UNIT I
Introduction to Macroeconomics and National Income
1.0 Introduction to Macroeconomics and National Income
Introduction:
The term "macro" was first used in economics by Ragnar Frisch in 1933. However, it originated in the 16th and 17th century mercantilists as a methodological approach to economic problems. They were interested in the entire economic system. In the 18th century,
Physiocrats adopted it in the table economy, demonstrating a "wealth cycle" (i.e., net production) among the three classes represented by the peasant, landowner, and barren classes.
Malthus, Sismondi and Marx in the 19th century dealt with macroeconomic issues. Walras, Wicksell and Fisher contributed modernly to the development of pre-Keynes macroeconomic analysis.
Certain economists such as Kassel, Marshall, Pigovian, Robertson, Hayek, and Hortley developed the Quantity Theory of Money and General Price Theory in the decade following World War I. But Keynes, who eventually developed the general theory of income, output, and employment in the wake of the Great Depression, has credit.
Economics is a science that deals with the production, Exchange and consumption of various goods in the economic system. It is a scarce resource that can lessen the abundance of human welfare. The central focus of Economics lies in the choice between resource scarcity and its alternative uses. The word "economics" is derived from two the Greek words oikos (House) and nemein (to manage) mean to manage the household budget "using the limited funds possible.
Scope of Macro Economics
Economics is the subject of dealing with every situation happening all over the world. This subject is used in many stances in our lives. For example, your mom does all the work in your home. From doing all the housework to maintaining a budget for rations to meeting all your needs. Thus, it is one subject that deals with the daily work of our lives. There are two major categories on the same subject: microeconomics and macroeconomics. One deals with individual units of the economy, such as consumers and households. But the latter deals with the whole economy. It deals with research on national income and output. This understanding of science is vast and of varying lengths. However, for simplicity, this article will only focus on the scope and need for macroeconomics.
Microeconomics:
As mentioned above, microeconomics is a branch of economics that deals with individual units of the economy. It includes research areas on individual units such as consumers and homes. The subject deals with issues related to determining the price of goods. These direct or indirect factors affect the supply and demand of goods and the procurement of individual satiety levels. The main purpose of microeconomics is to maximize profits and minimize costs incurred. It is used for future generations to be available and balanced.
Macroeconomics
The term macroeconomics was coined by Ragnar Frisch in 1933. However, the approach to economic problems began in the 16th and 17th centuries. As a result, this originated from mercantilists. It is the field of science that deals with the whole economy or the whole, including macro factors. The hope of macroeconomics does not involve studying individual units of the economy. But the whole economy studies the whole economy and the average. National income, total employment, total savings and investment, aggregate supply and demand, and general price levels.
The subject of macroeconomics revolves around income and employment decisions.
Controlling the cycle of inflation and deflation was only possible by choosing current economic policies. These policies were developed at the macro level. Research on individual units has also become impossible. In addition, government participation through financial and fiscal measures in the economy is increasing. Therefore, the use of macro analysis is irrefutable.
Now we know that macroeconomics is a specialty of economics. Focus on the economy through the sum of the individual units and determine if it will have a significant impact on the country as a whole. All prominent policies and measures are based on this concept. For example, per capita income determines national income. This is nothing but the average of the total income of the people of the whole country.
Scope of Macroeconomics:
Governments, financial institutions and researchers analyze the general problems of the people and the economic well-being of the people.
It mainly covers the foundations of macroeconomic theory and measure theory, which is macroeconomic policy. Here, macroeconomic theories include theories of economic growth and development, national income, money, international trade, employment, and general price levels. In contrast, macroeconomic policy covers fiscal and monetary policy.
Research on issues such as India's unemployment, general price levels and balance of payments (BOP) issues is part of macroeconomic research as it is relevant to the economy as a whole.
Macroeconomic Theories:
The government is understood to be the national regulator. Consider various aspects that are important and have a direct impact on the lives of citizens. There are six theories within the scope of macroeconomics.
Theory of Economic Growth and Development:
Economic growth is also under the study of macroeconomics. Economic resources and capabilities are assessed based on the scope of macroeconomics. It plans to increase levels of national income, output, and environmental levels. They have a direct impact on the economic development of the economy.
Money theory:
Macroeconomics assesses the impact of reserve banks on the economy, capital inflows and outflows, and its impact on employment rates. Frequent changes in the value of money caused by inflation and deflation have many negative effects on the country's economy. They can be exacerbated by monetary policy, fiscal policy, and direct control of the economy as a whole.
National Income Theory:
This includes various topics related to measuring national income, such as revenue, spending, and budget. As a macroeconomic study, it is essential to assess the overall performance of the economy in terms of national income. At the beginning of the Great Depression of the 1930s, it was essential to investigate the triggers of general overproduction and general unemployment.
This led to the creation of data on national income. Helps predict the level of economic activity. It also helps to understand the income distribution among different classes of citizens.
International Trade Theory:
This is a research area focused on the import and export of products or services. Simply put, it points to the economic impact of cross-border commerce and tariffs.
Employment theory:
This macroeconomic scope helps determine the level of unemployment. It also determines the conditions that lead to such unemployment. Therefore, this affects production supply, consumer demand, consumption, and spending behavior.
