Narn ior Prowle Chapter 4 Basic Economics’ Problems = Section ~ A (Poverty) 4.1 Meaning of Poverty ative Poverty 4.3 Causes of Poverty 4.4 Measures to Reduce Poverty Section - B (Unemployment) 4.6 ‘Types of Unemployment reed Causes of Unemployment 4.8 Remedies of Unemployment Section - C (Inflation) 4.9 Meaning of Inflation 4.10 Types of Inflation 4.11 Causes of Inflation 4.12 Remedies of Inflation available limited resources. When economy is n' (@iiective, problems occurs in the economy of the country 2 world. Problems related to economy are termed as ‘e a Sao nt rts: Problem of allocation Economic problems are an integration of four parts: Pro lem of alloc problems” of ffi em of full-utilization sources, problem of all economic efficiency, problem of full-utiliza aed er, ee derived of resources and problem of economic growth. In this chapter, thre economic problems are discussed in sub-sections (c7 eCENGINEERING ECONOMICS & MANAGEMEN7 Section — A (Poverty) 1.1 Introduction to Poverty Food, clothes and shelter are three basi s of any person. Even today any people are not getting these three things. Such Kind op poverty’. the United Nations, “poverty is fundamentally a denial of opportunities, and a violation of human dignity. It means lack city to participate effectively in society. It means not having feed and clothe a family, not having a school or clinic to go to, not on which to grow one’s food or a job to earn one’s living, not having access to credit. It means insecurity, powerlessness and exclusion of individuals, households and communities. It means susceptibility to violence, and it often implies living on marginal or fragile environments, without access to clean water or sanitation”. (UN — 1998). Poverty is a socio-economic issue. Socio-economic issues are factors that have negative influence on an individuals’ economic activity including lack of education, cultural and religious discrimination, overpopulation, unemployment and corruption. Possessing little money, little education, few skills for the marketplace and a multitude of health problems, nearly half of all the people in the world live in poverty, without much opportunity to improve their lives. Many people in different countries live in poverty, especially in developing areas of Africa, Latin America and some parts Asia.gasic Economics’ Problem, 8 poverty line fo measure the pover Poverty, a contysl indicate consumption is defined, which is know ii has the povert ist y line, It is the critiea! value below which an individual 9t household is determined to be » Poverty measures based on an intornss ee national p hold the real value of the poverty line constant acre when making comparisons over time However, co lines at different thresholds, making consistent inter : of poverty difficult. International poverty estimat and middle income countries only. Some high inco poverty indicators, but a dollar—a day povert applicable for high - income countries line is Such a poverty lin the value of the poverty lines used in some of the poores In order to compare poverty across c international poverty line must be used to m Suda universal line is generally not suitable for the analysis of p erty within a country. For that purpose, a country-specific poverty line needs to be constructed, and the poverty line may need to be adi locations within a country. Some of the statistical facts on pov: * Almost half the world — over 3 billion people — live on less than ad Wath read atonkcc * Nearly a billion people entered the 21 century unable to read a book or sign their names> | ENGINEERING ECONOMICS 8M WAGEMD yyy oa i Domestic Product) of the 41 Heavily Indebted Po, tross Domestic Prod « The GDP @ ; s than the wealth of the world’, » sople) is le Countries (667 million people) is } richest people combined ory year on Weapons WAS needog Less than 1% of what the world spent hile into schoo! by the year 2000 and yet it didn’t happen, 0 put every child into sche children in the world). 649 1 billion children live in poverty (1 ir dequate shelter, 400 million have no access to safy million live without 270 million have no access to health services. 10.6 million water, and 2008 before they reached the age of 5 (or roughly 29,000 children att {Seneme € nd Relative Poverty Nov. 2016; Nov. 2017] erally of two types: (1) Absolute Poverty and (2) Poverty Relative poverty nymous with destitution and occurs when people Absolute pove adequate resources (measured in terms of calories or cannot nutrition) to a minimum level of physical health. When people do ey to meet the basic threshold that is needed for not have enough mo survival is t d as Absolute Poverty. People below poverty line are facing absolute pov erty and do not have enough money to buy food, shelter, clothing etc. that is needed for survival. Relative Poverty is the poverty when people are compared to others around them, but may