22.44         ndian    onom
     expected returns and certainty that it will deliver       The logic of the law goes like this–the very act
     them – the act which cannot get enough risk.         of production generates an income (in the form
                                                          of wages, salaries, profits, etc.) exactly equal to the
        rule of thumb                                     output which if spent is just sufficient to purchase
     A rough-and-ready decision-making aid that           the whole output produced. Ultimately, it gives
     provides an acceptably accurate approximate          an important clue, i.e., in order to reach full-
     solution to a problem. Where refined decision-       employment level all that is needed is to increase
     making processes are expensive (in terms of          the aggregate supply.
     information gathering and processing them), such          The key assumption behind the law is that
     a method looks justified.
                                                          the economic system is ‘supply-led’ and that all
                                                          income is spent. But in practice, some income
        rounDing error
                                                          ‘leaks’ into saving, taxation, etc., and there is no
     The error which comes up due to rounding off the     auto-guarantee that all income is ‘injected’ back
     figures in decimals, for example, considering 3.6    as spending. This is why others suggest for a
     as 4 and 3.4 as 3. Such rounding off the data is     ‘demand-led’ idea of the economic system under
     never going to be mathematically correct.
                                                          which demand creation is attended vigorously.
        sAlAry
                                                             seconD-best theory
     The payment made to employees of an
     organisation, firm, etc., for the use of labour as a The idea was put forward by Richard Lipsey
     factor of production. It differs from wage in the    and Kelvin Lancaster (1924–99) in 1956 which
     following two ways:                                  suggests a way out of the situation when all the
          (i) It is not paid on hourly basis (or for the  assumptions of an economic model are not met.
              actual number of hours worked by the        As per the theory, the second-best situation is
              employee) as wages are paid, and            meeting as many of the assumptions as possible
         (ii) It is usually paid on monthly basis whereas (but it might not give the optimum or the desired
              wages are paid on daily or weekly basis.    results).
        sAtisfying theory                                    securities trAnsAction tAx
     A theory which suggests that firms do not want       [See Chapter 17, Tax Structure in India]
     only ‘satisfactory’ profits but maximum profits
     as well as other objectives such as sales increase,
                                                             seignorAge
     size increase, etc. might be having equal or greater
     importance than profits.                             A method of generating resource by a government
                                                          through printing of fresh notes/currency
        sAy’s lAw                                         notes. Money printing at higher rate to pay the
     Named after the French economist Jean Baptise        government expenditures leads to inflation that
     say (1767–1832), the law proposes that aggregate     enables the government to secure extra resources
     supply creates its own aggregate demand.             though that is called ‘inflation tax’ also.