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Yogita Ingle 7 years, 1 month ago
The additional output produced as a result of employing an additional unit of the variable factor input is called the Marginal Product. Thus, we can say that marginal product is the addition to Total Product when an extra factor input is used.
Marginal Product = Change in Output/ Change in Input
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Yogita Ingle 7 years, 1 month ago
Commercial banks create money in the economy by providing loans.
Loans are lent to consumers by commercial banks in the form of various loans - car loans, mortgages, business loans, home equity loans and personal loans. The money allocated for these loans comes from the deposits of other clients of the bank. As the bank is aware that these funds are most likely to remain stagnant for a given period, a definite amount of funds is lent to others, who are then expected to repay their loans with interest. Thus, the bank collects interest on the money of its depositors without risking any actual money of its own. In this manner, the funds of one depositor are used to finance the loans of several customers of the bank. Moreover, the bank gets money from the interest collected from the individual to whom the loan was lent.
Let us understand it better with the help of an example.
Let Rs 100 be deposited into the bank by a depositor. The bank is aware that this depositor is unlikely to withdraw more than Rs 10 in the near future. It therefore puts Rs 10 in reserve and gives a loan of Rs 90 to X and enters the sum in his/her account. Because the bank knows that X will not use Rs 90 soon, it gives a loan of Rs 81 to Y by creating a deposit in Y's name and keeps aside Rs 9 in reserve. Theoretically, this process is carried out until no more excess reserves are left in the bank.
Thus, now the bank has three account holders with Rs 100, Rs 90 and Rs 81 in their accounts which is equal to Rs 271. This shows that the bank with the initial Rs 100 has now created a new deposit of Rs 271. This is the way banks create money.
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Gross domestic product at market prices is the sum of the gross values added of all resident producers at market prices, plus taxes less subsidies on imports.
There are two principal ways of calculating GDP:
Expenditures Approach: GDP = C + I + G + (X-M)
and
Income Approach: NI = W + R + i + PR
The first focuses on total expenditures on goods and services produced in the period.
While, the second focuses on the payments to the factors of production involved in those production activities within the period.
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