The document discusses concepts related to macroeconomics, national income, and government policies. It defines national income as the aggregate value of all goods and services produced in a country in a given year. Gross domestic product and gross national product are introduced as measures of national income. The document also outlines methods to calculate national income, including the product, income, and expenditure methods. It further explains the objectives, tools, and types of both monetary policy, which is used by central banks to influence money supply and interest rates, and fiscal policy, which involves government taxation and spending.

1. MANAGERIAL ECONOMICS
UNIT - 5
MACROECONOMICS CONCEPTS &
GOVERNMENT POLICIES

2. CONCEPT OF NATIONAL INCOME
Definition:
• According to Marshall: “The labor and capital of a country acting
on its natural resources produce annually a certain net aggregate of
commodities, material and immaterial including services of all
kinds. This is the true net annual income or revenue of the country
or national dividend.”
Concept of National Income:
• Gross Domestic Product (GDP): Gross Domestic Product,
abbreviated as GDP, is the aggregate value of goods and services
produced in a country. GDP is calculated over regular time intervals,
such as a quarter or a year. GDP as an economic indicator is used
worldwide to measure the growth of countries economy.
• Goods are valued at their market prices, so:
• All goods measured in the same units (e.g., dollars in the U.S.)
• Things without exact market value are excluded.

3. CONCEPT OF NATIONAL INCOME (CONT.)
Constituents of GDP (Components)
• Wages and salaries
• Rent
• Interest
• Undistributed profits
• Mixed-income
• Direct taxes
• Dividend
• Depreciation
The Formula for Calculation of GDP:
GDP = consumption + investment + government spending +
exports - imports.

4. CONCEPT OF NATIONAL INCOME (CONT.)
Gross National Product
• Gross National Product (GNP) is an estimated value of all goods and
services produced by a country’s residents and businesses. GNP does not
include the services used to produce manufactured goods because its
value is included in the price of the finished product. It also includes net
income arising in a country from abroad.
Components of GNP
• Consumer goods and services
• Gross private domestic income
• Goods produced or services rendered
• Income arising from abroad.
• Formula to Calculate GNP
GNP = GDP + NR (Net income from assets abroad or Net Income
Receipts) - NP (Net payment outflow to foreign assets).

5. IMPORTANCE OF NATIONAL INCOME
• Setting Economic Policy: National Income statistics can help
economists in formulating economic policies for economic
development.
• Inflation and Deflationary Gaps: For timely anti-inflationary
and deflationary policies, we need aggregate data of national
income. If expenditure increases from the total output, it shows
inflammatory gaps and vice versa.
• Budget Preparation: The Government formulates the yearly
budget with the help of national income statistics in order to
avoid any cynical policies.
• Standard of Living: National income data assists the government
in comparing the standard of living amongst countries and people
living in the same country at different times.
• Defense and Development: National income estimates help us
to bifurcate the national product between defense and
development purposes of the country.

6. METHODS OF CALCULATING NATIONAL
INCOME
Product Method or Value-Added Method: compute the monetary worth of all final
products and services generated in an economy over a year. The term “final goods”
refers to items consumed immediately and are not employed in the subsequent
manufacturing process. Intermediate products are goods that are utilized in the
manufacturing process.
• To circumvent the dilemma of double counting, we could utilize the value-addition
approach, which calculates value-addition at each production stage and sums it up
to reach GDP. Because the money value is measured at market prices, the GDP
(Gross Domestic Products) at market prices is the total amount.
Formula: NNPfc = GDPmp – Depreciation – Net indirect taxes + NFIA,
Fc: factor cost,
mp: market price,
NNP: net national product (market value)
[or]
NNPfc = GDPmp – Depreciation – Net product taxes – Net production
taxes + NFIA
NFIA: Net Factor Income from Abroad

7. METHODS OF CALCULATING NATIONAL
INCOME (CONT.)
Income Method:
• National income is calculated using this technique as a circulation
of factor incomes. There are mainly four production aspects:
labor, land, capital, and entrepreneurship. Labor is compensated
with wages and salaries, money is compensated with interest, the
land is compensated with rent, and entrepreneurship is
compensated with profit.
• Furthermore, specific self-employed individuals, like physicians,
lawyers, and CAs, provide their own money and labor. Their
income is referred to as mixed-income. All of these factor incomes
are referred to as NDP at factor costs (NDPfc).
• Formula: National Income = Rent + Compensation + Interest +
Profit + Mixed Income

8. METHODS OF CALCULATING NATIONAL
INCOME (CONT.)
Expenditure Method:
• The expenditure approach can also be employed during the
disposal phase to determine national income. It determines
national revenue by computing final GDP spending at market
prices. The amount spent on finished goods is referred to as final
expenditure.
• Final products are necessary for final investment and
consumption. Therefore, the requirement for final investment
and consumption is generated by all four economic sectors,
including households, enterprises, the government, and the rest
of the world.
• Formula: National Income: Household Consumption +
Government Expenditure + Investment expense + Net Export
(Exports – Imports)
• NNPfc = C + G + I + NX

