Economics

Federal Reserve System (the Fed) is the central bank of the United Sates. The bank was founded in 1913 by an Act of Congress. The members of the bank are Board of Governors in Washington and 12 Federal Reserve District Banks (Chang, 2003). The Fed is independent from the government. This means that the monetary policy of the Fed is protected from political pressures.  The Fed regulates the economic activities of the country and regulates the financial institutions (Grivoyannis, 1999).

Monetary policy
This is the process through which the monetary authority of a country controls the supply, availability and the cost of money in an economy. The main aim of a monetary policy is to create economic growth and stability of a nation (Jones, 2002). The tools used in a monetary policy are either expansionary policy or the contractionary policy. An expansionary policy is used to expand the supply of money in an economy while the contractionary policy reduces the money supply. Open market operations are used as the main tool for executing monetary policy. The amount of money circulating in the country is regulated through the monetary policy. There are financial instruments used in regulating the amount of money in supply in the economy. Such instruments are treasury bills, company bonds and foreign currencies. To the contrary, the fiscal policy uses government tools to regulate the economy of a country. Such tools are the government expenditure, government borrowing and others (Grivoyannis, 1999).

In the United States, the Fed established the Federal Open Market Committee (FOMC) to make the monetary policies for the country. FOMC members meet every six weeks to set the fed funds rate. FOMC has currently set a fed funds rate of between 0 and 0.25 percent. The low rate has been maintained due to the low GDP growth rate and the unemployment that have affected the economy since the year 2007. A contractionary monetary policy has been maintained by the FOMC to ensure economic recovery after the 2008-2009 economic meltdown (Beckner, 2008).

There are several current key economic indicators that Fed reported on January 27 this year. The inflation rate CPI-U increased by 0.1 by the end of last year. The price index for all items increased by 0.1 last year. Fed has also reported that the unemployment rate has remained at 10 percent. The industries which had reduced employment rates were construction, manufacturing and wholesale trade. The sectors which increased employment are the help services and health care. Towards the end of the financial year 2009, the real GDP increased at a rate of 2.2. Federal funds rate will be maintained at a rate of 0 to 0.25 percent in 2010 (Beckner, 2008).

The meeting held on 27th January 2010 by FOMC was optimistic that the US economy is to recover from the recent problems which have affected the global economy. The monetary policy established by FOMC was to increase the availability of money and reduce the cost of borrowing money to increase the accessibility of capital to investors. The aim of the monetary policy is to promote the economic goals of the nation (Nowak, 2007).

The Employment Act of 1946 established the economic goals of the nation. The act suggests that the economy of the US has the goals of promoting maximum employment, production as well as purchasing power of the people. The Fed was given the mandate to establish the monetary policy by the Federal Reserve Act of 1913. FOMC has reported that the economic activities have started to increase since the beginning of this year. It has also stated that employment has increased but has not yet reached a sustainable level. Household expenditure is increasing at a good rate but has been affected by the weakness in the labor market. Other factors affecting the expansion of house hold expenditure are low housing wealth, moderate income growth and the tight credit in the economy. Expenditure by businesses on equipment and software is increasing. Employers are still reluctant to increase more employees into their systems due to the fear of another economic crisis. Sales and inventory have been improved by many organizations since the year 2008. The banks have continued to reduce their lending activities after the 20072008 economic crisis which hit most of the banks. However, the financial market conditions have supported economic growth over the period. The rate of economic recovery has been moderate. FOMC has anticipated a gradual economic recovery over time through the stability in the prices for many commodities (Nowak, 2007).

FOMC suggests that labor market has started to increase and that expenditure in household expenditure has increased moderately. The expenditure on equipment and software has continued to rise up while the inventory stocks are being aligned with the sales. FOMC anticipates a low chance for inflation to occur in the near future. However, the labor market still remains weak and income growth is low. Other current negative aspects about the monetary policy are that the housing wealth has remained low and that credit is still tight. Investors have reduced investment in structures. Employment is constant since employers have stopped to hiring (Shull, 2005).

The policy action by the committee is to maintain the economic status the same. FOMC has resolved to maintain the interest at a range of between 0 and  percent for the financial year 2010. It is anticipated to increase the rate when the economic conditions will improve. New policies will continue to be formulated to enhance the lending capacity and the growth in the housing market especially after the economic meltdown of 2008. The Fed has resolved to purchase 1.25 trillion agency mortgage securities. 175 billion of agency debt will be repaid by the Fed to create stability in the mortgage market. The committee will carry out these transactions moderately to ensure a good transition in the mortgage market. To support financial stability and economic growth, Fed has decided to wind down its Term Auction Facility. The strategies involved offering 50 billion in 28-day credit on 8th February. 25 billion in 28-day credit is scheduled to be offered on 8th March (Beckner, 2008).

The policy statements are voted upon by the FOMC members. Unlike in the past meeting where the voting on the federal funds rate has been unanimous, during the recent meeting, only one member voted. This is because the members feel that there has been a sufficient change in economic and financial conditions in the recent years. The FOMC members feel that the extension of the 0 to  federal funds rate is not sufficiently enough due to the major financial and economic changes that have taken place in the economy.  The low fed funds rate should not last for a long period of time and FOMC should adjust this rate (Shull, 2005).

The economic meltdown of 20082009 required the Federal Reserve to intervene. The crisis had been caused by subprime mortgage lending which created huge losses to banks after many debtors defaulted. The mortgage sector has been adversely affected by the crisis and fed has taken adequate procedures to ensure the industry has retained its position. The monetary policy issued by FOMC during the latest meeting had the agenda to reconstruct the mortgage industry (Beckner, 2008). The banking industry was also affected by the crisis and fed has established measures to reconstruct the industry. FOMC has established favorable interest rates to the banks to allow them pick up after the crisis. All financial institutions have been regulated to avoid similar crisis in future (Beckner, 2008).

