Macroeconomics: Key Concepts and Theories
Delve into the realm of macroeconomics, focusing on overall economic phenomena such as full employment, GNP, savings, investment, and economic growth. Explore how macroeconomics helps solve various economic issues and the limitations it faces, along with insights on goods classification and the distinction between intermediate and final goods.
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Presentation Transcript
MACRO ECONOMICS What is Macroeconomics? Macro is derived from Greek word Makros meaning Large is defied as the study of overall economic phenomena, such as problem of full employment, GNP, Savings, Investment, Aggregate consumption & investment, Economic Growth etc., Also known as Theory of Income & Employment
Helps in solving many problems of an economy like Monetary problems Economic fluctuations General employment Inflation & Its theories Disequilibrium in the BOP Macroeconomics Theory of Income Employment Theory of general price level Economic growth & Development Theories of distribution etc. BG's Classes 2 Friday, March 21, 2025
Limitations Ignores structural changes in an individual unit of the aggregate. Hence the conclusion may be misleading Also the figures arrived at are subject to errors & ambiguities BG's Classes 3 Friday, March 21, 2025
Goods are physical object,| natural or man- made,| can be seen, touched and measured,| command a price in the market . It includes both tangible and intangible objects (services) Economic goods which commands a price. Non-economic good which does not command a price Goods Intermediate Final Consumption capital BG's Classes 4 Friday, March 21, 2025
Intermediate goods Used for production of other goods and services Meant for resale so value gets added to these goods Remain within the production boundary Value not included in the National Income Eg: Milk used in sweet shop for resale Cotton yarn used by textile industry Final goods Used for final consumption Meant for final use so no value addition is made Remain outside the production boundary Value included in national income Milk bought by household for consumption Intermediate Goods Vs. Final Goods BG's Classes 5 Friday, March 21, 2025
Consumption goods- Bought by consumers to satisfy their needs and wants Durable goods car, TV, radio etc., Non-durable goods oil, milk, vegetable etc., Semi durable goods crockery etc., Services bank, doctor, teacher etc., Capital goods- Which form the capital stock of the country and which is used in the production process Durable goods car used by a company for business purpose Stock of raw material, semi finished and finished goods at the end of the financial year which satisfy human wants indirectly Consumption goods vs. capital goods BG's Classes 6 Friday, March 21, 2025
Investment means addition made to stock or physical capital (buildings, Plant & machinery, tools & equipments) during a given period of time. Also called capital formation. It raises productive capacity of the economy Depreciation means decrease in value of fixed assets due to normal wear and tear in the process of Production Gross Investment = Total addition made to physical stock during a year including depreciation Net Investment = Gross Investment - Depreciation BG's Classes 7 Friday, March 21, 2025
Stock - Quantity of an economic variable measured at a particular point of time Has no time dimension Is a static concept- Eg: wealth, water in a tank, inventories, capital Flow Flow- Quantity of an economic variable measured during a period of time Has time dimension like per hour, per month etc., Is a dynamic concept Eg: income,water in a stream, change in inventory, change in capital BG's Classes 8 Friday, March 21, 2025
Gross National Product / Net National Product Production activities of the residents of an economic territory whether performed within the economic territory or outside the territory is National Product BG's Classes 9 Friday, March 21, 2025
Different concepts related to National Income Market Price Gross Domestic Product (GDPMP) Net Domestic Product (NDPMP) Gross National Product (GNPMP) Net National Product (NNPMP) Factor Cost - Gross Domestic Product (GDPFC) Net Domestic Product (NDPFC) Gross National Product (GNPFC) Net National Product (NNPFC BG's Classes 10 Friday, March 21, 2025
Important points This is a flow concept i.e., only the current year is taken This is calculated on current prices. Where price of base year is taken, it is called GDPMP at constant prices. It excludes value of intermediate consumptions. Excludes transfer payments, capital gains, financial transactions & income generated through illegal transactions Market value = price x total quantity of goods and services produced during the year Includes only final value to avoid double counting Confined to domestic territory only and excludes NFIA GDPMP = Value of output in Domestic Territory value of intermediate consumption BG's Classes 11 Friday, March 21, 2025
GNPMP = GDPMP + Net Factor Income from Abroad (NFIA) NNPMP = GNPMP Depreciation =NDPMP + NFIA =GDPMP + NFIA Depreciation NDPMP= GDPMP Depreciation= NNPMP NFIA NDPFC = compensation of employees + Operating surplus + mixed income of the selfemployed = NDPMP Indirect Taxes + Subsidies = NDPMP Net Indirect Taxes GDPFC = GDPMP Indirect Taxes + Subsidies = NDPFC + depreciation GNPFC = NNPFC + Depritiation= GNPMP NIT NNPFC or NI =NDPFC+NFIA =NNPMP-NIT BG's Classes 12 Friday, March 21, 2025
Net Factor Income from Abroad (NFIA) Factor income from abroad by a normal resident (-) Factor income of non resident from domestic territory Components of NFIA Net Compensation of Employees from Abroad = compensation received by residents working abroad compensations paid to non-residents working in the domestic territory Net Income from property & Entrepreneurship = income received by the residents in the form of rent, interest and profit from rest of the world income paid to the non-residents in the form of rent, interest and profit to the rest of the world Net retained earnings of resident companies abroad = retained earnings abroad retained earnings of foreign companies located in a country BG's Classes 13 Friday, March 21, 2025
