) not related to interest rate
128. Holding money for contingency situation is called
a) Precautionary motive
b) Speculative motive
c) Transaction motive
d) None of the above
129. Keynes theory is basically formulated for
a) Depression
b) Recession
c) Boom
d) None of the above
130. Relation between income and transaction demand for money is
a) Proportional
b) Reverse
c) Disproportional
d) None of the above
131. which is the most liquid asset?
a) Shares
b) Bonds
c) Fixed deposit
d) Saving account deposit
132. Transaction in financial assets causes
a) Constant national income
b) An increase in national income
c) A decrease in national income
d) None of the above
133. The ‘life cycle hypothesis’ of Albert Ando and Franco Modi Gilani explains the differences between
a) Cyclical and long run investment function
b) Current income and current saving
c) Current income and current investment function
d) Cyclical and long run consumption
134. Which of the following is the part of speculative demand for money
a) Hoarding
b) Bank deposit
c) Investment in shares
d) None of the above
135. Monetarist economkics revival of
a) Classical economics
b) Keynes economics
c) Institutional economics
d) None of the above
136. Monetarist economics was dominated by
a) Milton friedman
b) Keynes
c) R.Solow
d) Hansen
137. The great contributuion of monetarist economists to economics was their consideration of
a) Wealth
b) Income
c) Saving
d) All of the above
138. Keynes defined money demand as
a) Cash + demand deposit
b) Cash + time deposit
c) Cash + high powered money
d) Cash + saving with post office
139. Real national income will increase,if
a) Money demand increases
b) Money supply increases
c) Saving increases
d) Investment increases
140. In Islamic economics,interest payment is
a) Encouraged
b) Discouraged
c) Ignored
d) Prohibited
141. Which of the following is the most realistic?
a) Classical
b) Keynes
c) IS – LM
d) None of the above
142. According to classical theory ,increase in money supply will lead to
a) Increase in money income
b) Increase in real income
c) No change in income
d) Indeterminate
143. Interest is a part of
a) Super normal profit
b) Normal profit
c) Surplus
d) Cost of production
144. Share holders earn
a) Profit
b) Dividend
c) Interest
d) Rent
145. Debenture holders earn
a) Interest
b) Profit
c) Dividend
d) Rent
146. Higher rate of interest leads to decrease in
a) Investment
b) Saving
c) Money supply
d) Wealth
147. Which is a risk free investment
a) Shares
b) Debentures
c) Bonds
d) Treasury bills
148. Rate of interest at which banks lends to its most favoured clients is called
a) Bank rate
b) Call money rate
c) Repo rate
d) Prime lending rate
149. Prime lending rate are decided by
a) Central banks
b) Companies
c) Depositors
d) Commercial banks
150. How much rate of interest is earned by current account holders
a) Zero
b) 8%
c) 10%
d) 7.5%
151. money rate of interest is equal to
a) real rate of interest – inflation
b) real rate of interest + inflation
c) real rate of interest / inflation
d) real rate of interest * inflation
152. Rate of interest is linked to money demand through
a) Transaction motive
b) Precautionary motive
c) Speculative motive
d) None of the above
153. Interest payment to debenture holders is
a) Compulsory
b) Illegal
c) Optional
d) Provisional
154. Interest is paid at
a) Fixed rate
b) Proportional to sale
c) Proportional to profit
d) None of the above
155. More reputed the company interest rate will be
a) Higher
b) Remain unaffected
c) Can’t say with certainty
d) Lower
156. Interest is an
a) Assets of the company
b) Investment of the company
c) Funds of the company
d) Liability of the company
157. Rate at which central bank gives loan to the commercial banks is called
a) Repo rate
b) Forex rate
c) Bank rate
d) None of the above
158. Rate of interest where planned investment is equal to planned saving is called
a) Natural rate
b) Pure rate
c) Money rate
d) Market rate
159. Trading account of the company provides
a) Net profit
b) Normal profit
c) Super normal profit
d) Gross profit
160. Profit and loss account of the company provides
a) Net profit
b) Normal profit
c) Supernormal profit
d) Gross profit
161. Under perfect competition ,company in the long run earns
a) Net profit
b) Gross profit
c) Supernormal profit
d) Normal profit
162. Under monopoly, company in the long run earns
a) Super normal profit
b) Normal profit
c) Gross profit
d) Net profit
163. Profit is earned in black market by
a) Withholding demand
b) Withholding investment
c) Withholding saving
d) With holding supply
164. Corporate tax is tax on company’s
a) Profit
b) Revenue
c) Investment
d) None of the above
165. Supernormal can be wiped out in the long run only if
a) Cost functions of all the companies are same
b) Investment function of all the companies are same
c) Saving function of all the companies are same
d) Revenue function of all the companies are same
166. Dynamic theory of profit was introduced by
a) Knight
b) Keynes
c) Marshall
d) J.B.Clark
167. Which of the following leads to dynamism in the economy
a) Change in population
b) Increase in capital stock
c) Change in consumer wants
d) All of the above
168. Uncertainty theory of profit was introduced by
a) J.B.Clark
b) Marshall
c) Keynes
d) Frnk Knight
169. When the probability of an outcome of an event can be calculated,it is called
a) Risk
b) Uncertainty
c) Certainty
d) None of the above
170. When the probability of outcome of an event couldn’t be calculated,it is called
a) Uncertainty
b) Risk
c) Certainty
d) None of the above
171. Insurance can be taken in case
a) Risk
b) Uncertainty
c) Certainty
d) None of the above
172. According to Frank Knight,profit arises because of entrepreneurs undertake
a) Uncertainty
b) Risk
c) Certainty
d) None of the above
173. Which of the following can be negative?
a) Wages
b) Rent
c) Interest
d) Profit
174. Which of the following is an example of uncertainty
a) Introduction of new technology by competitor
b) Death of an employee
c) Fire in the company
d) None of the above
175. Innovation theory of profit was introduced by
a) J.B.Clark
b) Knight
c) Marshall
d) Joseph Schumpetor
176. Concept of creative destruction was introduced by
a) Joseph Schumpeter
b) Keynes
c) Hansen
d) Marshall
177. Innovation basically includes
a) New methods of production
b) New markets
c) New sources raw materials
d) All of the above
178. Monopoly theory of profit was introduced by
a) Kalecki
b) Keynes
c) Kaldor
d) Knight
179. Kalecki theory of profit was influenced by
a) Keynesian economics
b) Classical economics
c) Institutional economics
d) Marxian economics
180. Greater depression,when profit was all time low happened in
a) 1929
b) 1939
c) 1947
d) 1933
181. In case of depression,profit tends to
a) Fall
b) Rise
c) Remain constant
d) Indeterminate
182. In time of war,profit tend to
a) Rise
b) Fall
c) Remain constant
d) Can’t say with certainty
183. Profit after falling continuously,starts rising in the phase of
a) depression
b) boom
c) recession
d) recovery
184. Profit is maximum when there is
a) Depression
b) Recession
c) Recovery
d) Boom
185. Profit is minimum when there is
a) Depression
b) Recession
c) Recovery
d) Boom
186. Hyperinflation leads to
a) Constant profit
b) Low profit
c) Losses
d) Very high profit
187. Cost push inflation leads
a) Decrease in profit
b) Increase in profit
c) Constant profit
d) Indeterminate
188. Demand pull inflation leads to
a) Increase in profit
b) Decrease in profit
c) Constant profit
d) Indeterminate
189. Profit is a source of income for the
a) Poor
b) Very poor
c) Rich
d) Very rich
190. Increase in profit as a proportion of national income leads to
a) Increase in income in equality
b) Decrease in income inequality
c) No change in income inequality
d) Indeterminate
191. Which of the following rate of interest is a part of credit control
a) Bank rate
b) Forex rate
c) Badla rate
d) None of the above
192. Lowest rate of interest is given to
a) Treasury bills
b) Bonds
c) Debentures
d) Public deposits
193. Rate of interest for a spendthrift person will be
a) High
b) Zero
c) Low
d) None of the above
194. Rate of interest for a retired old person will be
a) Low
b) Very high
c) Zero
d) None of the above
195. Rate of interest for a miser will be
a) Low
b) High
c) Zero
d) Indeterminate
196. Time preference of money for a couple who are just married will be
a) High
b) Low
c) Very high
d) None of the above
197. Government can reduce rate of interest by
a) Increasing money supply
b) Increasing export
c) Decreasing import
d) Increasing government expenditure
198. At time of recession government should
a) Reduce rate of interest
b) increase existing rate of interest
c) maintain existing rate of interest
d) indeterminate
199. At time of boom government should
a) Increase rate of interest
b) Reduce rate of interest
c) Maintain existing rate of interest
d) Indeterminate
200. Liquidity trap occurs when
a) Increase in money supply can’t reduce rate of interest
b) Increase in money demand can’t reduce rate of interest
c) Increase in rate of investment can’t reduce rate of interest
d) Increase in saving rate can’t reduce rate of interest
201. Increase in rate of interest leads to
a) Inflow of foreign investment
b) Decrease in investment
c) Increase in cost of production
d) All of the above
202. Normal profit covers
a) Accounting cost
b) Opportunity cost
c) Both a) and b)
d) None of the above
203. Supernormal profit is earned by
a) Charging higher prices
b) Restricting entry of new firms
c) Restricting supply
d) All the above