The policy actions discussed by FOMC during the 26-27 January 2010 meeting were to adjust fed fund rate target, that is, whether to increase, decrease or remain the same. The rate was maintained as before, 0- percent. During the meeting, fed suggested several reasons to maintain the low fed funds rate target as low as possible. The reason was the persistent economic weakness the country has experienced over the past years.  FOMC has stated that the economic recovery is moderate and a strong recovery will be achieved in the near future. To increase the funds to the banks for issuing loans, FOMC suggested that the government should buy government securities. Federal Reserve has mostly used open market operations to promote its monetary policies. The main target of FOMC is to maintain the fed funds rate as low as possible (Beckner, 2008).

Douglas Norths Nobel Prize Lecture in 1993 is entitled Economic Performance through Time. His lecture particularly highlights the role of economic institutions, with time as an important element, in affecting economic performance in the hope of contributing aid for economic policy development in the future. Norths lecture is an important contribution to the expansion of the study of the economy. The lecture is deserving of the Nobel Prize because he produced a very important and useful theory of institutional change that has significantly contributed to the advancement of studies on economic performance. It has also helped explain some of the overlooked realities in formulating effective policies for economic development. His lecture serves as an essential addition to the body of knowledge on how the economy evolves.

In the lectures introduction, North defines economic history as the performance of economies through time. Norths lecture is focused on the importance of institutions and time in determining economic performance, something that North claims to be usually overlooked when developing economic policies. To start off the discussion, the author provides an analytical modification of the neo-classical theory that we have today. He explains that the neo-classical theory is deemed to be inappropriate or not enough to produce the right policies that could encourage economic development. This is because, although the theory can explain the operation of the markets, it could not provide an understanding on how the economy develops. The neo-classical theory includes erroneous assumptions that economic institutions and the element of time are not important. The framework that North lectures modifies the rationality assumption of economic performance and includes the element of time as a consideration.

One of the goals of this lecture is to contribute a theory on the movement of the economy that could evaluate analytically the way that economies grow or move as time passes by. North discusses in his lecture how institutions form the incentive structure of a society and how political and economic institutions determine the performance of the economy. He also emphasizes in his lecture the reality that time is a factor that covers the learning process of people thus, it affects the way these institutions evolve.

Norths work is both thorough and well written because he carefully explains point by point the role of institutions to mans decision making capabilities. In one part of the lecture, he focuses on defining the nature of institutions and how they really influence economic performance in order to establish their role in the way the world operates. Institutions are the man-made constraints of human interaction, such as rules and laws for the formal setting and behavior and conventions for the informal setting that determine how a society is run and defines the incentive structure for societies and specifically economies. Political and economic institutions are major key players of the development of the economy and the actions that take place in the interactions in the society.

After clearly defining the role of institutions in the performance of the economy, North further ponders on what initiates institutional change and how these movements impact the whole economy. This part of the lecture is one of the most important highlights of his work. He describes the nature of institutional change in order to explain why some economic policies are effective for one country and senseless for another. Change is triggered by the evolving needs of the economys key players and whatever bargaining power they have to secure good contracts. To further explain his idea, North notes in his lecture all the key players of the economy that greatly affect the nature of institutions, namely entrepreneurs and the organizations. The former refer to individual persons while the latter are groups of people who are brought together by a common trait, interest, or objectives and are usually very influential in the growth of the economy. Organizations are the result of whatever opportunities institutions make possible for the people because they are dependent on what is allowed by the law or the norms of behavior. According to North, it is the interaction between institutions and organizations that shapes the institutional evolution of an economy. The relationship of institutions and organizations dictates the well-being of the economic movements in a society. Sometimes, rules are reconstructed and standards of behavior are modified to pave way for the continuous changes in the economy. Individuals and organizations usually engage in altering contracts to improve their status in life and to match the growing choices and decisions brought about by economic changes. When this happens, institutions change or adjust based on the requirements of the altered contracts.

North places significant emphasis on the relationship of institutions in the decisions or preferences of the key players in the economy because this is a major factor in establishing what contributes to the performance of the economy. Yet, North does not also miss out why it is important to also understand the nature of human learning. He stresses that development is only achievable with learning, and the beliefs and abilities that people hone through the education they get either genetically or through daily experiences are crucial in dictating how they form their contracts and how they use rules or norms in the economy. He also emphasizes that time helps collective learning to be acquired and utilized.

Norths lecture stresses that having a cognitive approach to economic institutions helps people improve their understanding of the past economic performance. An institutional approach to economic history, one that understands the relationship between institutions, technology, and demography in the process of economic changes, could make a complete theory of economic performance possible. Since altering institutions is a very complex matter because economic institutions have different functions from political institutions, economic history will help people to assess what contributes to economic stagnation or failures. This would make them more learned in comprehending the direction of the performance of their economy. North notes that there were other economists before that related the crucial connection between institutions, transaction costs, and neo-classical theory and that these are topics that are not new yet also insufficiently dealt upon. In his lecture, North simply expands the idea that since transacting is costly in the world we are living in, therefore, institutions really matter in the economic performance of the society. One of Norths most significant contributions revolves around the fact that if formal rules of one economy are forced upon another societys economy that has different informal norms and enforcements, this would not necessarily result in good economic performance. Quite the contrary, it could even lead to further downfall of the countrys economy.

However, North also asserts in his lecture how informal institutions, such as the conventions of people, can be favorable to economic growth even when formal institutions are unstable.

Norths work is important because it introduces the institutional or cognitive approach in evaluating the economic problems and policy development measures of contemporary time. He mentions in his lecture that this is where the neo-classical theory fails. Towards the end of the lecture, he enumerates several implications of the approach he developed in his work. First, he reiterates that the combination of institutions, which are composed of formal rules and informal norms, and the characteristics of their enforcement are the significant reasons for the form of economic performance. He highlights here how the formal rules used by the superpower nations of the world fail in third world countries because they do not have common informal norms of behavior. The second implication tells readers that an essential part of development policy is the creation of polities that will create and enforce efficient property right.

