Last time we have discussed the types of economics. Today we will discuss the difference between positive economics and normative economics. Let us discuss it:
It deals with the economic issues of past, present and future and tells about what was, what is, what would be. Positive economics is basically based on the facts and figures which can be verifiable.
Forexample India is the second largest populated country; it is a positive statement nobody can deny it as it is based on the facts and figures.
It deals with the opinions of economists related to the economic issues and tells about what ought to be. Normative economics is basically based on the opinions which can’t be verifiable. For example there should be the development industries in underdeveloped countries to make them developing countries. So this statement is just an opinion and it is just a judgment.
I hope you have understood the difference between positive economics and normative economics.
The term economics is very common and Economics can be broadly classified into two parts:
MICRO ECONOMICS: in microeconomics we study “I” which means individual. It means in micro economics we study everything from the point of view of individual. The word micro itself means small. In micro economics we study individual firm, individual producer, individual consumer etc. Continue reading “Types of Economics”
Dear readers, if you are management student or follower of business news, you must have heard the terms top line growth and bottom line growth of a company. You must have heard that top line of a company is good but bottom line is not. Many of you may be aware about the terms and many may not be. Let us understand the difference between these terms: Continue reading “Difference between topline and bottom line growth”
Quatitatitive measures of credit control are also called general measures of credit control. These measures refer to the methods which are used to direct the total volume of credit in the banks. These measures consists of the following methods
Bank rate: it means the rate of interest at which central bank discounts the bills of the commercial banks. If central bank wants to expand the credit then central bank will reduce the bank rate. Reduce bank rate will reduce the cost of borrowing of the commercial banks who in turn charge low rate of interest from their borrowers. This means the price of credit will decrease. Business community will borrow more money which leads to more investment, production, generate more employment and income in hands of people. Thus the purchasing power of people will increase and aggregate demand will also increase. While on the other hand if there is the situation of inflation means there is increase in the general price level central bank will contract the credit by increasing the bank rate. Increased bank rate will increase the cost of borrowing of the commercial banks who in turn charge high rate of interest from their borrowers. This means the price of credit will increase. Business community will discouraged to borrow money which leads to fall in investment, production, employment and income in hands of people. Thus the purchasing power of people will decrease and aggregate demand also decrease which will solve the situation of inflation. The present bank rate is 9 %.
Open market operations: it means buying and selling of securities of central bank in the open market. If the central bank wants to expand the credit then it would purchase the securities from the commercial banks. Which will in turn generate the money supply in the market and if the central bank contract the credit then this means it will sell the securities to the commercial banks which in turn reduce the money supply with the commercial banks.
Qualitatitive measures of credit control are also called selective measures of credit control. These measures refers to the measures which are directed towards the particular use of credit not its total volume. These measures consist of the following methods.
Margin requirement: if the central bank increases its margin then it will reduce the money supply and on the other hand if the central bank decrease its margin then it will increase the money supply.
Issue directions: the central bank also issue directions to the commercial banks in oral or written form which the commercial banks have to follow.
Credit rationing: the central bank also rations the credit given by the commercial banks.
Moral suasion: is morally implied on the commercial banks to follow the rules and regulations by the central banks.
Direct action: if the commercial banks don’t follow the rules and regulations of the central bank then central bank can take direct action against the commercial banks.
Deductive method- classical economists favour this method. It is also known as hypothetical or abstract or priori or analytical method. Under this method there are following steps: Continue reading “2 Methods of economics”