MODULE 1vetfgc.edu.in/downloads/ict-learning/Rammya_Macro...exchange rate is $0.67 USD equals 1 euro, or 1.5 euros equals $1 USD, a set group of goods and services that cost $1,000

MODULE 1

B Rammya, Associate Professor, VET FGC

Introduction to economics

macro economics and its interface with business and industry.

Resource and goals on an economic systems, free market and mixed economy.

National income and product concept, computation of national income and related aggregates, problems, in computation of national income


Economics comes from the Ancient Greek word oikon nomos meaning "management of a household, administration" or “laws of household”.

Economics is the branch of knowledge concerned with the production, consumption, and transfer of wealth.

A social science that studies how individuals, governments, firms and nations make choices on allocating scarce resources to satisfy their unlimited wants.

Economics is often referred to as "the dismal science.“(Scotsman Thomas Carlyle)-difficult, boring, ambiguous and of little use.


Economics is the study of the production and consumption of goods and the transfer of wealth to produce and obtain those goods.

Adam Smith is known as the Father of Economics. “Economics is the science of wealth.”

Studies about principle of scarcity-limited funds & unlimited investment opportunity.

Concerned about decisions relating to production, exchange, consumption & growth


TYPES OF ECONOMICS

MICRO

ECONOMICS

MACRO

ECONOMICS

INDIVIDUAL, NARROW

WHOLE, BROADER


POINTS MICRO ECONOMICS MACRO ECONOMICS

1. Meaning Study of particular markets, and segments of the economy

Study of the whole economy

2. Issues covered Consumer behaviour, individual labour markets, and the theory of firms.

Aggregate variables, such as aggregate demand, national output and inflation.

3. Scope Concerned with Supply and demand in individual markets, Individual consumer behaviour, narrow in scope Eg. demand for labour

Concerned with Monetary / fiscal policy, wider in scope Eg. Reasons for inflation and unemployment

4. Working Principle

Works on principle that markets soon create equilibrium

the economy may be in a state of disequilibrium (boom or recession) for a longer period


POINTS MICRO ECONOMICS MACRO ECONOMICS

5. Derivation Greek work Micros meaning small.

Greek work Makros meaning large

6. Objective Maximise utility , maximise profits with minimum cost.

Full employment, price stability, economic growth & favourable balance of payment.

7. Tendency to work Tends to work from theory first.

places greater emphasis on empirical (observed/experimental) data and trying to explain it.

8. Approach Takes a bottoms – up approach for analyzing the economy .

Takes a top – down approach.


Greek prefix makro- meaning "large“. Coined by Ragner Frisch in 1933.

Originated during 16th & 17 th century among merchants.

The study of the behaviour of economy at the aggregate level.

Studies the behaviour and performance of an economy as a whole.

Factors include national income, GDP,price indices, output, consumption, unemployment, inflation, savings, investment, international trade and international finance.

B Rammya, Associate Professor,

VET FGC

Macroeconomics is the branch of economics that studies the behavior and performance of an economy as a whole. It focuses on the aggregate changes in the economy such as unemployment, growth rate, gross domestic product and inflation.

“Macroeconomics is the branch of economics concerned with aggregates, such as national income, consumption, and investment ".


OUTPUT INCOME - GDP - a measure of all currently produced goods and services valued at market prices.

India - 10th largest by nominal GDP as per 2014

7th largest by nominal GDP as per 2016 (WB)-2017 same estimated

3rd largest for 2016 by PPP (purchasing power parity-Purchasing power parity is commonly referred to as PPP. Purchasing power parity is when the price of identical goods and services are equal in one country and another country when factoring in the exchange rate) eg For example, if is the exchange rate is $0.67 USD equals 1 euro, or 1.5 euros equals $1 USD, a set group of goods and services that cost $1,000 in the United States, would cost 1,500 euros.

GDP of India worth 2048 billion US $ in 2014 (US,CHINA,JAPAN).

$2.848 trillion USD (2018)





The Indian economy grew 8.2 percent year-on-year in the second quarter of 2018, above 7.7 percent in the previous three months and beating market expectations of 7.6 percent.


