1. Chapter II: Macroeconomic Context
and Indicators
1.1 Introduction
Macroeconomics is the study of overall economy,
includes assessing the positive and negative impacts of
overall economic performances to society as whole
without mentioning personal and legal entities.
Classical Economists: David Ricardo (1772-1823), John
Stuart Mill (1806-1873), J.B Say (1767-1832) had conducted
research on global economic crisis and its impact on society,
industrial productivity, investment growth, uncertain
impacts on standard of livings…
Major Macroeconomic Indicators:
3. • Indicators is the economic determinants being used
to measure and assess the economic and business
performances. The key macroeconomic indicators are:
– GDP is used to measure economic size and growth but it
cannot reflect the living standards, only if the society is
more equitable distribution.
– Unemployment is a core stone to indicate the economic
function of the nations.
– Inflation is to measure the change in prices of goods and
services, and fluctuation in values of currencies influencing
the purchasing power and commercial sectors.
– Balance of Payment and Exchange Rate are used to
measure international trade and financial transaction.
– Interest Rate and Taxes indicate the investment capital
flow-in and out, banking cash flow, and taxes and public
expenditure.
5. • Prof. John Maynard Keynes (1883-1946) observed the
relationship between unemployment, interest rate
and money, he defined following:
– Decreasing the investment reduces aggregate planned
expenditure, volumes of sales, and dumping products.
Unemployment increases as of this result,
– Classical economists said the economy will have its own
recovery, and yet, Prof. Keynes said there is a need of
government interventions,
– Global economic recession appears in almost 10 years
such as 1930, 1940-45, 1960, 1970, 1979-80, 1987-88, 1997-
98, and recently 2008-09 as the result of product surplus
and degrading standards of livings, and
– In the period of recessionary gap, reducing interest rate on
loan, financial bail-out and international trade cooperation
are seen as an effective economic tool.
9. 9
• The primary sector includes agriculture,
forestry and fishing, and mining and quarrying.
The secondary sector consists of
manufacturing, electricity, gas and water
supply, and construction.
• The tertiary sector consists of all items under
services (trade, hotels and restaurants;
transport, storage and communication;
banking and insurance; real estate, dwelling
and business services; public administration
and defence etc.)
10. 10
ii. Income Approach
• In this approach, national income can be
measured by annual flows of factor earnings
(wages, rents, interests and profits, which
are the earnings of labor, land, capital and
organization respectively) accruing during
the process of production of final output.
• For a particular good, value of final output
can be expressed as total factor earnings
from this output, that is, say for good 1:
P1Q1 = W1 + R1 + I1 + P1
11. 11
Or, by generalizing,
PiQi = Wi + Ri + Ii + Pi
Where,
W = Wage
R = Rent
I = Interest
P = Profit
• Total income (national income) generated by
this way is expressed as:
Y = Σ (Wi + Ri + Ii + Pi), i = 1, 2,….,n.
12. 12
iii. Expenditure Approach
• National income can be estimated by aggregating
the flows of expenditure on final goods and
services.
• The flow of total expenditure should be measured
by aggregating the flows of expenditure on final
goods and services incurred by each of the three
major sectors, viz., the household sector, the
business sector and the government sector.
Y = Eh + Eb + Eg
Where Eh, Eb and Eg denote the annual flows of
expenditure by the household sector, the business
sector and the government sector respectively.
13. 13
• Alternatively, expenditure incurred on final
goods and services should be either
consumption expenditure or investment
expenditure so that national income, in
expenditure form, may also be written as
Y = C + I
where C is the expenditure on consumption
goods and I expenditure on investment
goods.
(The above equation is the famous Keynesian
income equation, is for a closed economy, i.e.,
without foreign transactions as either exports
or imports)
14. 14
• In an open economy with exports and imports, the
income equation will change.
