Money Supply and Inflation

MONEY SUPPLY

Stock of money in circulation in the economy at a given point of time. It is partially exogenous (decided by the government and the central bank) and partially endogenous.

Measure of Money Supply

A. Narrow Money (M1) – Currency with the public + Demand deposits with the banking system + Other deposits with the RBI

B. M2 – M1 + Saving deposits of post office saving banks

C. M3 – M1 + Time deposits with the banking systems

D. M4 – M3 + All deposits with the post office saving banks (excluding NSC )

Note –

Currency with the public – Currency in circulation less cash held by bank

Demand Deposit – Payable on demand

Time Deposit – Payable other than on demand

INFLATION

Ø  Sustained rise in the general level of prices of goods and services in an economy over a period of time.

Ø  Negative effects of inflation include loss in stability in the real value of money and other monetary item over time.

Ø  Positive effects include a mitigation of economic recessions and debt relief by reducing the real level of debt.

CAUSE OF INFLATION

1. Demand-pull Inflation

Rise in general prices caused by increasing aggregate demand for goods and services

Demand exceed s supply → Shortage → an increase in prices

2. Cost-Pull Inflation

Substantial increase in the cost of production of important goods or services where no suitable alternative is available.

Inflation = (Price Index in current year – Prices index in Base year) * 100

PRICE INDEX

A price index is a weighted average of the prices of a selected basket of goods and services relative to their prices in some designated base-year.

Most important price indexes are –

1. Wholesale Price Index (WPI)

Reflect the change in the level of prices of a basket of goods at the wholesale level and will be announced by government monthly.

2. Food inflation index (FII)

Announced weekly

3. Consumer Price Index (CPI)

Ø  Change in the level of prices purchased / consumed by the households.

Ø  It is the cost of living index popularly known as Core Inflation

Ø  CPI in India released by Labour Bureau, Ministry of Labour and Employment, Govt. of India

4. GDP Deflator

Measure of the level of prices of all new, domestically produced, final goods and services in an economy.

Read More

Supply and Demand

Theory of Supply and Demand shows how consumer preferences determine consumer demand for commodities, while business costs determine the supply of commodities.

THE DEMAND SCHEDULE

Relationship that exists between price and quantity bought is called the Demand Schedule or the Demand Curve

e.g – The higher the price of an article, other thing remain constant, the less units consumers are willing to buy and vice versa.

THE DEMAND CURVE

Ø  The graphical representation of the demand schedule is the demand curve.

Ø  Quantity and price are inversely related.

Ø  Law of downward-sloping demand.

Quantity demanded tends to fall as prices rises for two reasons –

 1. Substitution effect (substitute other similar goods)

2. Income effect (curb consumption)

FORCE BEHIND THE DEMAND CURVE

·         Average income

·         Size of market

·         Price and availability of related goods

·         Taste and preferences

·         Special influences e.g Umbrella in rainy and air condition in hot weather

THE SUPPLY SCHEDULE

The supply schedule (or supply curve) for a commodity shows the relationship between its markets prices and the amount of that commodity that producers are willing to produce and sell, other things being constant.

THE SUPPLY CURVE

Ø  Show Upward slop

Ø  The law of diminishing returns

FORCE BEHIND THE SUPPLY CURVE

·         Cost of production

·         Prices of input and technological advances

·         Technological advances

·         Prices of related goods

·         Government policy

·         Special factors

IMPORTANT POINT

Ø  When changes in factors other than a good’s own price affect the quantity supplied, we call these changes as shifts in supply .

Ø  Supply and demand interacts to produce an equilibrium price and quantity or market equilibrium.

Ø  When the forces of supply and demand are in balance, there is no reason for price to rise or fall, as long as other things remain unchanged.

Ø  A market equilibrium comes at the price at which quantity demanded equals quantity supplied.

Ø  The equilibrium price is also called the market-clearing price.

EFFECT OF A SHIFT IN SUPPLY OR DEMAND

Ø  In case of Supply, there might have been a change in technology or input price.

