Macroeconomic basic concepts like Inflation, BOP, Monetary policy, Fiscal Policy and Exchange rate. Remade this presentation for the Macroeconomics class in Prezi which looks better, but this ones fine too.

1. A Few Macroeconomic Concepts
MACROECONOMIC MIXEDBAG
TV,SHREEHARSHA

2. Introduction
 Macroeconomics is a branch of economics dealing
with the performance, structure, behavior, and
decision-making of an economy as a whole, rather
than individual markets. This includes national,
regional, and global economies
 This Presentation covers the topics of Monetary and
Fiscal Policy, Inflation, BOP, and Exchange rate.
 The objective of this presentation is to understand
the basics without getting into details and
complications.
TVS, New Delhi
11/26/2013

3. Monetary Policy
 Monetary policy is the process by which the
monetary authority of a country controls the
supply of money, often targeting a rate of
interest for the purpose of promoting
economic growth and stability.
 Monetary authority is the central bank of a
country; RBI is the central bank in India.
 Monetary Policy can be Expansionary or
Contractionary based on the rate with which
it increases the supply of Money.
TVS, New Delhi
11/26/2013

4. Types of Monetary Policies
Monetary Policy
Target Market Variable
Interest rate on overnight
Inflation Targeting debt
Interest rate on overnight
Price Level Targeting debt
Monetary
The growth in money
Aggregates
supply
The spot price of the
Fixed Exchange Rate currency
Gold Standard
The spot price of gold
Mixed Policy
Usually interest rates
Long Term Objective
A given rate of change in
the CPI
A specific CPI number
A given rate of change in
the CPI
The spot price of the
currency
Low inflation as measured
by the gold price
Usually unemployment +
CPI change
TVS, New Delhi
11/26/2013

5. Tools Of Indian Monetary Policy
 Open Market Operations
 Statutory Liquidity Ratio
 Cash Reserve Ration
 Repo Rate and Reverse Repo Rate
 Bank Rate
TVS, New Delhi
11/26/2013

6. Fiscal Policy
 Fiscal Policy is the use of government revenue
collection and expenditure to influence the
economy.
 The Ministry of Finance formulates the Fiscal
Policy in India.
 Stances of Fiscal Policy
 Neutral fiscal policy
 Expansionary fiscal policy
 Contractionary fiscal policy
TVS, New Delhi
11/26/2013

7. Effects Of Fiscal Policy
 Governments use fiscal policy to influence
the level of aggregate demand in the
economy.
 A Fiscal Deficit is created when the
government benefits received by Public
exceed the taxes paid.
 Keynesian economics suggests that
increasing government spending and
decreasing tax rates are the best ways to
stimulate aggregate demand.
TVS, New Delhi
11/26/2013

8. Monetary Policy Vs Fiscal Policy
Monetary Policy
Fiscal Policy
Fiscal policy is the use of government
expenditure and revenue collection to
influence the economy.
Monetary policy is the process by
which the monetary authority of a
country controls the supply of money
Manipulating the level of aggregate
demand in the economy to achieve
economic objectives of price stability,
full employment, and economic
growth.
Manipulating the supply of money to
influence outcomes like economic
growth, inflation, exchange rates with
other currencies and unemployment
Government is the Policymaker
Central Bank is the Policymaker
Tools : Taxes, Govt Expenditure
Tools: CRR,SLR; currency peg; discount
window; quantitative easing; open
market operations;
TVS, New Delhi
11/26/2013

9. Inflation
 Inflation is defined as a sustained increase in the
general level of prices for goods and services.
 There are several variations on inflation:
 Deflation is when the general level of prices is falling.
This is the opposite of inflation.
 Hyperinflation is unusually rapid inflation. In extreme
cases, this can lead to the breakdown of a nation's
monetary system.
 Stagflation is the combination of high unemployment
and economic stagnation with inflation.
TVS, New Delhi
11/26/2013

10. Causes of Inflation
 Demand-Pull Inflation - This theory can be
summarized as "too much money chasing too
few goods". In other words, if demand is growing
faster than supply, prices will increase. This
usually occurs in growing economies.
 Cost-Push Inflation - When companies' costs go
up, they need to increase prices to maintain their
profit margins. Increased costs can include
things such as wages, taxes, or increased costs of
imports.
TVS, New Delhi
11/26/2013

11. IllEffects of Inflation
 Creditors lose and Debtors gain if the lender
does not anticipate inflation correctly.
 Uncertainty about what will happen next makes
corporations and consumers less likely to spend.
This hurts economic output in the long run.
 People living off a fixed-income, such as retirees,
see a decline in their purchasing power and,
consequently, their standard of living.
 If the inflation rate is greater than that of other
countries, domestic products become less
competitive.
TVS, New Delhi
11/26/2013

12. Measuring and Fighting Inflation
 Consumer Price Index (CPI) - A measure of price
changes in consumer goods and services such as
gasoline, food, clothing and automobiles.
 Producer Price Indexes (PPI) - A family of indexes
that measure the average change over time in
selling prices by domestic producers of goods
and services.
 Inflation can be controlled by:
 Monetary Policy change
 Fiscal Policy Change
 Fixed Exchange Rates
TVS, New Delhi
11/26/2013

13. Exchange Rate
 Exchange rate between two currencies is the
rate at which one currency will be exchanged for
another.
 The buying rate is the rate at which money
dealers will buy foreign currency, and the selling
rate is the rate at which they will sell the
currency.
 The quotation EUR/USD 1.2500 means that 1
Euro is exchanged for 1.2500 US dollars. Here,
EUR is called the "base currency" or "unit
currency", while USD is called the "term
currency" or "price currency".
TVS, New Delhi
11/26/2013

14. Exchange Rate Regime
 An exchange-rate regime is the way an authority
manages its currency in relation to other
currencies and the foreign exchange market.
 Types:
 Floating exchange rate, where the market dictates
movements in the exchange rate.
 Pegged float, where a central bank keeps the rate
from deviating too far from a target band or value.
 fixed exchange rate, which ties the currency to
another currency.
TVS, New Delhi
11/26/2013

15. Balance Of Payments
 BoP is a statement that summarizes an economy’s



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transactions with the rest of the world for a specified time
period.
All trades conducted by both the private and public sectors
are accounted for in the BOP in order to determine how
much money is going in and out of a country.
If a country has received money, this is known as a credit,
and if a country has paid or given money, the transaction is
counted as a debit.
Theoretically, BOP should be zero, meaning credits and
debits should balance.
Thus, the BOP can tell the observer if a country has a deficit
or a surplus
TVS, New Delhi
11/26/2013

16. Divisions of BOP
 The current account is used to mark the inflow and outflow
of goods and services into a country. Earnings on
investments, both public and private, are also put into the
current account.
 The capital account is where all international capital
transfers are recorded. This refers to the acquisition or
disposal of non-financial assets and non-produced assets.
 In the financial account, international monetary flows
related to investment in business, real estate, bonds and
stocks are documented. Also included are governmentowned assets such as foreign reserves, gold, private assets
held abroad and direct foreign investment.
 The current account should be balanced against the
combined-capital and financial accounts;
TVS, New Delhi
11/26/2013

17. Conclusion
 Macroeconomics is a diverse field of study
with various concepts that are both
interrelated and independent.
 This presentation has dealt with a few
macroeconomic concepts without going into
depth.
 More information in the class or goto
www.investopedia.com
TVS, New Delhi
11/26/2013

18. Thank you
TVS, New Delhi
11/26/2013