Economy Bytes : Economics Terms Simplified
What is Barter System of Payment?
A barter system is known as an old method of exchange. This system has been practiced for centuries and long before money was introduced. People started exchanging services and goods for other services and goods in return.
- A simple example of a barter arrangement is a carpenter who builds a fence for a farmer. Instead of the farmer paying the carpenter Rs. 1,000 in cash for labor and materials, the farmer could instead recompense the carpenter with Rs. 1,000 worth of Food grains, Fruits and Vegetables
In Simple Terms, Bartering is the exchange of goods and services between two or more parties without the use of money. Two individuals negotiate to determine the relative value of their goods and services and offer them to one another in an even exchange.
Advantage of Barter System
There may be circumstances where cash is not available, but goods or services are.
Bartering enables people to get what they need with what they already have. For example, if an individual needs lumber to set an addition onto their home but lack funds to purchase the lumber, then they may be able to apply the barter system to supply their requirements – for example, exchanging furniture they don’t need for the needed lumber.
Such a deal, of course, has to be negotiated by both parties. It is a reciprocal, mutually beneficial arrangement that doesn’t require the exchange of cash or another monetary medium.
Disadvantage
Barter system can be useful for Limited Purpose and In Limited Area. A monetary economy helps in making the exchange of goods and services more efficiently manageable.
What Is Depression in an Economy?
A depression is a severe and prolonged downturn in economic activity. In economics, a depression is commonly defined as an extreme recession that lasts three or more years or which leads to a decline in real gross domestic product (GDP) of at least 10%. in a given year
A depression is characterized as a dramatic downturn in economic activity in conjunction with a sharp fall in growth, employment, and production.
Economic factors that characterize a depression include:
- Substantial increases in unemployment
- A drop in available credit
- Diminishing output and productivity
- Consistent negative GDP growth
- Bankruptcies
- Sovereign debt defaults
- Reduced trade and global commerce
- Bear market in stocks
- Sustained asset price volatility and falling currency values
- Low to no inflation, or even deflation
- Increased savings rate (among those who can save)
Example : The Great Depression lasted roughly a decade and is widely considered to be the worst economic downturn in the history of the industrialized world. It began shortly after the Oct. 24, 1929, U.S. stock market crash known as Black Thursday. After years of reckless investing and speculation the stock market bubble burst and a huge sell-off began, with a record 12.9 million shares traded.
What is Recession?
A recession is a normal part of the business cycle that generally occurs when GDP contracts for at least two quarters.
Since the Industrial Revolution, the long-term macroeconomic trend in most countries has been economic growth. Along with this long-term growth, however, have been short-term fluctuations when major macroeconomic indicators have shown slowdowns or even outright declining performance, over time frames of six months up to several years, before returning to their long-term growth trend. These short-term declines are known as recessions.
Recessions are characterized by a rash of business failures and often bank failures (Ex:- DHFL, ILF&S in 2018-19), slow or negative growth in production, and elevated unemployment.
This can occur due to structural shifts in the economy as vulnerable or obsolete firms, industries, or technologies fail and are swept away; dramatic policy responses by government (Ex:- Demonetization and GST) and monetary authorities, which can literally rewrite the rules for businesses; or social and political upheaval resulting from widespread unemployment and economic distress.
Seigniorage : It is the difference between the value of currency/money and the cost of producing it. It is essentially the profit earned by the government by printing currency.
- For example, if the cost of printing a Rs 500 note in India is Rs 2, then Rs 498 is the profit made on the production of the note. Central Bank earn this profit by putting the note into circulation.
- Examples of gig employees in the workforce could include freelancers, independent contractors, project-based workers and temporary or part-time hires.
- An estimated 56% of new employment in India is being generated by the gig economy companies across both the blue-collar and white-collar workforce.
- The platform work economy is sometimes referred to as the gig worker economy, but Gig economy is a broader term that includes platforms
- In India, there are about 3 million gig workers that include temporary workers including independent contractors, online platform workers, contract firm workers, and on-call workers.
- The Code on Wages, 2019, tries to expand this idea by using ‘wages’ as the primary definition of who an ‘employee’ is.