• If we consider government expenditure as a separate
component of aggregate expenditure, then national
income by expenditure approach may be rewritten as
Y = C + I + G + X – M
C = Expenditure on private consumption
I = Total investment expenditure – both public and
private
G = Government expenditure
X = Expenditure of foreign countries on a country’s
exports
M = Home country’s expenditure on imports from
abroad
15. lMhat;TI1³ cUrKNnaplitplsrubkñúgRsuk¬landuløa¦
Sectors 2010 2011 2012
Agriculture 2100 2410 2810
Industry 2100 2540 2620
Services 2860 3000 3500
Tax minus Subsidy 560 620 740
Total
Growth Rate if GDP
deflator 103.5 and
108.6 and 110.2
respectively
Conclusions if the
2009 GDP = 7000
16. lMhat;TI2³ cUrKNnatamviFIsaRsþcMNUl ¬landuløa¦
Income 2010 2011 2012
Wage 4200 4950 5430
Rent 1860 2000 2200
Interest 500 520 740
Profit 1060 1100 1300
Total
Growth Rate if GDP
deflator 103.5 and
108.6 and 110.2
respectively
Conclusions if the
2009 GDP = 7000
17. lMhat;TI3³ cUrKNnatamcMNay ¬landuløa¦
Sectors 2010 2011 2012
Consumption 4320 4940 5190
Investment 500 700 920
Public Expenditure 4860 5450 6300
EX-IM -2060 -2520 -2740
Total
Growth Rate if GDP
deflator 103.5 and
108.6 and 110.2
respectively
Conclusions if the
2009 GDP = 7000
19. sMNYrBicarNa
1> GVIeTACaPaBxusKñarvagplitplTunCati ¬Gross National
Product = GNP¦ nigplitplsrubkñúgRsuk¬Gross Domestic Product
= GDP¦ ?GDP is estimated value of the total worth of
country’s production and services, on its land
by its nationals and foreigners calculated over
the course on one year
GNP is estimated value of the total worth of
country’s production and services by its
citizens of a country on its land and on foreign
land calculated over the course on one year
GDP = C+I+G+NX GNP = GDP + Net Income Inflows – Net
Payment Outflow
To see the strength of a country ‘s local
economy
To see how the nationals of a country are
doing economically
Total value of products and services produced
within the territorial boundary of a country
Total value of products and services produced
by all nationals of a country whether within
or outside the country
GDP USA in 2010 is $14.59 trillion and Ireland
GDP $211.39 billion
GNP USA in 2010 is $14.64 trillion and Ireland
GNP $149.54 billion
20. 1.3 Unemployment
• Unemployment is defined as the situation in which
people who are capable to work at the current wage
rate cannot find a job. It is noteworthy to know that:
– There is no full employment in the World. If the economic
recession is appeared, there is a decline in production, and
income while unemployment arises. For example, a global
economic crisis in 2008-2009, 70 factories were closed
down causing 60,000 workers unemployed.
– The global estimation of unemployment is 197 million
people accounted 6 per cent while Cambodia is 2 per cent
(ILO 2012).
– The measure of unemployment can be conducted monthly
or yearly based upon the availability of resources and
labour management.
25. • plvi)akénnikmµPaB
– kar)at;bg;Tinñpl nigcMNUl¬Loss of Output and Income¦
– kar)at;bg;mUlFnmnusS ¬Loss of Human Capital¦
– kar)at;bg;esckþIéføfñÚrrbs;mnusS ¬Loss of Human
Dignity¦
– kMeNIn]Rkidækmµ¬Increase in Crimes¦
– kMeNInPaBtantwgénbuKÁl nigRKYsar¬Increase in
Stress on Individuals and Families¦
elaketgsa‘vBIg )anniyayfaFnFanmnusS
eRbob)annwgTwk
ebIecHtRmg;TisBitCamanRbeyaCn_
26.
27. • karKNnanikmµPaB
(1) Labour Force = Employment + Unemployment
(Labour Law stated active population between 15-60)
(2) Labour Force Participation Rate =
𝐿𝑎𝑏𝑜𝑢𝑟 𝐹𝑜𝑟𝑐𝑒
𝑇𝑜𝑡𝑎𝑙 𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛
(3) Unemployment Rate =
𝑈𝑛𝑒𝑚𝑝𝑙𝑜𝑦𝑒𝑑
𝐿𝑎𝑏𝑜𝑢𝑟 𝐹𝑜𝑟𝑐𝑒
lMhat;³tamCMerOnRbCasaRsþ
kñúgcMeNamRbCaCnkm<úCa14lannak;
mankmøaMgBlkmµsrub 6lannak;
EdlkñúgenaHBlrdæman
kargareFVImancMnYn5>8lannak;.
32. 32
Open and Suppressed Inflation:
• Sometimes inflation, i.e., price rise, may be
suppressed through government’s control on
prices and distribution of commodities.
• The symptoms of inflation like shortages
(demand outstripping supply) would exist,
but because of administered prices, inflation
would not be visible.
• The phenomenon of price increase would be
replaced by long queues of waiting buyers at
government controlled distribution centers.
33. 33
• If only, and as soon as, restriction on prices and
rationing of supplies are removed, inflationary
situations would develop.
• Suppressed inflation really implies postponement
of present demand to future, and diversion of
demand from one good to another (to the extent
commodity substitution is possible) from those
goods whose prices are controlled and supply is
rationed to those whose prices and supply are
not administered.
• Open inflation signifies a process in which prices
are permitted to rise commensurate with market
forces.
34. 34
• The post-war inflation in many countries and
hyperinflations of the ‘Twenties’ in Germany,
Austria and Russia and of the ‘Forties’ in
China are examples of open inflation.
• The post-Second World War situation in
Germany is the example of suppressed
inflation.
• In the post-war period in Germany, prices
were not allowed to increase although by
usual standards, there existed significant
inflationary potential.
35. 35
• If prices are allowed to rise freely, the price level
might have shot up sufficiently (some say, it
might have quadrupled), and there could be an
inflationary spiral.
• Suppression of price or inflation through
controls really means weakening or suspension
of the market economy and this may disrupt the
normal functioning of the economic system.