General Price level theory:
The most important of these are research on commodity prices and how inflation or deflation fluctuates a particular price rate.
Macroeconomic policy:
The RBI and the Government of India are working together to imply macroeconomic policies for national improvement and development.
It falls into two sections:
Fiscal policy:
It refers to how spending fills deficit income and describes itself as a form of budgeting under macroeconomics.
Financial policy:
The Reserve Bank is working with the government to establish monetary policy. These policies are measures taken to maintain the stability and growth of a country's economy by regulating various interest rates.
Importance of macroeconomics:
Macroeconomics is an important concept that considers the whole country and works for the welfare of the economy.
1. Business cycle analysis
Timing of economic fluctuations helps prevent or prepare for financial crises and long-term negative situations.
2. Formulation of economic policy
The fiscal and monetary policy system relies entirely on the widespread analysis of macroeconomic conditions in the country.
3. Reduce the effects of inflation and deflation
Macroeconomics is primarily aimed at helping governments and financial institutions prepare for economic stability in a country.
4. Promote material welfare
This stream of economics provides a broader perspective on social or national issues. Those who want to contribute to the welfare of society need to study macroeconomics.
5. Regulate the economic system
It continues to guarantee or check the proper functioning and actual position of the country's economy.
6. Solve economic problems
Macroeconomic theory and problem analysis help economists and governments understand the causes and possible solutions to such macro-level problems.
7. Economic development
By utilizing macroeconomic data to respond to various economic conditions, the door to national growth will be opened.
Problems related to macroeconomics
Economists need to analyze the following issues while studying macroeconomics.
1. Issues related to government policy
Business activities also bring social costs such as deforestation and land degradation. To regulate this social cost, the government has clear laws and laws in place. These regulations act as barriers for corporate organizations.
2. Problems related to macroeconomic trends in the economy
The economic situation of a country has immeasurable impact on the activities of all organizations, directly or indirectly. The various economic patterns or variables that affect the industry include gross domestic product (GDP), employment rates and conditions, revenue incentives, banks, and pricing policies.
3. Problems related to foreign trade
Many organizations trade (export or import goods) in the international market. They are sensitive to economic fluctuations, exchange rates, prices, and many other factors in other countries. Therefore, such changes can affect the economic situation of the country. This can also affect your business organization.
Conclusion
Macroeconomics is the basis of many economic policies. It lays the foundation for the regional decision-making mechanism of the country. However, policies backed by this concept usually have a dual impact on society as a whole and on individual citizens. It requires an observing, logical and incredible approach.
Difference between Microeconomics and Macroeconomics:
The differences between microeconomics and macroeconomics can be seen in the following points. Microeconomics is the study of the economic activity of individuals and small groups of individuals. This includes specific households, specific companies, specific industries, specific products, and individual prices.
Macroeconomics is also derived from Macross, which means "big" in Greek. The purpose of microeconomics on the demand side is to maximize utility, while on the supply side it is to minimize profits at the lowest cost. On the other hand, the main objectives of macroeconomics are full employment, price stability, economic growth and a good balance of payments.
The basis of microeconomics is a price mechanism that works with the help of the power of supply and demand. These forces help determine the equilibrium price of the market. On the other hand, the basis of macroeconomics is national income, output, and employment, which are determined by aggregate demand and aggregate supply.
Microeconomics is based on various assumptions about the rational behavior of individuals. In addition, the phrase "ceteris paribus" is used to describe economic law. Macroeconomics, on the other hand, makes assumptions based on variables such as the total output of the economy, the extent to which its resources are used, the size of national income, and general price levels.
Microeconomics is based on partial equilibrium analysis that helps explain the equilibrium conditions of individuals, businesses, industries, and factors. Macroeconomics, on the other hand, is based on general equilibrium analysis, which is an extensive study of many economic variables, their interrelationships and their interdependencies, to understand the workings of the entire economic system.
In microeconomics, equilibrium studies are analyzed at specific times. But it does not explain the time element. Therefore, microeconomics is considered static analysis. Macroeconomics, on the other hand, is based on time lags, rate of change, past and expected values of variables. This rough division between microeconomics and macroeconomics is not rigorous, as parts affect the whole and whole influences the parts.
Dependence of Microeconomics on Macroeconomics:
For example, when aggregate demand increases during the prosperous period, so does the demand for individual products. If this increase in demand is due to lower interest rates, then "the demand for different types of capital goods will increase, which will lead to an increase in the demand for certain types of labor required by the capital goods industry. If the supply of such a labor force is inflexible, its wage rate will rise.
Wage rates can be raised by increasing profits from increased demand for capital goods.
Similarly, the overall size of income, output, employment, cost, etc. in an economy affects the composition of individual income, output, employment, and cost of individual companies and industries. To give another example, when total production declines during a recession, capital goods production is lower than consumer goods production. In the capital goods industry, profit and wage employment declines more rapidly than in the consumer goods industry.
Reliance of macroeconomics on microeconomic theory:
On the other hand, macroeconomic theory also relies on microeconomic analysis. The total is made up of parts. National income is the sum of personal, household, corporate and industrial incomes. Total savings, total investment and total consumption are the result of individual industry, business, household and individual savings, and investment and consumption decisions.
