Jap Session

7/31/2019 Jap Session

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CONCEPT OF ECONOMY Broadly, the concept of Economy helps one

understand the prevailing status as regards:

q GDP / GNP /NNP / National Incomeq Per Capita Income

q Contribution of each sector to theEconomy / GDP

q State of economic development(developing / developed)

q R & D and State of Technology

q Productivity


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CONCEPT OF ECONOMY q Role of Private / Public Sector

q Savings and Investment

q Capital Formation

q Income distribution & poverty

qInfrastructure

Physical Infrastructure

Soft / Institutional Infrastructure


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CONCEPT OF ECONOMY Q Share in Global Trade & BoT/BoP

q Imports / Exports

(Primary / Industrial / Capital Goods) q Foreign Exchange Reserves

Q Strength of National Currency inInternational Markets

q Population Growth & Urbanisation q Human Capital

q Employment / Unemployment levels

and Occupational Structure


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ECONOMIC POLICY

The Economic Policy

broadly consists of :

Fiscal Policy

Monetary Policy


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FISCAL POLICY The Fiscal Policy manifests itself in the

form of Budget and Budgetary

Provisions presented by the NationalGovernment and can be said to be theeconomic expression of the

governments political philosophy.


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FISCAL POLICY It encompasses areas such as

government income / expenditure,

budget deficit, public debt /borrowings,subsidies / grants, tax structure,balance of trade / payment, social

sector priorities / activities, role ofgovernment ( command / market-driven), foreign investments etc.


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MONETARY POLICY Monetary Policy, also described as

money and credit policy, concerns itself

with the supply of money as also ofcredit to the economy. The monetarypolicy is devised / designed by thecentral banking authority and pertains

to such matters as money supply,interest rates, bank rate, cash reserveratio, capital adequacy, inflation etc.


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ECONOMIC GOALS:

Efficiency & Effectiveness(Technological & Allocative)

Growth

Price Stability

Competitiveness

Low rate of unemployment

Equitable distribution of income


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MACRO ECONOMIC CONCEPTS: The concepts of Gross Domestic

Product (GDP), Gross National Product

(GNP), Net Domestic Product (NDP),Net National Product (NNP) andNational Income mirror the macro flows

of goods and services and the economicstructure of the economy, during aspecific time period, normally a year.


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WHAT IS DOMESTIC PRODUCT?Domestic Product = Personal Consumption

Expenditure (C)

PLUS Domestic Investment (I)PLUS Government Expenditures for

current goods and services (G)

PLUS Exports of goods and services (X)

MINUS Imports of goods and services (M)Therefore, in symbols,

DP = C + I + G + X M


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Gross National Product

The Gross National Product comprisesof the (money) value of GDP plus

factor-income accruing to residentsfrom abroad, less the income earned inthe domestic economy accruing topersons abroad. In other words, GNP

measures the total domestic andforeign output claimed by residents /nationals of a country.


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NDP / NNP NDP

Net Domestic Product is the GDP minusdepreciation ( reduction in the value ofassets through wear and tear).

NNP

Net National Product is GNP minusdepreciation.


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NATIONAL INCOME

NNP, when calculated at factor cost, iscalled National Income.

National Income, in a way, is the sumof all income derived from supplying the

factors of production. It includes wagesand salaries, rents, interest and profits.


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NATIONAL INCOME NATIONAL INCOME IS A MEASURE OF

TOTAL OUTPUT OF COMMODITIES

AND SERVICES DURING A GIVENPERIOD WITHOUT DUPLICATION


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NATIONAL INCOME IN INDIA, NATIONAL INCOME IS

DEFINED AS TOTALITY OF

PRODUCTION , BOTH MATERIAL ANDNON-MATERIAL.

IN INDIA, THE CSO COMPILES DATA

AS REGARDS NATIONAL INCOME


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NATIONAL INCOME CSO CLASSIFIES INDIAN ECONOMY INTO

SIX BROAD SECTORS:

1. PRIMARY SECTOR2. SECONDARY SECTOR

3. TRANSPORT/COMMUNICATIONS/TRADE

4. FINANCE & REAL ESTATE5. COMMUNITY & PERSONAL SERVICES

6. FOREIGN SECTOR


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NATIONAL INCOME

1.PRIMARY SECTOR CONSISTS OF:

AGRICULTURE

FORESTRY & LOGGING

FISHING MINING & QUARRYING


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NATIONAL INCOME2. SECONDARY SECTOR CONSISTS OF:

q MANUFACTURING (REGD./UNREGD.)

q CONSTRUCTION

q

SUPPLY OF ELECTRICITY, GAS, WATER


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NATIONAL INCOME3.TRANSPORT / COMMUNICATION /

TRADE SECTOR CONSISTS OF:

