Factors affecting National Income - investment and unemployment

1. INVESTMENTAND
EMPLOYMENTPRESENTED BY:
NIKITHA MARIA GEORGE
POOJA SINGH
PREETHE S
RIYA REJI
BALAYESHWANTHI

2. UNEMPLOYMENT
◦ Unemployment occurs when a person who is actively searching for
employment is unable to find work.
◦ Unemployment is often used as a measure of the health of the
economy.
◦ “Unemployment refers to the share of the labour force that is without
work but available for and seeking employment” – World Bank.

3. UNEMPLOYMENT
VOLUNTARY
FRUSTRATION
INCOME EFFECT
ATTITUDE TO
WORK
INVOLUNTARY
STRUCTURAL
UNEMPLOYMENT
FRICTIONAL
UNEMPLOYMENT
SEASONAL
UNEMPLOYMENT
CYCLICAL
UNEMPLOYMENT
CAUSES OF EMPLOYMENT

4. CONSEQUENCES OF UNEMPLOYMENT
◦GDP loss
◦Income inequality
◦Loss of income
◦Psychological cost
◦Fiscal Costs – Loss of tax revenue
◦Social Costs

5. UNEMPLOYMENT RATE
◦The number of people officially unemployed divided by the
labour force.
◦The civilian labour force figure excludes:
◦ Those in the armed services
◦ Prison
◦ Mental Hospitals
◦ Home – makers
◦ Retirees
◦ Full – time students

6. Business cycle and employment

7. BUSINESS CYCLE BEHAVIOUR
◦Recession:
◦ Beginning – employment is static (institutional arrangements)
◦ Harder recession – restructuring of companies – downsizing of
employees.
◦Recovery:
◦ Jobless recovery
◦ Full exploitation of production capacity and personnel
◦Boom:
◦ New investments – increased employment.

8. MONEY SUPPLY AND EMPLOYMENT
◦Expansionary monetary policy → infusion of more money in
economy → supply of money in economy increases → cost of
money i.e. interest rate decreases → due to decreased interest
rates, lending activity increases → people venture in new
business activities → demand for machines, tools, equipment
and other capital goods increases → new industries come into
existence → demand for labour increases → employment rate
increases or unemployment decreases.
◦

9. ◦Contraction monetary policy → reduction of money from
economy → supply of money in economy decreases → cost of
money i.e. interest rate increases → due to increased interest
rates, lending activity decreases → people avoid any further
investment in new business venture → demand for machines,
tools, equipment and other capital goods decreases → no new
industries come into existence → demand for labour decreases
→ employment rate decreases or unemployment increases.

10. STICKY WAGES
◦Industries prefer to lay off employees rather than
cutting down wages.
◦Cutting down wages decreases the morale of the
employees.

11. STICKY WAGE THEORY
➢ According to this theory, when employment rises, the
wages of those workers that remain employed tend to stay
the same or grow at a slower rate than before rather than
falling with the decrease in demand for labor.
➢sticky wages is also often referred as “wage stickiness.”

12. ➢Reasons for Wage Stickiness
◦Imperfect information-market clearing
◦Coordination problems
◦ Efficiency wages and costs of price change

13. UNEMPLOYMENT RATES FOR PAST 10 YEARS:

14. INVESTMENT
Two roles in macroeconomics:
It can have a major impact on AD (real output and
employment)
It leads to capital accumulation (it increases the nation's
potential output and promotes economic growth in the long
run)

15. TYPES OF INVESTMENT
◦ Autonomous – investment does not change with the changes in the
income level
◦ Induced – investment does change with the changes in the income
level

16. FACTORS AFFECTING INVESTMENT
◦Element of Uncertainty
◦Existing Stock of Capital Goods
◦Level of Income
◦Consumer Demand
◦Liquid Assets
◦Inventions and Innovations
◦New Products
◦Growth of Population

17. PARADOX OF THRIFT
◦In a recession period, more savings can worsen
the economy.
◦One person’s spending is another person’s
income.
◦More savings > less Spending > negative
multiplier effect> affects the economy

19. IMPLICATIONS OF POOR DOMESTIC SAVINGS
• Higher cost of capital
• Low investment
• Increased fiscal costs
• reduction in social and economic delivery
• Poor growth
• Increased poverty
• Household vulnerability

20. EFFECT OF DOMESTIC SAVING ON NATIONAL
INCOME
1.Size of income: as income increases all things being equal,
savings also increase
2.Rate of interest: a higher rate of interest may attract more people
to save and vice versa
3.Government policy: the government can influence the level of
savings in different ways such as attractive rate of interest policy
and income tax relief or tax holidays or tax concessions .

21. 4.Sense of responsibility: people with careful spending
habits save even when the income is low compared to
extravagant people who don’t even save at higher
income levels.
5.Political situation: a country with a stable political
climate encourages citizens as well as foreign investors
to save and invest which results into economic growth

22. EFFECT OF FDI ON EMPLOYMENT
◦ The following are four different effects of FDI on Job creation:
1-Employment Creation: It means the FDI brings new production
capacity and new jobs. Meanwhile it can improve the development
of relevant industries.
2- Employment Crowding-out: It means the inflow of the FDI makes
the competition more intensive. So some domestic enterprises have
had to reduce employment to improve their competitiveness.

23. 3- Employment Shift: It means the cooperation between
foreign and domestic companies will create joint ventures.
That will make workers transfer to new enterprises.
4- Employment Loss: It means the foreign-invested enterprise
have their own management methods. Those who have not
efficiency or are not suitable for this corporate environment
will lose their jobs.

25. THANK YOU