- The wage relationship is an important relationship in the world of work, especially in the context of a large informal economy.
- Even so, the terms ‘gig worker’, ‘platform worker’ and ‘gig economy’ appear elsewhere in the Code on Social Security.
- However, eligibility does not mean that the benefits are guaranteed. None of these are secure benefits, which means that from time to time, the Central government can formulate welfare schemes that cover these aspects of personal and work security, but they are not guaranteed.
- Actualizing these benefits will depend on the political will at the Central and State government-levels and how unions elicit political support.
- It doesn’t provide them a right to move the court to demand better and stable pay or regulate the algorithms that assign the tasks.
- This also means that the government or courts cannot pull up platform companies for their choice of pay, or how long they ask people to work.
- For Ex; in some states like Karnataka, where a platform-focused social security scheme was in the making last year, will possibly offer some financial assistance by the Centre.
Various Curves in Economics
- Lorenz Curve : A Lorenz curve is a graphical representation of income inequality or wealth inequality
- KUZNETS CURVE : It shows the relationship between economic growth and inequality. It is inverted U shaped meaning that as initially economic growth leads to greater inequality, followed later by the reduction of inequality.
- Rahn Curve : The Rahn curve is a graph used to illustrate an economic theory, which suggests that there is a level of government spending that maximizes economic growth
- Laffer Curve : The Laffer Curve is a theory to show the relationship between tax rates and the amount of tax revenue collected by governments.
- Phillips Curve : The Phillips curve is an economic concept stating that inflation and unemployment have a stable and inverse relationship.
What is Non Performing Assets (NPA)?
A non performing asset (NPA) is a loan or advance for which the principal or interest payment remained overdue for a period of 90 days.
- Substandard Assets : Assets which has remained NPA for a period less than or equal to 12 months.
- Doubtful Assets : An asset would be classified as doubtful if it has remained in the substandard category for a period of 12 months.
- Loss Asset : As per RBI, “Loss asset is considered uncollectible and of such little value that its continuance as a bankable asset is not warranted, although there may be some salvage or recovery value.
- But even if the loan paper has turned NPA, it does not mean that bank will not receive its money in future. There may be chance that in future the project turns profitable and the bank gets entire money back or it may be the case that bank is able to get only 40% of the loan or it may be possible that bank don't get anything. But till there is HOPE, banks keep on trying to recover the NPA amount through various means and it remains on the Account Books of the Bank.
- If the bank has exhausted all its attempts/measures and it has lost all hopes regarding getting the loaned amount back then generally it "Write Off" that loan amount. So, Suppose the bank had lent Rs. 1000 crore to a debtor, which is an asset on bank's balance sheet. So, first it will become NPA and then in case of Write Off, the bank may reduce the loan amount (asset) to zero (and removing the NPA from the Account Books) and it will show this Rs. 1000 crore amount as an expense/cost for the bank and adjust the balance sheet of the bank.
- The QIP allows an Indian-listed company to raise capital from domestic markets without the need to submit any pre-issue filings to market regulators. The SEBI limits companies to only raising money through issuing securities.
- Before the QIP, there was a growing concern from Indian regulators that its domestic companies were accessing international funding too readily via American depository receipts (ADRs), foreign currency convertible bonds (FCCBs) and global depository receipts (GDR), rather than Indian-based capital sources. Authorities proposed the QIP guidelines to encourage Indian companies to raise funds domestically instead of tapping into overseas markets.
- This limitation is due to the perception that QIBs are institutions with expertise and financial power that allows them to evaluate and participate in capital markets, at that level, without the legal assurances of a follow-on public offer (FPO).
Core Inflation : An inflation measure which excludes transitory or temporary price volatility as in the case of some commodities such as food items, energy products etc. It reflects the inflation trend in an economy.
Stagflation : It is the extreme economic situation, a peculiar combination of stagnant growth and rising inflation leading to high unemployment
Gini Coefficient : It is often used as a gauge of economic inequality, measuring income distribution or, less commonly, wealth distribution among a population. The coefficient ranges from 0 (or 0%) to 1 (or 100%), with 0 representing perfect equality and 1 representing perfect inequality. Values over 1 are theoretically possible due to negative income or wealth.