204. Increase in rate of saving will lead to
a) Decrease in national income
b) Increase in national income
c) Constant national income
d) Indeterminate
205. Keynes assumed rigidity of
a) National income
b) Investment
c) Saving
d) Interest rate
206. national income will be stable where
a) investment = saving
b) investment < saving
c) investment > saving
d) investment = consumption
207. Increase in money supply will lead to
a) Rise in employment
b) increase in productivity of labour
c) increase in productivity of capital
d) decrease in rate of interest
208. Increase in rate of interest will lead to
a) increase in money supply
b) decrease in money supply
c) increase in investment
d) decrease in investment
209. In Keynes theory ,investment is an
a) Autonomous variable
b) Induced variable
c) Explanatory variable
d) None of the above
210. involuntary unemployment was explained by
a) Marshall
b) Solow
c) Pigou
d) Keynes
211. aggregate supply curve in classical theory
a) vertical
b) horizontal
c) downward sloping
d) upward sloping
212. Aggregate supply curve in Keynes theory is
a) Upward sloping
b) Downward sloping
c) Horizontal
d) vertical
213. In classical theory unemployment is only a
a) Short run problem
b) Long run problem
c) Major problem
d) Minor problem
214. In Keynes theory ,rate of interest doesn’t fal below
a) Liquidity trap
b) Usury rate
c) Bank rate
d) Ceiling rate
215. The number of times ,a rupee changes hands in a year is called
a) Velocity of money
b) transaction of money
c) purchasing power of money
d) none of the above
216. Supply creates its own demand is advocated by
a) Say
b) Marshall
c) Ricardo
d) Keynes
217. demand creates its own supply is advocated by
a) Keynes
b) Ricardo
c) Marshall
d) Say
218. Which theory assumes that increase in stock of money is directly spent on goods
a) Quantity theory of money
b) Keynes
c) IS-LM theory
d) None of the above
219. Which theory assumes that increase in stock of money is invested in financial assets
a) Keynes
b) Quantity theory of money
c) Monetarists
d) None of the above
220. Lack of consistency in quantity theory of money and says law was explained by
a) Don Patinkin
b) James Tobin
c) Gurley
d) Shaw
221. According to says law, unemployment can be removed
a) Fall in wages
b) Rise in wages
c) Taxing wages
d) None of the above
222. Involuntary unemployment concept was introduced by
a) J.M. Keynes
b) Adam Smith
c) Say
d) Marshall
223. Voluntary unemployment can be reduced by decreasing the
a) Expectations of workers
b) Government expenditure
c) Wages
d) Income
224. Depression occurs because of
a) Involuntary unemployment
b) Seasonal unemployment
c) Frictional unemployment
d) Voluntary unemployment
225. Temporary unemployment while changing the job is called
a) Frictional unemployment
b) Voluntary unemployment
c) Involuntary unemployment
d) Seasonal unemployment
226. Involuntary unemployment can be reduced by
a) Increase in aggregate demand
b) Decrease in wages
c) Increase in tax
d) Increase in import
227. Seasonal unemployment is a character of
a) Agriculture
b) Services
c) Government activities
d) None of the above
228. increase in investment lead to
a) increase in national income
b) increase in money supply
c) increase in speculation
d) none of the above
229. IS curve shows equilibrium in
a) Goods market
b) Money market
c) Share market
d) Debenture market
230. LM curve shows equilibrium in
a) Money market
b) Goods market
c) Share market
d) None of the above
231. increase in Government expenditure will lead to increase in
a) aggregate demand
b) investment
c) saving
d) aggregate supply
232. Increase in money supply in classical theory leads to
a) Increase in price level
b) Decrease in price level
c) Increase in investment
d) Saving
233. Keynes theory is a theory of
a) Short run
b) Long run
c) Seasonal
d) Market period
234. Disguised unemployment means
a) Where marginal productivity of labour is zero
b) Frictional unemployment
c) Seasonal unemployment
d) None of the above
235. Increase in Government deficit will lead to
a) Increase in national income
b) Decrease in national income
c) Decrease in import
d) None of the above
236. Keynes theory is possible only if economy has
a) Excess capacity
b) Deficit capacity
c) Full utilization of capacity
d) None of the above
237. velocity of money is supposed to be constant by
a) classicals
b) Keynesians
c) Hansen
d) IS-LM theory
238. If the people expect the price the future to rise then this
a) Increase velocity of money
b) Decrease velocity of money
c) Velocity of money remain constant
d) None of the above
239. Liquidity trap occurs because of
a) Pessimism
b) Optimism
c) Lack of expectations
d) None of the above
240. in order to boost investment,Keynesian theory dependence on
a) fiscal policy
b) monetary policy
c) price policy
d) income policy
241. Who advocated direct control on price and income to check inflation
a) J.K.Galbraith
b) Hansen
c) Adam Smith
d) Keynes
242. Increase in import leads to
a) Decrease in national income
b) Increase in national income
c) Increase in investment
d) None of the above
243. Neighbour’s curse means
a) Depression of one country is transferred to other
b) Boom of one country is transferred to other
c) Both a) and b)
d) None of the above
244. In Keynesian economics,inflation occurs when there is
a) Excess demand
b) Increase in money supply
c) Increase in import
d) Increase in tax
245. In monetary economics,inflation occur when there is
a) Increase in money supply
b) Excess demand
c) Increase in import
d) Increase in tax
246. Shift in IS curve takes place because of
a) Increase in autonomous investment
b) Increase in money supply
c) Decrease in money demanded
d) None of the above
247. Shift in LM curve take place because of
a) Increase in money supply
b) Increase in autonomous investment
c) Increase in investment
d) Increase in saving rate
248. Increase in the rate of saving will lead to reduction in
a) National income
b) Money supply
c) Money demand
d) Investment
249. Increase in the Government expenditure and tax by equal amount will lead to
a) Increase in national income
b) Constant national income
c) Decrease in national income
d) Increase in saving
250. If planned saving is greater than planned investment,then it will lead to
a) Decrease in national income
b) Increase in national income
c) National income remain constant
d) Can’t say with certainty
251. If planned investment is greater than planned saving, then it will lead to
a) Increase in national income
b) Decrease in national income
c) National income remain constant
d) Can’t say with certainty
252. Planned investment is equal to planned saving is an example of
a) Equation
b) Identity
c) Axiom
d) Law
253. Actual investment is equal to actual saving is an example of
a) Identity
b) Axiom
c) Equation
d) Law
254. Rational expectationists holds that Government regulation are
a) Ineffective
b) Highly effective
c) Effective only in the short run
d) Effective only in the long run
255. Increase in unemployment and inflation is called
a) Stagflation
b) Hyper-inflation
c) Reflation
d) Deflation
256. Given the total investment expenditure,an increase in the propensity to save will lead to a
a) Fall in the quantity of income
b) Fall in income
c) Rise in income
d) Rise in interest rate
257. In which sector ,expenditure method is used in India for calculating national income
a) The agricultural sector
b) The transportation sector
c) The mining sector
d) The construction sector
258. The burden of tax on monopoly profit will be
a) Entirely on the consumer
b) Equally distributed among producer and consumer
c) More on the consumer than the producer
d) Entirely on the product
259. A profit maximizing firm will stop production in the short run if the price is
a) Less than average cost
b) Less than average variable cost
c) Equal to average cost
d) Below the marginal cost
260. Which one of the following agencies in India is responsible for computation of national income?
a) NCAER
b) R.B.I
c) N.S.S
d) CSO
261. What is the approximate share of the agricultural sector in the total employment in India ?
a) 65%
b) 40%
c) 45%
d) 50%
262. The General Theory of Employment ,Interest and Money published in
a) 1933
b) 1934
c) 1935
d) 1936
263. Macro economics is popularly known as the study of
a) Theory of national income
b) Theory of factor pricing
c) Theory of income and employment
d) None of the above
264. We are concerning with the following aggregates in Macro –Economics except one .Which
a) Out put
b) Employment
c) Production of industrial equipments
d) The general price level
265. Which aggregate is the main concern of Macro-Economics
a) Supply of work
b) Supply of cloth
c) Supply of money
d) Supply of petroleum products
266. Macro-Economics provides the solution to the problem of
a) Problem relating to domestic and international trade
b) Problem relating to the allocation of resources between the consumer goods and capital goods
c) Problem relating to the growth of productive capacity
d) None of the above
267. The scope of Macro-Economics revolves around the following except one
a) The theory of economic growth
b) The theory of price level
c) The theory of price determination
d) The theory of employment
268. Macro-Economics deals with the whole economic system.While one of the question below is not answered.State from the following
a) What determines the level of prices?
b) What determines the magnitude of the total output of the country during some given period of time ?
c) What determines to rate at which this output grows?
