Today the world economy is in turmoil. What to speak of big economies like the US and Japan even the small economies like that of many African nations are not left immune from the historic phenomenon of problem of availability of cash -which is the driving force of economic activities of any country.

The big question that bothers everyone alike : the governments , financial planners, employees, industrialists , businessmen, investors and for that matter every person of the world is how long the turmoil will continue? Many are of the opinion that no economy is going to heal in near future. They think a period of recovery from the problem of available cash will be around 8-10 years. The reason behind their thinking is largely based upon the previous experiences of such incidents in economies, including the great depression of the US in the thirties.

Download Exam – Snmptn 2010 :

1. Pack 1
2. Pack 2

As a solution of this problem of greater ramifications, affecting every walk of life of individual citizen, what various governments are currently doing, are something “typical” -governments are taking steps to inject into the body of their respective economies cash currency or more technically`Liquidity` . The most common steps the various governments are taking are: to reduce the cash reserve ratios or CRR, to bring down the repo rates and to borrow from domestic and foreign markets. Apart from taking these common steps, governments can also resort to deficit financing , an unusual step.
Reductions in the CRR enables commercial banks to deposit a little lesser money to the government accounts. The repo rate is the rate at which the apex bank of a country provides loans to other banks. With reduced repo rate, a commercial bank can borrow more from an apex bank of a nation. Deficit financing is the last tool in governments` hands which they take when they can not overuse the instrument of CRR, repo rate, and domestic and international borrowing. Deficit financing is printing currency without creating the actual corresponding products and services in an economy and becuse of this reason it brings inflation. A higher inflation retards economic growth in an economy. It is for this reason governments usually do not undertake this step.
There are no doubts that these steps will definitely increase the availability of the cash to banking institutions and governments. But the million dollar question is with these traditional approaches available to a nation, can sufficient amount of cash be injected into the body of an economy to keep it healthy so that everything in an economy goes well ?
The answer to this question is again a big NO. It is simply so because the deposits with governments is always low if compared to total demands of the cash requirement, especially when a country is facing situation of such magnitude.
To ease the problem of availability of cash , the other option before a government is to borrow money from other countries. It is clear from the discussion of the traditional tools which governments usually employ to fight whenever problem of availability of cash arises in any economy in the world that these tools of CRR, repo rate, deficit financing and, domestic and foreign borrowing can not help economies to recover in the shorter possible period of time as they fail to infuse the required availability of cash in an economy. The consequence is an economy takes longer period of recovery. Longer duration perpetrates a great deal of suffering which every governments, every institution and every citizen of a nation has to face in some form or the other.
In this crucial phase of economies every thinker of economics contemplates what are other ways that can help economies to recover faster ?
My keen observations on the fundamental theories and practices of economics suggest the following 5 rules can greatly help economies to recover faster:
(1)Instalment Based Selling Of Products : If industrial sector of an economy keeps on selling their products it implicitly implies that it will be manufacturing product also and if this sector continue to manufacture , it will definitely keep on contributing to an economy. What industrial sector faces as a big problem to them is the loss of revenues because of reduced volume of sell. And this reduced volume of sales is realised because at the time of recession customer are unable to pay the unfriendly prices of a product though they have desire to buy a product . This tool of customer friendly installment plan can greatly fight this problem of reduced sell volume and help the industrial sector to fight the problem of reduced sell. (2) Moderation of Governments Expenditure : As prices of goods and services attain a lower level due to fall in their demands , the purchasing capacity of the government employees proportionally becomes higher. To adjust this biased benefits going to them it is advisable to cut their salaries and perks according to a formulae to be worked out by a group of economists. It will help everybody in an economy , as the overall effect which this tool will bring is it will make available some degree of cash availability to government treasury which governments can rationally use to help to fine tune their economy. This will ensure a greater benefits as its beneficiary will be everybody in an economy
Apart from this, the governments need to cut its defence expenditure, as this expenditure sucks a large amount of cash from an economy.
(3) Issuing Of Public Bonds of Different Maturity Period:
Governments should make use of this tool as a tool of instilling confidence among depositors and investors who do not want to put their money in financial institutions like banks largely because the fear psychosis ruling their minds. This step will yield to governments a large sum of money . The bonds should be attractive in terms of its return so that it can invite maximum possible amount of cash available with citizen . Governments can then lend this money to financial institutions which are enormously required to fight the economic crises. A healthy financial institution is an index of economic development. This step will definitely help to correct to a greater degree the financial problem of finance institutions in a nation and ultimately benefit every citizen of a nation.
(4)Sorting out of worst affected business units and their subsidisation: governments are required to help those business units whose role in the concerned economy is crucial for development and stability. The waiving of various taxes and subsidisation of some inputs can help the more affected business unit to continue their business rather than deciding closure. This will shortly help investors, and employees and in the long term the governments when these units recover from the problem.
(5) Encouragement to a collective entrepreneurships, rather, a single entrepreneurship in a business venture:
A policy of economic governance which prefers to encourage and support a collective business effort will enormously change the quantum of business progress leading to a faster recovery. In a situation when an individual entrepreneur feels unable to start a business venture on its own because of lack of of capital , the collective effort will pave a way to undertake such business venture as this will sort out the problem of capital needed to start a business venture. A government can also provide economic help to such collective effort if they seek governments cooperation. This tool of economics will definitely benefit a large number of entrepreneurs in an environment of capital-deficit economy.
What the time suggests right now is it is right time to apply these rules more comprehensibly.