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

Methods of debt redemption.
1. Debt Refunding- The government issues new bonds and securities to repay maturity loans. During this process, short-term securities are often replaced with long-term securities.

2. Budget surplus- A surplus of money at the end of an accounting period can be used to pay off debts.

3. Deferment payment-This payment plan allows a borrower to pay off a debt in the future without interest accurring on the principal loan.

4. Amortization-This is a loan repayment schedule where payments are structured to gradually reduce the outstanding balance.

5. Budgeting-This involves creating a budget to identify areas where you can cut back and allocate more funds towards debt repayment.

6. Sinking fund-An issuer makes periodic deposits into annual reserve to pay for calling bonds or buying bonds on the open market.

7. Budget surplus-A surplus of money at the end of an accouting period can be used to pay off debts.

A fiscal deficit is a shortcoming in the income of a government as compared to its spendings. It is the difference betwen the total income of the government and the to total expenditure incurrent by it. This difference is filled by government borrowings.

Fiscal deficit implies that:-
Revenue receipts and recovery of loans and other receipts minus total expenditure.

During recession some measure is initiated is that the cutting taxes and boosting government spending.

The government must implement an expansionary fiscal policy in order to curb recession and to raise aggregate demand in the economy and thus aid to prevent a recession.
This can be accomplished by lowering tax while increasing government spending.

During depression the government must increase the public expenditure in order to curb depression and to raise aggregate demand in economy and thus aid to prevent a depression.

Increase in government expenditures builds infrastructures such as road construction, dam construction etc which leads increase in employment.
And taxes are kept unchanged.

The fixed fiduciary system is one of the method used for issuing notes. Other methods include the simple deposit system, the maximum fiduciary system. the minimum reserve system and the proportional reserve system.

The fiduciary issue is the practice of issuing currency notes without backing them with gold and silver. England first introduced this system in 1844 and India followed suit between 1862 and 1920.

Liqudity, or accounting is a term that refers to the ease with which you can convert an asset to cash, without affecting its market value. It is also known as Radcliffe approach.

External drains reduces the reserves of a commercial bank.

External factors, such as inflation, competition and legal requirements, can impact a bank's economic and financial structure. These factors can negatively impact a bank's performance, especially if the bank doesn't adapt to them in a strategic way.

• The lower reserve ratio means that banks hold more capital available for lending. It would imply an increase in the money supply in an economy.
• When the money supply increases, interest rates fall. Similarly, a higher reserve ratio leads to a decrease in the money supply and an increase in interest rates.

When managing assets and liabilities, commercial banks consider three main principles, liquidity, profitability and solvency. Equity does not considered in bank to manage its assets and liabilities.

Bank also consider other factors such as: safety and purpose.

The objectives of credit control include:
Reduing Risk: Credit control helps to reduce the risk to businesses from customers with poor financial health.

Ensuring stable cash flow: Credit control helps to ensure that businesses have a stable cash flow.

Strengthening financial capacity: Credit control helps to strengthen a businesses financial capacity to deal with economic and other challenges.

Improving business trust: Credit control helps to improve a business's trust and credibility with its suppliers.

Preventing illiqudity: Credit control helps to ensure that businesses don't become illiquid due to uncoordinated credit issues with clients.

A voiding lending to unworthy customers: Credit control helps to avoid lending to customers who are unworthy.

Promoting economic welfare is not the main objective of credit control.

Direct credit is a system where companies can directly transfer funds into their employee's bank amounts.

• The government of India implemented credit programmes that complled bank to set aside funs for the needy and poor sectors at decreased rates.
• The committee suggested phasing out this program as it was not profitable for them.
• Direct credit programmes oriented credit.