still have enough money to survive. It is based on the cultural environment around them, not on a basic amount necessary for all humans to survive. According to relative poverty, if you live in an expensive neighborhood, and you have everything you need to get by, butEconomics’ Problems paste 85 own luxurious things, you go not own "BS: YOU could still be said to be mpared to the people around you, even cn eee oo ‘though you have everything-you need: Absolute poverty stays the me, and this could be problematic for 8, rel ive poverty cha economy, wher es more often and adjusts to th changes in society (food and housing bec ‘ areas, more jobs etc.) and furthermore when pming more expensive in certain pare cross-nationally 4.3 Causes of Poverty [GTU, May 2015; May 2018 May 2019} ‘There are many causes which increases ¢ he poverty in the country Following are few of the causes which are responsible poverty 1) Unemployment Unemployment (or joblessness) occurs when people are without ork and actively seeking work. The unemployment rate is a measure of the prevalence of unemployment and it is caleulated as a number of unemployed individuals by all individuals During periods of recession, an economy usually exp: high unemployment rate. According to International Labor 0 ation report, more than 197 million people globally are out of work or 6% of the world’s workforce were without a job in 2012. This ultimately leads to high level of poverty in the country. So, unemployment has to be reduced to control the poverty 2) Corruption Corruption in India is a major issue that adversely affects its economy. A study conducted by Transparency International in year 2005 found that more than 62% of Indians had firsthand experience of paying bribes or influence peddling to get jobs done in public offices successfully. In its study conducted in year 2008, Transparency International reports86. ENGINEERING ECONOMICS & MANAGEM 7 py of paying bribes or us about 40% of Indians had firsthand experience of paying bribes or using | Jone in public office. In 2012, India has ranked 94 contact to get a of 176 countries in Transparency International's Corruption Perception, Index (CPD, tied with Benin, Colombia, Djibouti, Greece, Moldoy, Mongolia, and Senegal. Corruption leads to influence the people who an, ities and hence poverty in the country s increasing not deserving th 3) High population growth rowing population has reduced the per capita income of oy, jence the standard of living has also fallen considerably. If tho country is overpopulated a large part of the income is spent on consumption and very ved for developmental activities. 1) Inflation The income earned by the poor people is insufficient to buy them the basic necessities of life and get them even two meals a day. Due to the lack of nutrition they are unable to do any physical work and hence they remain poor. The prices of basic food items are so high due to high rate of inflation that the little income rned by them is just insufficient. 5) Land inequality and social justice The fact is that for each village, a few land owners have most of the Jand which they rent to other people to work on, at ridiculously high prices They prevent any real growth from happening and just pull all the money + which they don’t reinvest since they don’t care all that much aoout the land itself. Not only is the situation stuck because of this, but land Mequalitics also reflect the huge imbalance of power carved in the ruralasic Economics’ Problem ;) Landowners and powerful pre 6) Lan P ful pressure groups In fact there's another great hurd independence, land reforms have been on and off th every time successfully thwarted by the sometimes rightfully as the state had plans t without any compensation ‘Then again local officials, working hand hand compens to richer farmers would of course ups which remains one the causes of poverty in In discrimination 7) Less priority to agriculture sector by Government Government should give priority to the o erha sector. China gave priority to agriculture sector in 1990s to elevate people from the poverty, India has to give priority to agricultural sector. But in the past decades Governments gave priority to the vi or (iaotably banking, insurance, finance, real estate and I services) rather than agriculture sector and so slowdown the process of economic development 8) Neglecting the poor once Manufacturing sector can literally provide hundreds of millions of jobs to workers coming from the rural areas. However the manufacturing sector is finally growing, so there are good prospects to reduce the massive unemployment and hence tackle one of the causes of poverty in India. But people of rural areas are left to face the problem of poverty. In our countryBENG ECONOMICS & MANAG W472» INEERING EC ‘ develop their own. So, poor once are becon:, manu! acturing develops, better facilities gu | persona ervices are available. Aj. greater positive impact on poverty tha, on is but good news for tacklin and expans 2 n India (unemployment, quality job and income jy d the development of real estate sector, hundreds op ill lack a decent home so there should be incentives for the market to cater to the needs of the poor with social housing so that the country gets a chance to solve the problem of its gigantic slums. 