Liquidity preference means the preference of the people to hold wealth in the form of liquid cash rather than in non-liquid assets like bonds, securities, gold, building.

(i) Nominal or money wages are the wages paid in terms of money.
(ii) Real wages are the wages paid in terms of goods & services.

Rent is that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil" David Ricardo.

Personal distribution - the distribution of national income among individuals.
Functional distribution - the distribution of income among four factors of production.

Sen's 'Choice of Technique' was a research work where he argued that in a labour surplus economy, generation of employment cannot be increased at the initial stage by the adoption of capital-intensive technique.

(i) Any stock or reserve that can be drawn from nature is a Natural Resource.
(ii) The major natural resources are land, forest, water.

High national income, per capita, standard of living, level of technology, industrialization, consumption level, level of urbanisation. (any two)

(i) According to Schumpeter profit is the reward for innovation.
(ii) Innovation means invention put into commercial practice.
(iii) Innovation may consist of introduction of a new product or a new method of production or opening a new market or discovery of new raw materials or reorganisation of an industry.
(iv) The cost of production decreases and so profit increases.
(v) Innovation should be done continuously.

(i) Wage is equal to the subsistence level of the labourer ie the minimum amount of food, clothing & shelter which workers & their family require for existence
(ii) If workers are paid higher wages than the subsistence level, the workers would be better off & so population increases.
(iii) So wages come down & vice versa.
(iv) So wages should not be above or below the subsistence level of the labourer.

SI.No	Rent	Quasi Rent
1	Rent accrues to land	Quasi - Rent accrues to man made appliances
2	The supply of land is fixed forever.	The supply of man made appliances is fixed for a short period only.
3	It enters into price.	It does not enter into price.
4		It is temporary.

Transaction motive:
(i) The desire of the people to hold cash for the current transactions.
(ii) The amount kept for this motive depends on the income. M_t = f(y)
Precautionary motive:
(i) The desire of the people to hold cash to meet unexpected expenditure such as sickness, accidents.
(ii) The amount for this purpose depends on income. M_p = f(y)
Speculative motive:
(i) The desire of the people to hold cash in order to take advantage of the future changes in price of bonds and securities.
(ii) The amount for this purpose depends on the rate of interest. M_s = f(i)

Social infrastructure refers to those structures which improve the quality of manpower and contribute indirectly towards the growth of an economy.
Education:
(i) Education is in Concurrent List.
(ii) The Ministry of Human Resource Development decides the education budget and education policy.
(iii) India follows a six-level system - nursery, primary, secondary, higher secondary, graduation and post-graduation.
(iv) We have the 10 +2 pattern.
(v) The education department consists of schools, colleges and universities imparting education to all.
(vi) Though the budget share of education is 3% of GDP yet the per pupil expenditure for school students is the lowest.
Health:
(i) Health is a state-government responsibility.
(ii) The Central Council of Health and Welfare formulates various health care projects.
(iii) India has the ayurvedic medicine, unani, homeopathy, allopathy and yoga.
(iv) Medical practicing needs a licensing from the Ministry of Health. All medical systems now are under one ministry viz AYUSH.
(v) Health status is better in Kerala but generally India's health status is not satisfactory

Rao's examination of the "interrelation between investment, income and multiplier in an under developed economy" (1952) was his major contribution to macroeconomic theory.

(i) According to Gandhi, "Real India was to be found in villages and not in towns or cities".
(ii) Gandhi suggested the development of self sufficient, self dependent villages.

It refers to an improvement in citizens' quality of life and well-being of a country which is measured by per capita income along with several other development indicators like Human Development Index, Physical Quality of Life Index and Gross National Happiness Index.