A typical price level is the average of all prices for individual goods and services. Similarly, the economic output is the sum of the outputs of all individual production units.
Let's look at some concrete examples of this macro dependence on microeconomics. When the economy concentrates all its resources on the production of agricultural products only, the total production of the economy decreases because other parts of the economy are ignored.
The total level of output, income and employment in the economy also depends on income distribution. If there is an unequal distribution of income and the income is concentrated in the hands of a few rich people, it tends to reduce the demand for consumer goods.
Profit, investment and output will decline, unemployment will widen and the economy will eventually face a recession. Therefore, both macro and micro approaches to economic problems are interrelated and interdependent.
Macro dynamics:
Economic dynamics, on the other hand, is the study of changes in acceleration or deceleration. It is an analysis of the process of change that continues over time.
The economy can change over time in two ways.
(A) Without changing the pattern
(B) By changing the pattern.
Economic dynamics are associated with the latter type of change. When there are changes in population, capital, production technology, the form of business organizations, and people's tastes, the economy takes different patterns in any or all of them, and the economic system changes its direction.
In the attached figure, given the initial value of the economy, D was moving along path AB, but suddenly at A the index changed pattern and the direction of equilibrium changed towards C. Proceed to D again. But in C, the pattern and orientation change to E. Therefore, economic dynamics investigates the path from one equilibrium position to another, that is, the path from A to C and from C to E.
Therefore, economic dynamics is related to time lag, rate of change, past and expected values of variables. In a dynamic economy, data changes and the economic system take time to adjust accordingly. . It can be seen as a" movie "of the progressive overall economic function. "
In Figure 2, C + 1 is the aggregate demand function and the 45 ° line is the aggregate supply function. Starting from a period when the income equilibrium level is OY0, the investment increases by ∆I, and in the period t, the income increases by the amount of increased investment (t0 to t). The increase in investment is indicated by the new aggregate demand function C + I + ∆I.
However, in period t, consumption is delayed and is the same as income at E0. In period t + I, consumption increases and new investment increases even higher income up to OY1.
This process of income propagation continues until the aggregate demand function C + I + ∆I crosses the line of aggregate supply function 45 ° at En in the nth period, and the new equilibrium level is determined by OYn. Curve step t0 to En shows the macrodynamic equilibrium path.
The following points highlight six major macroeconomic issues: the matter is:
1. Employment and unemployment
2. Inflation
3. Business cycle
4. Stagflation
5. Stagflation
6. Rate of exchange and balance of payments.
- Employment and unemployment:
Unemployment refers to the involuntary waste of resources, including personnel. If this problem exists, the particular output (or GNP) of a society are going to be but its potential output. Therefore, one among the objectives of state policy is to make sure financial condition, which suggests the absence of involuntary unemployment of any type.
- Stagflation:
Most contemporary mixed economies suffer from the problem of stagflation, which suggests the harmony of boom and idle during a stagnant economy. The barter between boom and idealism is perhaps the foremost complex macroeconomic problem today. Every country within the world is now struggling hard to fight the disease of stagflation.
- Economic growth:
Despite short-term fluctuations in production related to the business cycle, the long-term trend in total output is rising in most developed countries. The trend within the total production of a rustic over an extended period is understood as economic process.
- Inflation:
This refers to a situation during which the worth of products and production factors constantly rise. The reverse situation is understood as deflation. During inflation some people earn and thus there's little change within the pattern of income distribution. Therefore, one among the objectives of state policy is to make sure the steadiness of the worth level, which suggests the absence of inflation and deflation.
- Trade cycle:
It refers to periodic fluctuations within the level of the economy or commercial activity, that is, trends in output (GNP) and employment, fluctuate over time during a repeated sequence of ups and downs. Periods of excellent trade alternate with periods of bad trade, or periods of high output and high employment boom alternate with periods of low output and low employment downturn.
During the boom period, employment is low, but inflation is high. In periods of depression (or recession), unemployment is high and inflation is moderate. In macroeconomics, we study the causes of the trade cycle. It refers to the expansion of the assembly capacity of society, like bringing new lands into cultivation or establishing new factories. Growth is measured by the speed of increase in per capita income and is indicated by a shift within the right direction of the productive curve.
There are three main sources of growth, namely:
(1) Labor force growth,
(2) Capital formation and
(3) Technological progress.
The country is primarily trying to realize economic process to enhance the quality of living of its people. If the economic process rate exceeds the increase rate, the quality of living of the typical person can improve.
- Rate of exchange and balance of payments:
The balance of payments may be a systematic record of all economic transactions between members of the house country and other members of the planet within the accounting year. These transactions, if not complete, are primarily suffering from the rate of exchange. This is often the speed at which the country's economy is exchanged for an additional currency (or gold).
The trend within the value of the rupee in terms of the 2 major currencies of the planet, i.e. The US dollar and therefore the British pound are downward within the last 20 years. Economists always want to discover the causes and consequences of such changes.
GDP
Gross Domestic Product (GDP) is the sum of the monetary or market value of all finished products and services produced within a border over a particular period of time. It serves as a comprehensive scorecard for the economic health of a particular country as a broad measure of overall domestic production.