TRANSPORT

COMMUNICATION

STORAGE

RAILWAYS

TRADES, HOTELS & RESTAURANTS


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NATIONAL INCOME4. FINANCE & REAL ESTATE SECTOR

CONSISTS OF:

BANKING

INSURANCE

BUSINESS SERVICES

REAL ESTATE


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NATIONAL INCOME5. COMMUNITY & PERSONAL SERVICES

SECTOR CONSIST OF:

q PUBLIC ADMINISTRATIONq DEFENCE

q OTHER SERVICES

6. THE FOREIGN SECTOR COVERS THEACTIVITIES RELATED WITH FOREIGNSECTOR


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NATIONAL INCOME THE COMBINED GROSS OUTPUT IN

THE SECTORS 1 TO 5 (viz. PRIMARY

SECTOR , SECONDARY SECTOR,TRANSPORT / COMMUNICATION /TRADE , FINANCE & REAL ESTATE,

COMMUNITY & PESONAL SERVICES)IS CALLED THE GROSS DOMESTIC

PRODUCT AT FACTOR COST


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NATIONAL INCOME THE GROSS NATIONAL PRODUCT

IS ARRIVED

BY ADDING

THE NET FACTOR INCOME FROMABROAD

TO

GDP AT FACTOR COST


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NATIONAL INCOME MEASUREMENT NATIONAL INCOME COULD BE

MEASURED BY THREE METHODS

AS FOLLOWS:

THE INCOME APPROACH

THE EXPENDITURE APPROACH

THE OUTPUT APPROACH


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INCOME APPROACHACCORDING TO THIS APPROACH,

TOTAL OUTPUT COULD BE LOOKED

INTO / AT IN TERMS OF THE INCOMESGENERATED IN THE PROCESS OFPRODUCING OUTPUT LIKEWAGES,

SALARIES, GROSS TRADING PROFITS,INCOME OF SELF-EMPLOYED, RENT,CAPITAL CONSUMPTION (DEPRECIATION)


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EXPENDITURE METHOD UNDER THIS APPROACH,

THE NATIONS TOTAL OUTPUT IS

ARRIVED AT BY ADDING UP THEEXPENDITURE OR OUTLAYS NEEDEDTO PURCHASE ALL OF THE FINALOUTPUT OF THE ECONOMY

( GOVT. EXPENDITURE / INVESTMENT/ CONSUMPTION etc.)


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OUTUT APPROACH IT INCLUDES:

AGRICULTURE, FISHING & FORESTRY

ENERGY, WATER, CONSTRUCTION

MANUFACTURING, TRANSPORT

COMMUNICATION, FIN. SERVICES DISTRIBUTION, HEALTH, EDUCATION

GOVT., DEFENCE, OTHER SERVICES


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NATIONAL INCOMEWE MUST REMEMBER THAT IN ALL THREE

APPROACHES, THE TOTAL VALUE OF

NATIONAL OUTPUT AT MARKET PRICESIS SAME

HENCE :O =Y = E, WHERE,

O= AGGREGATE OUTPUT

Y= INCOME GENERATED BYO

E= EXP. INCURRED TO PURCHASE O


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NATIONAL INCOME NATIONAL INCOME DATA IS USED

FOR:

ECONOMIC PLANNING REGULATION OF ECONOMY

COMPARING PER CAPITA / STANDARD

OF LIVING (OWN / OTHERS) MEASURING NATIONAL ECONOMIC

GROWTH


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DIFFICULTIES IN ESTIMATIONG

NATIONAL INCOMECONCEPTUAL PROBLEMS:

WHETHER SERVICES SHOULD BE

INCLUDED IN NATIONAL INCOME ORNOT

WHAT ABOUT ADMINISTRATIVE

SERVICES TO PRODUCERS AAAANDCONSUMERS?


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DIFFICULTIES IN ESTIMATING

NATIONAL INCOME PRACTICAL PROBLEMS:

PRESENCE OF LARGE NON-MONETISED

SECTOR LACK OF APPROPRIATE & RELIABLE DATA

UNREPORTED ILLEGAL INCOME

REGIONAL DISPARITIES DIFFICULTIES IN CLASSIFICATION OF

WORKING POPULATION


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Per Capita Income

Per Capita Income refers to average percapita income of a country. The Per Capita

Income is arrived at by dividing the NationalIncome of a country by its population.

An increase in the Per Capita Incomeindicates a rise in the availability of goods

and services and for this reason is often usedas an index of welfare of the people.


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INFLATION:

During the late 1970s and the second half of1980s, inflation became a major problem.

However, more often than not, inflation ismisunderstood as price rise alone. It istherefore important to distinguish between arise in the average level of prices (inflation)and a change in relative / temporary prices.

Inflation is an increase in the average level ofprices.

Deflation is a fall in the average price level .


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TYPES OF INFLATION Inflation could be

Creeping Inflation,

Galloping Inflation, or

Hyper Inflation.