Accumulated education, institution formation, and belief systems that have developed through time are essential because they shape how people would decide and make choices for the economy. Lastly, North emphasizes in his work that the key to a long-running growth trend in the economy is adaptive efficiency. Therefore, economic history and assessment of past economic events help create a better understanding of economic performance.

The discussion presented by North in this lecture has been further developed by other economists and philosophers. His theory has been used in several other studies and has also been expanded to match the movements of the economy since the lecture won the Nobel Prize in 1993. Norths explanation about institutions has been exceptionally important to several other research studies related to economic growth. Even more than a decade after this lecture, his definition of institutions is still being cited and used, such as the study of Daron Acemoglu and associates in 2004 entitled Institutions as the Fundament Cause of Long Run Grown which makes use of Norths description of institutions in their study that applies to the situation in Koreas divisions and the European colonization in the 15th century. They further expanded on their study where North and other scholars of economics lacked in theory development such as the lack of crucial comparative static results that could explain other elements of economic institutions that North did not tackle in his 1993 lecture.

Norths theory is useful in any part of the world. M. Idrees Khawaja and Sajawal Khan of the Pakistan Institute of Development Economics, Islamabad also used Norths theory on institutional changes in their 2009 paper entitled Reforming Institutions Where to begin which they claim has the most widely cited definition of institutions. They reviewed Norths work in their paper and expanded it as well to provide a more contemporary version of the theory.

Douglas North is a renowned name in the field of economics because of his theory that has proved to be useful and informational. His work has encouraged the cognitive approach of the theory of institutional change that has explained and helped tremendously the analytical evaluation of economic performance. At the end of his work, he emphasizes the need to continue conducting research in order to enhance economic theories for the future. He ends his work with the hope that his Nobel Prize would be an additional encouragement for the enrichment of economic theories.

A complete analysis of the Indian economy has been done within this document. The analysis of the various factors contributing to poverty in India has been discussed with the main focus on the effects of poverty alleviation mechanisms on education systems in India. The survey compares the economic development and the expansion of the various sectors of the economy to the education systems within the country. The major issues affecting poverty alleviation have been identified as discrimination against women and the minority, poor education standards and distribution, rural poverty among others.

Introduction
Poverty Estimates  historical trend
A third of the poor people in the world live in India according to 2005 estimates by World Bank. 42 percent of the Indian population lives below the international poverty line. The World Bank (2006) estimates the international poverty line to be 1.25 per day.

The purchasing power parity indicates that the poverty line is Rupees 21.6 per day in the urban centers and Rupees 14.3 in the rural areas according to 2005 estimates. There is a reduction in the poverty level since 1980 whereby the poverty levels were estimated to be 60 percent. Planning Commission of India estimated that 27.5 percent of the Indian population was living below the poverty line in 2004-2005. The commission issued the information that in 1977-1978, the poverty level was 51.3 percent and 36 percent in 1993-1994 (World Bank, 2006).

Causes of poverty in India
The high level of poverty in India was caused by several factors. The British era (also called British Raj) which occurred between 1858 and 1947 was a major cause of the poverty in India (Griffiths, 1952). The British colonial rule deindustrialized the country. This was done through privatization of industries, economic regulations, increases in tariffs on commodities made in India, direct seizures and others. Most of the resources were exhausted by the British rule during the colonial period (Griffiths, 1952). The large population in India has created a huge burden to the government. There are low literacy levels in India since a large percentage of the population has not yet accessed formal education especially the women (Mukhopadhyay  Seymour, 1994). Dependency on agriculture has caused the high poverty levels in India. The country has improved and the industrial sector is up coming in the recent years. The Indian caste system has been a cause of the poverty in India. Lower caste Hindus form a large percent of the poor in the country. The Indian caste system defines social stratification which restricts some social groups from doing certain activities. The social stratification describes social classes within the society. The low class people are exploited by the upper class individuals, hence causing a very big gap between the poor and the rich. For example, large portions of land are owned by the high ranking people who exploit the low rank people. The role of women in the Indian society is another cause of poverty. The Purdah restricts women from interacting freely and there are other practices which do not give the women a better position to contribute to the economic success of the country.  It is only a few years ago that women started to fight for their rights and equality. The culture of the Indians has contributed a great extent to the high poverty levels being experienced in the country (Indian Council of World Affairs 2006).

Indias economic policies
Social democratic policies have been practiced in India since 1947 to 1991. The policies promoted government regulation, protectionism and public ownership of property. The policies caused a lot of corruption and slow economic growth. A market based economic system has been adopted since 1991. This has liberalized the economy and the government has reduced its control over many economic activities. The economic policies of the 2000s have increased the rate of economic growth. The reforms have placed the country in the second position of the fastest growing economies in the world. The economic meltdown of the 2008-2009 caused a great threat to the economy of India. The growth rate of the Gross Domestic Product reduced to 6.1 in 2009. The fiscal deficit increased to 10.3 of the GDP in the same year. The service industry is growing at a very high rate. It contributes to 62.6 of the GDP of the country. Agriculture still remains the main economic practice of the country and accounts for 52 of the employment (Mukhopadhyay  Seymour, 1994).

Neo-liberal policies and their effects
The neo-liberal policies established in India in the 1990s have caused the reduction in economic performance. The government introduced the policy of growing cash crops instead of traditional food crops. This has led to a sharp increase in the costs of farm input. The international market dictates the prices for cash crops. The food crops are better than the cash crops since a fall in the prices for food crops does not affect the availability of food in the country. Neo-liberal policies have promoted inequality in the country and this has reduced the agricultural productivity. During the period 2003-2007, the country experienced agrarian crisis. On the other hand, the country attained the second position in the number of dollar billionaires. The policies have caused inequality, hunger, and collapse of the rural economies. Farm suicides have increased since the establishment of the policies. Employment in the agricultural sector has declined while non-farm employment has not progressed. Rural urban migration has been on the increase since the introduction of the neo-liberal system. Many rural households have become landless. The policies have worsened the poverty crisis instated of improving the lives of the Indians (Sharma, 2002).

