2. Introduction to Macroeconomics
• Macroeconomics is that branch of economics,
which studies the aggregate behavior of
economic system
• Macroeconomics deals with the analysis of
economic factors on the national level
• Macroeconomics determines the level of total
economic activity in any nation
3. Introduction to Macroeconomics
Contd…
• Macroeconomics deals and explains about
• National Income
• Employment
• Output
• Causes of rise in general price level
• Inflation Rate
• Economic growth
• Investments
• Savings
• Consumption
• Causes of business cycles
• Balance of payment
• Exchange Rate
4. OBJECTIVES OF ECONOMIC POLICIES
• Achieve national level full employment
• Stabilize price fluctuations
• Achieve overall economic growth
• Develop regions equitably
• Improve standards of living of people
• Reduce income inequalities
• Control monopoly market structure
• Avoid cyclical fluctuations in various economic
activities
• Improve balance of payments
• Bring social justice
5. NATIONAL INCOME
• Purpose of National Income accounting
• To obtain some measure of the performance of the
aggregate economy
• MAJOR CONCEPTS USED IN THE NATIONAL INCOME
CALUCULATIONS
• Gross Domestic Product (GDP)
• Gross National Product (GNP)
• Net National Product (NNP)
• Personal Income (PI)
• Disposable Income (DI)
6. GROSS DOMESTIC PRODUCT
• GDP is the total market value of a nation’s output
• It measures the market value of annual output of
goods and services currently produced and counted
only once to avoid double counting
• Goods and services produced within the domestic
territory of a country by nationals and non nationals
• Non production transactions such as purely financial
transactions and second hand sales must be excluded
• Purely financial transactions include transfer payments
and stock market transactions
7. GROSS NATIONAL PRODUCT
• GNP is the market value of all final goods and
services produced in a year.
• GNP includes net factor income from abroad
• GNP = GDP + Net factor income from abroad
(Income received by Indians abroad – Income
paid to foreign nationals working in India)
8. NET NATIONAL PRODUCT
• NNP at market price is the vale of all final
goods and services after providing for
depreciation
• NNP = GNP – Depreciation
9. PERSONAL INCOME
• PI is the sum of all incomes earned by all
individuals/households during a given year
• Certain incomes are received but not earned
such as old age pension, etc.
10. DISPOSAL INCOME
• Disposal income is calculated by deducting the
personal taxes like income tax, personal
property tax from PI
• DI = PI – Personal taxes
= Consumption + Saving
12. INCOME APPROACH
• NI = Income of individuals +
Self employed persons +
Profits of firms and public corporate
bodies +
Rent +
Interest
• NOTE: Transfer payments, scholarships, pensions
are not included)
13. EXPENDITURE APPROACH
• NI is calculated by using the expenditure of
individuals, private, government and foreign
sectors i.e. the sum of all the expenditure
made on goods and services during a year
• NI = Expenditure of individuals +
Expenditure of Government +
Expenditure of private firms +
Expenditure of foreigners
14. OUTPUT APPROACH
• Value of output produced by firms and other
organizations in a particular time period is measured
• NI = Income from agriculture +
Fishery +
Forestry +
Construction +
Transportation +
Manufacturing +
Tourism +
Water +
Energy …
15. FACORS DETERMINING NTIONAL
INCOME
• Quantity of goods and services produced by
the country
• Quality of products and services produced in
the country
• Innovation of more technical skills will
improve the productivity
• Political stability
16. DIFFICULTIES IN THE CALCULATION OF
NATIONAL INCOME
• Any income earned abroad has to be included
• To avoid double counting, value added method should
be considered
• Services rendered free of charge are not to be included
• Capital gains, transfer payments are not to be included
• Changes in price level will also affect the calculation
• Value of military services will not be taken into
consideration
17. PROBLEMS IN MEASURING NATIONAL
INCOME IN INDIA
• Non monetized sector: In a number of sectors, wages and
salaries are provided in kind and not in monetary terms
• Illiteracy: Results may be biased
• Lack of occupational specification: Difficulty in classifying
the nature of the job existing in India
• Unorganized productive activities: They are not fully
covered in the calculation of NI
• Lack of adequate statistical data: Leads to approximation
of calculation
• Self consumption: Not considered for NI calculation
• Unpaid services: Services of housewives not reckoned
18. USES OF NATIONAL INCOME
ESTIMATES
• Is a measure of economic growth
• Is an indicator of success or failure of planning
• Useful in estimating per capital income
• Useful in assessing performance of difference production
sectors
• Useful in measuring inequalities in the distribution of
income
• Useful in measuring standard of living
• Useful in revealing the consumption behavior of the society
• Useful in measuring the level and pattern of investment
• Makes international comparisons possible
19. DIFFICULTIES OF COMPARING NATIONAL
INCOME OF DIFFERENT COUNTRIES
Difficult because of differences in
• Population size
• Working hours
• Currency values
• Consumption patterns
• Cultural differences
• Inflationary pressures
• Despite all difficulties, GDP is the major economic
indicator of an economy
20. ECONOMIC INDICATORS
• Economic growth in India
• Inflation
• Food inflation
• Tightening of monetary policy by RBI
• Weak manufacturing activity
21. ECONOMIC INDICATORS
Contd…
• Rising costs
• Less revenue to government
• Higher than budgeted expenditure
• Adverse global economic environment
• Turmoil in Euro Zone
• Outlook of US economy
• Views of Rating Agencies
22. ECONOMIC INDICATORS
Contd…
Sectoral comparison of GDP in India
YEAR AGRI INDUSTRY SERVICES
1950-51 53.1 16.6 30.3
2011-12 E 13.9 27.0 59.0
23. ECONOMIC INDICATORS
Contd…
Growth in GDP
1980 2010
(At current prices)
Advanced economies 76.2% 65.8%
India 1.7% 2.6%
(on PPP basis)
Advanced economies 69.0% 52.1%
India 2.5% 5.5%