UNEMPLOYMENT - quoted in terms of the unemployment rate - fraction of labour force not working – 2014 shows unemployment rate to be 5.45%. Youth unemployment rate is 12.9% (dec 2013). Gujarat has the lowest unemployment rate with just 1.4% and Sikkim as the highest.

As per 2015-kerala has the highest unemployment rate

Forecast Q3/16 Q4/ 16 Q1/ 17 Q2/ 17 2020 5 4.8 4.8 4.8 3.6percent

Currently as on 21/8/2017 – 3.7% (urban 4.5% and rural 3.4%) As of 2017 – 3.52% Currently as on 31/8/2018 – 6.42% (urban 6.75 and rural 6.24%)




As of Feb 2018 ◦ Highest unemployment rate – Tripura – 30.3%

◦ Lowest unemployment rate – Delhi – 1.5%

◦ Karnataka – 5.1%


INFLATION RATE - rate of change in the price level India' annual inflation rate eased to 4.17 percent in July

2018 CPI India 2018 5.61% CPI India 2017 1.91 %

CPI India 2016 4.97 % CPI India 2015 5.88 % CPI India 2014 6.37 % CPI India 2013 10.92 %

CPI - measures the average retail prices paid by consumers for goods and services bought by them.

PPI - measures the wholesale prices of approximately 3,000 items.



INTEREST RATE - The interest rate is quoted in nominal terms that is, it is not adjusted for inflation – savings bank interest rate around 4-6%, term deposit rate – 7.75-8.25%.-2015

2016- 7.25-7.5 (fixed and recurring deposits) 2017- 6.75-7.0% 4% for savings account

2018: The current Repo Rate as on 01/08/2018 as fixed by the RBI

is 6.50% p.a. The current bank rate is 6.75% The current CRR is 4% p.a The maximum SLR that The Reserve Bank of India can set is

40% p.a. However, the current SLR is set at 19.5% p.a. The new Base Rate as fixed by RBI is 8.75% to 9.45% p.a.


Evaluate overall performance of economy. Understand the functioning of a complicated

modern economic system. Higher level of GDP. Higher level of employment. Stability in price level. Economic growth. Solves problems of bus. cycles Balance of payment. Solve economic problems - poverty,

unemployment, inflation, deflation etc. Formulate correct economic policies.


Ignores the welfare of the individual. Regards aggregates as homogeneous. Not necessary that all aggregate variable are

important. Aggregate tendency may not affect all sectors

equally. Difficulty in the measurement of aggregates. The fallacy of composition - The aggregate

economic behavior is the sum of individual behavior.This is called fallacies of composition


Primary Objective ◦ maximize the level of national income. ◦ providing economic growth in the country. ◦ maximize the standard of living of participants in the

economy.

Secondary Objectives Sustainability-- a rate of growth which allows an increase in living

standards without undue structural and environmental difficulties

Full employment - Price stability - External Balance - Imports = Exports Equitable distribution of income and wealth Increasing Productivity - Thermal Equilibrium - equilibrium in the Balance of

payments


Macroeconomics is intertwined with business. Factors taken into consideration as part of market

analysis. Affects individual businesses.eg. during a recession, the

behavior of customers and consumers of goods and services change to reflect the change in the economy.

Reduction or increase in demand for products. Affects the decisions by companies to expand or to scale

down. Bearing on Marketing strategies. Effect of governmental policies on the businesses. Finally affects the success or failure of business. Various variables like demand, supply, production ,

consumption, savings, investment, employment, price stability, interest rates etc




India has the ninth-largest economy in the world by nominal GDP and the third-largest by purchasing power parity (PPP).

India is today one of the world’s fastest growing economies. By 2030, India will become the world’s third largest economy with projected GDP (PPP) at $13,716 bn.

7.6% growth rate 2016-17 India is the 19th-largest exporter and the 10th-largest

importer in the world. During 2011–12, India's foreign trade grew by an impressive 30.6% to reach $792.3 billion.

Industry accounts for 28 per cent of the country’s GDP and employs 14 per cent of the total workforce.