d) None pf the above
269. A growing country is one with
a) Constant GNP at constant prices
b) Rising GNP at current prices
c) Rising GNP at constant prices
d) None of the above
270. The difference between gross domestic product and net domestic product equals
a) Depreciation cost
b) Indirect taxes
c) Transfer payments
d) Subsidies
271. Net domestic product at factor cost equals net domestic product at market prices
a) Plus subsidies
b) Minus {subsidies add indirect taxes}
c) Minus indirect taxes
d) Plus {subsidies less indirect taxes}
272. Which one of the following is a transfer income
a) The salary of an M.P
b) Unemployment allowances
c) Rents from the house property
d) Dividend to company shareholders
273. A transfer income is best defined as one
a) Which arises when people do unpaid job’s for each other
b) Which is paid entirely out of someone else’s income
c) Which is made up of unearned income
d) Which doesn’t represent income for economic activity
274. Transfer income are not included in the national income accounts because
a) They are already included in the company earnings
b) They are already included in the total of personal income
c) There is no way of calculating them effectively
d) The do not represent payment for economic activity
275. Which of the following is not true ?
a) GNP less depreciation = NNP
b) GNP = GDP + Net income from foreign assets
c) NNP minus depreciation allowance = GNP
d) NNP at market price subsidies minus indirect taxes = NNI at factory cost
276. The three method of computing national income are
a) Outlay ,depreciation and production method
b) Production, outlay and income method
c) Balance of payment, income and consumption method
d) Saving, investment and income method
277. Incase of circular flow of income, factor of production is received by
a) capital market
b) Government
c) Household
d) Business
278. national income is a
a) Quasi stock concept
b) Stock concept
c) Flow concept
d) None of the above
279. Primary sector includes
a) Agriculture
b) Banking
c) Transport
d) Communication
280. secondary sector includes
a) Mining
b) Manufacturing
c) Transport
d) Banking
281. Tertiory sector includes
a) Forest
b) Banking
c) Manufacturing
d) Mining
282. Which one is not a leakage in the circular flow of income
a) Imports
b) Saving
c) Taxes
d) Government expenditure
283. The essential condition of equilibrium in a two sector model is
a) Taxes = Government expenditure
b) Saving = investment
c) Export = import
d) aggregate income and aggregate expenditure could be equal
284. the condition of equilibrium in four sector model is
a) T = G
b) S = I
c) S+T = G+I
d) S+T+M = G+T+M
285. Aggregate monetary demand is ,in national income term
a) the demand for the money by community in a period of full employment
b) the total expenditure on consumer goods and investment, including Government expenditure, during a given period
c) total expenditure on capital goods by entrepreneurs during a period of full employment
d) total potential demand by the community excluding Government ,during a given period
286. The main determinant of the level of the activity is, in national income terms
a) The factor mobility
b) Realized investment
c) Planned saving
d) The level of taxation
287. The most important of the variables which effect saving was ,according to Keynes
a) Income
b) Employment
c) Demand elasticity
d) Short term interest rate
288. As used by economists the word ‘saving’ means
a) The part of income not spend on consumption during some given time period
b) The total amount of money which people have accumulated in the past
c) The same thing as investment, since S = I when the economy is in equilibrium
d) The amount of money people don’t spend in the course of some given period
289. Assuming the statistical information is available,which of the following is the best measure of an increase in a country’s economic activity
a) Increase in real per capita income
b) Increase in real national income
c) Increase in net annual investment
d) Increase in annual private investment
290. An example of double counting in national income would be
a) Wages of bus and train drivers
b) Tax receipts and earnings of inland revenue official
c) Cotton out put and cotton cloth output
d) Water output and electricity output
291. In a closed economy model, which sectors are included
a) Firms
b) Households
c) Government
d) All of the above
292. A household in a two sector model is essentially unit of
a) Investment
b) Production
c) Consumption
d) None of the above
293. The simple analysis of income determination in income employment and public policy has been written by
a) Ronald T.Teigen
b) P.B.Musgrave
c) P.A.Samulson
d) Hansel Alvin
294. By the term classical dichotomy we mean
a) Labour market and commodity market is disjointed with the money market
b) Labour market ,money market and capital market all are disjointed
c) Labour market and money market are disjointed with the capital market
d) None of the above
295. In Macro-Economics,there exists a conflicting relationship between growth and distribution in the sense that
a) Growth usually deteriorates the existing distribution by increasing inequality
b) Growth and distribution are different targets and can’t be tackled in the same framework
c) Growth doesn’t bring about efficient distinction by itself
d) All of the above
296. Consumption can be defined as
a) Any activity directed to the satisfaction of wants
b) The use of goods for the satisfaction in future
c) The use of goods and services to satisfy current wants
d) The wearing out of physical assets
297. In studying the consumption function we considers all other factors except this one as constant
a) Advertising
b) Level of disposable income
c) Outlook for the future
d) Household’s stock of wealth
298. Relation between income and investment is usually
a) Positive
b) Not related
c) Negative
d) Can’t say with certainty
299. In a market economy the allocation of the factors of production among the various productive activities is determined by
a) The pattern of consumer spending
b) The needs of the country
c) The traditional employment of factors of production
d) Decision of the Government
300. Gardner Ackley has criticized the life cycle hypothesis because
a) It fails to recognize the importance of liquidity constrain
b) It assumes that the households “have a definite and conscious vision”
c) Household has complete vision of family’s future size ,lifetime profile of income, life expectancy ,etc
d) All of the above
301. Fried Man’s theory of consumption is based on
a) Current level of income
b) Long term expected income
c) Both a) and b)
d) Neither a) nor b)
302. The life cycle hypothesis explains the difference between
a) Cyclical and long run consumption
b) Current income and current investment function
c) Current income and current saving
d) Cyclical and long run investment function
303. Life cycle theory of consumption was brought by
a) Duesenberry
b) A.C.Pigoi
c) Friedman
d) Ando and Modiglani
304. ‘Transitory income’ term was propounded by
a) John Robinson
b) Milton Friedman
c) Duesenberry
d) Ando and Modiglani
305. According to permanent income hypothesis, the consumption is proportional to permanent income. The constant of proportion depends upon
a) Household’s preference for immediate consumption as against the desire to add to the stock of wealth
b) Relative amount of income from physical assets and income from labour
c) Rate of interest
d) All of the above
306. Duesenberry suggests that when income of individual falls, their consumption expenditure does not fall much. He gave this concept the name of
a) Ratchet effect
b) Demonstration effect
c) Both
d) None
307. The concept of ‘demonstration effect’ was produced by
a) Marshall
b) Modigliani and Ando
c) Duesenberry
d) Friedman
308. Duesenberry had propounded in his theory of consumption that expenditure depends upon
a) Gross national product of the country
b) Gross domestic product of the country
c) Relative income of an individual
d) Absolute income of an individual
309. Relative income theory of consumption is produced by
a) JS.Mill
b) Milton Friedman
c) Duesenberry
d) Ando and Modigliani
310. The concept of consumption function is important because
a) It helps us in explaining the turning points of the business cycle
b) It helps us to invalidate Say’s law of classical economics
c) It brings out crucial significance of investment demand for determination of the level of income and employment in capitalist economy
d) All of the above
311. A consumption function is such that APC = MPC at all level of income.Which of the following statements will apply to a graphical representation of such a function
a) The consumption function must be a vertical straight line
b) The consumption function must be a straight line at 45º to the horizontal axis
c) The consumption function must be horizontal axis
d) The consumption function must be a straight line passing through the origin
312. In formulating ,consumption function Keynes ignored the impact of
a) Wealth
b) Income
c) Both a) and b)
d) None of the above
313. Concept of permanent consumption was introduced by
a) Samuelson
b) Milton Freidman
c) Harrod
d) Simon Kuznets
314. The marginal propensity to consume may be considered as the ratio of extra consumption to
a) Extra saving
b) Extra income
c) Extra employment
d) Break-even income
315. Which of the following would be regarded by an economist as investment?
a) Buying a new car
b) Betting a horse race
c) Making a loan to a business
d) Building a house
316. When Keynes defined a certain economic concept as “being equal to the rate of discount which would make the present value of the series of annuities given by the return expected from the capital assets during its life just equal to its supply price”
