GLOBAL INSTITUTE OF TECHNOLOGY, JAIPUR

DEPARTMENT OF ELECTRICAL ENGINEERING

INDUSTRIAL ECONOMICS & MANAGEMENT 7EE9A

EXPERIMENT NO: 2
OBJECT: Study about function of money, demand and supply for money, money
price level & inflation, black money, magnitude & consequences.

THEORY:
Money is any item or verifiable record that is generally accepted
as payment for goods and services and repayment of debts, such as taxes, in a
particular country or socio-economic context. The main functions of money are
distinguished as: a medium of exchange, a unit of account, a store of value and
sometimes, a standard of deferred payment. Any item or verifiable record that fulfils
these functions can be considered as money.

FUNCTIONS OF MONEY:

1. Medium of Exchange:
The most important function of money is that it serves as a medium of exchange. In
the barter economy a great difficulty was experienced in the exchange of goods as
the exchange in the barter system required double coincidence of wants. Money has
removed this difficulty. Now a person A can sell his goods to B for money and then
he can use that money to buy the goods he wants from others who have these goods.
As long as money is generally acceptable, there will be no difficulty in the process
of exchange. By serving as a very convenient medium of exchange money has made
possible the complex division of labor or specialization-in the modern economic
organization.

2. Measure of Value:
Another important function of money is that it serves as a common measure of value
or a unit of account. Under barter economy there was no common measure of value
in which the values of different goods could be measured and compared with each
other. Money has also solved this difficulty. Money serves as a yardstick for
measuring the value of goods and services. As the value of all goods and services is
measured in a standard unit of money, their relative values can be easily compared.
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ASHA KUMARI
16EGJEE011
 GLOBAL INSTITUTE OF TECHNOLOGY, JAIPUR
DEPARTMENT OF ELECTRICAL ENGINEERING
INDUSTRIAL ECONOMICS & MANAGEMENT 7EE9A

3. Standard of Deferred Payment:

Another function of money it that it serves as a standard for deferred payments.
Deferred payments mean those payments which are to be made in the future. If a
loan is taken today, it would be paid back after a period of time. The amount of loan
is measured in terms of money and it is paid back in money. A large number of credit
transactions involving huge future payments are made daily. Money performs this
function of standard for deferred payments because its value remains more or less
stable.

4. Store of Value:
Lastly, money acts as store of value. Money being the most liquid of all assets is a
convenient form in which to store wealth, that is, money can be held as an asset.
Thus store of value function is also called asset function of money. It is, therefore,
essential that the good chosen as money should be such as can be easily stored
without deterioration or wastage. That is why gold was popular in the past as money
material.

DEMAND AND SUPPLY FOR MONEY:

The demand curve for money illustrates the quantity of money demanded at a given
interest rate. Notice that the demand curve for money is downward sloping, which
means that people want to hold less of their wealth in the form of money the higher
that interest rates on bonds and other alternative investments are. The central bank
controls the supply of money, and they interact with other financial institutions. This
interaction is part of the money market, and we can illustrate it using a supply curve.
The supply curve for money illustrates the quantity of money supplied at a given
interest rate, and here's what that looks like. Notice that unlike a typical supply curve
in the product market, the supply curve for money is vertical, because it does not
depend on interest rates. It depends entirely on decisions made by the central bank.

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ASHA KUMARI
16EGJEE011
 GLOBAL INSTITUTE OF TECHNOLOGY, JAIPUR
DEPARTMENT OF ELECTRICAL ENGINEERING
INDUSTRIAL ECONOMICS & MANAGEMENT 7EE9A

MONEY PRICE LEVEL & INFLATION:

When the price level rises in an economy, the average price of all goods and services
sold is increasing. Inflation is calculated as the percentage increase in a
country's price level over some period, usually a year. Thus studying the effects of
a price level increase is the same as studying the effects of inflation.