For example, in the United States, the government publishes annual GDP estimates for each accounting quarter and calendar year. The individual datasets included in this report are effectively provided, so the data is adjusted for price fluctuations, minus inflation. In the United States, the Bureau of Economic Analysis (BEA) of the US Department of Commerce uses data identified through surveys of retailers, manufacturers, and builders to look at trade flows and calculate GDP.
Important points
- Gross Domestic Product (GDP) is the monetary value of all finished products and services manufactured domestically during a particular period of time.
- GDP provides a snapshot of a country's economy and is used to estimate the size and growth rate of the economy.
- GDP can be calculated in three ways using spending, production, or income. It can be tailored to inflation and population to provide deeper insights.
Despite the limitations of GDP, GDP is an important tool for policy makers, investors and businesses to make strategic decisions.
How is it measured?
GDP can be measured in three ways:
- Output measure: This is often the entire value of products and services produced by all sectors of the economy: agriculture, manufacturing, energy, construction, services sector and government
- Expenditure measures: The value of goods and services purchased by households and governments, investments in machinery and buildings. This includes exports minus imports
- Income measurement: The value of income generated primarily in terms of profits and wages.
In the UK, the ONS publishes one measure of GDP. But the initial estimate-mainly using the output scale. It collects data on thousands of British companies used in its calculations.
What is it used for?
It is the main way to determine the health of the UK economy. The Bank of England has set out how much it charges banks to lend money to them, which is the rate it uses to try to control the economy.
So, for example, if prices are rising too fast, the bank could try to raise that rate to slow down the economy. But if GDP growth is slow, it may stop.
What is saved each year is consumed as regularly as it is I spent every year and almost at the same time. But that is consumed by another person. That part of him the income that rich people spend each year is almost always consumed by an idle guest that part he consumes every year immediately for savings, profits employed as capital and consumed at the same manners but by other people ", Adam Smith
Measuring National Income
- Added value and total production.
- Three ways to measure GDP:
- Total production (total value added by all companies).
- Total spending on final products.
- Total income (sum of wages and profits)
- GDP vs. GNP.
- GDP vs. NNP.
Components of GNP
Indirect taxes have been eliminated and solid subsidies. In addition, NNP generates national income at base prices. After this, the national income ,Retained earnings, corporate tax, social security ,Contribution and household income.Government we will also send money to your household. In addition, we earn personal income. In the case of income tax when deducted, you get an individual's disposable income.
Is GDP a good measure of welfare?
- Consumer surplus;
- Externalities (positive and negative).
- Non-market exchanges (housework, underground Economy);
- Depreciation of capital (physical, human and environment);
- Inflation, changes in quality.
- Exchange rate, PPP
- Inequality.
- Keep up with Jones.
- Happiness.
Injections and Withdrawals
- In equilibrium, planned spending should be equal to actual spending. Economy. Pre-expenditure must be equal to post-expenditure.
- Expenditure is the sum of its components.
Y≡ C + I + G + NX
- Consumption C , investment I government expenditure G , NX is a net export (export minus imports).
- Injections into the income cycle must be equal drawer:
S + T + M ≡ I + G + X
- S is savings, T is taxes, M is imports, I is investments, G is Government spending, and X is export Injections and Withdrawals
Circular flow of Income
Aggregate Expenditure
Important assumptions
• Prices and wages are fixed in the short term
• Changes in resources and total spending during unemployment
• It is reflected in changes in output and income.
• But in the long run, wages and prices are flexible.
• Therefore, the change in total spending
• It leads to price level changes, but not output.
• We will only look at short-term fluctuations, not long-term fluctuations growth.
Income generation
• Consumption depends on income.
• Suppose 40% of each pound of income is spent on Consumer Goods: C = 0.4Y
• Companies spend £ 20 on investment goods: I = 20
• National income is 100.
• This is in equilibrium. Withdrawal = Savings = 20 = Injection = Investment = 20
• Planned total demand = total revenue Unbalance
Solving for equilibrium
• Planned spending = income level of income
• Planned spending = C + I = 0.4Y + I
• Setting this equal to income Y gives:
Y = 0.4Y + I, so
Y = I / (1-0.4) = 5I
• The multiplier is 10 = 1 / 0.1 = 1 / marginal propensity to save.
Adjustment Process
• How much income increases when autonomous Increased spending is determined by the multiplier (Richard Kahn, 1931).
• Companies that produce investment goods as I increase Run out of their stock.
• This will increase production over the next period (Equal demand in the previous period).
• Earn extra income and use it for consumers Being a commodity, retailers' inventory is reduced, which triggers them To order more from the manufacturer
Complete the photo
• Two other withdrawals: taxation and imports.
• Initially, government spending and exports were treated as given.
• Taxation and imports depend on the level of income.The government receives 30% of its income as tax, Imports make up 10% of spending.
• Income = Expenditure
• Y = 0.8 * 0.7 * Y + I + G + X-0.1 * Y
• Y = (I + G + X) / (1-0.56 + 0.1)
• Y = (I + G + X) /0.54
Grumpy hive
Still, a huge number of them made them prosperous.Millions of people are trying to supply Mutual desires and vanities. "With greatness. Those who will be resurrectedbGolden age, must be free,nI'm honest about acorns. " Bernard Mandeville (1705)
Paradox of thrift
• At any level if the consumer decides to save more what will happen to my income and income?