10) Market liberalization and globalization ' Growth and liberalization have contributed to the causes of poverty in India. They have exacerbated inequalities within the population and . reduced the role of the state which was directly needed to develop the | country. In this sense, growth itself risks stirring some tensions within a country between those who got rich and those who were left out. 11) Health among the main causes of poverty in India Diseases are one of the main causes of poverty in India, creating a major public safety disaster in India that contributes to keep and make _ millions fall into poverty. According to CBS News re} that the cost of health care pushes some port, it is estimated 39 million people back into povertygconomics’ Problem pasic Econ een 89 Thus many experts have 5 2 7 nomic growth, the governme : eee tecting the people, that is to sa ae Mircea alth care i hea 44 Measures to Reduce Poverty ‘Though it is very tough task to elimi ee ee itean be reduced to certain extents by taki 1) Employment opportunities Poverty can be climinated if the poor p ding to their needs and talents. Self-employment accor to them. Government can set up institutions wh practices and skills. 2) Uplift of Agriculture Agriculture is the backbone of our country. It pr s income to vast number of people. Hence the government should also concentrate on it an not only on the industries. 3) Education Government should take steps to spread awareness for education so that the people do not have to depend on others for their income. They can also protect themselves from exploitation by the greedy traders. 4) Establishment of Small Scale Industries Government should develop cottage, handicrafts and other small seale industries to in the backward regions of our country. Moreover thisENGINEERING ECONOMICS & MANAG? My, Ny slus to the deficit so} will transfer resources from the areas of surplu Ving th | problem of urbanization 5) Reduce Inflation a Inflation tends to make poor poorer and rich richer. There shoulg, nflation tends to make F Jevel of the country. Government should also requ, a stability in the pr Burd or and charge more on the richer class. Ratighnp the poor people get the basic necessities of jp. a 6) Check Population growth blem of poverty can be solved if the population of th, Much of the pro reduced to an average level. This will make developmental and the poor people will have a greater share in the fund; 7) Proper Utilization of Resources Resources of the country should be utilized properly so that we can have the benefits of those free gifts of naturesaste Economics’ Problems eS 91 —— Section ~ B (Une mployment) 4.5 Introduction to Unemployment IGTU, pv. 2018; May 2019] When a person is actively searching f or employment, but unable to find the », is called unemployment. Uncmployment is ofte ee a measure of the health of the economy. It is measured by unemplo : jg the number of unemployed persons divided by the num labor For many of us the notion of unemployment is on force a job or, are paid no not have lary. This is partly correct but not wholly uch a notion would apply largely to the educated people who are not able to find work or to those in urban areas who come to seek employm very serious problem to society which in ses the povert 46 Types of Unemployment IGTU, Dec. 2015; May 2016; May 2017; Nov. 2017; May 2018] Following are different types of unemployment in the country 1) Causal Unemployment Cyclical unemployment is based on a greater availability of workers than there are jobs for workers. It is usually directly tis tate of the confidence, economy. Lower demand for products due to lack of consum disinterest, or reduction in consumer spending results in the workforce eutting back on production. Since production ed, companies that retail such products may also cut back on workforce, creating yet more cyclical unemployment.RING ECONOMICS & MANAG ateol T 9 ENGINEER. 