BLACK MONEY:
In India, black money is funds earned on the black market, on which income and
other taxes have not been paid. Also, the unaccounted money that is concealed from
the tax administrator is called black money. The black money is accumulated by the
criminals, smugglers, hoarders, tax-evaders and other anti-social elements of the
society. Around 22000 crores of rupees are supposed to have been accumulated by
the criminals for vested interests, though writ petitions in the supreme court estimate
this to be even larger, at 90 lakh crores.

MAGNITUDE & CONSEQUENCES:

It is not easy to calculate the magnitude of black money in any society. The
economists in the United States, the United Kingdom, Norway, Sweden and Italy
adopted different measures but could not estimate the amount involved in black
money. In spite of the varied methods used, it is not possible to estimate the
magnitude of black money in a society, even though it is described as a world-wide
phenomenon. It is said to be in operation not only in the developing countries but
also in the developed countries like the United States, the United Kingdom, Russia,
Japan, Canada, France, Germany, etc.
Over the past 50 years, the government has at various times announced several
schemes offering opportunities to bring black money overboard. Some of these
schemes are: introducing the scheme of special Bearer Bonds, demonetizing high
denomination currency notes, stringent raids, and scheme of voluntary disclosures.

RESULT:
We have successfully studied about function of money, demand and supply for
money, money price level & inflation, black money, magnitude & consequences.

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ASHA KUMARI
16EGJEE011
 GLOBAL INSTITUTE OF TECHNOLOGY, JAIPUR
DEPARTMENT OF ELECTRICAL ENGINEERING
INDUSTRIAL ECONOMICS & MANAGEMENT 7EE9A

EXPERIMENT NO: 3
OBJECT: Study about functions of commercial banks, banking system in India,
shortcoming and improvement, function of RBI, objectives and features.

THEORY:
FUNCTIONS OF COMMERCIAL BANKS:
1. Accepting Deposits
Commercial banks accept deposits from people, businesses, and other entities in the
form of:

 Savings deposits – The commercial bank accepts small deposits, from

households or persons, in order to encourage savings in the economy.

 Time deposits – The bank accepts deposits for a fixed time and carries a higher
rate of interest as compared to savings deposits.

 Current deposits – These accounts do not offer any interest. Further, most
current accounts offer overdrafts up to a pre-specified limit. The bank, therefore,
undertakes the obligation of paying all cheques against deposits subject to the
availability of sufficient funds in the account.

2. Lending of Funds
Another important activity is lending funds to customers in the form of loans and
advances, cash credit, overdraft and discounting of bills, etc. Loans are advances that
a bank extends to his customers with or without security for a specified time and at an
agreed rate of interest. Further, the bank credits the loan amount in the customer’s
account which he withdraws as per his needs.

3. Bank as an Agent:

 Collecting bills, draft, cheques, etc.

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ASHA KUMARI
16EGJEE011
 GLOBAL INSTITUTE OF TECHNOLOGY, JAIPUR
DEPARTMENT OF ELECTRICAL ENGINEERING
INDUSTRIAL ECONOMICS & MANAGEMENT 7EE9A

 Paying the insurance premium, rent, loan installments, etc.

 Working as a representative of a customer for purchasing or redeeming securities,

etc. in the stock exchange.

 Acting as an executor, administrator, or trustee of the estate of a customer.

 Also, preparing income tax returns, claiming tax refunds, etc.

4. General Utility Services:

 Issuing traveler cheques.

 Offering locker facilities for keeping valuables in safe custody.

 Also, issuing debit cards and credit cards, etc.

BANKING SYSTEM IN INDIA:

The banking system plays an important role in promoting economic growth not only
by channeling savings into investments but also by improving allocative efficiency
of resources. The recent empirical evidence, in fact, suggests that banking system
contributes to economic growth more by improving the allocative efficiency of
resources than by channeling of resources from savers to investors. An efficient
banking system is now regarded as a necessary pre-condition for growth.
The banking system of India consists of the central bank (Reserve Bank of India -
RBI), commercial banks, cooperative banks and development banks (development
finance institutions). These institutions, which provide a meeting ground for the
savers and the investors, form the core of India’s financial sector. Through
mobilization of resources and their better allocation, banks play an important role in
the development process of underdeveloped countries.