a) Normal rate of depreciation
b) Equilibrium rate of interest
c) Replacement rate of capital
d) Marginal efficiency of capital
317. The accelerator measures
a) The rate of growth of national income
b) The effects of consumption on investment
c) The investment on consumption
d) The effect of investment on the national income
318. In case of under developed countries, rate of growth of income can be increased by
a) Saving
b) Consumption
c) Both
d) None of the above
319. Relation between income and transaction demand for money is
a) Reverse
b) Proportional
c) Disproportional
d) None of the above
320. Regardless of the developed stage of an economy
a) Money must be a legal tender
b) A Government must exist for money to exist
c) Money must facilitate if it has to fulfill its purpose
d) Money must perform all the functions of money to be mutually accepted
321. Large increase in price levels will not
a) Maintain the value of money
b) depreciation the value of money
c) increase the turnover money
d) lower the purchasing power of money
322. How can the nation close a saving gap?
a) Reduce its incremental capital out put ratio
b) Reduced domestic consumption
c) Option more foreign
d) All of the above
323. In reality, money supply is
a) Endogenous
b) Exogenous
c) Both a) and b)
d) None of the above
324. ‘fiat’ money is that which is
a) Accepted temporarily in lieu of gold
b) Accepted by overseas banks only
c) Decreed as money by Government
d) Backed by gold and silver
325. Token coin means
a) The coin whose face value is more than the value of the metal
b) The coin issued by some authority for the mere sake representation
c) The coin issued for the deposit of the standard coin
d) The coin issued as a token of deposited money
326. In order for a Government to issue full bodied coins, it must
a) Purchase all the metal that is offered and coin it without limit at a stipulated price
b) Permit the melting of coins to obtain gold for non monetary unit
c) Define the gold value of monetary unit
d) All of the above are required
327. Monometalism means
a) The circulation of the metallic monograms
b) The coin made of a kind of metal known as mono
c) The coin made of single metal
d) None of these
328. Gresham’s Law states that
a) Bad money promotes good money in the system
b) Good money drives bad money out of circulation
c) Bad money drives good money
d) Good money promotes bad money in the system
329. The total rupee value of bank assets is equal to
a) Loans and advances
b) Loans, securities and cash – at- hand
c) Demand deposits plus saving and time deposits
d) Liabilities and capital account
330. The demand for demand deposit claims
a) Depends on the services offered by the banks
b) Depends on the relative return of close substitute
c) Depends on the availability of close substitute
d) All of the above
331. A particular bank in determining where it will make a particular loan specifically examines its
a) Deposits
b) Required reserves
c) Total reserves
d) Excess reserves
332. Which of the following was not an important disadvantage of full bodied coins
a) Coins were easily stolen in transit
b) Bank money was cheaper
c) Deterioration in the value of coins
d) significant transportation costs
333. Since full bodied coins have the some value in monetary and non monetary uses
a) Their value varies positively with the changes in the level of prices
b) They have fixed purchasing power
c) They have constant value
d) Their purchasing power varies reciprocally with the prices
334. Which bank was called imperial bank?
a) Punjab National Bank
b) Vijaya Bank
c) Bank of India
d) State Bank of India
335. Keynes termed as ‘active balances’ the money held for
a) The precautionary motive only
b) The transaction and precautionary motives
c) The speculative motive only
d) The transaction motive only
336. Who stressed the fundamental uncertainty about the future, which enters the choice between holding money balances and commodities, which can lead to unemployment?
a) Clower
b) Patinkin
c) Tobin
d) Solow
337. The composition of bank’s portfolio will depend upon
a) The relative liquidity of each assets
b) The relative rate of return on each asset
c) Central bank restrictions
d) All of the above
338. The size of the bank’s portfolio will depend on
a) The total amount of its deposits liabilities
b) The existing economic conditions
c) The bank’s reseve position
d) All of the above
339. If you offered some securities as “security for a loan you made” you would be
a) Selling short
b) Providing collateral
c) Buying on “margins”
d) Carrying securities
340. Moral suasion
a) A term descriptive of the not corrupt practices of the banks
b) Persuation of banks to adhere to Central Bank desires
c) A term applied to bank that are conservative in their banking practices
d) A term descriptive of the corrupt practices of many banks
341. Double digit price rise take place when price is higher than
a) 50%
b) 10%
c) 5%
d) 100%
342. In the money market
a) There are 3 equations and 4 unknowns
b) There are 3 equations and 3 unknowns
c) There are 5 equations and 6 unknowns
d) There are 4 equations and 3 unknowns
343. Which of the following statement is true?
a) The velocity of the circulation of the money changes from time to time under the influence of several factors
b) The transactions velocity of circulation remains constant while the income velocity of circulation changes over a period of time
c) The velocity of circulation of money remains constant over a period of time
d) All the above statements are wrong
344. If all banks in an economy are nationalized and converted in to a monopoly bank total deposit creation
a) Will decrease
b) Will increase
c) Both a) and b)
d) Will neither increase nor decrease
345. For speculators ,margin money is kept
a) Same as for other sectors
b) Low
c) High
d) None of the above
346. A retail price index is a useful measure for changes in
a) Effective demand for consumer goods
b) Average cost of living
c) Average standard of living
d) Consumer pattern of expenditure
347. Lipsey’s theory for the phenomenon of Philips curve depends on the concept of
a) Output adjustment rule
b) Price adjustment rule
c) Wages adjustment rule
d) All of the above
348. The Philips curve differs in short run and long run in terms of
a) Intercept term
b) Variables associated
c) Sloped coefficient
d) Expectation mechanism
349. Liquidity trap sets a loop
a) Below which the market rate of interest cannot fall
b) Above which market rate of interest can not rise
c) Below which the discount rate can not fall
d) Above which discount rate can not rise
350. Inflation after the end of war is an example of
a) Open inflation
b) Hyper inflation
c) Suppressed inflation
d) Deflation
Answers:
1.2.3.4.5.6.7.8.9.10.11.12.13.14.15.16.17.18.19.20.21.22.23.24.25.26.27.28.29.30.31.32.33.34.35.36.37.38.39.40.41.42.43.44.45.46.47.48.49.50.51.52.53.54.55.56.57.58.59.60.61.62.63.64.65.66.67.68.69.70.71.72.73.74.75.76.77.78.79.80.81.82.83.84.85.86.87.88.89.90.91.92.93.94.95.96.97.98.99.100.101.102.103.104.105.106.107.108.109.110.111.112.113.114.115.116.117.118.119.120.121.122.123.124.125.126.127.128.129.130.131.132.133.134.135.136.137.138.139.140.141.142.143.144.145.146.147.148.149.150.151.152.153.154.155.156.157.158.159.160.161.162.163.164.165.166.167.168.169.170.171.172.173.174.175.176.177.178.179.180.181.182.183.184.185.186.187.188.189.190.191.192.193.194.195.196.197.198.199.200.201.202.203.204.205.206.207.208.209.210.211.212.213.214.215.216.217.218.219.220.221.222.223.224.225.226.227.228.229.230.231.232.233.234.235.236.237.238.239.240.241.242.243.244.245.246.247.248.249.250.251.252.253.254.255.256.257.258.259.260.261.262.263.264.265.266.267.c,268.d,269.c,270.a,271.d,272.b,273.d,274.d,275.c,276.b,277.c,278.c,279.a,280.b,281.b,282.d,283.b,284.d,285.b,286.b,287.a,288.a,289.a,290.c,291.d,292.a,293.a,294.c,295.a,296.a,297.b,298.a,299.a,300.d,301.b,302.a,303.d,304.b,305.d,306.a,307.c,308.c,309.c,310.d,311.d,312.a,313.b,314.b,315.d,316.d,317.b,318.a,319.b,320.c,321.a,322.a,323.c,324.c,325.a,326.c,327.c,328.d,329.d,330.d,331.d,332.b,333.d,334.d,335.b,336.a,337.d,338.d,339.b,340.b,341.b,342.b,343.a,344.d,345.c,346.b,347.c,348.b,349.d,350.c
Tuesday, August 17, 2010
THEORIES OF CAPITALIST CRISIS
THEORIES OF CAPITALIST CRISIS
Marxist theories of crisis have been elaborated for the industrialized capitalist system of the centre countries. There are crisis associated with the falling tendency of the rate of profit and there are realization crisis. The tendency of the rate of profit to fall as accumulation proceeds under capitalism can cause a crisis and lead to disequilibrium. On the other hand , realization crisis are associated with disequilibrium in which commodities are sell at price less than their values.
Causes of crisis:
The causes of crisis analyzed mainly in three sets of theories associated with the two types of crisis. They are,
1. falling rate of profit
2. disproportionality and
3. underconsumption.
The falling rate of profit:
According to Marx,
“the falling tendency of rate of profit as the prime cause of capitalist crisis”
The endogenous fall in the rate of profit may be due to an increase in the wage rate in the short run. There is an inherent tendency of the rate of profit to fall in the long run in a capitalist economy.
TO BE Cntd.
Marxist theories of crisis have been elaborated for the industrialized capitalist system of the centre countries. There are crisis associated with the falling tendency of the rate of profit and there are realization crisis. The tendency of the rate of profit to fall as accumulation proceeds under capitalism can cause a crisis and lead to disequilibrium. On the other hand , realization crisis are associated with disequilibrium in which commodities are sell at price less than their values.
Causes of crisis:
The causes of crisis analyzed mainly in three sets of theories associated with the two types of crisis. They are,
1. falling rate of profit
2. disproportionality and
3. underconsumption.
The falling rate of profit:
According to Marx,
“the falling tendency of rate of profit as the prime cause of capitalist crisis”
The endogenous fall in the rate of profit may be due to an increase in the wage rate in the short run. There is an inherent tendency of the rate of profit to fall in the long run in a capitalist economy.
TO BE Cntd.