• As people save more at the first income level as consumption decreases, so does demand manufacture.
• Therefore, increased savings have reduced production!
• This may only be true in the short term and interest rates are fixed.
• Therefore, savings may be good in the long run, it causes a recession in the short term.
Overview
• GDP can be defined in three different ways: production, spending, or income.
• GDP measurements are incomplete, costly and time consuming. Many economic activity such as housework and housework is not measured underground economy. Therefore, GDP is an incomplete indicator standard of living.
• However, the year-to-year changes in GDP the state of the business cycle.
• In equilibrium, planned spending must be equal to actual spending economy.
• Increased personal frugality can lead to decreased, all other things being equal with total output, and therefore with total savings.
The calculation of GDP real
GDP growth real is the value of all goods produced in one year in the future, and the nominal GDP is the value of all goods takes to change the price of the account.
Gross domestic product
Gross domestic product (GDP) is the actual price of all goods and services produced in the country with a certain time span. GDP is officially known by the number. The following method is used to calculate the GDP:
GDP =C+I+G+ (X−M)
Written out, the equation for calculating GDP is:
GDP=personal consumption + investment total government investment + government investment + (exports and imports).
For product gross domestic, “gross" means the production of GDP no matter the usefulness of the product. The production can be used for direct consumption, investment in fixed assets or inventories, or replacement of fixed assets that were abandoned. "Domestic" means the measurement of the PDP only includes the product in its borders.
Nominal GDP
Nominal GDP is the value of all products and services produced during one year by the economy. It is calculated using the prices current for the year in which the output is produced. In economics, a nominal value expressed in monetary terms. For example, a shift in the quantity and price can change the value of the nominal. The Nominal GDP takes into account all the changes that have occurred for all goods and services produced during one year. If the price change from one period to the next time, and output does not change, then the nominal GDP will be unchanged even if the output is constant. The GDP of the original
GDP actually is the total value of all goods and final services produced economy for one year is granted, accounting for inflation. It is calculated using the basic price of the selected year. To calculate GDP real, you should determine how much GDP has been changed by inflation since the base year, and divide the annual inflation. Thus, the GDP of the real is defined as if the price changes but the output does not change. In the economy, the actual value is not affected by price changes, but only with changes in quantity. The actual value measuring the use of power purchase net of any price changes from time to time. GDP actually determine the advantages of buying the price fluctuations in a year. Real GDP accounts for inflation and deflation. This change the money value measure, nominal GDP, an indicator of total production.
Nominal GDP: This image shows the nominal GDP for a given year in the United States.
GDP deflator
The PDP deflator (implicit price deflator of the GDP) may be a measure of all the levels that new, domestically produced, final price and service in the economy. This is the level of prices measure of inflation and deflation, and is calculated using GDP nominal and GDP real.
GDP Deflator Equation: The GDP deflator measures price inflation in an economy. It is calculated by dividing nominal GDP by real GDP and multiplying by 100.
Nominal GDP vs. GDP real
Nominal GDP, or NONADJUSTED GDP, is that the market prices of all final goods produced during a geographic area, usually rural. The market value depends on the volume of goods and services produced and the prices of each. Therefore, if prices change from one period to the next, but actual production does not change, then even if production remains constant, nominal GDP would also change.
On the contrary, accounts Product domestic gross real to price changes that will occur thanks to the inflation. In other words, GDP is actually inflation nominal GDP that is adjusted. If the price change from one period to the next time, but the output in fact it is not, then GDP will remain the same. GDP actually reflects changes in real production. Without inflation and deflation, nominal GDP will be the same as the GDP of the real.
The calculation of the deflator of GDP
The etymology of GDP is calculated by dividing the nominal GDP with the GDP of the real and diverts it to 100.
'GDP deflator equation:' GDP deflator ' price measures of inflation in the economy. It is calculated by dividing the nominal GDP with the GDP of the real and diverts it to 100.
Consider a numerical example: if nominal GDP is $ 600,000, and GDP is actually$45.000, then the GDP deflator will be 1333.33 (GDP deflator deflector GDP= $600,000/$45,000 * 100 = 1333.33).
In the U.S., GDP and GDP Deflator calculated by the U.S. Bureau of Economic Analysis.
The relationship between DDP deflator and CPI
Like the consumer level (CPI), the GDP deflator may be a measure of price inflation/deflation for one year certain basis. The “basket" of DDP deflators can be changed year after year to calculate the consumption of people and patterns of both human. However, the trend of the deflator of GDP is similar to the CPI.
Gross National Product (GDP), Gross National Product (GNP), Net Gross National Product (NNI), Adjusted Gross National Product, etc., in economics to estimate gross national product and production in a country or region. A variety of high indicators are used. (NNIs are tuned for natural resource depletion – also known as NNIs for factor cost). Both are of particular interest in counting the total amount of goods and services produced within the economy and in various sectors. Boundaries are usually defined by geography or citizenship, also as the country's total income, and limit the goods and services that are counted. For example, some measures count only the goods and services that are exchanged for money, excluding the bartered goods, while others try to include them by imposing monetary value on the bartered goods. There is also National accounts
A large amount of data collection and calculation is required to reach the total production figures of goods and services in a large area such as a country. Although several attempts were made to estimate national accounts by the 17th century, [2] systematic maintenance of national accounts, including these figures, began in the United States and some European countries in the 1930s. It was. The driving force behind its key statistical efforts is the rise of Clutch plague and Keynesian economics, which defines the government's greater role in economic management and provides accurate information to the government to advance its intervention in the economy. I needed to. Provide as much information as possible.