SHORTCOMING IN COMMERCIAL BANKING:

1. Insufficient growth
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ASHA KUMARI
16EGJEE011
 GLOBAL INSTITUTE OF TECHNOLOGY, JAIPUR
DEPARTMENT OF ELECTRICAL ENGINEERING
INDUSTRIAL ECONOMICS & MANAGEMENT 7EE9A

2. Regional imbalance
3. Deterioration of quality of service
4. Falling profitability
5. Lack of professionalism
IMPROVEMENT IN COMMERCIAL BANKING:
1. Empower Your Employees
2. Allow Consumers to Self-Service
3. Consistent Across All Touch Points
4. Educate Your Customers on Financial Literacy
5. Embrace Financial Technology

FUNCTIONS OF RBI:

1. Issue of Notes: The Reserve Bank has the monopoly for printing the currency
notes in the country. It has the sole right to issue currency notes of various
denominations except one rupee note (which is issued by the Ministry of Finance).
The Reserve Bank has adopted the Minimum Reserve System for issuing/printing
the currency notes. Since 1957, it maintains gold and foreign exchange reserves of
Rs. 200 Cr. of which at least Rs. 115 cr. should be in gold and remaining in the
foreign currencies.
2. Banker to the Government: The second important function of the Reserve Bank
is to act as the Banker, Agent and Adviser to the Government of India and states. It
performs all the banking functions of the State and Central Government and it also
tenders useful advice to the government on matters related to economic and
monetary policy. It also manages the public debt of the government.
3. Banker’s Bank: The Reserve Bank performs the same functions for the
other commercial banks as the other banks ordinarily perform for their customers.
RBI lends money to all the commercial banks of the country.
4. Controller of the Credit: The RBI undertakes the responsibility of controlling
credit created by the commercial banks. RBI uses two methods to control the extra
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ASHA KUMARI
16EGJEE011
 GLOBAL INSTITUTE OF TECHNOLOGY, JAIPUR
DEPARTMENT OF ELECTRICAL ENGINEERING
INDUSTRIAL ECONOMICS & MANAGEMENT 7EE9A

flow of money in the economy. These methods are quantitative and qualitative
techniques to control and regulate the credit flow in the country. When RBI observes
that the economy has sufficient money supply and it may cause inflationary
situation in the country then it squeezes the money supply through its tight monetary
policy and vice versa.
5. Custodian of Foreign Reserves: For the purpose of keeping the foreign exchange
rates stable, the Reserve Bank buys and sells the foreign currencies and also protects
the country's foreign exchange funds. RBI sells the foreign currency in the foreign
exchange market when its supply decreases in the economy and vice-versa.
Currently India has Foreign Exchange Reserve of around US$ 360bn.
6. Other Functions: The Reserve Bank performs a number of other developmental
works. These works include the function of clearing house arranging credit for
agriculture (which has been transferred to NABARD) collecting and publishing the
economic data, buying and selling of Government securities (gilt edge, treasury bills
etc)and trade bills, giving loans to the Government buying and selling of valuable
commodities etc. It also acts as the representative of Government in International
Monetary Fund (I.M.F.) and represents the membership of India.

OBJECTIVE & FEATURE OF RBI:

 To regulate the issue of Banknotes.
 To secure monetary stability in the country.
 To meet the economic challenges by modernising the monetary policy
framework

RESULT:
We have successfully studied about functions of commercial banks, banking system
in India, shortcoming and improvement, function of RBI, objectives and features.