It could also be attributed to Push Factors or

Pull Factors.


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WHAT IS INFLATION?INFLATION OCCURS WHEN THE

GENERAL LEVEL OF PRICES AND

COSTS IS RISING RISING PRICESFOR BREAD, GASOLINE, CARS; RISINGWAGES, LAND PRICES, RENTALS ON

CAPITAL GOODSPROF. PAUL SAMUELSON


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WHAT IS INFLATION?

INFLATION IS A PROCESS OF STEADY

AND SUSTAINED RISE IN PRICES

PROF. MILTON FRIEDMAN


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IMPACT OF INFLATION While there is considerable controversy about

whether any inflationary pressures should beallowed to be built / developed in aneconomy,

there seems to be a general consensus that amoderate rate of inflation may actually begood for the economy as it is felt that asmaller rate of inflation makes it easier forthe economy to adjust to changes and tomaintain a high level of employment.


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IMPACT OF INFLATIONq # Inter-sectoral terms of the trade

adversely affect the poor.

# Balance of payments go into deficit.# Consumption levels of the poor arereduced and the conditions of the poordeteriorates.

# Inequalities in income rise# Development of the economy gets a set-back as Investment & Savings suffer.


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BUSINESS CYCLE BUSINESS / TRADE CYCLES, BOOMS &

SLUMPS ARE TYPICAL OF A MARKET

ECONOMY THEY INFLUENCE BUSINESS

DECISIONS & ALSO AFFECT THEFUTURE BUSINESS GROWTH / TRENDS

BUSINESS CYCLE, THEREFORE, ISBOTH A THREAT & AN OPPORTUNITY


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BUSINESS CYCLE IT IS A FLUCTUATION IN AGGREGATE

ECONOMIC ACTIVITY

IT IS AN ALTERATION OF PERIODS OFPROSPERITY & DEPRESSION, OF GOODTRADE & BAD TRADE

IT IS COMPOSED OF PERIODS OF GOOD

TRADE CHARACTERISED BY RISING PRICES& LOW UNEMPLOYMENT, ALTERING WITHPERIODS OF BAD TRADE CHARACTERISEDBY FALLING PRICES & HIGHUNEMPLOYMENT PERCENTAGES


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BUSINESS CYCLE : FEATURES A TRADE CYCLE IS WAVE-LIKE MOVEMENT

CYCLICAL FLUCTUATIONS ARE RECURRENT

IN NATURE EXPANSION & CONTRACTION IN A TRADE

CYCLE HAVE CUMULATIVE EFFECT

TRADE CYCLES ARE ALL-PERVADING INTHEIR IMPACT


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BUSINESS CYCLE : FEATURES A TRADE CYCLE IS CHARACTERISED BY

PRESENCE OF CRISIS I.e. PEAK & TROUGH

ARE NOT SYMMETRICAL & DOWNWARDMOVEMENT IS MORE SUDDEN / VIOLENT

THOUGH TRADE CYCLES DIFFER IN TIMING& AMPLITUDE,THEY HAVE A COMMON

PATTERN OF PHASES WHICH ARESEQUENCIAL IN NATURE


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BUSINESS CYCLE: PHASES EXPANSION

PEAK

RECESSION

TROUGH

RECOVERY & EXPANSION


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EXPANSION RISING NATIONAL OUTPUT

RISE IN CONSUMER / CAPITAL

EXPENDITURE

RISE IN EMPLOYMENT LEVELS

EXPANSION IN BANK CREDIT


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PEAK / BOOM INPUTS START FALLING SHORT OF

DEMAND

WAGE RATES RISE, LABOUR MARKETBECOMING SELLERS MARKET

INPUT PRICES (ALL INPUTS) INCREASE

PRICES INCREASE & OVERTAKE THEINCREASE IN HOUSEHOLD INCOME

CAPITAL GOODS DEMAND SLACKENS


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RECESSION / DEPRESSION INCREASE IN DEMAND HALTED

DISCREPANCY/ INEQUILIBRIUM

STARTS CREEPING IN DUE TO HIGHOUTPUT / SUPPLY & STAGNATING /DECLINING DEMAND

STARTS FROM FEW INDUSTRIES ,MOVING THROUGH THE ECONOMY

DECLINE IN INCOME EVIDENT


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TROUGH SLIDE DOWN IN ECONOMICACTIVITIES

LEVEL OF NATIONAL INCOME &EXPENDITURE DECLINES RAPIDLY

STEADY DECLINE IN EMPLOYMENT

DECLINE IN DEMAND FOR CAPITAL /CONSUMER GOODS

LIQUIDITY /PROFITABILITY PROBLEMS


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RECOVERY & EXPANSION RENOVATION / MODERNISATION STARTS

WITH INVESTMENTS SLOWLY COMING IN

(CAPITAL / CONSUMER GOODS)


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PRESENTATION

Documents

Jap Session