Analysis
Efforts to alleviate poverty - Outlook for poverty alleviation
India has established long-term goals to eradicate poverty in the country. The increase in the number of the people in the middle class will alleviate poverty in the next 50 years. The government has emphasized on education to increase the literacy levels of the people as a strategy to alleviate poverty. Other strategies to eradicate poverty are empowering women and the poor in the society. The government has introduced the policy of reserving seats for women in government jobs as a measure to improve the participation of women in the economy. The poverty alleviation programmmes have been very successful and this has been indicated by the rising number of middle class individuals in the economy. Income distribution has not been even and major efforts should be made to create income equality. The strategy of establishing the capitalist system of government has led to the rise in the middle class individuals. Approximately, 390 million Indians are in the middle class. A third of these people belonged to the low class some few years back. By the year 2030, a big number of the people in India will be middle class. 65 percent of the people have become literate an increase from 52 percent during the last decade (Sen  Drze, 2008).

Controversy over extent of poverty alleviation
There have been several controversies over the poverty alleviation success in India. UN World Food Programme has questioned the definition of poverty by the Indian government. There has been an increase in the calorie deprivation despite the reduction in poverty. The increase in economic performance has not reduced rural-urban migration and this has made urban poverty more persistent. Despite the fact that poverty has decreased, other dimensions such as the education levels, health, and crime remain to be questioned. While poverty levels have remained constant since 1994, the UN Human Development Index (HDI) has given a very low economic rank about the country. The 2007-2008 UN HDI placed India in the 132 position which is the lowest rank for the last decade. The lowest ever achieved index was position 122 in 1992. The low ranking has resulted from factors such as the malnourishment of the people of Indian, rural urban migration, increase in crime, low literacy levels among other negative indicators. 230 million of the Indians are malnourished while 43 percent of the children under the age of 5 years are underweight (Sen  Drze, 2008).

Several economists have supported the statistics about the reduction in poverty in India. The Finance Minister of India has confirmed that poverty has reduced to a great extent despite the large number of criticisms leveled against the success of the country in poverty alleviation. The vice president of the World Bank has supported the validity of the statistics about the success of India in poverty alleviation. India has shown tremendous progress in globalization and increase in the per-capita income (Baviskar  Attwood, 2003).
 
Contrary to the success stories given by several individuals and organizations, National Commission for Enterprises in the Unorganized Sector (NCEUS) indicate that more than half the Indian population live on less than 20 rupees a day. Many people work in the informal sector and have no jobs. They have no social security and live in abject poverty (Baviskar  Attwood, 2003).

Persistence of malnutrition among children
Malnutrition in India among the children has been persistent. Approximately 42.5 percent of the children are malnourished. It has been estimated that India has 49 percent of the underweight children the world. 46 percent of the wasted children in the world live in India. India also contributes to 34 percent of the stunted children in the world. Poverty and low education standards have contributed to the high levels of malnourishment of children in India (Baviskar  Attwood, 2003).

Rural living standards
Rothermund and Kulke (2004) estimated that 75 percent of the poor people in India live in the rural areas. The rural poor are the landless, self-employed, and daily wagers. The growth in the economy has been uneven between the urban and the rural population. Poverty rates are 43 in Orissa and 41 in Bihar. The rural poor have little access to education and literacy levels are low compared to the urban people. Schools in the rural areas have poor infrastructure and the teachers are not adequate to teach in these schools. The distribution of resources in the country is not balanced and the rural areas receive inadequate resources (Sen  Drze, 2008).

Growing bridge between the rich and the poor
The economic progress in India has reduced the gap between the rich and the poor. The people in the middle class are increasing. The number of the low class (the poor) is reducing as incomes increase. However, the gap between the rich and the poor is still big despite the efforts to improve the incomes of the poor. The rich are able to access education facilities and acquire skills which enable them get better opportunities. Most of the poor people live in the rural areas where there is little access to education facilities (Baviskar  Attwood, 2003).

Corrupt politicians
The Indian politics is characterized by corruption. Most of the political leaders are illiterate and have no sound economic ideas. This has resulted into poor policies that are being made by the politicians in the country. The politicians are the policy makers and they do not involve the professionals in decision making. This has caused the country a lot of economic loss. Poor management and lack of focus on the elite society has created the poverty levels in the country. India has the highest levels of corruption and this has affected the growth of many states in the country. Corruption in India has been criticized by the international community since this is creating hindrances to poverty alleviation in the country (Sen  Drze, 2008).

Economic boom in India and its effects on poverty alleviation
The economic boom in India has not improved the living standards of the Indians to a great extent. The rate of decline in poverty levels is lower than expected. Despite the fact that India may attain the third position in the world economy by 2020 due to the high rate of economic growth, the poverty levels are stagnant. However, the poorest states have received a great progress in poverty reduction in the recent years. For example, Assam has a 4 percent decline in poverty within a period of five years. Jharkhand has experienced a 2.51 percent decline in poverty levels while Chhattisgarh and Bihar have 1.69 percent decline. The urban areas have experienced a slower growth rate compared to the rural areas. This could be caused by the increase in rural urban migration. Poverty alleviation remains a major challenge to the Indian government despite the economic boom being experienced by the country (Sen  Drze, 2008).

Rapidly expanding population  lack of awareness
The rapidly expanding population has worsened the problem of poverty in India. The population of India is still high at 1.17 billion people as per 2009 census. The urban centers have a 29 population density. The annual growth rate is still high at 1.55. The population density is 324 people per square kilometer. Literacy level is 61 of the total population. There are no compulsory years for education. The large population has created stress on the available education resources and educating the people has become a major challenge to the government. The government has not established adequate measures to reduce the high population growth rate. This will create crisis in the near future due to inadequate resources to sustain the large population (Sen  Drze, 2008).