2) Disguised Unemployment ncos Where too many people Working There are many instan¢ finea When », all members of the fi agriculture, all mem! family wor, ‘ many are not required. In en work in the farm, but we fing Q hat that 3-4 people can do a give possible i” g the job. This may be be, say 10 people doing the job. This may be because iy, the whole family of cto find employment elsewhere, 80 rathor 4, ; excess people are not able remain unemployed they pre known as disguised unemployment. This occurs when more nown as disguis ary numbers of people are employed for the specified work. Dispuisy ofer to do the work along with others, phi, Sig than the nocess unemployment is found in agriculture because of the lack of employmen foung opportunities elsewhere. Similarly disguised unemployment can be in industry and offices as well. 3) Seasonal Unemployment Normally people are supposed to work throughout the year. But this may not possible for all. In agriculture, work is seasonal even though agricultural activities are performed throughout the year, During the peak agricultural seasons (when the crop is ready for harvesting) more people are required for work. Similarly, in the sowing, weeding and transplantation period more labor is required. Employment therefore increases at this time. In fact, there is hardly any unemployment in rural areas during these peak agricultural seasons. However, once these seasons are over the agricultural workers, especially those who do not own land ot sufficient to meet their basic requirement and they whose land is not mployment is known as scason@l _femain unemployed. This type of uneyeonomics’ Problems tary Unemployment yolun people who are unwilling to work at provail ‘a continuous flow of incor wage rate and people no Bet * ome from their propert w Property or any other sees and need not Lo work, such people are volunta so ntarily unemployed auses of Unemployment r (GTU - Noy, 2017) There are many cause wh followir se the major causes of unemployment are }) Hliteracy It is the most important and primary reason for une pur country. Moreover we do not have adequate educational { ural areas. Poor parents are not willing to send their children to seh they think that they are a source of income for their family. A grea islaid on general education than vocational training. This type of education is neither job oriented nor skill oriented. Thus the country has a large number of educated unemployed 2) Technology Technology is also a major cause of unemployr specially in agricultural sector. Machines can perform the job of many persons in a short span of time and in a better way. A large number of people became Unemployed when computers were introduced in our country by Rajiv Gandhi. It lead to wide scale protests from all over the country 8) Population Growth The employment growth in our country could not keep up pace up din underutilization of our - With the population growth. It has also resulteENGINEERING ECONOMICS & MANAGE) ny) ings in our country has req, entually, investments and s considerably. Thus, the major sectors have failed to provide job to a) 4, people. 4) Social and Cultural factors It has generally been seen that people do not want to leave thei, family and work at distant places. In a joint family, individuals haye , tendency to neglect work as they want to spend their life on the income gp other family members. Remed hough it is difficult to reduce unemployment due to prosen, 4 to Unemployment (GTU - Nov, 2017) education system, it can be reduced by many ways: 1) Reform in the education system There should be vocationalization of education. Efforts should be made to shape the skills of the individuals so that they can be put to practical use. 2) Population control India has to put a check on its rising population if it want to solve most of her problem. It is essential so that the additional jobs created do not fall short of new entrants to the labor market, 3) Self-Employment schemes In India, more than half of the population is self-employed in trade, ort, cottage industries, ete. Hence government should take some develop self-help centers,gconomics’ Problems ic pas jicy towards Seasonal unemployment polic: In India, most of the poople are engaged in agriculture which ie a Jy seasonal work. Hence they become unemployed during the rest of ghly 8° vig x. Hence steps should be taken to promote allied activities like mn airy g, horticulture ete ; pal husbandry, dairy farming, horticulture anil Cottage industries a be developed to help them during non-se i ‘asonal periods. shou! gapid Industrialization 5) More industries should be set up to gencrate employment ities. opportuni96 ENGINEPRING ZC ONOMICS & MANAGEM yyy — Section — C (Inflation) (GTU - Nov. 2016; May 2018) 4.9 Meaning of Inflation Inflati 5 sustained increase in the general price level of yong, inflation is a sustained d in an economy over a period of time. When the price level rise, and services in an economy © 7 : : +h unit of currency buys fewer goods and services. So, inflation reflects a ach unit of currency buys fewer & urchasing power per unit of money ~ @ 108s of real vale reduction in the : count within the economy, in the medium of exchange and unit of ac Inflation oceurs due to an imbalance between demand and supply op « {o increase their profit margins. This does not occur normally in recessions put when the economy is booming and sales are