In order to count goods and services, we need to assign value to them. The value that national income and output measurements assign to a good or service is its market value, the price you get when you buy or sell. The actual utility of the product (its value in use) is not measured – assume that the value in use differs from its market value.
Three strategies are used to obtain the market value of all products and services produced: product (or production) method, expenditure method, and income method. The Product Law examines the economy by industry. The total output of the economy is the sum of the output of all industries. However, because the output of one industry may be used by another industry and become part of the output of that second industry, the value of each industry's output should not be counted twice. Use added value instead. In other words, the difference in value between what it produces and what it incorporates. The total value produced by the economy is the sum of the values added by all industries.
Spending methods are based on the idea that all products are purchased by someone or some organization. Therefore, we sum the total amount that people and organizations spend to buy things. This amount should be equal to all the values generated. Individual spending, corporate spending, and government spending are usually calculated separately and summed up to total spending. In addition, it is necessary to introduce an amendment period in consideration of imports and exports outside the boundary.Their total revenue must be the total value of the product, as they are only paid for the market value of their product. Wages, owners' income, and corporate profits are the main subdivisions of income.
How to measure national income
Output
The output approach focuses on finding the total output of a country by directly finding the total value of all goods and services produced by the country.
Due to the complexity of multiple stages in the production of a good or service, only the ultimate value of the good or service is included in the total production. This avoids a problem called "double counting" where the total value of goods is included several times in a country's production by repeatedly counting at several stages of production. In the meat production example, the value of goods from a farm could be $ 10, then $ 30 from a butcher, and $ 60 from a supermarket. The value that should be included in the final national production should be $ 60, not the sum of all these numbers, $ 100. The added values at each stage of production compared to the previous stage are $ 10, $ 20, and $ 30, respectively. The sum of them provides another way to calculate the value of the final output.
The main formulas are:
- GDP (Gross Domestic Product) at market price = production value in a particular year's economy minus intermediate consumption
- GDP at Factor Cost = GDP at Market Price-Depreciation + NFIA (Net Factor Revenue from Overseas)-Net Indirect Tax (GNP)
- NDP at Factor Cost = Employee Compensation + Net Interest + Rental and Loyalty Income + Income and Unincorporated NDP Profit at Factor Cost
Spending
The spending approach is basically an output accounting method. It focuses on finding the country's total production by finding the total amount spent. This is acceptable to economists, as the sum of all commodities, as well as income, is equal to the total amount spent on the commodities. The basic formula for domestic output is to take all the various fields in which money is spent in the region and combine them to obtain the total output.
{\ displaystyle \ mathrm {GDP} = C + G + I + \ left (\ mathrm {X} -M \ right)} {\ mathrm {GDP}} = C + G + I + \ left ({\ mathrm { X}} -M \ right)
Where:
C = consumption household expenditure / consumption expenditure personal
I = total private sector investment
G = Government consumption and total investment expenditure
X = total export of goods and services
M = Total import of goods and services
Note: (X-M) is often described as XN or NX, both representing "net exports".
The name of the measure consists of either the word "Gross" or "Net", the word "National" or "Domestic", or the word "Product", "Income", or "Expenditure". Will be done. ". All of these terms can be explained individually."Gloss" means the entire product, regardless of its subsequent use. That is, the depletion or obsolescence of a country's fixed capital assets. The "net" indicates the amount of product that is actually available for consumption or new investment.
"Domestic" means that the boundaries are geographical. That is, it counts all goods and services produced within the border, regardless of who they are.
"Nationality" means that boundaries are defined by citizenship (nationality). We count all goods and services produced by the people of the country (or the companies they own), regardless of where their production physically takes place.
The production of French-owned cotton factories in Senegal is counted as part of Senegal's national figures, but as part of France's national figures.
"Product," "Income," and "Expenditure" refer to the three counting methods described earlier: the product, income, and expenditure approach. However, these terms are used loosely.
"Product" is a general term and is often used when one of the three approaches is actually used. The word "product" may be used, followed by additional symbols or phrases to indicate the methodology. So, for example, you get structures such as "Gross Domestic Product", "GDP (Income)", and "GDP (I)".
"Income" here is the income approach was used.
"Expenditure" specifically means that the spending approach was used.
Note that in theory, all three counting methods give the same final number. However, in reality, there are subtle differences from the three methods for several reasons, such as inventory level changes and statistical errors. For example, one problem is that an in-stock item has been produced (and therefore included in the product) but not yet sold (and therefore not yet included in the expenditure). Similar timing issues are due to the value (product) of the product produced and the factors that produced it, especially when the input is purchased with credit and wages are often collected after a period of time. Of production that can cause slight discrepancies between (income)
Gross domestic product (GDP) and gross national product(GNP)
GDP
Gross Domestic Product (GDP) is the sum of the monetary or market value of all finished products and services produced within a border over a particular period of time. It serves as a comprehensive scorecard for the economic health of a particular country as a broad measure of overall domestic production.
