Description
distinction between micro and macroeconomics and interdependence. It also defines the dependent and interdendent variables.
MACRO ECONOMICS
Introduction, Interdependence between Micro & Macro Economics
2/1/2013
MBA AB 2009-11
1
‘MACRO’ Economics
?
?
?
Derived from „Makros? means „large? Studies economics problems in larger perspective i.e. Economy as a whole. Study of aggregates or average of various attributes of the entire economy such as Aggregate Demand & Supply, National Income, Total Employment, General Price Level, Inflation, Consumption, Production, Public Finance etc.
2/1/2013
MBA AB 2009-11
2
K.E. Boulding said
That part of economics which studies overall averages and aggregates of the system is called Macro Economics.
2/1/2013
MBA AB 2009-11
3
Distinction between Micro & Macro
? ? ?
Macro Study Economy as a whole while Micro deals with Individual Firm/Market/Industry. Macro gives Top to Bottom View of Economy while Micro shows Bottom to Top. Micro is based on ceteris paribus i.e all other things remain unchanged, only two variables in reference will be studied. For example Price and demand rest income, tastes, market characteristics etc are unchanged. Macro uses collective & aggregate treatment to all the possible stimuli.
MBA AB 2009-11 4
2/1/2013
Distinction between Micro & Macro
?
?
Macro applies quasi-equilibrium while Micro derives conclusion with partial equilibrium analysis. Macro Economics never assumes full employment level in the economy which is principle assumption in Micro.
2/1/2013
MBA AB 2009-11
5
Interdependence
?
?
?
Aggregate Demand Aggregate Supply used to decide General Price Level, which in turn used for price determination in the Markets. Law of diminishing marginal utility could not have been formulated without the micro investigation. Both examples reveals interdependence of both on each other.
MBA AB 2009-11 6
2/1/2013
Terms used in MACROECONOMICS
?
?
? ? ? ? ?
Macroeconomic Variables Economic Model Behavioural Equation Functional Relationship Dependent & Independent Variables Equilibrium Conditions Ex-ante and Ex-post
2/1/2013
MBA AB 2009-11
7
Macro-Economic Variables
?
Stock & Flow Variables
?
?
?
?
Ratio Variables
?
Stock variable is a quantity measured at a specific point of time. Ex: Money Supply on specific day is Rs 50000 crores. Flow variables are measured in terms of specific period of time. Ex: GDP is mentioned for a year. Stock has time reference while flow has time dimension
Shows relation between any two stock-flow, stock-stock, flow-flow variables at any specific point of time. Ex: Liquidity Ratio-ratio of liquid assets & total assets.
MBA AB 2009-11 8
2/1/2013
Economic Models
?
?
?
?
?
Set of relationship among group of variables. Models are generalized as prescription for any economic problem. Model may be expressed in words, tables, graphs & mathematical equations. Studies problem as a whole. Ex: Keynesian Model, Classical employment model
MBA AB 2009-11 9
2/1/2013
Dependent & Independent Variables
?
?
Between price & demand in Law of Demand, price is independent while demand is dependent variable as demand is dependent on variation of price. D= f(P); demand is function of price, so price is independent and demand is dependent of price.
2/1/2013
MBA AB 2009-11
10
Accounting (identity) & Theoretical (Behavioural) Relationship
?
?
?
?
?
Relationship assumed to be like by its definition is called Accounting Relationship. Expressed by „=„. No chance of being disproved. Theoretical Relationship may be disproved. It is expressed by „=„.
MBA AB 2009-11 11
2/1/2013
Equilibrium
? State
of dynamic balance between two variables. ? If attained would perpetuate itself, barring change in external forces. ? Ex: Demand & Supply Equilibrium.
2/1/2013 MBA AB 2009-11 12
Ex-ante & Ex-post
?
? ?
Ex-ante: Planned, anticipated, intended Ex-Post: Realized, Actual Ex: Estimated Expenditure is Exante while actual expenditure in budget is Ex-post.
2/1/2013
MBA AB 2009-11
13
National Income
? ?
?
Sum total of the money value of all goods & services produced in a country during a specified period. All the products & services left after deducting depreciation, factor income from abroad, indirect taxes etc. As per NATIONAL INCOME COMMITTEE OF INDIA,
?
