Macroeconomics studies overall economic phenomena on a large scale, such as employment levels, GDP, savings, investment, consumption and economic growth. It helps address problems like monetary issues, economic fluctuations, inflation and trade imbalances. Macroeconomics provides tools to analyze and regulate complex modern economies and form policies to achieve desirable goals. Its analysis considers aggregated economic data rather than individual units.

1. MACRO ECONOMICS
BASIC CONCEPTS OF NATIONAL INCOME

2. What is Macroeconomics?
 “Macro” is derived from Greek word “Makros”
meaning Large
 Is defied as the study of overall economic
phenomena, such as problem of full
employment, GNP, Savings, Investment,
Aggregate consumption & investment, Economic
Growth etc.,
 Also known as “Theory of Income &
Employment”

3. What is the scope of Macroeconomics?
 Helps in solving many problems of an economy
like
 Monetary problems
 Economic fluctuations
 General employment
 Inflation
 Disequilibrium in the balance of payment position
Macroeconomics
Theory of
Income &
Employment
Theory of
general price
level and
Inflation
Theory of
economic
growth
Theory of
distribution

4. Why is it important?
 Has emerged as the most challenging branch of economics
 Gives an overall view of the growing complexities of the
economic system
 Provides powerful tool to explain the working of complex
economic system
 Provides basic and logical framework for formulating policies to
direct and regulate economy towards desirable goals
 Analyses reasons for economic fluctuations and provide
remedies
What are its limitations
 Ignores structural changes in an individual unit of the aggregate.
Hence the conclusion may be misleading
 Also the figures arrived at are subject to errors & ambiguities

5. What are goods and what are its types?
• “Goods are physical object,| natural or man-made,|
can be seen, touched and measured,| command a
price in the market”. It includes both tangible and
intangible objects (services)”
• Economic goods – which commands a price
• Non-economic good – which does not command a
price
Goods
Intermediate Final Consumption capital

6. Intermediate goods
• Used for production of other
goods and services
• Meant for resale so value gets
added to these goods
• Remain within the production
boundary
• Value not included in the
National Income
• Eg: Milk used in sweet shop
for resale
• Cotton yarn used by textile
industry
Final goods
• Used for final consumption
• Meant for final use so no value
addition is made
• Remain outside the production
boundary
• Value included in national
income
• Milk bought by household for
consumption
Intermediate Goods Vs. Final Goods

7. Consumption goods
• Bought by consumers to
satisfy their needs and wants
• Durable goods – car, TV, radio
etc.,
• Non-durable goods – oil, milk,
vegetable etc.,
• Semi durable goods – crockery
etc.,
• Services – bank, doctor,
teacher etc.,
Capital goods
• Which form the capital stock
of the country and which is
used in the production process
• Durable goods – car used by a
company for business purpose
• Stock of raw material, semi
finished and finished goods at
the end of the financial year
which satisfy human wants
indirectly
Consumption goods vs. capital goods

8. What is Investment & what are the
types ?
• Investment means addition made to stock or physical
capital (buildings, Plant & machinery, tools &
equipments) during a given period of time. Also called
capital formation. It raises productive capacity of the
economy
• Depreciation means decrease in value of fixed assets
due to normal wear and tear in the process of
Production
• Gross Investment = Total addition made to physical
stock during a year including depreciation
• Net Investment = Gross Investment - Depreciation

9. Stock vs Flow
Stock
• Quantity of an economic
variable measured at a
particular point of time
• Has no time dimension
• Is a static concept
• Eg: wealth, water in a tank,
inventories, capital
Flow
• Quantity of an economic
variable measured during a
period of time
• Has time dimension – like
per hour, per month etc.,
• Is a dynamic concept
• Eg: income,water in a
stream, change in
inventory, change in capital

10. What is meant by Economic Territory?
According to the UN, Economic Territory is the
Geographical territory administered by a government
within which persons, goods and capital circulate
freely.
Definition is based on the criterion “freedom of
circulation of persons, goods and capital”
Those parts of a political frontier of a country where
the government does not enjoy administration rights,
is not included in economic territory of that country.
Eg: foreign embassies in India will be part of the
respective country’s economic territory
Similarly Indian embassies in other countries will be
part of Indian Economic Territory

