Firms must consider the macroeconomic environment when making production and pricing decisions. Key indicators of an economy's performance include aggregate output, price levels, investment, consumption, and balance of payments. The macro economy represents the aggregation of individual households and firms. Common measures used to evaluate price movements are the consumer price index, wholesale price index, and GDP deflator.

2. Macroeconomic
environment.

 The firm as a Producer in the marketplace , takes
decisions
 on optimal Production,
 On the Price that it should charge,
 On the Input combination to be employed,
 And , on the Prices that it should buy the inputs at ,
given the broader environment that it operates in.
 This broader environment is the macroeconomic
environment.

3. 
 It is essential that firms keep a continuous watch
over the macro environment.
 The Performance of an economy is evaluated by
considering its Performance indicators.
 Some of these indicators are:
 Aggregate output levels
 Aggregate Price levels
 Aggregate Investment levels
 Aggregate consumption levels
 Balance of Payments

4. 
 Each of the above indicators is an aggregate.
 Macro economy is an aggregation of the micro
entities of households and firms & thus we are
concerned about national output rather than the
output of one particular Product ,
 and movements in the overall Price level rather than
in the Price of any specific commodity.

5. GDP: Gross Domestic
Product

•Gross domestic product, a measure of
economic activity in a country.
•It is calculated by adding the total value
of a country's annual output of goods and
services.
•GDP = private consumption +
investment + public spending + the
change in inventories + (exports -
imports).

6. 
• It is usually valued at market prices; by
subtracting indirect tax and adding any
government subsidy.
• This measure more accurately reveals
the income paid to factors of
production.

7. GNP: Gross national
Product
•  another measure of
Short for gross national product,
a country's economic performance. It is calculated by
adding to gdp the income earned by residents from
investments abroad, less the corresponding income
sent home by foreigners who are living in the
country.
• Adding income earned by domestic residents from
their investments abroad, and subtracting income
paid from the country to investors abroad, gives the
country's gross national product (GNP).

8. 
• GNP=GDP + Net Factor Income from
abroad
• This ‘net’ factor income is measured as
factor incomes flowing in from abroad
minus factor incomes flowing out from
the home country.

9. Gross Product &Net Product

 If the aggregate value of output is arrived at
after deducting the depreciation , it is a net
measure.
 Therefore;
 GDP-Depreciation=Net Domestic Product;
 GNP-Depreciation=Net National Product.

10. 
 The Overall Price level is an important indicator of
the Performance of an economy.
 The method used to aggregate the Prices of different
commodities is the construction of Index
 There are variety of indices that capture Price
movement.
 The interest in these movement is due to the effect
that these movements have on the Purchasing Power
of money.

11. 
 There are three indices that are widely used:
 Consumer Price Index(Cost of Living Index)
 Wholesale Price Index(WPI)
 GDP Deflator

12. Consumer Price Index:

 The CPI Is often used to assess the money outlays
required to Purchase a basket of consumption goods
and services.
 This Basket is a representative of the specific group
of consumers for whom the CPI is being constructed.
 If the basket of goods consumed is significantly
different for different groups of consumers
 We can have a CPI constructed for each group of
consumers
 In India there are a CPI for agricultural labourers and
another is for urban industrial workers.

13. Wholesale Price Index:

 WPI is constructed in a manner similar to CPI , but
there are differences in the data used as input.
 Differences are:
 The Basket of goods used for the construction of WPI
is different from the basket of goods used in the case
of CPI
 The WPI basket includes raw materials used in
industrial Production ; industrial goods like
equipments ,machinery ; includes items of food
category and items in the category of fuel , Power,
light , and lubricants.

14. 
 Thus Main Group Included in the WPI are:
 Primary articles : food, non food , and minerals
 Manufactured Articles
 Fuel , Power, Light, and Lubricants.
 The Prices used are different. The CPI uses retail
Prices , while the WPI uses wholesale prices.

15. 
 The Weights are different.
 For agricultural Products , the value of the
marketable surplus is used and for
manufactured Products , the value of
Production is used.

16. GDP Deflator:

 the average Price of
It refers to the index of
all the goods and services Produced in the
economy.
 It is computed as the ratio of the nominal
GDP in a given year to the real GDP of that
year.
 The Purpose of GDP deflator is to remove the
effect of increased Prices in the valuation of
real GDP
 It is used to know the growth rate of the