economic perspectives-module 2
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8/10/2019 Economic Perspectives-Module 2
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Macro economic variables/ parameters/Economic indicators of Business
GDP
INFLATION
INTERESTRATES
EXCHANGERATE
MONEYSUPPLY
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National Income 4 versions
1. Gross Domestic Product (GDP)
2. Gross National Product (GNP)
3. Net Domestic Product (NDP)
4. Net National Product (NNP)
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GDP Measures : GDP according to sector
(agriculture, mining, manufacturing andservice industries)
Significance : provides analysis of total outputat a high level of detail
Presented as : quarterly and annual totals
Focus on : real growth rate GDP is one of the most basic and important
indicators of the overall heath of an economy
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Real GDP
Real GDP is physical quantity of goods andservices produced. Since this physicalaggregate is highly heterogeneous involvingdifferent units of measurement, it ismeasuring only by production or quantityindex numbers. i.e. expressed in base-year
prices Total economic activity in constant
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GDP Deflator GDP deflator is a price index number which
can be applied to nominal GDP figure toremove the effect of changes In the price
level. GDP Deflator, measures the contribution to
GDP on account of increases in prices
GDP Deflator= Nominal GDP/Real GDP GDP at current prices in the current year /
GDP at constant price in the current year
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Analysis of Sectors/Sectoral shares
Sectoral share is the contribution of each sectortowards GDP. Agricultural sector Industrial sector Service sector
Infrastructural sector.
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AGRICULTURAL OUTPUT
It is defined as consisting of those productswhich are not consumed in further processingwithin agriculture but are available forconsumption elsewhere.
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Role of Agricultural sector Contribution to National Income Major source of living Important for industrial development Important to Foreign trade Major source of employment Contribution to economic development.
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ELECTRICITY GENERATION
Production of bulk electric power forindustrial, residential, and rural use.
Public Sector Undertakings. NTPC NHPC
NPCI Cost of Business firm.
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Inflation
YEARINTERESTRATE
RATE OFINFLATION
MEASURESOF RBI
MEASURES OFGOVERNMENT
2011-June
8% -April 8.87%
2012-Nov
8.5%-oct
7.24%
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Inflation Rate in India
MPBIM-BUSINESS PERSPECTIVES,VIJAYALAKSHMI.S
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Causes of Inflation Demand Pull Inflation Increase in money supply Increase in disposable
income Increase in consumer
spending Cheap monetary policy Deficit financing Expansion of service sector Black money Increase in exports
Cost Pull inflation Shortage of factors of
production Industrial dispute Natural calamities Artificial scarcities Increase in exports Law of diminishing returns International factors
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Measures to control Inflation Monetary Control : Credit control Demonetization of currency Issue of new currency
Fiscal Measures Reduction in unnecessary expenditure Increase in Taxes Increase in savings Surplus budget
Other Measures To increase production Price control Rationing
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Deflation
Decrease in price level Increase in the valueof money is called Deflation
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Supply of Money
The supply of money means the total amountof money in circulation in an economy.
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Money
--Coins
-Currency deposits
-Demand Deposits
Near Money
Time deposits and savings banksdeposits of commercial banks
Bills of exchange
Treasury bills
Savings bonds and certificate
Deposits of housing societies
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Money supply
Measures : notes, coins and various bankdeposits
Significance : indicator of level of transactionsand perhaps, inflation or GDP. Crucialparameter to ensure price stability andeconomic growth
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The Reserve Bank of India defines the monetaryaggregates as:
M1 : Narrow Money : Currency with the public +Deposit money of the public (Demand deposits withthe banking system + 'Other' deposits with the RBI).
M2 : Transaction Money : M1 + Savings deposits withPost office savings banks.
M3: Broad Money: M1+ Time deposits with thebanking system = Net bank credit to the Government +Bank credit to the commercial sector + Net foreignexchange assets of the banking sector + Government's
currency liabilities to the public - Net non-monetaryliabilities of the banking sector (Other than TimeDeposits).
M4 : M3 + All deposits with post office savings banks(excluding National Savings Certificates).
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Balance sheet of central bank
Liabilities Assets
Monetary Liabilities Monetary assets
1. Currency
2. Reserves (no account of reserveratio )
3. Other reserves
1.Credit
-Government-Banks-Commercial Institutions
Non Monetary LiabilitiesShare capitalGeneral Reserves
Non Monetary Assets2.Reserves-Forex-Gold
3. Physical assets-land
-Buildings 24
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CRR: Cash reserve Ratio- under the monetarycredit policy of 2001-02 of the RBI,commercial banks are required to maintain 6%
of their deposits with RBI SLR: statutory Liquidity Ratio : SLR prescribes
certain percentage of deposits which thebanks have to maintain in the form of cashand permitted assets and securities andinvestments
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Foreign Trade
The size of the foreign trade is importantindicator of the macro economic environment,particularly in relation to internationalbusiness
Foreign trade balance is the key indicator ofthe contributions of the trade towards
national income foreign exchange reserves
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Highlights on Foreign Trade
Trade deficit during Q1 of 2012-13 stoodlower at US$ 40.1 billion as compared withUS$ 46.2 billion during Q1 of 2011-12.
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Special Drawing Rights- An international type of monetary reserve
currency, created by the International MonetaryFund (IMF) in 1969, which operates as asupplement to the existing reserves of membercountries. Created in response to concerns aboutthe limitations of gold and dollars as the solemeans of settling international accounts, SDRsare designed to augment international liquidity
by supplementing the standard reservecurrencies.
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SDR: Special Drawing Rights- are theinternational reserve asset created by IMFwhich are also widely used as internationalunit of account in international officialtransaction. These are convertible in toleading currencies of the world and are
universally accepted
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Exchange Rate
The rate at which domestic currency getsexchanged for foreign currency is calledexchange rate.
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Economic infrastructure
1.TransportationRoad TransportationRail TransportationSea TransportationAir Transportation
2.CommunicationTelephoneMobile Phone
3.Energy4.Electricity
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Social Indicators
Economic growth without humandevelopment is of very little use
Social development includes Education,Training, Health care, Sanitation, Familywelfare, Water supply, social security, etc.
UN brings out HDI for various countries
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