Introduction:
In his book "The general theory of employment, interest and money" in 1936, Keynes propounded the liquidity preference theory of Interest.
Theory:
Interest is the reward for parting with liquidity for a specified period of time.
Meaning:
Liquidity preference means the preference of people to hold wealth in the form of liquid cash and not in non-liquid assets like bonds, securities, bills of exchange, land, building, gold.
Motives:
Transaction motive:
It relates to the desire of the people to hold cash for the current transaction. M_t = f(y)
Precautionary motive:
It relates the desire of the people to hold cash to meet unexpected expenditures such as sickness, accidents, fire. M_P = f(y)
Both these motives depend on the income level.
Speculative motive:
It relates to the desire of people to hold cash in order to take advantage of market movements regarding the future changes in the price of bonds
There is inverse relation between liquidity preference and interest rate. M_s = f(i)
Determination of interest rate:

(i) The rate of interest is determined by the demand for and the supply of money.
(ii) The demand for money is liquidity preference for speculative motive.
(iii) The supply of money is determined by the policies of the government and the central bank.
(iv) The supply of money consists of coins, currency notes and bank deposits.
Equilibrium:
(i) In the short run supply of money is constant.
(ii) LP is liquidity preference curve M₂ M₂ is supply curve of money.
(iii) Both curves interest at E, which is the equilibrium point.
(iv) If LP increases from LP to L₁P₁ & money supply being constant, the interest rate increases from OI to OI₁. (fig a)
(v) Suppose LP is constant (fig b).
(vi) If supply of money is OM₂, the interest is OI₂ & if the supply of money is reduced from OM₂ to OM₃, the interest would increase from OI₂ to OI₃. If money supply increases, interest rate decreases.
Criticism:
(i) This theory does not explain the existence of different interest rates prevailing in the market at the same time.
(ii) It explains interest rate in the short-run.
Conclusion:
The Keynesian liquidity preference theory is an improvement over other theories.

Introduction:
The classical theory of rent is called Ricardian Theory of rent.
Definition:
(i) According to David Ricardo "Rent is that portion of the produce of the earth which is paid to the landlord for the use of the original and indestructible powers of the soil".
Assumptions:
(i) Land differs in fertility and has original & indestructible powers.
(ii) Rent depends on fertility and location of land.
(iii) There is perfect competition and is applicable in long run.
(iv) Land is used for cultivation only and there is marginal land or no-rent land.
(v) Most fertile lands are cultivated first.
Illustration:
1. Assume a group of people go to a newly discovered island and settle down there.
2. They will first cultivate the most fertile land 'A'.
3. Since land is abundant & idle they need not pay rent.
4. Given labour and capital yield per acre on 'A' grade land is 40 bags of paddy.
5. Suppose another group of people settle down in the same island. The demand for agricultural produce increases.
6. Because of the law of diminishing returns A grade land alone cannot produce all the food needed.
7. So less fertile land B is cultivated.
8. For the same amount of labour and capital only 30 bags of paddy are produced.
9. The surplus of 10 bags per acre on 'A' grade land is the economic rent of 'A' grade land.
10. If yet another group of people goes and settles down in the same island, the least fertile 'C' grade land will be cultivated.
11. For the same amount of labour and capital the yield per acre is 20 bags of paddy.
12. The surplus of 20 bags for 'A' grade land and 10 bags for 'B' grade land is their economic rent.
13. The cost of production of 'C' grade land is just equal to the price of its produce and so there is no rent.
14. 'C' grade land is 'no rent land' or 'marginal land'.
15. Land which yields rent is intra marginal land.
16. Rent is the differential advantage of the superior land over the marginal land.
Grades of Lands Production Rent  A 40 40-20=20 B 30 30-20=10 C 20 20-20=0
Diagram Explanation:
X axis- grades of land.
Y axis-yield per acre.
OA, AB, BC are grade A, B, C lands.
(i) The use of equal amount of labour and capital on each of them gives yield 40, 30 & 20.
(ii) The economic rent yielded by A & B grade land is the shaded area.
(iii) They are intra marginal lands.
(iv) 'C' grade land is no rent land.
Criticism:
(i) The order of cultivation from most fertile to least is historically wrong.
(ii) In reality rent enters into price.
Conclusion:
(i) Thus Ricardo explains how rent arises on land.

