Macro economics


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Macro economics

  2. 2. Introduction to Macroeconomics• Macroeconomics is that branch of economics, which studies the aggregate behavior of economic system• Macroeconomics deals with the analysis of economic factors on the national level• Macroeconomics determines the level of total economic activity in any nation
  3. 3. Introduction to Macroeconomics Contd…• Macroeconomics deals and explains about• National Income• Employment• Output• Causes of rise in general price level• Inflation Rate• Economic growth• Investments• Savings• Consumption• Causes of business cycles• Balance of payment• Exchange Rate
  4. 4. OBJECTIVES OF ECONOMIC POLICIES• Achieve national level full employment• Stabilize price fluctuations• Achieve overall economic growth• Develop regions equitably• Improve standards of living of people• Reduce income inequalities• Control monopoly market structure• Avoid cyclical fluctuations in various economic activities• Improve balance of payments• Bring social justice
  5. 5. NATIONAL INCOME• Purpose of National Income accounting• To obtain some measure of the performance of the aggregate economy• MAJOR CONCEPTS USED IN THE NATIONAL INCOME CALUCULATIONS• Gross Domestic Product (GDP)• Gross National Product (GNP)• Net National Product (NNP)• Personal Income (PI)• Disposable Income (DI)
  6. 6. GROSS DOMESTIC PRODUCT• GDP is the total market value of a nation’s output• It measures the market value of annual output of goods and services currently produced and counted only once to avoid double counting• Goods and services produced within the domestic territory of a country by nationals and non nationals• Non production transactions such as purely financial transactions and second hand sales must be excluded• Purely financial transactions include transfer payments and stock market transactions
  7. 7. GROSS NATIONAL PRODUCT• GNP is the market value of all final goods and services produced in a year.• GNP includes net factor income from abroad• GNP = GDP + Net factor income from abroad (Income received by Indians abroad – Income paid to foreign nationals working in India)
  8. 8. NET NATIONAL PRODUCT• NNP at market price is the vale of all final goods and services after providing for depreciation• NNP = GNP – Depreciation
  9. 9. PERSONAL INCOME• PI is the sum of all incomes earned by all individuals/households during a given year• Certain incomes are received but not earned such as old age pension, etc.
  10. 10. DISPOSAL INCOME• Disposal income is calculated by deducting the personal taxes like income tax, personal property tax from PI• DI = PI – Personal taxes = Consumption + Saving
  11. 11. APPROACHES TO CALCULATE NATIONAL INCOME• Income approach• Expenditure approach• approach
  12. 12. INCOME APPROACH• NI = Income of individuals + Self employed persons + Profits of firms and public corporate bodies + Rent + Interest• NOTE: Transfer payments, scholarships, pensions are not included)
  13. 13. EXPENDITURE APPROACH• NI is calculated by using the expenditure of individuals, private, government and foreign sectors i.e. the sum of all the expenditure made on goods and services during a year• NI = Expenditure of individuals + Expenditure of Government + Expenditure of private firms + Expenditure of foreigners
  14. 14. OUTPUT APPROACH• Value of output produced by firms and other organizations in a particular time period is measured• NI = Income from agriculture + Fishery + Forestry + Construction + Transportation + Manufacturing + Tourism + Water + Energy …
  15. 15. FACORS DETERMINING NTIONAL INCOME• Quantity of goods and services produced by the country• Quality of products and services produced in the country• Innovation of more technical skills will improve the productivity• Political stability
  16. 16. DIFFICULTIES IN THE CALCULATION OF NATIONAL INCOME• Any income earned abroad has to be included• To avoid double counting, value added method should be considered• Services rendered free of charge are not to be included• Capital gains, transfer payments are not to be included• Changes in price level will also affect the calculation• Value of military services will not be taken into consideration
  17. 17. PROBLEMS IN MEASURING NATIONAL INCOME IN INDIA• Non monetized sector: In a number of sectors, wages and salaries are provided in kind and not in monetary terms• Illiteracy: Results may be biased• Lack of occupational specification: Difficulty in classifying the nature of the job existing in India• Unorganized productive activities: They are not fully covered in the calculation of NI• Lack of adequate statistical data: Leads to approximation of calculation• Self consumption: Not considered for NI calculation• Unpaid services: Services of housewives not reckoned
  18. 18. USES OF NATIONAL INCOME ESTIMATES• Is a measure of economic growth• Is an indicator of success or failure of planning• Useful in estimating per capital income• Useful in assessing performance of difference production sectors• Useful in measuring inequalities in the distribution of income• Useful in measuring standard of living• Useful in revealing the consumption behavior of the society• Useful in measuring the level and pattern of investment• Makes international comparisons possible
  19. 19. DIFFICULTIES OF COMPARING NATIONAL INCOME OF DIFFERENT COUNTRIESDifficult because of differences in• Population size• Working hours• Currency values• Consumption patterns• Cultural differences• Inflationary pressures• Despite all difficulties, GDP is the major economic indicator of an economy
  20. 20. ECONOMIC INDICATORS• Economic growth in India• Inflation• Food inflation• Tightening of monetary policy by RBI• Weak manufacturing activity
  21. 21. ECONOMIC INDICATORS Contd…• Rising costs• Less revenue to government• Higher than budgeted expenditure• Adverse global economic environment• Turmoil in Euro Zone• Outlook of US economy• Views of Rating Agencies
  22. 22. ECONOMIC INDICATORS Contd…Sectoral comparison of GDP in IndiaYEAR AGRI INDUSTRY SERVICES1950-51 53.1 16.6 30.32011-12 E 13.9 27.0 59.0
  23. 23. ECONOMIC INDICATORS Contd…Growth in GDP 1980 2010 (At current prices)Advanced economies 76.2% 65.8%India 1.7% 2.6% (on PPP basis)Advanced economies 69.0% 52.1%India 2.5% 5.5%