notes of macro economics

Definition

EconomicsScientific study made to know how

peoples, Satisfy there unlimited Needs,

Wants. By utilizing there limited

“Scarce” (resources).

BRANCHES OF ECONOMICS

ECONOMICS

MICRO LEVEL MACRO LEVEL

Branch of economics in which weconcerned with the individual entitiesbehavior & decision (market, firm,household) and effect of these entitiesdecisions in an economic environment.

MICRO ECONOMICS

MACRO ECONOMICS

It deals with the over all performance of

economic system of a country, includes,

Short term fluctuation in out put.(employment, price level)

Long run trend in Living Standard.(Economic Growth)

Issues In Macro-Economics

To Understand, Economic Growth. Business cycle. International Trade. Un-Employment. Notional Income. General Prices Level.

Concept Of National Income

National IncomeSum total of all labor & property

incomethat earned in producing the national

output by the resident of a country in

oneaccounting period.

CONCEPTS OF NATIOANL INCOME

NATIONAL INCOME

GROSS DOMESTIC PRODUCT

GROSS NATIONAL PRODUCT

NET NATIONAL PRODUCT

NATIONAL INCOME AT FACTOR COST

PERSONAL INCOME

DISPOSABLE PERSONAL INCOME

Gross Domestic Product (GDP)Total sum of dollar values ($) of Consumption (C), gross investment (I), government purchases of goods & services (G) and net export (X-M) with in a nation during a given year.

GDP= C+I+G+(X-M)

Gross National Product (GNP)Total final output produced with inputs ownedby the residents of a country during a year.It includes difference between the incomeearned by the resident abroad and the incomeearned by foreigner called Net factor income.

Net factor incomeEarning from Abroad - Earning of foreigners.

GNP = GDP + Net Factor Income.

Net National Product (NNP)After deducting the net depreciation

allowancefrom GNP we get total out put producedannually by a country.Also calledNational income (N.I).National Domestic Product.

Mathematically,

N.I = GNP – Depreciation Allowance.

National Income At Factor CostThe amount earn/receive by the resident

of acountry in against of factors of

production so,the aggregate of all such earnings callednational income of a country.

Personal Income (P.I)It is the amount that actually earned bythe resident of the country in one year.It includes all of transfer of payments

butexcluding the charges from which anindividual is not concerned.

P.I = N.I + Transfer of Payments – [ Corporate retained earnings + Corporate taxes + Social security taxes]

Disposable Personal Income (DPI)The amount left in hand after paying thetaxes to government.

DPI =P.I – Personal Taxes.DPI = C (consumption) + S (savings).

Circular Flow of National Income

House hold Business User

PRINCIPLE

Seller receives the same amount that spend by the buyer on a product.

Goods and services flows in one direction while money payments flow in other direction.

i- Two sectors of economy,Business firm & House Hold.

ii- Business firm is sole producer.iii- House hold is sole buyer.iv- No inventory Concept.v- No Saving & Investment.vi- No government interference.

Assumptions

Vii- The only source of income for house hold is to sale or rent the factors of production.

Viii- No any international Trade.

Methods To Measure N.I

a) Product Method.b) Income Method.c) Expenditure Method.

Product methodIn this method we measure thecontribution of each enterprise in the flowof goods & services in the economy.It includes agriculture, fishery, energy,forestry, mining etc.Also called Value Added Approach.

Precautionsi) Problem of double counting.ii) Value addition in particular year.iii) Stock Appreciation.iv) Measure the self consumption

products.

Income methodTotal payment made to the house

holdduring producing the final goods &services due to providing the factors

ofproduction.

Precautioni) Bouncing money, illegal money,

gifts, donations, not be estimated.ii) Amount of shares of previous

years not be included.

Expenditure MethodAll the expenditures made for the

finalgoods & services at current market

priceby house hold firm & Govt. during a

year.

Precautions Expenditures on second hand

items not be measured. Pension, interest on public debts

not be measured.

UN-EMPLOYMENT

The economic phase in whichPeoples like to do work at going wagesrate and they are unable to find a job.

J.M Keynes ViewWhen the current demand for goods isnot sufficient to absorb the available labor

indifferent occupations.

Full-EmploymentA person is working on going wages rate& going hours is called Employed or FullEmployment. Over EmploymentA person working at more going wages

rate & more working hours.

Under EmploymentA person working at less going wages

rate & less working hours.

TYPES OFUN-EMPLOYMENT

Seasonal Un-EmploymentUn employment takes place due to

seasonal changes in the Employment.Sugar mills etc.

How to rectify…..?By alternate plants system.

Frictional Un-EmploymentWhen a person leaves one job for an other jobthe vacant period between the job (less than 3weeks) is called frictional un-employment.

ImpactIts good for Economy.

Structural Un-EmploymentIt arises because of the presence of thefundamental miss-match of job and jobcandidates.

ExampleIntroduction of computer system in PublicFirms.

Cyclic Un-EmploymentWhen there is Recession phase in tradecycle cyclical un-employment is at peak.

How to Remove…..? Increase the Investment. Reduce Taxes.

MEASURE TO TACKLEUNEMPLOYMENT

a) Control over population.b) Training program.c) Encourage Small Scale Industries.d) Encourage Construction Industries.e) Employment Agencies.f) Purchase local manufactured goods.g) Rationalize labor policy.

INFLATION

Any persistent & appreciable rise ingeneral level or average of prices.

ORThe continuous increase in the generallevel of prices while at the same timemoney continuously loosing its value.

Causes Of Inflation

Demand Pull Cost Push

DeflationThe phase in which there is decrease in thegeneral level of prices while the money valueincreases. StagflationPhase in which prices, wages rate rises but atthe same time peoples are peoples are unableto find job & firms unable to find customers.

ReflationA govt. action to uplift the economy of acountry in which prices of goods areincreases due to increase in aggregate demand without increasing theProduction & employment.

OTHER TYPES OF INFLATION

INFLATION ON THE BASIS OF RATE

CREEPING INFALTION

WALKING INFLATION

RUNNING INFLATION

GALLOPING INFLATION

OTHER TYPES OF INFLATION

INFLATION ON THE BASIS OF CONTROL

OPEN INFLATION

SUPPRESSED INFLATION

OTHER TYPES OF INFLATION

INFLATION ON THE BASIS OF EMPLOYMENT

PARTIAL EMPLOYMENT

FULL EMPPLOYMNET

REMEDIES TO CONTROL INFLATION

a) Monetary Policy.b) Fiscal Policy.c) Subsidies.d) Increase availability of goods.e) Check and control teams.

TRADE CYCLE

Trade cycle is composed of two periods,i) Good Period.ii) Bad Period.Good period indicates high price level butlow un-employment percentage whileBad period indicates fall in prices level

andhigh un-employment percentage.

Business Cycle

Factors include in business cycle,I. PRODUCTION.II. PRICES.III. WAGES.IV. INTEREST RATE.V. VOLUME OF BANK CREDIT.VI. EMPLOYMENT LEVEL.

PHASES OFBUSINESS CYCLE

PEAK/BOOMIt is the phase in which there is a rise in

factors of business cycle is noticed.

RECISSIONPhase in which there is declined inemployment & output level due to slowdown of economic/business activity.

DEPRESSIONThe most serious stage in which due to

loweconomic activities there is rapidly

decline inoutput & employment level.

RECOVERY/REVIVALIt is characterized by rising in

production,consumption & capital goods, wages

rate& greater the amount of investment &consumption for goods.