Description
about macroeconomics in nutshell explaining concepts of national income, consumption function, investment function, inflation and deflation, monetary and fiscal policy.
MACRO ECONOMICS
• Introduction • National Income • Consumption Function • Investment Function • Inflation & Deflation • Trade Cycles • Monetary Policy • Fiscal Policy
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
K.E. Boulding said
That part of economics which studies overall averages and aggregates of the system is called Macro Economics.
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.
4
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.
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.
6
Terms used in MACROECONOMICS
• • • • • • • Macroeconomic Variables Economic Model Behavioural Equation Functional Relationship Dependent & Independent Variables Equilibrium Conditions Ex-ante and Ex-post
7
Macro-Economic Variables
• Stock & Flow 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
• Ratio Variables
– 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.
8
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
9
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.
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 „=„.
11
Equilibrium
• State of dynamic balance between two variables. • If attained would perpetuate itself, barring change in external forces. • Ex: Demand & Supply Equilibrium.
12
Ex-ante & Ex-post
• Ex-ante: Planned, anticipated, intended • Ex-Post: Realized, Actual • Ex: Estimated Expenditure is Ex-ante while actual expenditure in budget is Expost.
13
Price Indices
• Wholesale Price Index
– Shows the ratio of a group of commodities in current year in relation to their prices in a base year.
• Consumer Price Index
– WPI does not reflect the effect of price changes on the cost of living of different sections of a country. – CPI are constructed for following purpose:
• To measure purchasing power of domestic currency. • To regulate DA of employees for the rise in prices. • To estimate real income. • To determine pay scales, wages, HRA etc. • To decide CCA etc (refer Reference material)
14
Definitions of National Income
• Marshallian Definition has limitation of double counting. • Pigouvian Concept excludes those product & services which are not paid. Ex: services of housewives. • Fisher?s concept is based on consumption side of net product which seldom consider buying and selling of old assets etc.
15
Definitions Cont?nd…
• Simon Kuznets: The net output of commodities & services flowing during the year from the country?s productive system in the hands of the ultimate consumers. • United Nations: Estimate National Income as net national product, as addition to the shares of different factors, and as net national expenditure in a country in a year?s time.
16
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 excluding depreciation and net indirect taxes”.
17
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)
18
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
19
National Income Determination
• Determination is done using three methods.
– 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.
20
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 Depreciation.
and
deduct
NIT
&
21
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.
22
Expenditure Method
• Personal Consumption Expenditure • Gross Domestic Private Investment • Government Expenditure on Goods & Services • Net Foreign Investment • Add each one of the above.
23
Nominal & Real GDP
• GDP at current prices is Nominal GDP. • GDP at constant prices (comparison of GDP at current price to the base year?s price) is Real GDP.
– Real GDP = GDP Current year *Base Year (=100)/Current year Index
24
GDP Deflator
• It is an index of price changes of goods and services included in GDP. • It is price index which is calculated by dividing the nominal GDP in a given year by the real GDP for the same year and multiplied by 100.
25
Private Income
• Private income = National Income + Transfer Payments + Interest on Public debt - Social Security - Profits and surpluses of Public Undertakings
26
Personal Income
• Private Income – Undistributed Corporate Profits – Profit Taxes
27
Disposable Income
• Personal Income – Direct Taxes • Disposable Income = Consumption Expenditure + Savings
28
Real Income & Per Capita Income
• Real NNPFC = NNPFC at Current year * Base Year (=100)/Current Year Index • Per Capita Income for 2001 = National Income for 2001/Population in 2001 • Similarly Real Per capita Income is calculated. Next is Consumption & Investment Function
29
doc_961452832.pptx
about macroeconomics in nutshell explaining concepts of national income, consumption function, investment function, inflation and deflation, monetary and fiscal policy.
MACRO ECONOMICS
• Introduction • National Income • Consumption Function • Investment Function • Inflation & Deflation • Trade Cycles • Monetary Policy • Fiscal Policy
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
K.E. Boulding said
That part of economics which studies overall averages and aggregates of the system is called Macro Economics.
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.
4
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.
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.
6
Terms used in MACROECONOMICS
• • • • • • • Macroeconomic Variables Economic Model Behavioural Equation Functional Relationship Dependent & Independent Variables Equilibrium Conditions Ex-ante and Ex-post
7
Macro-Economic Variables
• Stock & Flow 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
• Ratio Variables
– 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.
8
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
9
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.
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 „=„.
11
Equilibrium
• State of dynamic balance between two variables. • If attained would perpetuate itself, barring change in external forces. • Ex: Demand & Supply Equilibrium.
12
Ex-ante & Ex-post
• Ex-ante: Planned, anticipated, intended • Ex-Post: Realized, Actual • Ex: Estimated Expenditure is Ex-ante while actual expenditure in budget is Expost.
13
Price Indices
• Wholesale Price Index
– Shows the ratio of a group of commodities in current year in relation to their prices in a base year.
• Consumer Price Index
– WPI does not reflect the effect of price changes on the cost of living of different sections of a country. – CPI are constructed for following purpose:
• To measure purchasing power of domestic currency. • To regulate DA of employees for the rise in prices. • To estimate real income. • To determine pay scales, wages, HRA etc. • To decide CCA etc (refer Reference material)
14
Definitions of National Income
• Marshallian Definition has limitation of double counting. • Pigouvian Concept excludes those product & services which are not paid. Ex: services of housewives. • Fisher?s concept is based on consumption side of net product which seldom consider buying and selling of old assets etc.
15
Definitions Cont?nd…
• Simon Kuznets: The net output of commodities & services flowing during the year from the country?s productive system in the hands of the ultimate consumers. • United Nations: Estimate National Income as net national product, as addition to the shares of different factors, and as net national expenditure in a country in a year?s time.
16
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 excluding depreciation and net indirect taxes”.
17
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)
18
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
19
National Income Determination
• Determination is done using three methods.
– 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.
20
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 Depreciation.
and
deduct
NIT
&
21
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.
22
Expenditure Method
• Personal Consumption Expenditure • Gross Domestic Private Investment • Government Expenditure on Goods & Services • Net Foreign Investment • Add each one of the above.
23
Nominal & Real GDP
• GDP at current prices is Nominal GDP. • GDP at constant prices (comparison of GDP at current price to the base year?s price) is Real GDP.
– Real GDP = GDP Current year *Base Year (=100)/Current year Index
24
GDP Deflator
• It is an index of price changes of goods and services included in GDP. • It is price index which is calculated by dividing the nominal GDP in a given year by the real GDP for the same year and multiplied by 100.
25
Private Income
• Private income = National Income + Transfer Payments + Interest on Public debt - Social Security - Profits and surpluses of Public Undertakings
26
Personal Income
• Private Income – Undistributed Corporate Profits – Profit Taxes
27
Disposable Income
• Personal Income – Direct Taxes • Disposable Income = Consumption Expenditure + Savings
28
Real Income & Per Capita Income
• Real NNPFC = NNPFC at Current year * Base Year (=100)/Current Year Index • Per Capita Income for 2001 = National Income for 2001/Population in 2001 • Similarly Real Per capita Income is calculated. Next is Consumption & Investment Function
29
doc_961452832.pptx