Introduction:
(i) Marginal productivity theory of distribution was developed by Clark, Wicksteed and Walras.
(ii) This theory explains how the prices of various factors of production are determined.
Assumptions
(i) All the factors of production are homogeneous, can be substituted for each other and are perfectly mobile.
(ii) There is perfect competition in the factor & product market.
(iii) There is full employment with no technological change.
(iv) The theory is applicable only in long run.
(vi) The entrepreneurs aim at profit maximisation.
(vii) There is no government intervention in fixing the price of a factor.
Explanation:
(i) The reward for any factor of production is equal to the marginal productivity of that factor.
(ii) The greater the productivity of a factor higher will be its reward.
(iii) The price of a factor of production depends upon its productivity.
(vi) The price will be equal to marginal revenue product of that factor.
(v) Under certain conditions, the price of a factor will be equal to both the average and marginal products of that factor.
Marginal productivity under perfect competition:

(i) fig (a) x axis represents factor units.
(ii) y axis shows factor price & revenue.
MRP = Marginal revenue product curve.
ARP = Average revenue product curve.
AFC = Average factor cost curve.
MFC = Marginal factor cost curve.
(iii) AFC is horizontal & MFC coincides with it.
(iv) The firm is in equilibrium (maximum profit) when MFC = MRP at Q by employing ON units of factors & paying (OP price or NQ) where MFC = MRP = ARP.
(v) The price paid to the factor NQ is equal to MRP (NQ) and ARP (NQ) beyond Q no employer will employ factors because after that point, the price paid to the factor is more than MRP and ARP.
Marginal productivity under Imperfect competition:

(i) fig(b) AFC represents the price paid to the factors. It increases as the number of factors demanded by the employer increases.
(ii) As AFC rises, MFC lies above AFC. It represents the MC paid to the factors.
(iii) At the point Q, MFC = MRP, where the employer attains his maximum profit and so he stops employment of the factors at the point.
(iv) But the AC paid is NRSO and AR is NQ or OP
(v) Total revenue is NQPO.
(vi) Exploitation per unit of factor is RQQ
(vii) But the total number of factors is ON. Thus the total exploitation of factor by the employer is RQ XSR = PQRS (shaded area).
Criticisms:
(i) Factors of production are not homogeneous.
(ii) They cannot be substituted for each other.
(iii) It cannot be applied in the short run.
Conclusion:
This theory is also called "General Theory of Distribution" or "National Dividend Theory of distribution".

Introduction:
(i) Gandhian economics is based on ethical foundations.
(ii) He wrote, "Economics that hurts the moral well-being of an individual or a nation is immoral and so sinful".
Village republics:
(i) To Gandhi, India lives in villages.
(ii) He was interested in developing the villages as self-sufficient units.
(iii) He opposed extensive use of machinery, urbanization and industrialization.
On machinery:
(i) Gandhi described machinery as 'Great sin'.
(ii) It is an evil and would finally end.
Industrialism:
(i) Gandhi considered industrialism as a curse on mankind and would exploit the nation.
Decentralization:
(i) He favoured production in the people's homes at a large number of places on a small scale.
Village Sarvodaya:
(i) He suggested the development of self-sufficient, self-dependent villages.
Bread labour:
(i) Gandhi realised the dignity of human labour. He believed that man should eat his bread by the sweat of his brow. Bread labour or body labour meant manual labour.
Doctrine of trusteeship:
(i) Trusteeship provides a means of transforming the present capitalist order of society into an egalitarian one.
(ii) But India today has casino and crony capitalism.
On the food problem:
(i) Gandhi was against food controls.
(ii) Such controls created artificial scarcity. Today, India tops in the world with large production of fruits, vegetables, milk, egg, meat etc.
On Population:
(i) Gandhi opposed population control through contraceptives.
(ii) He favoured birth control through Brahmacharya or self-control.
(iii) This is the remedy to over population.
On prohibition:
(i) Gandhi advocated total prohibition, regarded use of liquor as a disease.
(ii) But today many states depend on revenue from liquor sales.
Conclusion: If Gandhi's ideas are followed, India will soon become a developed nation.