Ø  In demand shift, one of the influences affecting consumer demand – incomes, population, and the prices of related goods or taste

Read More

Extention of Registration for JAIIB/DB&F examination

As per notice publish by the IIBF Dated 27^th March 2018, regarding the Registration for JAIIB/DB&F examination is as below -

“Registration time for JAIIB and DB&F examination is extended till 10^th April 2018 with normal fee and upto 13^th April 2018 with late fee. Candidates are requested to register before the last date to avail the opportunity to appear in May 2018 examination”

So it an opportunity for that student who cannot apply for the said examination due to any reason.

Also Read: 

Schedule of JAIIB and CAIIB 2018

Read More

Fundamental of Economics

Economic is a social science concerned with the production, distribution and consumption of goods & services.

1. Adam Smith ( Father of Modern Economic ) define Economic as –

Ø Economic is a study of Wealth

Ø Known as “Wealth Definition”.

2. Prof. Alfred Marshall define as –

Ø Economic is a study of mankind in the ordinary business of life.

Ø It examine that part of individual and social action which is most closely connected with the attainment and the use of the material requisites of well being.

Ø Known as “Welfare Definition”

3. Lionel Robbins define as –

Ø Economic is a science which studies human behavior as a relationship between ends & scare means which have alternative uses.

Ø Known as “Scarcity Definition”

10 Best Books

Comparison Between Microeconomic & Macroeconomic

Microeconomic	Macroeconomic
It studies economic problem at an individual level	It studies economic problem at an level of an economy as a whole i.e GDP, Unemployment rate & price indices.
It determine the output and price for the individual firm.	It determines an aggregate output and general price level in the whole economy.
Demand and supply are its main tools.	Aggregate demand and aggregate supply are its main tools.
Its assume all the macro variable to be constant as National income, Consumption, Saving etc.	Its assume all the micro variable to be constant as demand of household, supply of firm, prices of individual product etc.

THREE ECONOMIC QUESTION

There are three questions every society must answer -

1. What will be produced ?

2. How will it be produced ?

3. For whom will it be produced ?

TYPE OF ECONOMY

Market / Capitalistic Economy	Command / Socialistic Economy	Mixed Economy
In which individuals and private firms make the major decisions about production and consumption	In which the Government make all the important decisions about production and distribution	Decisions are made by business based on consumer demand however Govt. also makes some decision
“Laissez-faire” economy		In India
In England

Important Book & Author

1. An Enquiry into the Nature and Causes of the Wealth of Nations – Adam Smith

2. General Theory of Employment, Interest and Money – John Maynard Keynes

Read More

BANK FINANCIAL MANAGEMENT

BANK FINANCIAL MANAGEMENT

Module A: International Banking

v  Exchange Rate and Forex Business

v  Basic of Forex Derivative
v  Correspondent Banking and NRI Account
v  Documentary Letter of Credit
v  Facilities of Exporter and Importer
v  Risk in Foreign Trade – Role of ECGC
v  Role of Exim Bank, Reserve Bank of India, Exchange Control in India - FEMA & FEDAI & other

Module B: Risk Management

v  Risk & Basic Management Framework

v  Risk in Banking Business
v  Risk in Regulation in Banking Industry
v  Market Risk
v  Credit Risk
v Operational Risk & Integrated Risk Management

Module C: Treasury Management

v  Introduction to Treasury Management

v  Treasury Product
v  Funding & Regulatory Aspects
v  Treasury Risk Management
v  Derivative Products
v  Treasury and Asset-liability Management

Module D: Balance Sheet Management

v  Component of Assets and Liability in Bank’s Balance Sheet and Their Management

v  Banking Regulation and Capital
v  Capital Adequacy – The Basel – II Overview
v  Supervisory Review
v  Pillar 3 – Market Discipline
v  Asset Classification and Provisioning Norms
v  Liquidity Management
v  Interest Rate Risk Management
v  RAROC and Profit Planning    

Read More