NTA UGC NET/JRF Exam, June 2019 Economics (Shift-II)

Financial crowding out is an economic, term that refers to the effect of government borrowing on interest rates and private sector spending.

When the government borrows money, it increases the demand for credit, which raises interest rates. Higher interest rates makes it more expensive for the private sector to borrow money, which reduces their investment.

An increase in fiscal spending can lead to a number of effects; including.

• Increased output and employment : An increase in government spending can stimulate aggregate demand, which can lead to increased output and employment. This is because spending by the government is income for other households and businesses.
• Cause reduces private sector giving for the same cause.
• Risks: Expansionary fiscal policies can carry risks such as outdated analysis, macroeconomic dstortions and corruption.

If an economy is in macroeconomic equilibrium and taxes are significantly lowered, the economy will likely experience expansion and inflation.

This is because a reduction in taxes is an expansionary fiscal policy, which increase aggregate demand. This can lead to: Higher prices, higher employment, and higher output.

1. Macroeconomic equilibrium is when the quantity of aggregate demand.

2. Increased inflation: Increased government spending can lead to increased inflation. This is because central banks may raise interest rates in response to increased inflation and output, which can erode some of the expansionary gains.

3. Movement along the Phillips curve an increase in fiscal spending can lead to a movement along the Phillips cure, where unemployment falls and inflation rises.

4. Crowding out effect: An increase in government spending can lead to the crowding out effect, where the governments spending on a social welfare macroeconomic equilibrium is when the quantity of aggregate demand is equal to the quantity of aggregate supply.

Changes in aggregate demand or aggregate supply can lead to changes in inflation, unemployment and price.

The rational expectations hypothesis suggests that people's forecasts about future inflation rates are generally correct, but they may contain random errors.

It also suggest that people use all available information to make these forecasts, and that they adjust their behavior based on those forecasts.

Foreign exchange risk, also known as foreign exchange exposure, involves three types of risk transaction risk, translation risk and economic risk.

Asia-Pacific Economic Cooperation is an inter-government forum for 21 member economics in the pacific rim that promotes free trade throughout the Asia-Pacific region.

Three pillars of the Asia-Pacific Economic Cooperation (APEC) are:-
a. Trade and investment liberalization.
b. Business facilitation.
c. Economic and technical cooperation.

The export supply of a commodity is the amount of a commodity that a country is able and willing to sell to other countries.

• An export commodity is a product or good that country produces primarily for export, rather than for domestic consumption.
• If a country has more of a commodity than it needs for domestic consumption, it can export the surplus to other countries.
• Export supply elasticity measures how responsive the supply of exports is to changes in the export price. The degree of elasticity can be:
• Infinitely inelastic: The market adjusts only through price.
• Elastic: The market adjusts through both price and quantity.
• Infinitely elastic: The market adjust only through price.
• The excess supply of a commodity above the notrade equilibrium price gives one nations. Export supply of the commodity.

Items are included in BALANCE OF PAYMENTS.
1. Capital Account

• Foreign Inevstment (FDI, FII, Euro, Equities etc)
• External Assistance
• Commercial Borrowings
• IMF
• NR Deposits
• Rupee Debt Service
• Other Flows

In balance of payment, the transfer payment included in current account.
Current Account:
Trade in Goods (Balance of Trade of BoT = Export-Import)
⇒Net Visibles