KERALA’S NEW VALUE SYSTEM
KERALA’S NEW VALUE SYSTEM
Some of the value system imbided by the ‘awakened masses’ are paradoxically the feudal value system. The disdain formattnel work and preference for white collar works have been noticed among the youngsters of the Kerala. This is the contribution of the Education sector to the state development. This explain partially or partly the paradox of labour scarcity in rural casual labour markets despite higher wages. The wage rate for shop assistant or mobile sales agents are very often less than ten days of agricultural wages. Still the preference is for such jobs, limiting the supply for casual work in construction,agriculture etc.As a result we have the paradox of large scale immigration of union were successful in sustaining large number of vestrine practice. In the absence of increase in employment the trade unions in disfesaction resorted to not just a short from but a short sighted strategy of protecting the insiders not unknown in trade union history. These ‘closed up’ policy led to the development of a renties behaviour with in segments of unionized labour that had successfully secured the right to allocate jobs to its members. Accountability was another casuality of these unresistal trade union movement neither can’t less stick nor the higher socialist values could motivate large segments of labour in Kerala. A joke going round in the state is that may workers thought that non-exaction of surplus value is the best means of exploitation.
NO MORE NEW AGENDAS:-
The Kerala model granting to a half ,because the social and political groups , have fulfilled this original agenda are now left with no more new agendas. The society as a whole lost its capacity to set collective goals. There are no more big dreams. Labour from the neighbouring states when the states unemployment rates are 3 to 5 times the all India levels.
The dismal nature of kerala fall in growth rates,
social development
growth of percapita income
agricultural development decelerating
industrial development
Lessons:-
1. priority was given for a long time for social services.
2. total revenue was unadequate to to pay salaries resulted in cutting of plan sizes resulted in low rate of growth. Kerala today is facing two problems
3. quality of social welfare measure is slowly going down and
4. technical education is lagging behind.
We can’t find jobs in the job markets otherwise our quality of education is improved. But the quality can’t improved due to lack of expenditure on education is much less than in other states. Though Kerala is top in spending amount on education and healthcare is coming down or the state spend less amount on education and health care. During the last 20 years a parallel education system and a parallel health care system is developed. Student do not going to government schools. In the private sector ,job oriented education is developed mainly on commercial basis aims to earn high profits. Social security system failed. At present ,institution in Kerala are not dysfunctional but counter functional tendency to go as in older days. Highly segmented intellectual is another factor. Poet ,Dramatists, doctors ,Lecturers who are very intellectual.
Unless corresponding economic development is take place. Kerala can’t maintain it social developments. If we want to sustain our Kerala model, we have to strengthen the base of the economy particularly industry.
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Some of the value system imbided by the ‘awakened masses’ are paradoxically the feudal value system. The disdain formattnel work and preference for white collar works have been noticed among the youngsters of the Kerala. This is the contribution of the Education sector to the state development. This explain partially or partly the paradox of labour scarcity in rural casual labour markets despite higher wages. The wage rate for shop assistant or mobile sales agents are very often less than ten days of agricultural wages. Still the preference is for such jobs, limiting the supply for casual work in construction,agriculture etc.As a result we have the paradox of large scale immigration of union were successful in sustaining large number of vestrine practice. In the absence of increase in employment the trade unions in disfesaction resorted to not just a short from but a short sighted strategy of protecting the insiders not unknown in trade union history. These ‘closed up’ policy led to the development of a renties behaviour with in segments of unionized labour that had successfully secured the right to allocate jobs to its members. Accountability was another casuality of these unresistal trade union movement neither can’t less stick nor the higher socialist values could motivate large segments of labour in Kerala. A joke going round in the state is that may workers thought that non-exaction of surplus value is the best means of exploitation.
NO MORE NEW AGENDAS:-
The Kerala model granting to a half ,because the social and political groups , have fulfilled this original agenda are now left with no more new agendas. The society as a whole lost its capacity to set collective goals. There are no more big dreams. Labour from the neighbouring states when the states unemployment rates are 3 to 5 times the all India levels.
The dismal nature of kerala fall in growth rates,
social development
growth of percapita income
agricultural development decelerating
industrial development
Lessons:-
1. priority was given for a long time for social services.
2. total revenue was unadequate to to pay salaries resulted in cutting of plan sizes resulted in low rate of growth. Kerala today is facing two problems
3. quality of social welfare measure is slowly going down and
4. technical education is lagging behind.
We can’t find jobs in the job markets otherwise our quality of education is improved. But the quality can’t improved due to lack of expenditure on education is much less than in other states. Though Kerala is top in spending amount on education and healthcare is coming down or the state spend less amount on education and health care. During the last 20 years a parallel education system and a parallel health care system is developed. Student do not going to government schools. In the private sector ,job oriented education is developed mainly on commercial basis aims to earn high profits. Social security system failed. At present ,institution in Kerala are not dysfunctional but counter functional tendency to go as in older days. Highly segmented intellectual is another factor. Poet ,Dramatists, doctors ,Lecturers who are very intellectual.
Unless corresponding economic development is take place. Kerala can’t maintain it social developments. If we want to sustain our Kerala model, we have to strengthen the base of the economy particularly industry.
$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$$
THEORIES OF VALUE
MERCANTILISTS WIEW ON VALUE:-
According to mercantilists there are two types of value,viz,
1. Intrinsic value and
2. Extrinsic value.
Former is the power of the commodity to satisfy human wants(in other words it depends upon ‘utility’ of a commodity).By extrinsic value,the mercantilists mean only the cost of production.William Petty clearly mentioned that value depended on the expenses of production.According to him,market value was extrinsic value of a commodity which fluctuated according to a rise or fall in the supply and demand.Locke indicated the important of labor and its contribution towards the determination of value. He was the for runner of the Labor Theory of Value which was developed later. In two treaties concerning government (1690)he continued to use-value
PHYSIOCRATS VIEWS ON VALUE:-
Physiocrats had taken little interest in its theory of value. According to Turgot value depend upon utility. But they didn’t regard value inherent in commodities,they also differentiated value in use and value in exchange. But they treated price and value as one and the same thing. Value according to physiocrats was not fixed but changed from time to time depending upon demand. Any how the theory of value was not much important part of the physiocratic school.
CLASSICAL ECONOMISTS VIEWS ON VALUE:-
The body of doctrines which tells Sway in England for nearly hundred years after the doctrine of physiocracy is named as classicism.These doctrines are pre founded by Adam Smith and his followers. His followers include Ricardo,Malthus,Mill and Senoor. These writers following the foot steps of their leader ADAM Smith,contributed much in the development of science of political economy. However ,Adam Smith has been regarded as the father of the English Classical economics and the leader of classical school.
The word ‘classic’ has been introduced first by Karl Marx. This term used in the economic literature to convey three different meanings. First ,it is used to indicate economic writings of the period from Adam Smith to J.s Mill. Secondly the Keynes has used the term used to indicate the teaching of Marshall and his immediate followers. Lastly ,Schumpeter has used this term to mean the consolidation of the original writings that went before. Any how ,the economist who wrote between the period 1750 to 1850formed the classical school. The classical theory of value was stated by Adam Smith. The same theory was developed later by David Ricardo. But Ricardian labor theory of value has some weakness and some loopholes. The shortcomings in the Ricardian theory of value was bridged by Karl Marx and he perfected the labor theory of value.
ADAM SMITH’S VIEWS ON VALUE OR WATER DIAMOND PARADOX:-
Adam Smith started his discussion of value by distinguishing between two,
1. value in use (utility)
2. value in exchange (the power of a commodity to purchase other commodities in the market)
He mentioned that the commodity possessing greatest value in use (eg . water)have little or no value in exchange. On the contrary the commodity having little or no value –in-use (eg. Diamond)have the greatest value in exchange. This paradox is called “water diamond paradox”. Thus he came to the conclusion that use-value or the utility can’t be the basis of the exchangeable value of commodities.
SMITH’S VIEW ON LABOUR TTHEORY OF VALUE:-
The theory of value occupies a strategic position in classical economics. But Adam Smith was much confused regarding his theory of value. In his “Wealth of Nations”,we can pointed out the elements of labor theory of value as well as reputation of it. We can find an admixture of the price theory and the distribution theory. Similarly we can find a confusion between labor cost (labour embodied) and labor command aspects of the value of a commodity.
Adam Smith begins his discussion of value by distinguishing value-in-use from value-in-exchange. Value in use means utility of a commodity. Value in exchange means the power of a commodity to purchase another commodity in exchange. Then he tries to explain value-paradox or water -diamond paradox. He mentioned that the utility or use value can’t be the basis of exchange value. He is concerned with exchange value alone.
SOURCE AND MEASURE OF VALUE:-
By source or course of value ,we mean the factor which is responsible for value. Measure of value means the way value is to be computed or measured.
Adam Smith considered labour as the original source of all value. “the annual labour of the nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes”(Adam Smith observes that labour is the real measure of the exchangeable value of all commodities).