India is 11th in the world in terms of nominal factory output.

India is one of the G-20 major economies and a member of BRICS.


◦ The Group of Twenty (also known as the G-20 or G20) is a forum for the governments and central bank governors from 20 major economies.

◦ Established in 1999 ◦ aim of studying, reviewing, and promoting high-level

discussion of policy issues pertaining to the promotion of international financial stability

◦ The members, shown highlighted on the map at right, include 19 individual countries—Argentina, Australia, Brazil, Canada, China, France, Germany, India, Indonesia, Italy, Japan, Republic of Korea, Mexico, Russian Federation, Saudi Arabia, South Africa, Turkey, United Kingdom, United States—and the European Union (EU).

◦ Accounts for 85% of world GDP. ◦ 2016-17 G20 summit –Hangzhou East China

Sep 4-5, 2016


Textile manufacturing is the second largest source of employment after agriculture.

India is one of the fastest growing retail markets in the world. estimated at $450 billion.

India ranks second worldwide in farm output. India is the largest producer in the world of milk, jute and pulses.

India has the world's third largest road network, covering more than 4.3 million kilometers and carrying 60 per cent freight and 87 per cent passenger traffic.

Indian Railways is the fourth largest rail network in the world, with a track length of 114,500 kilometers.

India has a national teledensity rate of 74.15 per cent with 926.53 million telephone subscribers.

Over half of India's population is below 25 years. By 2020, the average age of an Indian is expected to be 29 years.


India's working-age population will increase by 240 million over the next two decades, according to Deutsche Bank. India has the second-largest pool of scientists and engineers in the world.

India has 122 billionaires with net assets of Rs 500 crores and above, as of December 2012.

The production of passenger vehicles in India was recorded at 3.23 million in 2012-13 and is expected to grow at a compound annual growth rate (CAGR) of 13 per cent during 2012-2021.

Known as the Detroit of Asia, Chennai accounts for 35-40 per cent of India's total automobile industry.

With 1,55,618 post offices and over 5,66,000 employees, India has the largest postal network in the world.

Domestic airlines carried 20.289 million passengers during January and April 2013.

The aviation sector in India has attracted foreign direct investment (FDI) worth $449.26 million from April 2000 to March 2013.


With official gold holdings of 557.7 tonnes, India ranks 10th in gold reserves.

India's foreign exchange reserves stand at $280.17 billion.

The United States is India's largest software services market. Software services exports are expected to grow by 10 per cent to around $75 billion during the current fiscal year.

Indian Oil Corporation topped the list of eight companies from India in the Fortune 500 ranking. Reliance Industries, Tata Motors and Tata Steel also figured in list.

India’s Rs 77 trillion banking industry has 87 scheduled commercial banks, 26 public sector banks, 20 private banks and 41 foreign banks.


The term "BRIC" was coined in 2001 by then-chairman of Goldman Sachs Asset Management, Jim O'Neill,

acronym for an association of five major emerging national economies: Brazil, Russia, India, China and South Africa.

India is going to host the BRICS conference in Goa in 2016

The BRIC grouping's first formal summit, also held in Yekaterinburg, commenced on 16 June 2009

S was added in 2010. Encourages commercial, political and cultural

cooperation Various Summits

◦ 2010-Brazil 2016- India ◦ 2011-China 2017-China ◦ 2012-India ◦ 2013-south Africa ◦ 2014-Brazil ◦ 2015-Russia B Rammya, Associate Professor, VET FGC

The growth related issues

The issue of business cycles

The issue of inflation

The issue of unemployment and poverty

The issue of budgetary deficits-fiscal policy is the tool for this. The use of government revenue and expenditure as a policy measure to solve economic problems is called fiscal policy

The international economic issues ◦ Exchange rate problems

◦ BOP deficits


Thank You


Documents

MODULE 1vetfgc.edu.in/downloads/ict-learning/Rammya_Macro...exchange rate is $0.67 USD equals 1 euro, or 1.5 euros equals $1 USD, a set group of goods and services that cost $1,000