Education - Overview, national literacy, attainment
The Union Government and the states control the education system in India. The constitution for India stipulates that education is a fundamental right to all people. Many universities are controlled by Union or the Sate Government. The country has made tremendous progress in promoting primary education and expansion of literacy levels. Almost two thirds of the population is literate now. The improvement in the education system in India is one of the contributing factors to the rapid economic growth that has been experienced in the country. Illiteracy levels in India have been high despite efforts to promote private and public education by the government. 40 percent of the Indian population is illiterate. Approximately 15 percent of the primary school students reach high school. The post secondary high schools can offer 7 percent of the students from high schools. A survey done in 2008 indicates that there are 25 percent vacancies in the teaching career. More than half of the tutors in the college have no qualifications in masters or PhD degree. There has been a lot of international concern about the quality of education in India since most of the academic institutions lack facilities. However, in 2006, three universities in India were recorded in the top 200 universities in the world. Six Institutes of Technology were listed in the top 20. Several academic institutions have received global recognition due to their good performance (Guha, 2005).

Private education, womens education, rural education
The private sector has invested in the education industries and has contributed a lot in the promotion of literacy levels in the country. According to the research conducted in 2008 the private education market has attained a value of 40 billion. By the year 2012 the private education market is estimated to expand to 68 billion. Major transformations are being made in the education system to promote education for the marginalized and women in the country. The reservation system was introduced such that certain percent of the seats in the institutions of higher education are reserved for the marginalized people. Minority groups are allowed by the constitution to set up their own academic institutions. Certain institutions are being developed to offer education to women only. Under the current constitution women are reserved certain percent of seats in the educational institutions. Democracy in higher education in India has increased with establishment of distance learning programmmes as well as open learning systems of the universities (Guha, 2005).

Lack of higher education spending
Despite the economic expansion in India there has been inadequate funding on the higher education. Compared to other countries in the region India has low budget allocation on the higher education. The public universities and colleges face shortage of resources and professors. The private colleges and universities have improved in the provision of education (Grant  Lei, 2009).

Poor quality
Some of the education institutions have been challenged by the international community due to the poor quality of the education offered in these institutions. Inadequate government funding has resulted into poor infrastructure especially in the public education systems. There are not enough professors to teach in the public colleges and universities. Some of the professors in the institutions of higher education do have a masters degree or a PhD degree. This has reduced the quality of education offered in the education institutions especially the public universities and colleges (Grant  Lei, 2009).

Budget
The government established the five year plan of 2002 to 2007 to increase expenditure on education budget. The government had a 65.6 percent budget allocation of Rs. 438250 on elementary education. Secondary education was allocated 9.9 percent of the total education budget. Adult educated had an allocation of 2.9 percent. Technical education was apportioned 10.7 percent while 1.4 percent was allocated to miscellaneous education schemes (Guha, 2005).

In 2009 the government of India increased its budget allocation on higher education from 2.22 billion to 2.79 billion. The government has intentions to establish 12 new institutions of higher education within five years. The country has approximately 400 universities and 18,000 colleges which serve the 1.1 billion people. This has been a great challenge to the government and the Prime Minister has announced the creation of new universities and colleges (Grant  Lei, 2009).

Public expenditure on education in India
The government has announced a progressive increase in expenditure on education by 6 of the gross domestic product. Education cess on taxes would be imposed to support the programme of improving the quality of education the increased expenses on education. The government also announced that people should be allowed to access education despite their economic status. Education was made a fundamental right to children aged between 6 and 14. Some programmes have been established to universalize the education system. Such programmes include Sarva Siksha Abhiyan and Mid Day meal. These announcements were made to develop the poor education status in India (Grant  Lei, 2009).

Public expenditure on education in India is the lowest compared to any other developing or developed nation. The government announced a 150 percent increase in public expenditure on higher education in the financial year 2007-2008. Despite the efforts to increase public expenditure, India still remains behind compared to other Asian countries. Currently the public expenditure per student is US 400. The government has proposed to improve the expenditure to around US 1,000. United Nations Educational Scientific and Cultural Organization (UNESCO) has suggested that the public expenditure of US 400 per student on higher education is the lowest among developed and developing nations (Guha, 2005).

Legislative framework
Article 45 of the constitution of India indicated that the state should provide free and compulsory education to all children up to the age of 14 years. The article provided that the government could not be held accountable if the clauses were not adhered to. The Supreme Court of India amended the article in the 1990s. The 93rd bill provided made three amendments to the article that the state should provide free and compulsory education to children aged 6-14 according to the provisions of the law. The Article 45 was replaced by the article which stated that the state should ensure it provides early childhood care and education to all children up to the age of 16. Article 51A provided that parentsguardians should educate their children between 6 and 14 years of age. In November 28, 2001 the bill was passed by a large number of the members of Lok Sabha. The upper house latter passed the bill on May 14, 2002. The president signed the bill and it was affected into the constitution of India. Article 46 of the Indian constitution provides that the state should provide education to the poor especially the Scheduled Castes and Scheduled Tribes. The article also indicates that the state should prevent social injustices and exploitation against these groups of people (Guha, 2005).

Conclusion
India has experienced a great expansion in the growth of the national economy. Education is one of the factors that can be used to reduce poverty in India. Lack of focus on education has caused the high poverty levels in India. The education to women is low and their position in the society is negligible. The gap between the rich and the poor is decreasing and there has been an emergence of middle class people.

Recommendation
More emphasis should be placed on the education and empowerment of women and the minority in the Indian society. The government of India should focus on increasing the public expenditure on higher education per student. The government should develop the agricultural sector since it provides employment to a large population of people.