LABOUR THEORY OF VALUE:-
According to Smith ,labour is both measure and source of value. It is the real measure of the exchangeable value of all commodities. The Labour Theory of Value has two distinct versions. They are,
1. The labour cost or the labour embodied theory and
2. The labour command theory.
1. LABOUR COST THEORY:- According to labour cost theory,the exchangeable value(real price)of a commodity is nothing but the amount of labour required to produce it. Thus the quantity of labour embodied (ie the amount of labour contained)in a commodity determines its value in a primibisingle factor (labour)societies. In primitive societies where labour is the only factor of production both the source and measure of value coincide in labour. Hence,in each societies labour embodied is equal to labour commanded. Relative labour cost determines the relative value.
2. LABOUR COMMAND THEORY:-according to labour command theory,the price of a commodity is equal to amount of labour which its possessor can purchase or command in the market in exchange for it. The real price of everything ,what every thing really costs to the man who wants to acquire it is the toil and trouble of acquiring it ?
In advanced societies ,production of a commodity is the result of the cooperative effort of labor ,land and capital. In such a situation,the price of a commodity will be the sum of the wages ,rent and profit. There is now a difference between the labour cost of production and the labour commanded. Labour commanded is the market value and is equal to the cost paid to all the factors. Labour cost is only a part of the total cost. In this case labour embodied in a commodity will be less than the labour commanded by that commodity. In shortly it represents ,in essence a cost of production theory of value.
The labour embodied value and labour command value of a commodity will be identical only when labour is the only factor which is to be paid for. In short ,labour theory of value is valid only in primitive societies. When labour is the main or the only factor of production. But in advanced societies the labour command theory or cost of production theory lead the sway
Smith was in search of an variable measure of value. According to Smith ,variable measure is the labour ,because its value remains more or less the same. The equal quantities of labour ,at all times and places,may be said to be of equal value to the labourer. The final conclusion is that labour is the only universal as well as the only accurate measure of value,or the only standard by which we can compare the value of different commodities,at all times and at all places.
NATURAL PRICE AND MARKET PRICE;-
Smith analysed value in terms of money that is price. In the ultimate analysis of value theory Smith distinguishes between natural price (normal or real price)and market price. The natural price of a commodity is defined as that price which covers the natural rates of wages ,profit and rent. It is the longterm price which is exactly equal to labour –commanded value of a commodity.
In this sense ,the concept of natural price is essentially the cost of production theory of value.
The market price is the actual price prevailing in the market. It is determined by the forces of demand and supply. The market price lie above or below natural price or it may be equal to natural price. Natural price is the ideal towards which the market price is continually gravitating. Smith argues that in Laizes –fair economy an automate mechanism (say price mechanism or invisible hand) brings about equality between market price and natural price.
CRITICISMS
1. Smith did not have one theory of value ,and certainly not the labour theory of value.
2. he regarded labour as the soul source of production or value.This is not correct in the case of advanced economies.
3. He did not a full account of the determination of value or price. He totally neglected the demand side in the determination of value.
THEORY OF VALUE BY RICARDO:
Ricardo starts in the foot steps of Adam Smith on the subject of value. In the outset, he has drawn a distinction between “Natural Value and Market Value”. By natural value ,he meant that point around which market value fluctuates and ultimately tends to equalize with it.
He starts the analysis of natural value by distinguishing between value-in-use and value-in-exchange. To pointed out that to have exchangeable value,a commodity must have utility. But utility can’t be the measure of exchangeable value.
Commodity possessing utility derive this exchangeable value fom two sources,
a. Scarcity and
b. The quantity of labour required to obtain them.
In this contexts Recardo distinguishes two kinds of commodities.
a. Those that can be multiplied and
b. Those can’t be multiplied.
In case of commodity that can’t be multiplied ,their value is determined by scarcity alone(eg.rare statues and pictures). In fact, he considers that such commodity are limited in number. Therefore he has given more attention to those commodities which can be multiplied according to desire without any assignable limit. Such commodity derive their exchangeable value from the quantity of labour required to obtain them as well as from their scarcity.
Ricardo divided the commodities in to,
a. Non-reproducible commodities and ,
b. Re –producible commodities.
In the case of non-reproducible commodities ,scarcity alone matters in the determination of exchange value.
In case of re-producible commodities the value is determined in terms of the quantity of labor embodied in each commodity. In short ,Recardo measure the exchange valu of re-producible commodities in terms of their labour costs. He has thus a lbour theory of value..
LABOUR THEORY OF VALUE
Ricardo’s labour theory of value may be expressed as follows,
“the value of a commodity or the quantity of any other commodity for which it will exchange depend on the relative quantity of labour which is necessary for its production and not on the greater or the less compensation which is paid for that labour”
He suggested that the “exchangeable value of the commodities produced would be in proportion to the labour bestowed on the production”
In short Ricardian theory of value contends that the labour in the foundation of all value and the relative quantities of labour embodiment determines the relative value of commodities. It follows that ,the Ricardian theory of value is the labour embodied theory of value both to the rude state of society as well as to the advanced state of society. Ricardian theory of value attaches sole importants to the supply side.
Assumptions of the theory:-
1. perfect competition
2. re-producible commodities
3. labour is the only factor of production
4. perfect mobility of labour
5. constant returns to scale
6. homogenous production function
7. full employment condition
Problems faced in the labour theory of value:-
1. Labour is assumed to be the homogenous factor.
But Ricardian was aware of the un-realistic nature of the assumption of homogeneity nature of the labour. Ricardo removed this problem by transforming labour quality in to labour quantity. He said that skilled labour can be treated as multiple of ordinary labour.
2. Use of capital.
Another problem arises when the when the capital is used for assisting labour is the process of production. Then the value is not proportionate to the quantity of labour embodied in the production but to the cost of production. Ricardo solving this problem by saying that capital is only congeable or accumulated labour(dead or stored up labour). It is the result of past sacrifice in terms of human effort. Therefore labour is treated as the sole determinant of exchangeable value.
Then also Ricardo faces certain problems. Ricardo introduced the differences of capital quality in to the frame work of his theory of value. Differences in the quality of congealed in its nature –whether it is circulating or fixed capital. Similarly the difference in capital quality is reflected in the differences in the time taken to bring the final product in to the market. Therefore he tried to introduce the time element in his theory. The price of the commodity will be greater, greater the length of time which must elapse before it can be brought to market.
Put the introduction of capital will not in validate the labour theory of value if ,
a. The ratio of fixed capital to labour remains the same every where
b. All fixed capital are equally durable and
c. The rturn on capital is the same in all lines of production.
3. Wages and profits as cost of production.
According to Ricardo the value of product is appropriated by the capitalists in two forms
a. wages paid to the labourer and
b. the profit retained by the capitalist.
According to him wages and profits inversely related. When wages increase,profit will fall and vice-versa. But this has no effect on the relative value of commodities.
4. Influence of the composition of capital.
Ricardo maintains that the differences in the proportion of fixed and circulating capital will cause change in the relative values. He observed that the relative value of those goods which are produced with a more durable capital will fall and the relative value of goods produced by using less durable or perishable capital will tend to rise.
The effect of different proportions of durabilities of capital on value can be seen from another angle. A rise in wages lowers the value of capital intensive goods inrelation to the labour intensive goods. Thus a rise in wages results in lengthening the average period of production. Hayeck calls this effect as the “Ricardo effect”. It shows the influence of change in the distribution of national income upon the value of national income.
After eliminating all those disturbing factors in the way of labour theory of value Ricardo concluded that the real value is determined by the labour content of the commodity. In fact the ,the labour cost, according to Stingler , in the Ricardian labour theory of value comes to nearly 93% of the total cost.,the rest nearly 7% is accounted for by capital element. Thus Stingler rightly christens Ricardian theory of value as 93% labour theory of value. However Ricardo was not satisfied with his formulation of value theory ,he wrote to MC Cullochi,
“I am not satisfied with the explanation which I have given by the principle which regulates value. I wish a more able pen would undertake it”
INVARIABLE MEASSURE OF VALUE
Ricardo was in search of an invariable measure of value. Ricardo selected gold as the standard commodity which can be used for the invariable measure of value.
CRITICISMS:-
a. Ricardian theory of value is based on unrealistic assumption
b. Ricardian labour theory of value is one sided. It di not consider the demand side.
c. Ricardo neglected the scarcity aspect in the determination of exchangeable value of re -producible commodities
d. Ricardian theory did not deal with the short run problem
e. He has not taken in to account the depreciation of capita.
*****************
MERCANTILISTS WIEW ON VALUE:-
According to mercantilists there are two types of value,viz,
1. Intrinsic value and
2. Extrinsic value.
Former is the power of the commodity to satisfy human wants(in other words it depends upon ‘utility’ of a commodity).By extrinsic value,the mercantilists mean only the cost of production.William Petty clearly mentioned that value depended on the expenses of production.According to him,market value was extrinsic value of a commodity which fluctuated according to a rise or fall in the supply and demand.Locke indicated the important of labor and its contribution towards the determination of value. He was the for runner of the Labor Theory of Value which was developed later. In two treaties concerning government (1690)he continued to use-value
PHYSIOCRATS VIEWS ON VALUE:-
Physiocrats had taken little interest in its theory of value. According to Turgot value depend upon utility. But they didn’t regard value inherent in commodities,they also differentiated value in use and value in exchange. But they treated price and value as one and the same thing. Value according to physiocrats was not fixed but changed from time to time depending upon demand. Any how the theory of value was not much important part of the physiocratic school.
