business cycle& ni
TRANSCRIPT
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BUSINESS CYCLE
A study of fluctuations in
business activity (output , income, prices, profits,
employment )
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Characteristic features
It occurs periodically
It is international in character
It is wave like
The process is cumulative
The cycles will be similar but not
identical
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Business cycle
Depression
Recession
Crisis
Revival
Boom /
Prosperity
peak
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Depression The level of economic activity is
extremely low
Low income, production, employmentprices, profits
Low prices leads to low profit, lowwages, people suffer, closing down ofbusiness
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Recovery
Slow increase in output, employment,income and price.
Increase in demand, investment,bank loans and advances.
This leads to recovery, revival,prosperity
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Prosperity
Increase in income, employment, nowastage.
Increase in wages, prices, profits andinterest.
Increase in demand for loans, scarcityof labour, raw material and otherfactors of production.
That leads to recession
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Recession
Reduction in investment, employmentand production.
Reduction in income, expenditure,prices and profits.
Reduction in bank loans.
The business expansion stops
That leads to depression
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Theories Sunspot theory / climate theory
Psychological theory
Monetary theory Over-investment theory
Over-savings / under
consumption theory Innovation theory
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NATIONAL INCOME The national income committee of
India has given a simple
definition: National income estimate
measures the volume ofcommodities and services turned
out during a given period countedwithout duplication.
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GNP
The sum of market value of all finalgoods and services produced in a
country during a specific period oftime generally one year.
GNP at factor cost: The sum of allfactor payments (wages, interest,
rent, profits and depreciation)
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GNP = market value of domesticallyproduced goods and services + incomesearned by the residents of a country in
foreign countries incomes earned by theforeigners in the country.
The total value of final goods and servicesproduced by the residents of a country
during a given period of time, including netincome from abroad.
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GNP = Domestic product imports +exports.
Final goods alone to avoid double counting
Goods and services rendered free ofcharges should not be included
Transfer payments not included
Capital gains are not included Income earned through illegal activities
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Methods of measuring GN
P
Output method / production method
Income method
Expenditure method
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GDP
Includes the income locally earned bythe non nationals and excludes theincomes received by the residentnationals from abroad.
GDP = market value of goods andservices produced by the residents inthe country + incomes earned locallyby foreigners incomes received bythe nationals from abroad.
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GDP
Growth rate 1995 7.3 %
1996 7.8
1997 4.8
1998 6.5
1999 6.1
2000 4.4
2001 5.8
2002 3.8
2003 8.5 2004 7.5
2005 - 8.1
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NNP
NNP = GNP Depreciation
NNP is national income available for
consumption and net investment tothe society.
PCI = NNP / Popln.
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Personal income
The sum of all kinds of incomes received bythe individuals from all sources of incomes.
Actual income received by the individualsand households in the country from allsources. Peoples contribution to the societyshould be deducted.
PI = NI corporate income taxes undistributed profits social securitycontribution and transfer payment.
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Disposable personal income All PI is not at their disposal.
DPI = PI personal direct taxes.
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Factors determining NI Quantity
Quality
Technology know-how Political stability
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Difficulties Any income earned abroad have to be
included
To avoid double counting value addedmethod/ nature of goods should beconsidered
Services rendered free of charges arenot included
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Capital gains, transfer payments arenot included
Changes in price level will also affectthe calculation
Value of services rendered by military
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Problems in measuring
Non monetized sector
Illiteracy
Lack of occupational specification Un organized productive activities
Lack of adequate statistical data
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Uses of national income
statistics To frame economic policies
Gives an idea of the structure of the
economy For inter sectoral growth
Inter class income distribution
For international composition ofstandard of living
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It indicates the growth of theeconomy
Distribution of income
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National income and managers Marketing manager
Financial manager
Consumer banking manager Advertising manager
Production manager