There is a growth within the global markets, with countries ever becoming interdependent worldwide, thanks to an increase in the variety and volume of over the border transactions of both goods and services, international flow of capital and also the ever changing and diversification of technology. This interaction of economies also known as globalization is one of the major factors that influence the oil and petroleum industry worldwide, producing the oil shocks that have now become so common. These changes are being propelled by factors such as technological innovations, which are stretching the oil reserves by creating an overwhelming demand for the commodity. There is also the effect that economic forces have on the oil industry due to the mobile nature of capital and labour, meaning that this creates the need to offer competitive salaries globally and a finance system that is global. Other factors that affect or bring about the oils shock include location, political factors and the fall of communism. It is important to note that the introduction of price subsidies has aided in the mitigation of these price shocks, though some states are more keen on banning these fuel subsidies with an aim of increasing their fuel sales, especially in the case of oil producing states. These fuel subsidies laws that have been imposed on some countries have forced some oil companies to have their companies in other countries giving rise to multinational oil companies (Clifford 2008).

Currently the amount of oil that the world is consuming exceeds the amount that is being produced. This is concurrent with the current statistics that show that in a day about 84 million barrels of oil are mined and about the same amount is consumed within the same day. The inventory space is limited and its expansion is impossible, even by the use of production in excess or even drawing on excess demand (Ron 2008). This can partly or wholly be blamed on the global economic trend. It is projected that the global demand for oil is expected to rise over the next few years.

The demand and supply for oil are highly elastic and thus the oil market is highly unusual. Irrespective of the cost of fuel, it is hard for the consumers especially motorists to switch to an alternative fuel for their cars. Equally, if the price of fuel was to fall by half or more than that, it would not mean that motorists could go twice as far. This means that even if the price of fuel was to be hiked even more, it would not translate to a reduction in the consumption of fuel. The supply of oil is also inelastic (Ron 2008). Some of these theories of oil supply demand and supply are affected by the factors mentioned below.

These multinational companies have been disadvantaged by a move to some of these regions for instance different economic conditions in these new countries as well as difficult policies. The difference in the political regime other than their own means that the taxes implemented on them and their products could be punishing and thus force them to increase the price of their petroleum products to compensate for the exorbitant taxes. Another disadvantage that these multinational corporations have to face is the different cultures and languages that are found in these countries where they establish their base of operations in. The volatile nature of currencies across boarders is also a disadvantage that these multinational companies have to cope with, considering that currencies tend to lose their value everyday owing to a number of economic factors. This means that the multinational companies have to constantly adjust their oil prices in connection to the United States Dollar. These corporations also face major competition, especially in the case where a corporation establishes its base in a foreign oil producing company. Competition will arise as a result of the influx of supply of oil from the state owned companies as well as other privately owned local oil producing companies. It is important to note though that these multinationals are able to get cheap labour whenever they are based in developing countries that are oil producing (Ron 2008). Another advantage is that these multinationals get to maximize on the profits they get through maximizing on production based on the location of different bases in different locations, meaning that if one of the subsidiary companies is faced with a certain problem, other companies can continue with operations and thus minimize on the organization as a whole recording marginal loss (Menzie 2007).

The South African market is no different from the global market. These factors that affect the global market are the same factors that affect the South African oil market. For example, the economic shocks that affected the world during the recession, affected the price of oil in the South African market as well. The political climate in South Africa has also been a factor that determines the prices of oil within this country. The OPEC which stands for Organisation of Petroleum Exporting Countries of which South Africa is not a member, has been involved in trying to ensure that the interests of their cartel are not violated. Furthermore, the quantities that South Africa produce in terms of export has been too insignificant to enable it to make an impact in the global oil market, according to the World Bank (OPEC organisation 2009).

Such macro economic market forces have had its effect on the South African oil industry, with stakeholders being the worst hit following recent oil shocks. This means that the South African oil companies will have to adopt to the new economic and technological trends and be prepared to deal with economic issues that may arise both locally and internationally.

An economic system can be defined as a set of principles employed in the process of deciding, organizing and allocating economic resources in the society. It encompasses various processes like organizing labor, producing, distributing goods and services in return for surplus or profits which are then reinvested or circulated among the producers and controllers of the system. Types of economic systems include capitalism, feudalism, and slavery among others. These economic systems mainly differ in their approach to economic ownership, control and distribution of resources in the community.

Capitalism involves a free market economy with the market acting as a medium for determining flow and distribution of resource. Feudalism as an economic system is marked with a hierarchical system in which economy and services are in reciprocation of agreements among the various parties involved. On the other hand, slavery economic system involves the ownership of people by others like their own property. This paper defines capitalistic economic system and identifies the ways it differs from other economic systems namely slavery and feudalism.

Capitalism is a social-economic system in which capital, land, labor, production and distribution is privately owned. This type of economic system has three major defining characteristics. First is wage labor which entails the compensation for human labor force employed in the production process from the surplus gained after marketing goods and services. Second is privately owned capital goods which factor in ensuring the production resource capability of the investment. Such increased but not limited to land, production equipment and sustainable source of raw materials. The last defining characteristic of a capitalistic economic system is commodity production which comprise of goods andor serves which are produced and distributed by an enterprise in exchange for profits.

Capitalism economic system is different from other economic systems like feudalism, and slavery. First is its classes and class relationship structure. Every economic system comprises of producers and controllers both of whom must benefit from the production. In a capitalistic economy, producers are compensated for their production services through wages. Survival, the producers in this economic system purchase goods and services from the market using the wages earned. However, feudalism and slavery economic systems are different in that the producer (slaves and serfs) working both for themselves and for the controllers. Slaves and serfs were given small pieces of land for producing their own food for survival while still working to produce for their lords.

Still on classes and class relationship is the difference of producer ownership level by the controllers. In a capitalistic economy there is a mutual connection between the producers and the controllers. The contrary is however true for slavery economic system in which labor force is seen as a property of the investor. This economic system does not involve any mutual agreement for sharing benefits between the owner and the labor force. Still, just like slavery, in feudalism, the lords benefited from surplus serfs through imposed taxes and customary obligations owed for by the serfs.

