The Queen of Social Science

CHAPTER ONE

INTRODUCTION

An economics is often regarded as the queen of social science. The term economics was originally derived from the two Greek words "Oiks" which means "Households" and "Nemein" which means "Management". Thus it refers to managing of a household using the limited funds. Economic is a social science which studies individual and organisation engaged in the production, distributation and consumption of goods and services.

Simply and perhaps surprisingly put, economics is the study of scarcity. Resources are limited, and every society wants to figure out how to allocate its resources for maximum benefit. The field of economics serves in large part to help answer this resource allocation question.

Economics try to throw light on such question and such question gives us idea about the subject matter of economics. It also makes us understand why economics has assumed a place of unprecedented importance in recent years, because it deals with economics question that concern us as an individual or as citizen of a society. Economics helps to develop the principal, theories or models for different economics events.

So, in this project we are going to discuss that what should be the appropriate role of the government in economic management of the country and what should be the form, nature and extent of government interference with market mechanism. These problems have been discussed and debatable for long but no precise answer has been provided by the economist. Nevertheless, the economic role of the government can be broadly categorized on the basis of the three economic systems which presently prevail in world, viz, capitalist system or free enterprise system, socialist system and the mixed-economy system. And also through the concept of circular flow of income we can understand how government manages the income in market.

CHAPTER TWO

What are the economic roles of a government?

Government is simply the governing body of a particular state. The term Government simply refers to administrators, legislature and the arbitrators existing in the bureaucracy that regulate or control or administrate a state at a particular point of time. Conduct and development of a nation entirely depends upon the policies accepted and practiced by the government of that particular country. The term government actually comes out from the Latin term "gubernare", that simply means "to manage" or "to govern", and the Latin word mente, that simply means "mind".

Government play an extremely crucial role in shaping up the economy of a particular country, in fact, the "organization of government of different countries" work together to ensure the economic security and development of entire region. These collative efforts are now mandatory due to advent of globalization. Globalization has integrated the markets of world in such a way that if US economy faces a down fall then the fire can also be seen in other economies like India, Europe, Britain, Australia etc.

CHAPTER THREE

3.1 CIRCULAR FLOW OF INCOME

Meaning:

The process of production is a continuous process. In it, various factor of production such as labour, land, capital and entrepreneurships is combining together for the production of goods and services. The supply of these factors of production comes from the households. These factors offer their services to the production (also known as firm) that in return produce goods and services and make payments as reward in the form of rent, wages, interest and profit. The household spend this money on goods and services produced by the firms. Thus, income or money first flows from the firm to the households in form of factor payments and then from household to the firms in the form of consumption expenditure. The income continues to flow in a circular way, so it is called circular flow of income. In the circular flow of income production generates factor income and factor income is converted into expenditure.

3.2 Types of circular flow:

Circular flow may b of two types:

 Real Flow

 Money Flow

3.2.1 REAL FLOW:

When goods and services flow from sectors of economy to another, it is known as real flow. It implies the flow of factor services from the households sectors to the producing sectors and the corresponding flow of goods and services from the producing sectors to the households sectors.

Factor Services

Goods and Services

This can be shown with the help of the above given diagram:

In this diagram, the household provided factor services to the firm which in return provided goods and services to them as reward for their production services.

3.2.2 MONEY FLOW:

Under it, goods and services produced in the economy are exchange for money. The household provide factor services to the firm and receive payments in term of money for the services rendered by them. They spend their money income on the purchase of goods and services produced by the firms. Thus money first flows firms to the households as factor payments and then from households to the firm as consumption expenditure. This is called money flow of income.

In below given diagram, an economy is divided into household sector and producer sector. Firm makes factor of payments to the households in terms of money. These factor payments are known as rent, wages, interest and profit. The money received by the household's flows back into the hands of firms when the households purchase goods and services produced by them.

Factor of Payments (rent, wages, interest and Profit)

Consumption Expenditure

Thus, receipts of one sector are equal to the payments of other sector and these sectors are interdependent.

Assumption