9. DIFFICULTIES OF CALCULATING NATIONAL
INCOME
(1) Problems of Definition: Ideally we should include all goods and services
produced in the course of the year, but there are some services which are not
calculated in terms of money, e.g., services of housewives.
(2) Lack of Adequate Data: The lack of adequate statistical data makes the
task of estimation of national income more acute and difficult.
(3) Non-availability of Reliable Information: The reason of illiteracy, most
producers has no idea of the quantity and value of their output and do not
follow the practice of keeping regular accounts.
(4) Choice of Method: The selection of method while calculating National
Income is also an important task. The wrong method leads to poor results.
(5) Lack of Differentiation in Economic Functioning: An individual may
receive income partly from farm ownership and partly from manual work in
industry in the slack season.
(6) Double Counting: If the value of all goods and services totaled, the total
will overtake the national output, because some goods are currently
consumed being used in the making of others.

10. MONETARY POLICY
Meaning:
• Monetary policy is a set of tools used by a nation's central
bank to control the overall money supply and promote
economic growth and employ strategies such as revising
interest rates and changing bank reserve requirements.
Objectives of Monetary Policy
1. Inflation
2. Unemployment
3. Currency exchange rates

11. TOOLS OF MONETARY POLICY
1. Interest rate adjustment: A central bank can influence
interest rates by changing the discount rate. The discount rate
(base rate) is an interest rate charged by a central bank to
banks for short-term loans.
2. Change reserve requirements: Central banks usually set up
the minimum amount of reserves that must be held by a
commercial bank. By changing the required amount, the
central bank can influence the money supply in the economy.
3. Open market operations: The central bank can either
purchase or sell securities issued by the government to affect
the money supply. For example, central banks can
purchase government bonds.

12. TYPES OF MONETARY POLICY
• Contractionary: A contractionary policy increases interest
rates and limits the outstanding money supply to slow growth
and decrease inflation, where the prices of goods and services
in an economy rise and reduce the purchasing power of
money.
• Expansionary: During times of slowdown or a recession,
an expansionary policy grows economic activity. By lowering
interest rates, saving becomes less attractive, and consumer
spending and borrowing increase.

13. FISCAL POLICY
Meaning:
• Fiscal Policy deals with the revenue and expenditure policy of
the Govt. The word fiscal has been derived from the word ‘fisk’
which means public treasury or Govt funds.
Latest Update about Fiscal Policy of India:
• The Union Budget 2021 has signaled the emphasis on
the Development Financial Institutions (DFIs) in the pursuit
of long-term infrastructure creation for the revival of the
economy.
• The establishment of the Dispute Resolution Committee (DRC)
has been proposed in the Union Budget 2021 that can help
provide quick relief to taxpayers in tax disputes.

14. OBJECTIVES OF FISCAL POLICY
• To promote economic growth
• To reduce income and wealth inequalities
• To provide employment opportunities
• To ensure stability in prices
• To correct balance of payments deficit
• To provide for effective administration

15. COMPONENTS OF FISCAL POLICY
• There are three components of the Fiscal Policy of India:
• Government Receipts
• Government Expenditure
• Public Debt
1. Government Receipts: The categorization of the government receipts is given
below:
• Revenue Receipt
• Tax Revenue
• Direct Tax
• Indirect Tax
• Non Tax Revenue
• Fees
• License and Permits
• Fines and Penalties, etc
• Capital Receipt
• Loans Recovery
• Disinvestments
• Borrowing and other liabilities

16. COMPONENTS OF FISCAL POLICY (CONT.)
2. Government Expenditure: There are two classifications of
public expenditure:
• Revenue Expenditure – It is a recurring expenditure.
• Interest Payments
• Defense Expenses (Army)
• Salaries to Central Government employees, etc are
examples of revenue expenditure
• Capital Expenditure – It is a non-recurring expenditure
• Loans repayments
• Loans to public enterprises, etc.

17. COMPONENTS OF FISCAL POLICY (CONT.)
3. Public debt: Public debt is the sum total of the borrowings of
the Central/Federal government of a country. We also call it
Sovereign debt or National debt.

18. TYPES OF FISCAL POLICY
• Expansionary Fiscal Policy: It involves all the actions taken
by the government to invest more money back into the
economy. Putting more money back into the economy creates
more demand for services and products. It also expands the
job opportunities and increases the profit for the people and
government. In other words, it stimulates economic growth.

19. TYPES OF FISCAL POLICY (CONT.)
• Contractionary Fiscal Policy: Contractionary fiscal policy is
normally used at the time of a boom in the economy.
Sometimes expansion in the economy can also be dangerous,
so in this case, the government tries to slow down the
expansion so that it could not become so intense. This type of
fiscal policy helps make the growth of the economy
manageable and controls inflation.

20. TYPES OF FISCAL POLICY (CONT.)
• Neutral Fiscal Policy: Neutral fiscal policy is generally used
when the economy of the country is in equilibrium.

21. DIFFERENCE BETWEEN FISCAL AND
MONETARY POLICY