Another different is in the process of making decisions. Each economic system has its own distinctive set of rules governing the way classes interact in deciding the production and sharing of surplus. Slavery and feudalism systems on the other side are marked with absolute government control. Enterprise owners have therefore limited or no rights over their properties. Slavery in particular does not even recognize the enslaved as independent producers but are rather considered property themselves. They are thus considered insignificant in the decision making process. However, a capitalistic economy is government by rules and regulations which dictate for employee rights to express their grievances to controllers for better employment conditions.

A capitalistic economic is structured on the principles of free market. This means that enterprises must engage the market competition for sustainable development. This is however, different from feudalism economic system where those low in the hierarchy just produce and are neither involved in the marketing process nor entailed of benefiting from surplus. Slavery on the other side involves forced labor based on political or even military interventions. Just as a difference is that in a capitalistic economy, the ultimate determiner of sustainable survival of an enterprise is innovation. This is nevertheless different from slavery and feudalism economies where production is neither a measure for compensation nor a measure for gained competitive advantage.

Capitalism is structured to maximize profits and is thus mainly practices non-discrimination marketing of goods and services. Commodity production is a major defining characteristic of capitalistic economy. Just to be stated is that products have no economic value to the enterprise unless there is a market. This makes marketing non-discriminatively a crucial requirement in capitalism economies. However, in feudalism and slavery economies production are mainly for lords or slaveholders. The producers are rarely entailed to any surplus benefits but rather have to produce for their upkeep products.

In conclusion, capitalism differs from feudalism and slavery economic systems in that it is based private ownership, production and distribution of goods and services in a free market. The system practices wage labor unlike feudalism and slavery which engage in forced production and service provision to lords andor slaveholders.

It is conceptually possible for a majority of rational individuals to vote for a political outcome that few of them prefer. Suppose that there is an economy composed of individuals A, B, C deciding the best political outcomes, X, Y, and Z. A prefers X to Y to Z B prefers Y to X to Z individual C prefers Z to X to Y. If C has a higher expressive preference than A and B, then he can brive either A or B to vote for Z (compensation for the opportuntity cost). There is another way for distorting the societal preference. Now, suppose that individual A prefers X to Y to Z B prefers Y to Z to X and C prefers Z to X to Y. Let us say that the first choice is between Y and Z, the societal choice would be Y. Now, if the second choice is between X and Z, the societal choice would be Z. Via transitivity, Y is preferred over Z. Note that this is a distorted form of transitivity because choices are ordered (majority of the voters do not prefer Y over Z if the election is not multi-staged).

From the perspective of rational choice theory, the decision is irrational. Note that the only means for the individual to maximize utility is to sign up (to get a kidney transplant as soon as possible). Note that the parent has a capability to pull the strings. Evaluating benefits over costs, it is also clear that this decision is also logical. The parent has a high chance of securing a kidney transplant for his child. Now, this high probability of securing a kidney transplant is synonymous with benefit, potential benefit. As such, it would be logical for the parent to sign up on the list. However, the parents decision to sign at the bottom of the list is influenced by social, legal, and moral norms. Socially, urgency is the determining factor of signing in the list. In short, Olivias parent is not only the concerned parent, as far as kidney transplant is concerned. Legally, signing up on the list may be forbidden by law because it violates individual justice (equal opportunity to means). Morally, Olivias parents action does not respect the principle of equal play.

Classical and Keynesian Traditions remain the primary constituents of the mainstream macro-economic thought in the United Kingdom and the world at large. Considered the first school of economic thought, classical theory is built upon the premise that purely free markets can regulate themselves independent of any human intervention. It affirms that there is a tendency of markets to move towards a natural equilibrium without any intervention. The paper analyses the two school of economic thought critically reviewing the theoretical foundations and implications with special emphasis on the post world war II period.

Policy Issues
Classical economic theory can be presented in variant formal models inclusive of the value and the monetary theories. The value theory affirms that although market and natural prices are related and subjective concepts, market prices fluctuate and are jostled by several transient influences that are abstract and difficult to theorize, (Ajuzie, Edoho, Wensheng, Uwakonye, and Keleta, 2008, p. 125). It further identifies cost of production and profits as the key determinants of natural prices with the neo classists noting that tastes, technology and endowments also determine value. In defining the money policy, monetarism and the theory of endogenous money forms the UK classical interpretation between banking and the currency school. Monetarists affirm that it is the responsibility of banks to control the supply of money noting that inflation is caused by excessive money supply. The theory of endogenous money however noted that money automatically adjusted to demands hence the key function of banks were to control its supply based on the terms of demand.  

Fundamentally, the Keynesian economics focuses on the central issue of determining the levels of national income and employment in industrial economics and the primary causes of economic fluctuations, (Barber 1967, p. 227). Citing periodic errors in the decisions made by the private sector that often lead to inefficient macroeconomic outcome, the theory advocates for active policy response by the public sector. The theorys key recommendations include monetary policy and fiscal policy actions by both the Central bank and the public sector respectively hence the government plays a central role in stabilizing output over the business cycle, (Cukierman, 2005, p. 698). The theory also advocates for a mixed economy dominated by the private sector but controlled by the government and the public sector. The theory affirm that there exist certain micro-level economic actions of individuals and firms that may aggregately lead to macroeconomic results making the economy operate below its potential out and growth.

Theory Implications and the Says Law
Critical to the understanding of the way markets operate is the Says law attributed to French economist and businessman, Jean-Baptiste Say which affirms that in a free market economy, goods and services are produced for the primary purpose of exchanging them with other goods and services. The law therefore affirms that the total supply of goods and services in a purely free market economy should attract in equal terms the total demands of goods and services within specified time periods. It therefore implies that in cases where means of production applied to one product exceeds that of another, then a surplus can take place, (Pasinetti, and Schefold, 1999, P. 4).

