economic perspectives-module 2

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

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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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economic perspectives-module 2

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