Micro and Macro-Economics

In earlier article, we got information about basics of economics. Now take look at its type.

Economics is divided into two main parts:-

                ·     Micro economics

                ·     Macro economics

Micro Economics

The term micro leads to the meaning of small. The term micro economics derived from the Greek word ‘mikros’ which means ‘small’.  According to prof. Boulding who was a well-known economist in past years says that “Microeconomics is the study of particular firms, a particular household, individual price, wages, income, individual industries, and particular commodities.” In other words, it states that this firm of economics deals with small-scale calculations. In this economics, we study individuals rather than the whole nation we emesis on a small unit of it. This is mainly used for industries that are independent of others.

For example, when we talk about microeconomics we study about finance department of the government rather than the whole money sector. In simple terms, we give more attention to a small or particular unit of any country, nation’s government, or industry. When we study about Gujarat government on the scale of Indian government than it calls microeconomics.

We mainly study the following in microeconomics:-

·      Product pricing

·      Consumer behavior

·      Factor pricing

·      Economic condition of a section of the people

·      Study of particular firms

·      Location of industry

Thus, when we are studying how to producer fixes the prices of his products, we are studying Micro-Economics. Similarly, when we are studying why the industry is located at a particular place, we are studying Micro-Economics.

Macro Economics

The term Macro leads to large. The term Macro Economics derived from the Greek word ‘makros’, meaning ‘large’. It is the study of overall economic phenomena or the economy of the whole, rather than its individual parts. According to Mc Connel, “Macroeconomics examines the forest and not the trees. Thus it analyses and establishes the functional relationship between large aggregates.” In other words, this firm of economics study and calculate about big or at large scale. Thus, in Macro-Economics, we study the economic behavior of the large aggregates such as the overall condition of the economy such as total production, total saving, and total investment. 

For example, in Macroeconomics we study the whole expenses of government as a whole unit not by dividing it into small units like finance or any other sector. Or in a simple way, we look after the whole company rather than going for a particular firm or department.

It includes:-

·      National income and output

·      General price level

·      Balance of trade and payments

·      External value of money

·      Saving and investment

·      Employment and economic growth

Thus, when we study why we continue to have balance of payments deficits, or why the value of rupee vis-à-vis dollar is falling or why saving rates are high or low in a particular country, we are studying Macro-Economics.

It may be noted that the classification of economics into Micro and Macro-economics is purely for analytic purposes.

In fact, there is really no opposition between micro and macroeconomics. Both are absolutely vital and in most cases, they play a complementary role, E.G. national income can’t grow unless the product in individual firms and factories rises.

It is difficult to distinguish between the two terms as belonging to water-tight compartments. What macro from the national standpoint is micro from the world point of view. Similarly, what is micro from a national angle becomes macro from the regional angle. Unless we define what is the whole we cannot say about phenomena whether it is micro and macro.

reference: From book General Economics by The institute of chartered Accountants' India.

BANK

 

Banking history

Modern banking in India originated in the last decade of the 18th century. Among the first banks were the Bank of Hindustan, which was established in 1770 and the General Bank of India, established in 1786 but failed in 1791.

The largest and the oldest bank which is still in existence is the State Bank of India (SBI). It originated and started working as the Bank of Calcutta in mid-June 1806. In 1809, it was renamed as the Bank of Bengal. This was one of the three banks founded by a presidency government, the other two were the Bank of Bombay in 1840 and the Bank of Madras in 1843. The three banks were merged in 1921 to form the Imperial Bank of India, which upon India's independence, became the State Bank of India in 1955.

A bank is a financial institution that accepts deposits from the public and creates a demand deposit* while simultaneously making loans.

At a high level, banks are financial institutions that are certified to receive deposits of money and provide loans that allow people to borrow money. However, many banks offer other services as well, including financial advising and currency exchange services.

How bank works?

Banks borrow money by accepting funds deposited on current accounts, by accepting term deposits, and by issuing debt securities such as banknotes and bonds. Banks lend money by making advances to customers on current accounts, by making installment loans, and by investing in marketable debt securities and other forms of money lending and generate revenue for them.

Services offered by the bank:

·         Deposits

·         Withdrawal

·         Business loans

·         Debit and credit cards

·         Saving and current account

Important Banking terms

NEFT (National Electronic Funds Transfer) – NEFT is an electronic means to transfer money from one bank to another or within the same branch. Depending on the bank, NEFT charges and the minimum amount that can be transferred may vary.