Recession and unemployment are two critical factors that were explained by the Says law. On monetary policy, the law noted that in cases where people did not have enough money, business suffered making the economy to perform below its potential hence there was needed to print more money. However, although more money could be printed, individuals power to purchase could only be increased by more production. It is imperative to note that the Keynesian economic model refutes the classical economics claim that says law holds noting that for the cost of output to always be covered in aggregate by the returns from demand, an individuals savings must exactly equal the aggregate investment, (Ajuzie, Edoho, Wensheng, Uwakonye, and Keleta, 2008, p. 129).  Furthermore, interpreted classically, Says law defines unemployment as arising from insufficient demand for labor. Additionally, it notes that recession is not caused by lack of money but rather an imbalance between supply and demand hence in agreement with the classical school of economic thought.

Quantity Theory of Money
Challenged by the Keynesian economics but updated by the monetarist school of economics, the Quantity theory of money affirms that money supply is directly and positively related with the price level. Barber (1967, p. 234) notes that the theory has evolved over the centuries and was revived by the monetary school of thoughts.  Classical understanding was somewhat misleading with proponents such as John Law affirming that since trade was dependent upon money, more money in the economy would lead to full employment.

Law therefore suggested that in periods of less than full employment, the monetary authority could inject more money into circulation thereby inducing full employment, (Barber 1967, p. 232). Keynes however challenged the theory affirming that money supply lead to a decrease in the velocity of circulation and therefore on real income which dependent upon the flow of money to the factors of production. In modern terms however, the definitional relationship MVT  PTQ where M refers to the total amount of money in circulation in an economy over a specified time period, and VT the transactions velocity of money i.e. the average frequency within all transactions involving the spending of a unit of money while PT and Q refers to the Vectors of the price and quantity of the i-th transaction, (Ajuzie, Edoho, Wensheng, Uwakonye, and Keleta, 2008, p. 127).

Keynes versus the classics
Classical economics states that prices of everything, whether labor, commodities or land must be both downwardly and upwardly mobile. In reality however, prices appear not to be as readily flexible downwards as they are upwards due to imperfections or rather external interferences. In contrast, Keynesian economists suppose that prices are rigid or inflexible, they affirm that while wage hike is easier to take, wage falls are often met by some resistance, (Barber 1967, p. 237). Similarly, a producer can easily allow upward price mobility while is resistant to any reductions hence prices are not as easily flexible as stated by the classical economic school of thought, (Ajuzie, Edoho, Wensheng, Uwakonye, and Keleta, 2008, p. 131).

Classical economists consider in the theory of invisible hand in which any imperfections in the economy automatically corrects itself, a claim strongly refuted by the Keynesian theories who affirm that Government intervention in the forms of monetary and fiscal policies must be absolute for any macro-economy to run smoothly, (Sloman and Wride 2009). Furthermore, the classical economists assertion that focus should be put in the long term hence provided long run solutions at the expense of short term loses, Keynes affirmed that it is the short run that should form the primary target, (Cukierman, 2005, p. 702).
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Courtesy of Goodacre, 2005, p. 25
Within the commodity market, classical economics is defined by Says law (supply creates its own demand) wile the Keynesian model affirms the importance of effective demand. It affirms that effective demand is derived from household disposable incomes rather than from the disposable income gained at full employment as stated by the classical theory. It further stresses that only a fraction of the disposable income will be used for consumption expenditure purposes, (Cukierman, 2005, p. 715). Actual observations in majority of economies today, supports the Keynesian rather than the Says law affirming that the latter may not hold since goods production is demand driven and is not based on production or supply.

Classical theory also strengthens the savings-investment equality, an assumption that requires the household savings to be equal to the capital investment expenditure. However with the observed flexible interest rates, savings do not always equal investment. In contrast, Keynesian economics believes that savings and investments are not triggered by the prevailing interest rates, but that household savings and investments are based on disposable incomes and the desire for both commercial capital investment and to save for the future.

Classical economics also states that unemployment in an economy is usually a temporary disequilibrium caused by excess labor available at the current wage rate. It therefore states that when wages are high, more people will be willing to work at the ongoing rate leading to unemployment while in an unregulated classical economy in which wages are flexible, the wage rates fall thereby eliminating excess labor available and reducing unemployment. Although employment can eventually be linked to changes in income, (Barber 1967, p. 247), affirms that the classical economists definition was rudimentary relative to the Keynesian wage units.

Keynesian Demand Management and the post-War boom
The Keynesian demand management that focused on demand noted was favored following the WWII. It affirmed that business cycle fluctuations could be reduced through fiscal and monetary policies. The policys goal was to attain stabilization over cycle with its stance being interventionist. The economic model was favored by both industrial and developing countries with the idea of promoting development, (Goodacre, 2005, p. 4).
EMBED PowerPoint.Slide.8                     Courtesy of Goodacre, 2005, p. 4

The classical  monetarist counter-attack against Keynesianism
The Keynesianism which gained dominance following WWII was counter attacked by the monetarism with monetary policy as a stimulus to growth and employment becoming increasingly popular in the course of the past decade. ASDFA notes that critics of Keynesianism (which was particularly dominant in UK) claimed that the UK had performed poorly relative to other industrialized countries, (Pasinetti, and Schefold, 1999, P. 12). Exemplifying the Philips curve, they noted that there was instability in economic growth indicated by amplitude of fluctuations. They also argued that newly independent countries were losing force in the mid 80s hence classical proponents advocated for the minimization of the role of government on taxes and also to eliminate free flow of capital. They also advocated for the liberalization of trade and the privatization of state owned enterprises, (Goodacre, 2005, p. 6).
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Courtesy of Goodacre, 2005, p. 7
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Courtesy of Goodacre, 2005, p. 28
Summary

Comparative analyses indicate variations in how the two models describe and predict economic situations, although it is noteworthy to state that all theories are applicable under different economic assumptions or may be interpreted differently. The two schools of economic thought however believes that future economic expectations affect the economy hence although Keynes is supportive of corrective Government intervention, in classical theories corrective measures are determined by the motives of players within the system.