For example, in the United States, the government publishes annual GDP estimates for each accounting quarter and calendar year. The individual datasets included in this report are effectively provided, so the data is adjusted for price fluctuations, minus inflation. In the United States, the Bureau of Economic Analysis (BEA) of the US Department of Commerce uses data identified through surveys of retailers, manufacturers, and builders to look at trade flows and calculate GDP.
Important points
- Gross Domestic Product (GDP) is the monetary value of all finished products and services manufactured domestically during a particular period of time.
- GDP provides a snapshot of a country's economy and is used to estimate the size and growth rate of the economy.
- GDP can be calculated in three ways using spending, production, or income. It can be tailored to inflation and population to provide deeper insights.
Despite the limitations of GDP, GDP is an important tool for policy makers, investors and businesses to make strategic decisions.
GNP
Gross National Product (GNP) is an estimate of the sum of all final products and services produced in a particular period by means of production owned by a resident of the country. GNP is usually calculated from the sum of consumer spending, private domestic investment, government spending, net exports, and income earned by residents from foreign investment minus income earned by foreign residents in the domestic economy. I will. Net exports represent the difference between what a country exports minus imports of goods and services. 1
GNP is associated with another important economic indicator called Gross Domestic Product (GDP). This takes into account all production produced within the border, regardless of the owner of the means of production. GNP starts with GDP, adds the investment income of the resident from the overseas investment, and deducts the investment income of the foreign resident obtained in Japan. (For related materials, see "About GDP and GNP") 1
Important points
- GNP measures the production of residents of a country, regardless of the location of the actual underlying economic activity.
- Income from foreign investment by national residents is included in GNP and does not include foreign investment within national borders. This is in contrast to GDP, which measures economic output and income based on location rather than nationality. 1
- GNP and GDP can have different values, and the significant differences between countries' GNP and GDP may indicate significant integration into the global economy.
As an example, the table below shows some of the US GDP and GNP, and NNI data.
NDP: Net domestic product, like NNP, is defined as "gross domestic product (GDP) minus capital depreciation"
GDP per capita: Gross domestic product per capita is the average value of per capita production and is also the average income.
National income and welfare
GDP per capita (per capita) is often used as a measure of human welfare. Countries with high GDP are more likely to score high on other welfare indicators such as life expectancy.
GDP measurements usually exclude unpaid economic activity, most importantly domestic work such as childcare. This leads to distortion. For example, the income of a paid nanny contributes to GDP, but the time unpaid parents spend caring for their children does not, even if they both have the same economic activity.
GDP does not consider the inputs used to generate the output. For example, if everyone worked twice as long, GDP could double, but this does not necessarily mean that workers are better because they have less leisure time. Similarly, the environmental impact of economic activity is not measured in GDP calculations.
Comparison of GDP from one country to another can be distorted by fluctuations in exchange rates. Measuring national income at purchasing power parity may overcome this problem at the risk of overestimating basic commodities and services such as subsistence agriculture.
GDP does not measure factors that affect quality of life, such as environmental quality (different from input) or security from crime. This leads to distortion-for example, spending on cleaning oil spills is included in GDP, but the negative impact of spills on well-being (for example, loss of clean beaches) is not measured.
GDP is not the median (midpoint) wealth, but the average (average) wealth. In countries with a biased income distribution, wealth is concentrated in the hands of a small part of the population, so the majority of the population has a relatively low level of income, while per capita GDP is relatively high. It is likely to be high. See Gini coefficient.
For this reason, other welfare indicators such as the Human Development Index (HDI), Sustainable Economic Welfare Index (ISEW), Genuine Progress Indicator (GPI), Gross National Happiness (GNH), and Sustainable National Income (SNI). Is used.
The balance of payment (BOP))
Bill payments (BOP) are a record of accounting of all economic transactions between the residents of the country and around the world in a certain time. These transactions are made by individuals, law firms, and Government.
Therefore, BOP is the record of a country\\\'s exports, imports, Foreign Direct Investment (FDI), remittances, etc.
The two main components of the balance of payments is the accounts of and capital at this time.
The Current Account
The current account records all transactions associated with exports, imports, and unilateral transfers. Therefore, the current account is included:
Export and import of goods: export can be a receipt of payment and is a positive entry (credit). Imports are a negative entry (debit). Exports Net of goods also known as balance of trade. [If the receipt of the export is greater than import payments, known as trade surplus. If export receipts are less than import payments, known as trade deficit]
Export and import of services.
Removal of a unilateral or one-way Transfer \\\' such as gifts, donations, mixing. Acceptance unilateral transfers most of the world shown on the credit side (positive entry) and unilateral transfers to the rest of the world in the discharge side.
Investment income in the form of interest, rent dividends, and profits. Income received is displayed on the positive side and paid on the negative side.
Update on 7/7/20: India recorded a surplus in the current account of the 0.1 % of the GDP in the 4th quarter 2019-20 for the first time in 13 years. However, for the financial fiscal year 2019-10, the current account was in deficit from 0.9 % of GDP.