CLASSICAL ECONOMISTS VIEWS ON VALUE:-
The body of doctrines which tells Sway in England for nearly hundred years after the doctrine of physiocracy is named as classicism.These doctrines are pre founded by Adam Smith and his followers. His followers include Ricardo,Malthus,Mill and Senoor. These writers following the foot steps of their leader ADAM Smith,contributed much in the development of science of political economy. However ,Adam Smith has been regarded as the father of the English Classical economics and the leader of classical school.
The word ‘classic’ has been introduced first by Karl Marx. This term used in the economic literature to convey three different meanings. First ,it is used to indicate economic writings of the period from Adam Smith to J.s Mill. Secondly the Keynes has used the term used to indicate the teaching of Marshall and his immediate followers. Lastly ,Schumpeter has used this term to mean the consolidation of the original writings that went before. Any how ,the economist who wrote between the period 1750 to 1850formed the classical school. The classical theory of value was stated by Adam Smith. The same theory was developed later by David Ricardo. But Ricardian labor theory of value has some weakness and some loopholes. The shortcomings in the Ricardian theory of value was bridged by Karl Marx and he perfected the labor theory of value.
ADAM SMITH’S VIEWS ON VALUE OR WATER DIAMOND PARADOX:-
Adam Smith started his discussion of value by distinguishing between two,
1. value in use (utility)
2. value in exchange (the power of a commodity to purchase other commodities in the market)
He mentioned that the commodity possessing greatest value in use (eg . water)have little or no value in exchange. On the contrary the commodity having little or no value –in-use (eg. Diamond)have the greatest value in exchange. This paradox is called “water diamond paradox”. Thus he came to the conclusion that use-value or the utility can’t be the basis of the exchangeable value of commodities.
SMITH’S VIEW ON LABOUR TTHEORY OF VALUE:-
The theory of value occupies a strategic position in classical economics. But Adam Smith was much confused regarding his theory of value. In his “Wealth of Nations”,we can pointed out the elements of labor theory of value as well as reputation of it. We can find an admixture of the price theory and the distribution theory. Similarly we can find a confusion between labor cost (labour embodied) and labor command aspects of the value of a commodity.
Adam Smith begins his discussion of value by distinguishing value-in-use from value-in-exchange. Value in use means utility of a commodity. Value in exchange means the power of a commodity to purchase another commodity in exchange. Then he tries to explain value-paradox or water -diamond paradox. He mentioned that the utility or use value can’t be the basis of exchange value. He is concerned with exchange value alone.
SOURCE AND MEASURE OF VALUE:-
By source or course of value ,we mean the factor which is responsible for value. Measure of value means the way value is to be computed or measured.
Adam Smith considered labour as the original source of all value. “the annual labour of the nation is the fund which originally supplies it with all the necessaries and conveniences of life which it annually consumes”(Adam Smith observes that labour is the real measure of the exchangeable value of all commodities).
LABOUR THEORY OF VALUE:-
According to Smith ,labour is both measure and source of value. It is the real measure of the exchangeable value of all commodities. The Labour Theory of Value has two distinct versions. They are,
1. The labour cost or the labour embodied theory and
2. The labour command theory.
1. LABOUR COST THEORY:- According to labour cost theory,the exchangeable value(real price)of a commodity is nothing but the amount of labour required to produce it. Thus the quantity of labour embodied (ie the amount of labour contained)in a commodity determines its value in a primibisingle factor (labour)societies. In primitive societies where labour is the only factor of production both the source and measure of value coincide in labour. Hence,in each societies labour embodied is equal to labour commanded. Relative labour cost determines the relative value.
2. LABOUR COMMAND THEORY:-according to labour command theory,the price of a commodity is equal to amount of labour which its possessor can purchase or command in the market in exchange for it. The real price of everything ,what every thing really costs to the man who wants to acquire it is the toil and trouble of acquiring it ?
In advanced societies ,production of a commodity is the result of the cooperative effort of labor ,land and capital. In such a situation,the price of a commodity will be the sum of the wages ,rent and profit. There is now a difference between the labour cost of production and the labour commanded. Labour commanded is the market value and is equal to the cost paid to all the factors. Labour cost is only a part of the total cost. In this case labour embodied in a commodity will be less than the labour commanded by that commodity. In shortly it represents ,in essence a cost of production theory of value.
The labour embodied value and labour command value of a commodity will be identical only when labour is the only factor which is to be paid for. In short ,labour theory of value is valid only in primitive societies. When labour is the main or the only factor of production. But in advanced societies the labour command theory or cost of production theory lead the sway
Smith was in search of an variable measure of value. According to Smith ,variable measure is the labour ,because its value remains more or less the same. The equal quantities of labour ,at all times and places,may be said to be of equal value to the labourer. The final conclusion is that labour is the only universal as well as the only accurate measure of value,or the only standard by which we can compare the value of different commodities,at all times and at all places.
NATURAL PRICE AND MARKET PRICE;-
Smith analysed value in terms of money that is price. In the ultimate analysis of value theory Smith distinguishes between natural price (normal or real price)and market price. The natural price of a commodity is defined as that price which covers the natural rates of wages ,profit and rent. It is the longterm price which is exactly equal to labour –commanded value of a commodity.
In this sense ,the concept of natural price is essentially the cost of production theory of value.
The market price is the actual price prevailing in the market. It is determined by the forces of demand and supply. The market price lie above or below natural price or it may be equal to natural price. Natural price is the ideal towards which the market price is continually gravitating. Smith argues that in Laizes –fair economy an automate mechanism (say price mechanism or invisible hand) brings about equality between market price and natural price.
CRITICISMS
1. Smith did not have one theory of value ,and certainly not the labour theory of value.
2. he regarded labour as the soul source of production or value.This is not correct in the case of advanced economies.
3. He did not a full account of the determination of value or price. He totally neglected the demand side in the determination of value.
THEORY OF VALUE BY RICARDO:
Ricardo starts in the foot steps of Adam Smith on the subject of value. In the outset, he has drawn a distinction between “Natural Value and Market Value”. By natural value ,he meant that point around which market value fluctuates and ultimately tends to equalize with it.
He starts the analysis of natural value by distinguishing between value-in-use and value-in-exchange. To pointed out that to have exchangeable value,a commodity must have utility. But utility can’t be the measure of exchangeable value.
Commodity possessing utility derive this exchangeable value fom two sources,
a. Scarcity and
b. The quantity of labour required to obtain them.
In this contexts Recardo distinguishes two kinds of commodities.
a. Those that can be multiplied and
b. Those can’t be multiplied.
In case of commodity that can’t be multiplied ,their value is determined by scarcity alone(eg.rare statues and pictures). In fact, he considers that such commodity are limited in number. Therefore he has given more attention to those commodities which can be multiplied according to desire without any assignable limit. Such commodity derive their exchangeable value from the quantity of labour required to obtain them as well as from their scarcity.
Ricardo divided the commodities in to,
a. Non-reproducible commodities and ,
b. Re –producible commodities.
In the case of non-reproducible commodities ,scarcity alone matters in the determination of exchange value.
In case of re-producible commodities the value is determined in terms of the quantity of labor embodied in each commodity. In short ,Recardo measure the exchange valu of re-producible commodities in terms of their labour costs. He has thus a lbour theory of value..
LABOUR THEORY OF VALUE
Ricardo’s labour theory of value may be expressed as follows,
“the value of a commodity or the quantity of any other commodity for which it will exchange depend on the relative quantity of labour which is necessary for its production and not on the greater or the less compensation which is paid for that labour”
He suggested that the “exchangeable value of the commodities produced would be in proportion to the labour bestowed on the production”
In short Ricardian theory of value contends that the labour in the foundation of all value and the relative quantities of labour embodiment determines the relative value of commodities. It follows that ,the Ricardian theory of value is the labour embodied theory of value both to the rude state of society as well as to the advanced state of society. Ricardian theory of value attaches sole importants to the supply side.
Assumptions of the theory:-
1. perfect competition
2. re-producible commodities
3. labour is the only factor of production
4. perfect mobility of labour
5. constant returns to scale
6. homogenous production function
7. full employment condition
Problems faced in the labour theory of value:-
1. Labour is assumed to be the homogenous factor.
But Ricardian was aware of the un-realistic nature of the assumption of homogeneity nature of the labour. Ricardo removed this problem by transforming labour quality in to labour quantity. He said that skilled labour can be treated as multiple of ordinary labour.
2. Use of capital.
Another problem arises when the when the capital is used for assisting labour is the process of production. Then the value is not proportionate to the quantity of labour embodied in the production but to the cost of production. Ricardo solving this problem by saying that capital is only congeable or accumulated labour(dead or stored up labour). It is the result of past sacrifice in terms of human effort. Therefore labour is treated as the sole determinant of exchangeable value.