11. What are its scope and implications?
• Scope
 Political frontiers including water and air space
 Includes Embassies, consulates and military bases located
abroad but excludes the offices of other countries located
within the frontier
 Ships, aircraft etc., operated by residents between two or more
countries
 Fishing vessels, oil rigs etc operated by residents located in
international territories but over which the frontier has
exclusive enjoying rights
• Implicatons
 National Income (NI) & related aggregates are measures of
production activity
 Two categories of NI aggregates – Domestic & National
 Production activity of all production units located within the
economic territory is Domestic Product. Eg. GDP, NDP

12. Who are normal Residents of a country?
– A resident, |whether a person or an institution, |is
one whose centre of economic interest |lies in the
economic territory of the country| in which he lives
– Citizen and resident are two different terms
– A person may be a citizen of a country but he will be a
resident where he lives
– Citizenship is a legal concept and residentship is an
economic concept
Gross National Product / Net National Product
– Production activities of the residents of an economic
territory whether performed within the economic
territory or outside the territory is National Product

13. What is NI Aggregate?
– NI or NP is defined as the money value of all final
goods and services |produced within the domestic
territory of a country| in an accounting year(Domestic
Income DI)| plus| net factor income from abroad
(NFIA)
What are its different concepts?
Market Price
• Gross Domestic Product (GDPMP)
• Net Domestic Product (NDPMP)
• Gross National Product (GNPMP)
• Net National Product (NNPMP)
Factor Cost
• Gross Domestic Product (GDPFC)
• Net Domestic Product (NDPFC)
• Gross National Product (GNPFC)
• Net National Product (NDPFC
Gross = Net + Depreciation National = Domestic + NFIA
Market Price = Factor Cost + Net Indirect Taxes

14. • GDPMP
– Market Value of final goods and services| produced within the
domestic territory |during one year| by all production units
|including net indirect taxes and depreciation
• Important points
– This is a flow concept i.e., only the current year is taken
– This is calculated on current prices. Where price of base year is
taken, it is called GDPMP at constant prices.
– It excludes value of intermediate consumptions. But includes
value added by MNCs in India
– Excludes transfer payments, capital gains, financial transactions
& income generated through illegal transactions
– Market value = price x total quantity of goods and services
produced during the year
– Includes only final value to avoid double counting
– Confined to domestic territory only and excludes NFIA
GDPMP = Value of output in Domestic Territory – value of intermediate consumption

15.  GNPMP = GDPMP + Net Factor Income from Abroad (NFIA)
 NNPMP
 = GNPMP – Depreciation
 =NDPMP + NFIA
 =GDPMP + NFIA – Depreciation
 NDPMP
 GDPMP – Depreciation
 NNPMP – NFIA
 NDPFC
 = compensation of employees + Operating surplus + mixed income of the self
employed
 = NDPMP – Indirect Taxes + Subsidies
 = NDPMP – Net Indirect Taxes
 GDPFC
 = GDPMP – Indirect Taxes + Subsidies
 = NDPFC + depreciation
 GNPFC
 = NNPFC + DEP
 GNPMP – NIT
 NNPFC or NI
 =NDPFC+NFIA
 =NNPMP-NIT

16. • WHAT IS Net Factor Income from Abroad (NFIA)?
– Factor income from abroad by a normal resident (-) Factor income of
non resident from domestic territory
What are
the
components
of NFIA?
Net Compensation of Employees from
Abroad = compensation received by
residents working abroad – compensations
paid to non-residents working in the
domestic territory
Net Income from property & Entrepreneurship =
income received by the residents in the form of rent,
interest and profit from rest of the world – income paid
to the non-residents in the form of rent, interest and
profit to the rest of the world
Net retained earnings of resident
companies abroad = retained
earnings abroad – retained
earnings of foreign companies
located in a country

17. Net Factor Income from
Abroad
• Difference between factor
income earned by our resident
indians abroad and factor
income earned by non-
residents in domestic territory
• This is part of National Income
• Main components
• Net compensation of
employees
• Net income from property &
entrepreneurship
• Net retained earnings of
resident companies
Net Exports
• Difference between exports
and imports of goods and non-
factor services related to
domestic territory
• This is part of Domestic
Income
• Main components
• Export and import of goods
• Export & import of non
factor services
NFIA vs Net Exports

18. Thank you