[Economy Q] If dollar weakens, oil price appreciates How? Relation between dollar and oil prices

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Question in email

Plz explain The Relationship Between Oil Prices & Dollar ... If dollar weakens , the oil price appreciates... How??

Lets say today 1$=50 Rs and price of one barrel of oil is 100$.
Means, if you sell 1 barrel of oil, you get 100$ (or 5000 Rs.)
so by selling 1 barrel, you can buy stuff worth 5000 Rs. from Indian market.

But next week, dollar weakens and it stands at 1$=40Rs.
If you still sell your one barrel @100$ then you can buy stuff worth
Rs.4000 only. So what should you do to keep your profit margin same?...Obviously
increase the price of 1 barrel of oil to 125$. (because $125*40=5000 Rs.)

In short, dollar has weakened, means its purchasing power has declined in the international market. Now you can buy less stuff from Chinese, European or Indian market using that 1 dollar compared to earlier times, when Dollar was stronger.

Since you're selling your barrel in the dollar currency, you must increase the price of your oil-barrel to maintain your profit margin and standard of living the same. (else you'll have to cut down on your expenses like the chauffeur for your limo or the number of workers in your oil-well.)

[Economy Q] Base year and Current year price? How to calculate WPI and CPI?

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Question via email,

I've come across these terms numerous times, but couldn't make anything out.
What's all these about Base year prices and Current year prices while calculating economical statistics?

Tell me what is inflation?
It's the increase in the price of a product.

How can you say there is inflation?
Because, earlier in the year 2001, we could buy a litre of petrol for Rs.50, but now it's Rs.70/- per litre. So there is price-rise and hence there is inflation.

Means you need to compare the current price, with some old price to say that the price has increased (or decreased), right ?

Hence, to calculate the inflation (CPI,WPI) we'll need to compare the price of some item for two different years.

Suppose Price of a lifebouy soap was Rs.10 in 2001. And now it has increased to Rs.12 per bar. So what is the % increase?

[(12-10)/10]*100=20% incrase in the price of a soap.

What did we do, in above formula?

We took 2001 is the base year and 2011 is the current year. Then we divided the change in price, with the price of base year and multiplied it with 100 to get the percentage.

If price of a soap was Rs.1 in 1950s (don't get excited because in those days, monthly income of most middle-class people was around 100-300 Rs, so one rupee was a big amount.)

So with 1950 as base year, what'll be the % price increase?
[(12-1)/1]*100=1100% increase in the price of a soap!

But does it make any sense to calculate inflation with such an old base year?  Ofcourse not, because lot things have changed after 1950, including the salaries of the middle class people. So you won't get the real picture.

Inflation is a 'hurt-meter'. You cannot fathom how much it hurts now, if you didnot feel less pain earlier. Those who lived in 1950s are all either dead or retired. And the current-working population never actually bought a soap for 1 rupee. So how much is the soap price hurting the current-population, to know that answer, you need to set the hurt-meter to compare the prices of recent memory: oh yeah back in 2004 it was only 10 rupees and now it's 12 so yes I can feel it hurting me.

Morale of the story: We need to have the base-year at some near-past level like 2004-05 to get the real picture of inflation. (Earlier this base year was about 1993-94)

Now lets get a lil technically correct, above post was written to clear the basic concept of base year and current year only, the CPI and WPI are not calculated so straight-forward.

How to calculate the WPI or CPI?

Price of a bike was 30,000 in 2004 and now its close to 55,000/-.
Price of one litre milk was 25 Rs. in 2004 and now it is almost 60/- (After Sharad Pawar advised all the dairies to buy an alarm, which rings at paheli taarikh every month to remind them to increase the price without fail)

So, What hurts to you more, or what hurts the people at large: bike price or milk price? ofcourse the milk price inflation because you need to buy it every day.
So when calculating the inflation, you need to 'weight' the products according to their usage.

The weightage given in WPI

It is something like this
1. Primary Articles (food,fruits etc):22%
2. Fuel, Power, Light & Lubricants :14%
3. Manufactured Products (biscuit,toothpaste):63%

Now survey the prices of all items in the base year and in the current year. Then you plug them in the Lesperes Formula for weighted arithmetic mean. (Formula is not important, but what is important for you to know is, that it is not a simple average but a weighted average)

And you get a number, we call it the WPI index number for the given year or given week or given month.
Suppose after calculation you get a number 110 on 1st August 2011.
For base year we assume that WPI is 100.
So there is 10% inflation.
i.e. [110-100/100]*100

Now on 1st September 2011, you calculate again with new price data and the number is 112. What does that mean? The inflation has increased by 12% compared to compared to base year AND inflation has increased by 1.8% compared to last month. i.e. (112-110)/110*100

[End of the line: Not yet] Attempts over or crossed the age limit

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@To those who didnot make it in this CSAT and have crossed their attempt and or age limit.

There are three all India services: IAS,IPS and IFoS (forest service)
According to All India service Act of 1951, 33.33% of the vacancies in All India services in the given State, are to be filled by promoting the State PSC officers.
In other words,
Suppose Maharashtra has cadre strength of 100 IPS officers. Then 33 are to be filled by promoting DySP (Maharashtra State Police Service)

• Same way for Deputy Collectors (State Administrative service) to Collector/District Magistrate (IAS)
• Same way Deputy conservator of Forest (DCF, State forest service) to Conservator of Forest (IFoS)

Depending on your luck, seniority within the batch and vacancies (and being in the good book of State Government), you can get into the All India services, via the state service door in 11-15-20 years.