strong. It might be called oligopolistic inflation, because it is oligopolies that have the power Lo set their own prices and raise them when they decide the time is ripe. An ligopolistic firm often realizes that if it raises its prices, the other major firms in the industry will likely see that as a good time to widen their profit margins too without suffering much from price competition from the few other firms in the industry 4) Sectorial inflation The fourth type is called sectorial inflation. The term applies whenever any of the other three factors hits a basic industry causing inflation. Since the industry in which inflation has occurred is a major supplier to many other industries, the prices of their products also increases and hence inflation also occurs in that industry. So, it can be said that though inflation was started in one sector, it has been propagated to other sectors. This type of inflation is called sectorial inflation. For example, if there is price hike in steel or gas, the consumer sectors of steel and gas will PEMC 8NOMICS & MANAGEME 97 RING ECC xs the raw material prices y), e product have to increase the increased. Causes of Inflation acele : 515: May 2016; Nov. 2016; May 2017; May 201, {GTU, Dec 2015; May =' ; May 2019) uses of inflation: | ent 1) Unfavorable agricultural production ss largely dependent on monsoon. In case of cultural production is adversely affected. Due tg 1 as well as agro-based industrial products he wholesalers and businessmen practices hoarding of leads to inflation. ] com: 3) Deficit financing If the government resorts to deficit financing in order to meet its developmental expenditure, then it makes available funds for the growth of economy. But huge deficit financing leads to inflation. So, increase in the government expenditure in the economy, 4) Population and black money Rapid growth of population causes inflation. Tax is the most significant and major source of public revenue. But, most of the people Practices tax evasion. It turns into black money which is responsible for inflation. It is a very important cause of rise in the basic food prices in 4 developing country like India.I I gconomics’ Problems paste 99 5) Upward revision of administered prices Commodities produced in the publ : vave government dministration of price level. The governn Ps on raising ives in gor to compensate the losses. This leads t ; or 4) Increase in indirect taxes Increase in indirect taxes like tax nereases the cost of production for the prod 1 ira p hey raise the prices of their manufactured items. 7) Increase in wage rates It causes the producers to raise the price: goods to balance their profits 4.12 Remedies of Inflation —<—__ [GTU, Nov. 2018; May 2019] To control inflation measures from Governmen’ through their fiscal and monetary policies in followi 1) Monetary Measures Monetary measures are taken by the Governmer rder to control inflation. In India, it is implemented by Reserve Bank of India. Main tools of monetary measures of credit control include Bank Rate policy, Open Market Operations, Cash Reserve Ratio. These measures are used to achieve full employment, to maintain a fairly stable exchange rate, to achieve rapid economic growth and promote economic equality. Also, it reduces the pressure of demand. Monetary measures to control inflation includes:ICS &MANAGEM 95 NOM 100 ______ENGINEERING ECONOM. Higher bank rate. Sale of government securities in the open market Sale of government securi guirements. Increase in reserve requiremen . like Consumer Credit Contra) Selective credit control measures vcad to fall in money supply that takes away y,, sower of the people. Hence aggregate demand falls ang also falls. prices o! 2) Fiscal Measures relates to public revenue and public expenditure es thereto, Important tools of fiscal measures are Public sblic expenditure. The major sources from where public ated include income tax, wealth tax, excise duty and sales tax. Public expenditure refers to the expenditure by the government on productive as well as non-productive activities. Productive expenditure includes expenditure on infrastructure development, development of industries like iron and steel, chemicals, heavy engineering, etc. Non. development expenditure includes expenditure on administrative machinery, law and order, defenses, etc. To control the inflation measures taken are namely: i. A reduction in government spending. ii. Increase in tax rates, iii, _ Increase in public borrowings. 3) Other Measures Other measures may be short term or long term. Short term concerns with the distribution of essential commodities on ration cards at reasonablegeonomics’ Problem sic pat 101 ~ pong term includes populat it cosas te or price omic planning. Populatic Pang is used to aware the pc ' Poet ni family planning. Ec , ig used to accelerate the ec S anning 0 and development of plat nomic pl count