macroeconomics gdp dnp national income method for computing gdp , and its limitation

1. RANI LAKHMI BAI
CENTRAL AGRICULTURE UNIVERSITY
MACROECONOMICS INTRODUCTION
MADE BY MANISHA DUHAN
(RLBCAU002)

2. MACROECONOMICS
It deals with the aggregates(agregate
output ;agrregatesupply ;agriculture
demand ;agriculture income ; general
price level ; total employment ;
savings ;investment)

3. KEYNES GENERAL THEORY OF
EMPLOYMENT
Also known as “”keynesian revolution’” new
economics
Given in 1936 made a genuine break from the
classical and neoclassical economics.
A nation progress greatly depends on the
judicious selection of macroeconomics
policies such as level and structure of taxation
or expenditure.

4. APPLICATION OF MACROECONOMICS
Theory of income output and employment
(theory of consumption function and
investment function)
Theory of prices(inflation ;deflation ; reflation)
Theory of economic growth(developing and
developed countries)
Macro theory of distribution dealing with
relative shares of wages and profits in national
income)

5. NATIONAL INCOME
• National income is defined as aggregate
money value of goods and services produced
in a country during a year.
• It can be viewed as income distributed among
factors of production in form of rent, wages,
interest and profits.

6. CLASSICAL VIEW(N.I)
• ALFRED MARSHALL- it is defined as the labour
and capital of a country acting on natural
resources produce annually a net aggregate of
commodities.
• PIGOU-national income; income of community
including of course income derived from abroad
which can be measured in money.
• IRWING FISCHER-it consist solely of services as
received by ultimate consumers ; whether from
material or from human environment.

7. DEMERITS
• MARSHALL AND PIGOU APPROACH N.I FROM
PRODUCTION AND FISCHER FROM
CONSUMPTION END.
• Marshall –double counting of single good as
e.g silk coccon and silk cloth; amount not
reaching market is not counted(e.g the
product which farmer consume for its own)
• Pigou -barter system in underdeveloped
countries so not in form of money.
• Fischer-estimation of millions consumers
consumption is difficult ; problems in non
durable goods ; problems in measurement

8. MODERN VIEW
• SIMON KUZNETS-National Income the net
output of commodities and services flowing
during the year from the productive systems
in the hand of ultimate consumers.
• GROSS NATONAL PRODUCT(GNP)
• It is defined as the total market value of all
goods and services produced in a year.
• GNP is the measure of current output of
economic activity in a country

9. REAL GNP
• GNP at constant market prices is called real
GNP.
• A price index is a number showing the
changes in the overall level of prices.
• Real GNP=nominal GNP*(PRICE INDEX OF
BASE YEAR/PRICE INDEX AT CURRENT YEAR)

10. GDP
• THE AMOUNT OF OUTPUTS WHICH ARE
PRODUCED WITHIN THE DOMESTIC
BOUNDARY OF AN ECONOMY IN A SPECIFIC
PERIOD SAY A YEAR.
• GDP= GNP-(X-M)
• WHERE X-M IS NET FOREIGN EXCHANGE.

11. MEASURES OF GNP
• INCOME METHOD;EXPENDITURE METHOD
AND VALUE ADDED METHOD.(THREE
APPROACHES)
• GNP donot include price of intermediate
goods ; free and family services ; sell and
purchase of old goods , shares , buissness
units ; change in value of capital assets as a
result in change in market price ; transfer
income.

12. INCOME METHOD
• Wages/salary/rents/interest/income of non
company buisness/corporate profits/indirect
taxes/depreciation/transfer payments
• GNP includes all except transfer payment
which include pensions and unemployment
allownces.

13. EXPENDITURE METHOD
• Personal consumption/gross domestic private
investment/net foreign investment / govt.
expenditure on goods and services.
• GNP=C+I+(X-M)+G
• VALUE ADDED METHOD(the value of
intermediate goods used in manufacturing
industry should be deducted from final goods)
• ALSO CALLED FLOW OF OUTPUT(VAT).

14. INVESTMENT EXPENDITURE
• TWO PARTS:1) to buy new capital goods and
machinery for production.
• 2)consumption allowance or depreciation –
spent on maintenance of capital good
• Sum of two equal to GROSS INVESTMENT.
• Gross investment= net investment +
depreciation .

15. NET NATIONAL PRODUCT(NNP)
The amount in decline in the value of goods due
to wear and tear is known as depreciation.
NNP= GNP - DEPRECAITION
NNP at factor cost implies the sum of all
incomes earned by resource suppliers for their
contribution of land labour and enterpreneur
activity which go in net production in a year.

16. PERSONAL AND DISPOSABLE INCOME
It is the sum of all the incomes actually received by
all individuals or households during a given year
PI=NI- SOCIAL SECURITY –CORPORATE INCOME TAX-
CORPORATE PROFITS+TRANSFER PAYMENTS.
DI=PI- PERSONAL TAXES or CONSUMPTION
EXPENDITURE +SAVINGS
It is the amount of money available with the private
individuals to spend.

17. FACTORS AFFECTING N.I
• FACTORS OF PRODUCTION :land , labour ,
capital
• Technology :most imp. for country having less
natural resources ; invention and innovation in
production.
• Government : favourable business
environment ,laws and regulations.
• Political stability: no wars ,strikes , social
unrests.

18. USE OF N.I STATISTICS
STANDARD OF LIVING OF COUNTRY
POLICY FORMULATIONS
INTERNATIONAL COMPARISON
BUISNESS DECISION

19. LIMITATIONS
• PRICE CHANGES
• VOLUNTARY SERVICES- HOUSEHOLD ACTIVITY
ARE NEGLECTED IN GNP.
• ILLEGAL ACTIVITIES:D DRUG TARRIFING
;GAMBLING
• POPULATION SIZE;POLLUTION
CONGESTION(DECREASES STD. OF LIVING)
• UNEVENLY DISTRIBUTION OF NATIONAL INCOME.
• WITH TIME TECHNOLOGY IMPROVEMENT AND
DURABLE GOODS WELFARE NOT SHOWN BY N.I.