Macroeconomics
Macroeconomics BasicsByCurrenc-I, The Economics and
International Business Affairs club of IIM Indore
Anubha| Mohit |Pratik |Yashvardhan |
Key Economic Parameters
1. GDPGDP = C+I+G+NXValue of all final goods and services
produced in the country within a given period C Consumption
spending ( ~60%) I Investment spending by businesses and households
(~20%) G Govt purchase of goods and services (~10%) NX Foreign
demand for Net Exports (~10%)Current India GDP: $1.85 Trillion US
dollars
GNP = GDP + Receipts from abroad made as factor payments to
domestically owned factors of production or GDP + Inflows of factor
earnings from abroad (Salaries, Dividends, Interests on loans)
Outflows of factor payments abroad (Salaries, dividends , Interest
from foreign operations in India)GNP is monetary value of final
goods and services produced by domestically owned factors of
productionCurrent India GNP: $4.49 Trillion PPP dollars
NDP = GDP DepreciationNet amount of goods produced in the
country in a given period ORIt is the total value of production
minus the value of the amount of capital used up in producing that
output
NDP factor cost = NDP IBT + SubsidiesIt is the factor income
generated in the process of production from economic activities
within the countryIBT = Indirect business taxes like excise duty,
VAT etc.Subsidies = They generate factor income as they are used to
offset payments to wages, rents etc.
National Income (NI) = NDP factor cost + Net factor earnings
from abroadIt is the income earned by domestically owned factors of
production
Measuring GDPFinal goods GDP is taken as the value of final
goods and services produced to avoid double count Value addedAt
each stage of the manufacture of a good, only the value added to
the good at that stage is considered for GDPEg: Value of bread =
value of wheat produced by farmer + (Value of flour sold by miller
value of wheat ) + (Value of bread sold Value of flour used)Current
OutputGDP consists of value of output currently producedImp
Points:Construction of new houses is a part of GDPTrading of
existing houses is not a part of GDPValue of realtors fees in the
sale of existing houses is included in GDP
2. Inflation and Price IndicesNominal GDPis GDP evaluated at
current market prices. Therefore, nominal GDP will include all of
the changes in market prices that have occurred during the current
year due toinflationordeflation.
Real GDP is GDP evaluated at themarket prices of some base year.
For example, if 1990 were chosen as thebase year, then real GDP for
1995 is calculated by taking the quantities of all goods and
services purchased in 1995 and multiplying them by their 1990
prices.
Inflation is defined as a rise in the overall price level, and
deflation is defined as a fall in the overall price level.
GDP deflator. Using the statistics on real GDP and nominal GDP,
one can calculate an implicitindex of the price levelfor the
year.
Budget Basics and Policy toolsRevenue Deficit: Revenue Expd
Revenue ReceiptsFiscal Deficit: Total Expd ( Revenue Receipts+
Recovery of loans + Receipts from PSU disinvestment)Primary
deficit: Fiscal Deficit- Interest Payments
Government and RBI uses various tools to influence the growth of
the economyMonetary policy (RBI)Control money supplyControl
interest ratesFiscal policyManage the government revenueManage
government expenditure
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