Introduction to economics

Introduction to Economics


  • Economics is the study of how people allocate scarce resources for production, distribution, and consumption, both individually and collectively.
  • Two major types of economics are microeconomics, which focuses on the behavior of individual consumers and producers, and macroeconomics, which examine overall economies on a regional, national, or international scale.
  • Economics is especially concerned with efficiency in production and exchange and uses models and assumptions to understand how to create incentives and policies that will maximize efficiency.
  • Economists formulate and publish numerous economic indicators, such as gross domestic product (GDP) and the Consumer Price Index (CPI).

Microeconomics

Microeconomics focuses on how individual consumers and firm make decisions; these individuals can be a single person, a household, a business/organization or a government agency. Analyzing certain aspects of human behavior, microeconomics tries to explain they respond to changes in price and why they demand what they do at particular price levels. Microeconomics tries to explain how and why different goods are valued differently, how individuals make financial decisions, and how individuals best trade, coordinate and cooperate with one another. Microeconomics' topics range from the dynamics of supply and demand to the efficiency and costs associated with producing goods and services; they also include how labor is divided and allocated, uncertainty, risk, and strategic game theory


Macroeconomics

Macroeconomics studies an overall economy on both a national and international level. Its focus can include a distinct geographical region, a country, a continent, or even the whole world.

Topics studied include foreign trade, government fiscal and monetary policy, unemployment rates, the level of inflation and interest rates, the growth of total production output as reflected by changes in the Gross Domestic Product (GDP), and business cycles that result in expansions, booms, recessions, and depressions.


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Monetary Policy Tools

monetary policy tools

SLR 18.25%(Current)

  • In the case of SLR, banks are asked to have reserves of liquid assets, which include both cash and gold.
  • Banks earn returns on money parked as SLR
  • SLR is used to control the bank’s leverage for credit expansion.
  • In the case of SLR, the securities are kept with the banks themselves, which they need to maintain in the form of liquid assets.

CRR 3%(Current)

  • The CRR requires banks to have only cash reserves with the RBI
  • Banks don’t earn returns on money parked as CRR
  • The Central Bank controls the liquidity in the Banking system with CRR.
  • n CRR, the cash reserve is maintained by the banks with the Reserve Bank of India.

Market Stabilisation Scheme (MSS):

It is a tool used by the Reserve Bank of India to suck out excess liquidity from the market through issue of securities like Treasury Bills, Dated Securities etc. on behalf of the government


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In this blog post, we have been through the basics of Economics. Many direct questions have been asked from the Quantitative tools of monetary policy so it becomes important to understand these basics terms. For more such topics visit www.planete.in


Monetary policy tools questions
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