The last time we had a surplus of the current account was in the first quarter of 2006-07. For the full year, the current account was in surplus for three consecutive years from 2001-02 to 2003-04. Surplus in Q4 of 2019-20 can be attributed to 4 factors–
On the surface, this looks great, but reflects the economy slowed down in the country because of oil imports, non precious metal reduced during the year. This causes the trade deficit lower. (↓ ↓ ↓ ↓ )
Net receipts from the export of services increased in March on the back of the increase in net revenue from the computer and travel services. (Note))
The delivery by Indian people employed abroad increased in this quarter.
The Net outgo on account of payment of investment declined from a year ago (↓ ↓ ) the capital account
The capital account records all transactions that lead to changes in the assets or liabilities of the population / government. This includes
Foreign Direct investment (FDI): FDI in warisadalah positive entry and flout is the entry negative.
Overseas investment (FII))
The borrower and lending’s to and from abroad
Dressing in an overseas exchange (FOREX): increase the FOREX is the entry negative and decrease is positive entry.
The balance of payments must always balance. The deficit in the current account is financed by a surplus on capital account. To illustrate - if the current account deficit (or import more than export), import bill more than the state is paid either by borrowing from other countries or selling assets (FDI/ FII).If in case, a country cannot borrow money or attract capital expands in the form of FDI/ FII, he should use the reserves of foreign exchange.
Therefore, the BOP deficit (not including reserves excluding) reflected in the decrease in FOREX reserves and surplus in BOP in the reserves for cadanganex. The position of BOP of the country is an important indicator of the economic well-being. In 1991, India experienced a crisis of BOP. We have a large current account deficit current and capital inflow is not adequate to finance the deficit. Even the FOREX reserves are not enough to pay for imports.
India should be mortgaged gold to the Bank of England and the Japanese central bank to get the FOREX to pay for imports. A Bill payment (BOP) is a record of accounting of all economic transactions between the residents of the country and around the world in a certain time. These transactions are made by individuals, law firms, and Government.
Therefore, BOP is the record of a country\\\'s exports, imports, Foreign Direct Investment (FDI), remittances, etc.
The two main components of the balance of payments is the accounts of and capital at this time.
The Current Account
The current account records all transactions associated with exports, imports, and unilateral transfers. Therefore, the current account is included:
Export and import of goods: export can be a receipt of payment and is a positive entry (credit). Imports are a negative entry (debit). Exports Net of goods also known as balance of trade. [If the receipt of the export is greater than import payments, known as trade surplus. If export receipts are less than import payments, known as trade deficit]
Export and import of services.
Removal of a unilateral or one-way Transfer \\\' such as gifts, donations, mixing. Acceptance unilateral transfer most of the world shown on the credit side (positive entry) and unilateral transfers to the rest of the world in the discharge side. Investment income in the form of interest, rent dividends, and profits. Income received is displayed on the positive side and paid on the negative side. Update on 7/7/20: India recorded a surplus in the current account of the 0.1 % of the GDP in the 4th quarter 2019-20 for the first time in 13 years. However, for the financial fiscal year 2019-10, the current account was in deficit from 0.9 % of GDP. The last time we had a surplus of the current account was in the first quarter of 2006-07. For the full year, the current account was in surplus for three consecutive years from 2001-02 to 2003-04. Surplus in Q4 of 2019-20 can be attributed to 4 factors–
On the surface, this looks great, but reflects the economy slowed down in the country because of oil imports, non precious metal reduced during the year. This causes the trade deficit lower. (↓ ↓ ↓ ↓ )
Net receipts from the export of services increased in March on the back of the increase in net revenue from the computer and travel services. (Note))
The delivery of re by Indian people employed abroad increased in this quarter.
The Net outgo on account of payment of investment declined from a year ago (↓ ↓ ) the capital account
The capital account records all transactions that lead to changes in the assets or liabilities of the population / government. This includes
Foreign Direct investment (FDI): FDI in warisadalah positive entry and flout is the entry negative.
Overseas investment (FII))
The borrower and lending’s to and from abroad
Dressing in an overseas exchange (FOREX): increase the FOREX is the entry negative and decrease is positive entry.
The balance of payments must always balance. The deficit in the current account is financed by a surplus on capital account. To illustrate - if the current account deficit (or import more than export), import bill more than the state is paid either by borrowing from other countries or selling assets (FDI/ FII) If in case, a country cannot borrow money or attract capital expands in the form of FDI/ FII, he should use the reserves of foreign exchange.
Therefore, the BOP deficit (not including reserves excluding) reflected in the decrease in FOREX reserves and surplus in BOP in the reserves for cadanganex. The position of BOP of the country is an important indicator of the economic well-being. In 1991, India experienced a crisis of BOP. We have a large current account deficit current and capital inflow is not adequate to finance the deficit. Even the FOREX reserves are not enough to pay for imports.
India should be mortgaged gold to the Bank of England and the Japanese central bank to get the FOREX to pay for imports.
References
- Https://en.m.wikipedia.org/wiki/Macroeconomics
- Principles of Economics by N. Gregory Mankiw
- Foundations of Macroeconomics: Principles, Applications and Tools by Stephen Perez
- A Concise guide to Macro Economics by David A Moss