“A NATIONAL INCOME ESTIMATE MEASURES THE VOLUME OF COMMODITIES AND SERVICES TURNED OUT DURING A GIVEN PERIOD, COUNTED WITHOUT DUPLICATION”.
MBA AB 2009-11 14
2/1/2013
National Income Aggregates
? Gross=Net
+ Depreciation ? Domestic=National - NFIA
?
Net Factor Income from Abroad (NFIA) = Income earned by Indians in foreign Income earned by foreigners in India
? Factor
?
Cost = Market Price - NIT
Net Indirect Taxes (NIT)=Indirect Taxes – Subsidies (Factor Payments to compensate paying capacity of consumer) 2/1/2013 MBA AB 2009-11 15
Cont’nd
?
?
? ?
?
?
GDPFC = GNPFC – NFIA NDPFC = GDPFC – Depreciation GDPMP = GDPFC + NIT Calculate other aggregates such as NNPFC, NNPMP, GNPMP, NDPMP etc. NDPFC is also known as Domestic Factor Income. NNPFC is known as National income
MBA AB 2009-11 16
2/1/2013
National Income Determination
?
Determination methods.
? ? ?
is
done
using
three
Income Method Output Method Expenditure Method
?
?
Each gives same value as whatever is being produced, is sold (expenditure) generating factor income making provisions for NIT, NFIA & Depreciation. Flow Concept is among Income, Production & Expenditure.
MBA AB 2009-11 17
2/1/2013
Methods
?
Income Method
?
?
?
? ?
Compensation of Employees – wages & salaries, money value of benefits, supplementary income, however TA, DA is not included Rental Income Mixed Income Corporate Profits Income from Interest
?
Add above incomes and deduct NIT & Depreciation.
2/1/2013
MBA AB 2009-11
18
Output Method
?
?
Calculate market value of total production across all the sectors of the Economy. Add NFIA and subtract Depreciation (Consumption of Fixed Capital) to get NNP at FC i.e. National Income.
2/1/2013
MBA AB 2009-11
19
Expenditure Method
?
?
?
?
?
Personal Consumption Expenditure Gross Domestic Private Investment Government Expenditure on Goods & Services Net Foreign Investment Add each one of the above.
2/1/2013
MBA AB 2009-11
20
doc_756385627.ppt
distinction between micro and macroeconomics and interdependence. It also defines the dependent and interdendent variables.
MACRO ECONOMICS
Introduction, Interdependence between Micro & Macro Economics
2/1/2013
MBA AB 2009-11
1
‘MACRO’ Economics
?
?
?
Derived from „Makros? means „large? Studies economics problems in larger perspective i.e. Economy as a whole. Study of aggregates or average of various attributes of the entire economy such as Aggregate Demand & Supply, National Income, Total Employment, General Price Level, Inflation, Consumption, Production, Public Finance etc.
2/1/2013
MBA AB 2009-11
2
K.E. Boulding said
That part of economics which studies overall averages and aggregates of the system is called Macro Economics.
2/1/2013
MBA AB 2009-11
3
Distinction between Micro & Macro
? ? ?
Macro Study Economy as a whole while Micro deals with Individual Firm/Market/Industry. Macro gives Top to Bottom View of Economy while Micro shows Bottom to Top. Micro is based on ceteris paribus i.e all other things remain unchanged, only two variables in reference will be studied. For example Price and demand rest income, tastes, market characteristics etc are unchanged. Macro uses collective & aggregate treatment to all the possible stimuli.
MBA AB 2009-11 4
2/1/2013
Distinction between Micro & Macro
?
?
Macro applies quasi-equilibrium while Micro derives conclusion with partial equilibrium analysis. Macro Economics never assumes full employment level in the economy which is principle assumption in Micro.
2/1/2013
MBA AB 2009-11
5
Interdependence
?
?
?
Aggregate Demand Aggregate Supply used to decide General Price Level, which in turn used for price determination in the Markets. Law of diminishing marginal utility could not have been formulated without the micro investigation. Both examples reveals interdependence of both on each other.
MBA AB 2009-11 6
2/1/2013
Terms used in MACROECONOMICS
?
?
? ? ? ? ?
Macroeconomic Variables Economic Model Behavioural Equation Functional Relationship Dependent & Independent Variables Equilibrium Conditions Ex-ante and Ex-post
2/1/2013
MBA AB 2009-11
7
Macro-Economic Variables
?
Stock & Flow Variables
?
?
?
?