Collateral – Any security provided to the bank in exchange for a loan is known as collateral. A collateral can be in the form of land, gold, etc. This is called a secured loan and is less risky than an unsecured loan for the lender. In the case of secured loans, the lender may auction off the collateral if the borrower fails to pay off his/her loan.

RTGS – RTGS (Real-Time Gross Settlement) is a fund transfer technology used by banks for the same bank or interbank fund transfer. Contrasting NEFT or RTGS, transferring funds with RTGS is instantaneous and more nominal with regard to the costs incurred.

APR – Annual Percentage Rate (APR) is the yearly interest you earn by depositing your money into an account. This does not take into consideration the compound interest.

Compound Interest – Simple interest is the interest earned on a deposit. Compound interest is the interest earned on the deposit plus the interest earned on the same deposit previously. For example, if you’ve deposited Rs.1 lakh into a bank, and the bank promises to pay you a 10% interest, you will earn an interest of Rs.10, 00. The next year, however, you will be receiving interest on Rs.1, 10, 000, i.e., the initial amount deposited plus the interest earned on that amount.

Monetary Policies – This refers to the rules and regulations that the Reserve Bank of India has put in place in order to standardize banking procedures in the nation.

Cash Reserve Ratio (CRR) – RBI has mandated all banks to maintain a certain percentage of the total bank deposits in cash. This percentage with regard to the total deposits is called the cash reserve ratio.

Statutory Liquidity Ratio (SLR) – The minimum reserve required by the bank to maintain in the form of gold is called statutory liquidity ratio.

 

Types of Banks

1. Commercial Banks:

These banks play the most important role in modern economic organization. Their business mainly consists of receiving deposits, giving loans, and financing the trade of a country. They provide short-term credit, i.e., lend money for short periods. This is their special feature.

2. Exchange Banks:

Exchange banks finance mostly the foreign trade of a country. Their main function is to discount, accept and collect foreign bills of exchange. They also buy and sell foreign currencies and help businessmen to convert their money into any foreign money they need. Their share in the internal trade of a country is usually small. In addition, they carry on ordinary banking business too.

3. Industrial Banks:

There are a few industrial banks in India. But in some other countries, notably Germany and Japan, these banks perform the function of advancing loans to industrial undertakings. Industries require capital for a long period for buying machinery and equipment. Industrial banks provide this type of Mock capital. Industrial banks have a large capital of their own. They also receive deposits for longer periods. They are thus in a position to advance long-term loans.

4. Central Banks:

Over and above the various types of banks mentioned above, there exists in almost all countries today a Central Bank. It is usually controlled and quite often owned by the government

 

* Terms

Demand deposits: These are deposits in the bank that can be withdrawn on demand, without any prior notice.

Source:

https://www.economicsdiscussion.net/banks/7-important-types-of-banks-discussed/1879

Definitions source:

https://www.bankbazaar.com/home-loan/important-banking-related-terms.html

the basics of economics

Each and every nation’s financial stability mostly stands on the economy. But what is the economy? Why the price of goods are higher compare to past some decades in present time? The answer to all the questions is in a one-word economy.

First, let us take one example for better understanding of the concept.

Let’s assume that your father gives you 5000$ for your monthly expenses. You have to deal with all your needs with this money only. You have many options for your spending. Like rent of your residence, food, travel, and etc. You have many options for it but you won’t be able to fulfill all your needs with this money and now in this situation, the planning of money and needs take place.

Needs	Expense per month
residence	1000$
food	2500$
travel	500$
other	700$
saving	300$

 

Now as per the data from the table, you are not able to fulfill your other needs or any other expensive activities. In that case, you save 300$ every month and spend it on vacations. This called management of money as per needs.

Similarly, this situation is faced by every individual, society, and nation. Because any person can’t have everything at once, and they are forced to make choices. That is why one can use resources to fulfill some of his/her wants and leaving or we can say postpone some wants.  

The reason behind it is that human has unlimited wants with some predefined or limited resources.

And the science behind managing the wants as per the limitations of the resources is economics.

The word Economics has come from the Greek term ‘Oikonomia’ which means ‘household’ in English.

Thus economics is the study of how one works to transform the limited resources into goods and services to satisfy their infinite wants and how he/she distribute these goods and services among their selves.