Example, Join State public service as

1. Inspector -> promotion to DySP (state service) ->Promotion to SP (IPS) or direct recruitment to DySP and then promotion to IPS.
2. Tehsildaar->Deputy collector(State service)->Collector /District magistrate(IAS) or Direct Deputy collector to IAS.
3. Assist.Conservator of  Forest (ACF)-> Deputy conservator of Forest(DCF)->Conservator of Forest (CF,IFoS)

Some states relax their age limit for State PSCs on the account that they didnot hold recruitment for long time (Gujarat for example)

BTW, I suggest all of you subscribe to UPSCportal.com website, because they regularly notify about various state Government, bank and LIC jobs via email.

[Polity Q] Duration of President's rule: 1 year or 3 years?

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plz let me knw tht under article 356 presidents rule once approved it continues for 6 mnths.bt in one of the other books it shows as 1 year.actly acc to 44th amen act it continues for 1yr.and at the same time do it can be extended for a max perd of 3 years or 1yr.in laxm it is 3 yrs and wen i serchd on net its 1yr.

In normal circumstances, it can be extended only upto 1 year. However parliament can also extend it upto three years provided that

1.National emergency under 352 is also running simultaneously.
2.Election Commission certifies that it is difficult to hold general state legislative assembly elections at the moment.

[Economy Q] If people don't take loan what will banks do?

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Question via email 

We've learnt that the main source of income for banks is loans which they give out to borrowers, where the interest rate for the loans is set at a higher rate than the savings bank rate which they provide us with. Let us suppose a situation where, we have our savings deposits intact in our banks, and no people needs to take loans from the bank. How will the bank function at that time?

A Bank's life depends on circulating the money from one hand to another and pocketing the difference of the interest rates between them.
If people stop taking loans then Bank will invest in sharemarket, fund real estate projects, mutual funds, oil bonds etc. or start giving loans to people of other nation or finance projects abroad. If bank doesn't see much profit even in that scenario then they will have to close down the operation.

[Economy Q] List of all articles- scattered around

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i checked out many of ur posts regarding economy 4 newbies....they are scattered & not arranged in one place...I know U have arranged them in Columns like " Economy Concepts made easy" & " Economy 4 GS".... But Still there are many Economy articles in your blog which are not included in these columns, so m vry confused.

Goto following link
http://mrunal-exam.blogspot.com/search/label/Economy
Each page will display 5 posts so, Scroll down and keep hitting the "Older Posts" button at the end of the pages, that way you'll get them all.

[Q] Worried about the medical checkup in Civil service exam

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1. What time does they take the medical fitness test ?

Those who clear the mains exam, will be called for interviews @Delhi during around April 2012 and med. checkup will be done at that time.

2. What if I don't clear the test, will I be offered my next preference or will it be end of the road for me and I will have to start off afresh for next year exam ?

If you don't clear the medical test, depending on your merit number, they'll send you to another service e.g.
You gave preference in your mains form: IAS>IPS>IFS
Suppose Your merit number is 31, and there are only 30 seats in IAS. So you should be going to IPS, but if you dont pass the medical test, they'll send you to IFS.

3. Is there any provision of +/- 1% relaxation in medical fitness ?

If you don't pass the med.test for the first time, there is a provision that you can appal for another re-checkup.
Besides, The med.standards of civil services are not that stringent as they're in Army,Navy and Airforce.
You can read about them at

http://mrunal-exam.blogspot.com/2010/05/faq-physical-standards-eye-sight-for_11.html#_Toc261341898

[Mock Questions 4 Mains] Public Administration, History, Philosophy and more

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Some random thoughts

India and the world / International relation topic

It is lucidly explained in following pdf files of IGNOU. (do selective study only)

http://www.egyankosh.ac.in/handle/123456789/1052

^It should help you dealing with the question related to older stuff like Nehru's Panchsheel, NAM, Cold war, Phases of Indo-US/China relations etc. (not only in GS-II but also in Essay).

Writing practice

It is very important for mains, In the exam hall, most people barely know the answers of 70% of the GS-mains questions and yet they run out of time, why? because there is difference between MCQ and descriptive paper. So knowing something is important and equally important it is, to have the ability to write it down in the given time limit.
Imagine a couch potato attempting cross country marathon : For first 500 meters, he may do well, but then his legs will give up. In the mains, per day you'll have two descriptive papers, that is 3+3=6 hours of writing.
It'll be a nightmare in the exam-hall, if you don't practice writing answers at home.
You should attempt last 5-10 years' papers at home.


And In case you don't know, the syllabus of Public Administration, sociology,political science etc. is directly lifted from the IGNOU's M.A. courses in the respective subjects. And (atleast in the Public Administration part) most of the time, mains questions mirror the wording and style of the M.A. booklet questions. So, any of you needing the mock question practice, why not do some IGNOU assignments, instead of buying the expensive test-papers from the self-proclaimed coaching experts?

Goto following page, and download the relevant assignment and attempt at home. (ofcourse free)

http://webserver.ignou.ac.in/Assignments/index.htm

Need IGNOU M.A. reference material for free? then goto to
http://www.egyankosh.ac.in/handle/123456789/11

They've also uploaded many lecture videos on youtube as well.

(egyankosh will require registering a free account, before they allow you to download the pdf files)

Result of prelim will come soon, may be in second or third week of August so best of luck and even if you don't make it this time, it'll be worth it to continue your mains-preparation...because that'll help you in next attempt.