Ratio Variables
?
Stock variable is a quantity measured at a specific point of time. Ex: Money Supply on specific day is Rs 50000 crores. Flow variables are measured in terms of specific period of time. Ex: GDP is mentioned for a year. Stock has time reference while flow has time dimension
Shows relation between any two stock-flow, stock-stock, flow-flow variables at any specific point of time. Ex: Liquidity Ratio-ratio of liquid assets & total assets.
MBA AB 2009-11 8
2/1/2013
Economic Models
?
?
?
?
?
Set of relationship among group of variables. Models are generalized as prescription for any economic problem. Model may be expressed in words, tables, graphs & mathematical equations. Studies problem as a whole. Ex: Keynesian Model, Classical employment model
MBA AB 2009-11 9
2/1/2013
Dependent & Independent Variables
?
?
Between price & demand in Law of Demand, price is independent while demand is dependent variable as demand is dependent on variation of price. D= f(P); demand is function of price, so price is independent and demand is dependent of price.
2/1/2013
MBA AB 2009-11
10
Accounting (identity) & Theoretical (Behavioural) Relationship
?
?
?
?
?
Relationship assumed to be like by its definition is called Accounting Relationship. Expressed by „=„. No chance of being disproved. Theoretical Relationship may be disproved. It is expressed by „=„.
MBA AB 2009-11 11
2/1/2013
Equilibrium
? State
of dynamic balance between two variables. ? If attained would perpetuate itself, barring change in external forces. ? Ex: Demand & Supply Equilibrium.
2/1/2013 MBA AB 2009-11 12
Ex-ante & Ex-post
?
? ?
Ex-ante: Planned, anticipated, intended Ex-Post: Realized, Actual Ex: Estimated Expenditure is Exante while actual expenditure in budget is Ex-post.
2/1/2013
MBA AB 2009-11
13
National Income
? ?
?
Sum total of the money value of all goods & services produced in a country during a specified period. All the products & services left after deducting depreciation, factor income from abroad, indirect taxes etc. As per NATIONAL INCOME COMMITTEE OF INDIA,
?
“A NATIONAL INCOME ESTIMATE MEASURES THE VOLUME OF COMMODITIES AND SERVICES TURNED OUT DURING A GIVEN PERIOD, COUNTED WITHOUT DUPLICATION”.
MBA AB 2009-11 14
2/1/2013
National Income Aggregates
? Gross=Net
+ Depreciation ? Domestic=National - NFIA
?
Net Factor Income from Abroad (NFIA) = Income earned by Indians in foreign Income earned by foreigners in India
? Factor
?
Cost = Market Price - NIT
Net Indirect Taxes (NIT)=Indirect Taxes – Subsidies (Factor Payments to compensate paying capacity of consumer) 2/1/2013 MBA AB 2009-11 15
Cont’nd
?
?
? ?
?
?
GDPFC = GNPFC – NFIA NDPFC = GDPFC – Depreciation GDPMP = GDPFC + NIT Calculate other aggregates such as NNPFC, NNPMP, GNPMP, NDPMP etc. NDPFC is also known as Domestic Factor Income. NNPFC is known as National income
MBA AB 2009-11 16
2/1/2013
National Income Determination
?
Determination methods.
? ? ?
is
done
using
three
Income Method Output Method Expenditure Method
?
?
Each gives same value as whatever is being produced, is sold (expenditure) generating factor income making provisions for NIT, NFIA & Depreciation. Flow Concept is among Income, Production & Expenditure.
MBA AB 2009-11 17
2/1/2013
Methods
?
Income Method
?
?
?
? ?
Compensation of Employees – wages & salaries, money value of benefits, supplementary income, however TA, DA is not included Rental Income Mixed Income Corporate Profits Income from Interest
?
Add above incomes and deduct NIT & Depreciation.
2/1/2013
MBA AB 2009-11
18
Output Method
?
?
Calculate market value of total production across all the sectors of the Economy. Add NFIA and subtract Depreciation (Consumption of Fixed Capital) to get NNP at FC i.e. National Income.
2/1/2013
MBA AB 2009-11
19
Expenditure Method
?
?
?
?
?
Personal Consumption Expenditure Gross Domestic Private Investment Government Expenditure on Goods & Services Net Foreign Investment Add each one of the above.
2/1/2013
MBA AB 2009-11
20
doc_756385627.ppt