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ASHA KUMARI
16EGJEE011
 GLOBAL INSTITUTE OF TECHNOLOGY, JAIPUR
DEPARTMENT OF ELECTRICAL ENGINEERING
INDUSTRIAL ECONOMICS & MANAGEMENT 7EE9A

EXPERIMENT NO: 4
OBJECT: Study about sources of public revenue, principal of taxtation , direct &
indirect taxes, theory of international trade, balance of trade and payments and
foreign exchange, new economic policy: liberalization, extending privatization,
globalization.

THEORY:
SOURCES OF PUBLIC REVENUE:

TAX: A tax is a compulsory levy imposed by a public authority against which tax
payers cannot claim anything. Tax has three important features:

1. It is a compulsory contribution, to the state from the citizen. Anyone refusing to

pay tax is punished under law. Nobody can object to taxation on the ground that he
is not getting the benefit of certain state services,

2. It is the personal obligation of the individual to pay taxes under all circumstances,

3. There is no direct relationship between benefit and tax payment.

RATES: Rates refer to local taxation, i.e., taxation levied by (or for) local rather
than central government. Normally rates are proportional to the estimated rentable
value of business and domestic properties. Rates are often criticised as being
unrelated to income.

FEES: Fee is a payment to defray the cost of each recurring service undertaken by
the government, primarily in the public interest.

LICENCE FEE: A licence fee is paid in those instances in which the government
authority is invoked simply to confer a permission or a privilege.

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ASHA KUMARI
16EGJEE011
 GLOBAL INSTITUTE OF TECHNOLOGY, JAIPUR
DEPARTMENT OF ELECTRICAL ENGINEERING
INDUSTRIAL ECONOMICS & MANAGEMENT 7EE9A

FINE AND PENALTIES: They are the charges imposed on persons as a

punishment for contravention of a law. The main purpose of these is not to raise
revenue from the public but to force them to follow law and order of the country.

PRINCIPAL OF TAXTATION:

The most important source of government revenue is tax. A tax is a compulsory

payment made by individuals and companies to the government on the basis of
certain well-established rules or criteria such as income earned, property owned,
capital gains made or expenditure incurred (money spent) on domestic and imported
articles.
Since many people object to paying taxes, taxation involves compulsion. The
taxpayers are required to make certain payments, regardless of their individual
wishes or desires in the matter. Because of this compulsion, the collection of taxes
may have very significant effects upon the behaviour of individuals and the
functioning of the economy, which must be taken into consideration in selection of
taxes if the tax structure is not to interfere with the attainment of the economic goals
of society. Furthermore, if the goals of society are to be realised, the burden of the
taxes must be distributed among various persons in a manner consistent with these
goals.

DIRECT TAXES:

Direct taxes include the taxes that cannot be transferred or shifted to another person,
for instance the income tax an individual pays directly to the government.
In this case, the burden of the tax falls flatly on the individual who earns a taxable
income and cannot shift the tax to others.

INDIRECT TAXES:

Indirect taxes, on the other hand, are taxes which can be shifted to another person.
An example would be the Value Added Tax (VAT) that is included in the bill of
goods and services that you procure from others. The initial tax is levied on the
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ASHA KUMARI
16EGJEE011
 GLOBAL INSTITUTE OF TECHNOLOGY, JAIPUR
DEPARTMENT OF ELECTRICAL ENGINEERING
INDUSTRIAL ECONOMICS & MANAGEMENT 7EE9A

manufacturer or service provider, who then shifts this tax burden to the consumers
by charging higher prices for the commodity by including taxes in the final price.

THEORIES OF INTERNATIONAL TRADE:

International trade theories are simply different theories to explain international

trade. Trade is the concept of exchanging goods and services between two people or
entities. International trade is then the concept of this exchange between people or
entities in two different countries.

The assumptions taken under this theory’ are as follows:

1. There are two countries producing two goods.
2. The size of economies of these countries is equal.
3. There is perfect mobility of factors of production within countries.
4. Transportation cost is ignored.
5. Before specialization, country’s resources are equally divided to produce each
good.