Then also Ricardo faces certain problems. Ricardo introduced the differences of capital quality in to the frame work of his theory of value. Differences in the quality of congealed in its nature –whether it is circulating or fixed capital. Similarly the difference in capital quality is reflected in the differences in the time taken to bring the final product in to the market. Therefore he tried to introduce the time element in his theory. The price of the commodity will be greater, greater the length of time which must elapse before it can be brought to market.
Put the introduction of capital will not in validate the labour theory of value if ,
a. The ratio of fixed capital to labour remains the same every where
b. All fixed capital are equally durable and
c. The rturn on capital is the same in all lines of production.
3. Wages and profits as cost of production.
According to Ricardo the value of product is appropriated by the capitalists in two forms
a. wages paid to the labourer and
b. the profit retained by the capitalist.
According to him wages and profits inversely related. When wages increase,profit will fall and vice-versa. But this has no effect on the relative value of commodities.
4. Influence of the composition of capital.
Ricardo maintains that the differences in the proportion of fixed and circulating capital will cause change in the relative values. He observed that the relative value of those goods which are produced with a more durable capital will fall and the relative value of goods produced by using less durable or perishable capital will tend to rise.
The effect of different proportions of durabilities of capital on value can be seen from another angle. A rise in wages lowers the value of capital intensive goods inrelation to the labour intensive goods. Thus a rise in wages results in lengthening the average period of production. Hayeck calls this effect as the “Ricardo effect”. It shows the influence of change in the distribution of national income upon the value of national income.
After eliminating all those disturbing factors in the way of labour theory of value Ricardo concluded that the real value is determined by the labour content of the commodity. In fact the ,the labour cost, according to Stingler , in the Ricardian labour theory of value comes to nearly 93% of the total cost.,the rest nearly 7% is accounted for by capital element. Thus Stingler rightly christens Ricardian theory of value as 93% labour theory of value. However Ricardo was not satisfied with his formulation of value theory ,he wrote to MC Cullochi,
“I am not satisfied with the explanation which I have given by the principle which regulates value. I wish a more able pen would undertake it”
INVARIABLE MEASSURE OF VALUE
Ricardo was in search of an invariable measure of value. Ricardo selected gold as the standard commodity which can be used for the invariable measure of value.
CRITICISMS:-
a. Ricardian theory of value is based on unrealistic assumption
b. Ricardian labour theory of value is one sided. It di not consider the demand side.
c. Ricardo neglected the scarcity aspect in the determination of exchangeable value of re -producible commodities
d. Ricardian theory did not deal with the short run problem
e. He has not taken in to account the depreciation of capita.
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MULTINATIONAL CORPORATION / TRANS NATIONAL CORPORATION
MULTINATIONAL CORPORATION/TRANS NATIONAL CORPORATION
One important recent development in the field of industrial organization is the emergence and the growth of multinational corporations.It is noticed that since world war second,giant corporations in the developed countries have been establishing branches or subsidiary companies in other countries,especially in the under developed countries.These are called “multinational corporations”.They are called ‘multinational’not in the sense that the assets are owned by nationals of different countries-generally they are owned by nationals of one country only.But they are called multinationals in the sense that,they control assets in a number of countries.This in a broad sense,the term multinational corporation is used to cover enterprises which control assets-factories,mines,sales and othe offices-in two or more countries.
Generally MNC’s are oligopolists in nature and gigantic in size.According to Prof.Raymond Vernon,a multinational company should have atleast minimum sales turn over of over 100 million dollars a year.Only if this condition is satisfied a company can be included in the list of MNC’s.There are about more than 10;000 large MNC’s in the world today of which atleast 00 are giant MNC’s and among whom,a few are super giants/mega-giants.The MNC’s also have about 50,000 officiates subsidiaries and branches operatin all over the world.
FEATURES OF MNC’S
The MNC’s are large,oligopolistic diversified conglomerate international firms.They are national ownership and global in operation.Sometimes they control a chain of companies under different sovereign jurisdiction.Corporate control is exercised by the parent country via centralized strategic decision making.The MNC’s are engaged in foreign /international production through affiliates or subsidiaries.The MNC’s are known for world-wide sourcing of their material inputs.The employ people of different nationalitiesand so they are said to operate a global pay roll.Though there are several units controller by on MNC,they treat the whole world as its operational area and they attempt to maximize one over all objectivefor all units.Today the MNC’s dominate every important branch of international production,trade finance and technology.
E.Penrose rightly says that the MNC’s constitute a large self governing bureaucracy and a quasi –conspiratorial organization.Though some MNC’s are ethnocentric (home oriented)polycentric (host oriented)and geocentric (world oriented).They as a single class have strengthened the forces of neo –colonialism.
MERITS OF MNC’S
1. MNC’s bring in to a country the much needed capital for developing the domestic country.
2. MNC’s bring with them the advanced technology.
3. MNC’s helps to bring in to the host country the imported machinery or raw material.
4. MNC’s are important source of revenue to the host countries.
DEMERITS OF MNC’S
1. No netbenifit from the operation of MNC’s:MNC’s extracted the maximum possible profit from the less developed countries instead of reinvesting the entire profits in the host countries.Thus we find that the developing countries donot get any net benefit from the operation of the MNC’s.
2. Gain in the matter of technology is only in theory:The technology that are introduced in the under developed countries by the MNC’s are mostly that have been discarded by the parent company in the advanced country.Thus we find that the advantage claimed as getting better technology is only in theory and not in practice.
3. Political danger.
4. Insurrection against neo-colonial dictatorship as in Cuba,Vietnam and so on and
5. Anti-fuedal revolution as in Ethiopia in 1974.In all such cases the socialist revolution arrested the development of neo-colonial capitalism
These are transitions to social formations also exhibits two critical features.One is the serious effort at the structural disengagement from the exploitative international capitalist system ,and towards co-operation with other socialist countries.The other decisive feature of these transitional socialist societies is the effort to make the socialist system of production dominant in the new articulation.
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One important recent development in the field of industrial organization is the emergence and the growth of multinational corporations.It is noticed that since world war second,giant corporations in the developed countries have been establishing branches or subsidiary companies in other countries,especially in the under developed countries.These are called “multinational corporations”.They are called ‘multinational’not in the sense that the assets are owned by nationals of different countries-generally they are owned by nationals of one country only.But they are called multinationals in the sense that,they control assets in a number of countries.This in a broad sense,the term multinational corporation is used to cover enterprises which control assets-factories,mines,sales and othe offices-in two or more countries.
Generally MNC’s are oligopolists in nature and gigantic in size.According to Prof.Raymond Vernon,a multinational company should have atleast minimum sales turn over of over 100 million dollars a year.Only if this condition is satisfied a company can be included in the list of MNC’s.There are about more than 10;000 large MNC’s in the world today of which atleast 00 are giant MNC’s and among whom,a few are super giants/mega-giants.The MNC’s also have about 50,000 officiates subsidiaries and branches operatin all over the world.
FEATURES OF MNC’S
The MNC’s are large,oligopolistic diversified conglomerate international firms.They are national ownership and global in operation.Sometimes they control a chain of companies under different sovereign jurisdiction.Corporate control is exercised by the parent country via centralized strategic decision making.The MNC’s are engaged in foreign /international production through affiliates or subsidiaries.The MNC’s are known for world-wide sourcing of their material inputs.The employ people of different nationalitiesand so they are said to operate a global pay roll.Though there are several units controller by on MNC,they treat the whole world as its operational area and they attempt to maximize one over all objectivefor all units.Today the MNC’s dominate every important branch of international production,trade finance and technology.
E.Penrose rightly says that the MNC’s constitute a large self governing bureaucracy and a quasi –conspiratorial organization.Though some MNC’s are ethnocentric (home oriented)polycentric (host oriented)and geocentric (world oriented).They as a single class have strengthened the forces of neo –colonialism.
MERITS OF MNC’S
1. MNC’s bring in to a country the much needed capital for developing the domestic country.
2. MNC’s bring with them the advanced technology.
3. MNC’s helps to bring in to the host country the imported machinery or raw material.
4. MNC’s are important source of revenue to the host countries.
DEMERITS OF MNC’S
1. No netbenifit from the operation of MNC’s:MNC’s extracted the maximum possible profit from the less developed countries instead of reinvesting the entire profits in the host countries.Thus we find that the developing countries donot get any net benefit from the operation of the MNC’s.
2. Gain in the matter of technology is only in theory:The technology that are introduced in the under developed countries by the MNC’s are mostly that have been discarded by the parent company in the advanced country.Thus we find that the advantage claimed as getting better technology is only in theory and not in practice.
3. Political danger.
4. Insurrection against neo-colonial dictatorship as in Cuba,Vietnam and so on and
5. Anti-fuedal revolution as in Ethiopia in 1974.In all such cases the socialist revolution arrested the development of neo-colonial capitalism
These are transitions to social formations also exhibits two critical features.One is the serious effort at the structural disengagement from the exploitative international capitalist system ,and towards co-operation with other socialist countries.The other decisive feature of these transitional socialist societies is the effort to make the socialist system of production dominant in the new articulation.
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