Introduction:
The mineral resources in India are iron ore, coal, lignite, bauxite, mica, crude oil, gold and diamond.
Iron ore:
(i) India possesses high quality iron ore in abundance.
(ii) There is 14,630 million tonnes of hematite and 10,619 million tonnes of magnetite.
(iii) Hematite iron is found in Chattisgarh, Jharkhand, Odisha, Goa and Karnataka.
(iv) Magnetite iron is available at Western coast of Karnataka, Kerala, Tamilnadu and Andhra Pradesh.
Coal and Lignite:
(i) Coal is the largest available mineral resource. India ranks third in the world after China and USA in coal production.
(ii) The coal centres are in Bihar, W.Bengal, Madhya Pradesh, Maharashtra, Odisha and Andhra Pradesh.
(iii) Bulk of coal production comes from Bengal Jharkhand coalfields.
Bauxite:
(i) Bauxite is the main source of aluminium.
(ii) Major reserves are in East Coast, Odisha and Andhra Pradesh.
Mica:
(i) It is a heat resisting mineral - a bad conductor of electricity.
(ii) It is used as an insulator. India stands first in sheet mica production.
(iii) It contributes 60% of mica trade in the world. Mica bearing pegmatite is found in Andhra Pradesh, Jharkhand, Bihar and Rajasthan.
Crude oil:
Oil is being explored at Assam and Gujarat, Digboi, Badarpur, Naharkatia, Kasimpur, Pallaria, Rudrapur, Shivasagar, Mourn in Assam and Bay of Khambhat, Ankaleshwar and Kalol in Gujarat are the oil exploration places in India.
Gold:
There is only limited gold reserve in three gold mine regions, Kolar Goldfield in Kolar district, Hutti Goldfield in Raichur district (both in Karnataka) and Ramgiri Goldfield in Anantpur district in Andhra Pradesh.
Diamond:
(i) The total diamond reserve of 4582 thousand carats is found in Panna (Madhya Pradesh), Rammallakota of Kurnool district (Andhra Pradesh) and in the Basin of Krishna river.
(ii) The new Kimberlite fields have been discovered in Raipur and Pastar districts of Chattisgarh, Nuapada and Bargarh districts of Odisha, Narayenpet - Maddur Krishna areas of Andhra Pradesh and Raichur-Gulbarga districts of Karnataka.

Introduction:
Indian economy is the seventh largest economy of the world. Its features are:
Mixed economy:
(i) In India private and public sectors co-exist.
(ii) Some fundamental and heavy industries are under public sector.
(iii) Due to liberalization private sector's importance has increased.
Agriculture:
(i) 60 % of Indians depend on agriculture for their livelihood.
(ii) 17 % of GDP is got from agricultural sector.
(iii) Green revolution and inventions in biotechnology have made agriculture self sufficient.
(iv) The export of fruits, vegetables, spices, tobacco, animal skin, vegetable oils also add to foreign exchange earning.
An emerging market:
(i) India has emerged as a vibrant economy sustaining stable GDP growth rate even when there was global downtrend.
(ii) This has attracted foreign capital through FDI and FII.
(iii) India is in the 7^th position in terms of nominal GDP and 3^rd in terms of purchasing power parity.
(iv) India is one among the G20 countries.
Fast growing economy:
(i) With a growth rate of 7.1% in GDP India is the world's fastest growing economy in 2016-17 next to China.
Fast growing service sector:
(i) There has been growth in technical sectors like Information Technology, BPO.
(ii) These emerging services have helped the country to go global.
Large domestic consumption:
(i) The standard of living has improved a lot. There is rapid increase in domestic consumption.
Rapid growth of urban areas:
(i) There has been a rapid growth of urban areas in India after Independence. Improved connectivity in transport and communication, education and health have speeded up urbanization.
Stable macroeconomy:
(i) India is one of the most stable economies of the world.
(ii) The current year's economic survey represents the Indian economy to be a "heaven of macroeconomic stability, resilience and optimism".
Demographic dividend:
(i) The human capital is young.
(ii) They are young, skilled and trained enough to maximize growth.
(iii) This has invited foreign investments and outsourcing opportunities.