BALANCE OF PAYMENTS:

According to Kindle Berger, "The balance of payments of a country is a systematic

record of all economic transactions between the residents of the reporting country
and residents of foreign countries during a given period of time".
It is a double entry system of record of all economic transactions between the
residents of the country and the rest of the world carried out in a specific period of
time when we say “a country’s balance of payments” we are referring to the
transactions of its citizens and government.

BALANCE OF TRADE:

The difference between a country's imports and its exports. Balance of trade is the
largest component of a country's balance of payments.

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ASHA KUMARI
16EGJEE011
 GLOBAL INSTITUTE OF TECHNOLOGY, JAIPUR
DEPARTMENT OF ELECTRICAL ENGINEERING
INDUSTRIAL ECONOMICS & MANAGEMENT 7EE9A

Debit items include imports, foreign aid, domestic spending abroad and domestic
investments abroad.

Credit items include exports, foreign spending in the domestic economy and foreign
investments in the domestic economy.

When exports are greater than imports than the BOT is favourable and if imports are
greater than exports then it is unfavourable.

FOREIGN EXCHANGE:

Foreign exchange, or forex, is the conversion of one country's currency into another.
In a free economy, a country's currency is valued according to the laws of supply
and demand. In other words, a currency's value can be pegged to another country's
currency, such as the U.S. dollar, or even to a basket of currencies. A country's
currency value may also be set by the country's government.

NEW ECONOMIC POLICY:

New Economic Policy refers to economic liberalisation or relaxation in the import

tariffs, deregulation of markets or opening the markets for private and foreign
players, and reduction of taxes to expand the economic wings of the country.
In 1991, the P. V. Narasimha Rao government reduced the import duties, opened
reserved sector for the private players, devalued the Indian currency to increase the
export and reduce the adverse Balance of Payment (BOP) situation. This is also
known as the LPG Model of growth. Former Prime Minister Manmohan Singh is
considered to be the father of New Economic Policy (NEP) of India. Manmohan
Singh introduced the NEP on July 24,1991.

LIBERALIZATION :

The basic aim of liberalization was to put an end to those restrictions which became
hindrances in the development and growth of the nation. The loosening of
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ASHA KUMARI
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 GLOBAL INSTITUTE OF TECHNOLOGY, JAIPUR
DEPARTMENT OF ELECTRICAL ENGINEERING
INDUSTRIAL ECONOMICS & MANAGEMENT 7EE9A

government control in a country and when private sector companies’ start working
without or with fewer restrictions and government allow private players to expand
for the growth of the country depicts liberalization in a country.

PRIVATIZATION :

This is the second of the three policies of LPG. It is the increment of the dominating
role of private sector companies and the reduced role of public sector companies. In
other words, it is the reduction of ownership of the management of a government-
owned enterprise. Government companies can be converted into private companies
in two ways:
1. By disinvestment

2. By withdrawal of governmental ownership and management of public sector

companies.

GLOBALIZATION :

It means to integrate the economy of one country with the global economy. During
Globalization the main focus is on foreign trade & private and institutional foreign
investment. It is the last policy of LPG to be implemented.
Globalization as a term has a very complex phenomenon. The main aim is to
transform the world towards independence and integration of the world as a whole
by setting various strategic policies. Globalization is attempting to create a
borderless world, wherein the need of one country can be driven from across the
globe and turning into one large economy.

RESULT:

We have successfully studied about sources of public revenue, principal of taxtation,

direct & indirect taxes, theory of international trade, balance of trade and payments
and foreign exchange, new economic policy: liberalization, extending privatization,
globalization.

12
ASHA KUMARI
16EGJEE011
 GLOBAL INSTITUTE OF TECHNOLOGY, JAIPUR
DEPARTMENT OF ELECTRICAL ENGINEERING
INDUSTRIAL ECONOMICS & MANAGEMENT 7EE9A

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ASHA KUMARI
16EGJEE011