Vous êtes sur la page 1sur 41

A SNAPSHOT OF MACROECONOMI CS

SAI KUMAR SWAMY


PGPM I I M- B
The Road Ahead
Micro vs. Macro
2
Macroeconomics deals with the Economy as a whole
GDP
Unemployment
Prices
Consumption
Investment
International Trade
Term coined by Ragnar Frisch in 1933
Microeconomics deals with
Actions of individuals
Firms and Consumers
Schools of Economic Thought
3
Mercantilism
Physiocracy
Physiocrats Agrarian philosophy
Francois Quesnay
Land Agriculture
Term coined by Ragnar Frisch in 1933
Microeconomics deals with
Actions of individuals
Firms and Consumers
Schools of Thought - 1
4
Classical/ New Classical
Started with Adam Smiths Wealth of Nations (1776)
Prices and wages are flexible
Markets carry out their functions efficiently
The supply side of the economy is very important
Changes in the demand side of the economy have only
temporary effects on the economy
No role for the Government to play- Laissez-Faire

Alfred Marshall, Adam Smith, David Ricardo
Failed to predict/correct the Great Depression of 1929
Early 1970s- New Classical School
Says Law

Schools of Thought - 2
5
Keynesian/New Keynesian
Prices and wages are not flexible
Markets are not efficient
The demand side of the economy is very important
Government has a major role to play - Fiscal Policy
John Maynard Keynes 1930s
The General theory of Employment, Interest and Money
Great Depression
Advocated Government Intervention
Multiplier Effect
Resurgence in 2008-2009
Global Financial Crisis Sub-prime Crisis
Paul Krugman, Joseph Stiglitz, Greg Mankiw, Akerlof

Schools of Thought - 3
6
Austrian School
Von Mises, Murray Rothbard, Hayek
Unscientific Economist
Mathematical Modeling impossible
Rejected Mathematical & Statistical methods
No Government intervention
Criticizes Central Bank actions
Central Bank actions responsible for Depressions and Recessions
Inflation caused by Central Bank actions
Absolute Laissez Faire
Praxeology logical processes of human action
Predicted the Great Depression Hayek
Advocate Gold standard
Criticized by Krugman, Friedman and Jeffrey Sachs

Key Concepts - 1
7
GDP - Gross Domestic Product
Definition
Broadest measure of Economic activity
Who- Where is important
Ex: MNC in India is incl. In GDP
Ex: Indian in the Gulf is not included in GDP
GDP = C + I + G + X M
Personal consumption (C), Gross private domestic investment (I),
Government purchases (G), and Net Exports (X-M)
Product, Income and Expenditure Approach
GDP Growth rates - Worldwide
Key Concepts - 2
8
Issues with GDP
Parallel economy/Shadow economy
Barter Transactions
Double Counting
Quality of Data/ Estimates
Household Production
Ignores Externalities
Distribution of wealth
Sustainability of Growth
Alternatives
HDI Gini Coefficient
Key Concepts - 3
9
GNP - Gross National Product

Gross National Product includes income earned by the factors of
production (assets and labor) owned by a country's residents but
excludes income produced within the country's borders by factors of
production owned by nonresidents

Where - is immaterial

Who - is important

GNP = GDP + Receipts Payments


Key Concepts - 4
10
CPI Consumer Price Index
It is the annual percentage change in the cost of acquiring a
fixed basket of goods and services
Measures
Inflation
Purchasing power of consumers Today vs. Yesterday
Basis for Dearness Allowance
4 types
Working class
Agricultural labor
Industrial workers
Rural labor
Food-60% ;Clothing-8% ;Fuel-6% ;Housing-8% ;Misc-18%
Key Concepts - 5
11
Wholesale price index - WPI
It is the index used to measure the change in the average
price level of goods traded in wholesale market
600+ commodities data tracked
Captures price movements in a comprehensive way
Widely used in Business, Industry, Government
Better approximate of inflation
Primary Articles - 22%
Mfcg. Goods - 64%
Fuel 14%

Key Concepts - 6
12
Inflation
An increase in the general level of prices
Measured by CPI and WPI
Is it Bad and undesirable?
Could it be an incentive to invest?
Deflation
A fall in the general price level or a contraction of credit and
available money
Deflation, not inflation, is now the greatest concern for the world
economy
Disinflation
A period or process of slowing the rate of inflation
Key Concepts - 7
13
Causes of Inflation

Monetary Theory
Monetary policies of Central Banks
Monetary and fiscal restraint

Neo-Keynesian Theory
Demand-Pull
Cost-Push
Key Concepts - 8
14
How to control Inflation?

Monetary Policies
Open Market Operations

Fiscal Policy
Taxation
Government Spending

Key Concepts - 9
15
Recession
A recession is a prolonged period of time when a nation's
economy is slowing down, or contracting
Prerequisite: Two consecutive Quarters
Trends indicating Recession
Decrease in Consumer Spending
Decrease in industrial production
Growing unemployment
Slump in personal income
An unhealthy stock market
Key Concepts - 10
16
Forex
External assets that are readily available to and controlled by monetary
authorities for direct financing of external payments imbalances, for
indirectly regulating the magnitudes of such imbalances through
intervention in exchange markets to affect the currency exchange rate,
and/or for other purposes
Foreign exchange reserves targets are fixed to accommodate imports of
three months
Foreign exchange reserves include three items
Gold
SDRs
Foreign currency assets
Liberalization - 1
17
The term is used for a more outward-oriented economic
policy
Elimination of anti-export biases
Lowering high import tariffs
Reducing/phasing out Quantitative Restrictions (QRs) on inputs
Switching to tariff-related measures
The goals of liberalization were to motivate Indian
manufacturers to
Prefer updated technology
Deliver better products at lower costs
Face global competition
Deliver world class goods and services
Liberalization - 2
18
Liberalization in Various Sectors
Infrastructure
Power
Telecom
Oil
Insurance
Automobiles
Agriculture
Software
Second Generation of Reforms
Cutting down the fiscal deficit
Reform the archaic labor laws
Remove the QRs on consumer goods imports
Currency Convertibility - 1
19
Currency convertibility is defined as the freedom to
convert one currency into other internationally
accepted currencies

Two forms of convertibility
Current account convertibility
Capital account convertibility
Currency Convertibility - 2
20
Current account convertibility has been defined as the
freedom to buy or sell foreign exchange for
International transactions consisting of payments due in connection
with foreign trade, other current businesses including services and
normal short-term banking and credit facilities
Payments due as interest on loans
Moderate remittances for family living expenses
Capital account convertibility means that the home
currency can be freely converted into foreign currencies for
acquisition of capital assets abroad

The rupee is currently not freely convertible on the
capital account
Financial Markets
21
Provide facilities for the buying and selling of financial
claims and services
Classified as
Primary
Secondary
Also classified as
Money Short Term CP & CD
Capital Long term Stocks & Bonds
Stock Markets
SEBI
Forex Markets
22
Annexures
Fiscal Policy - 1
23
Government uses its revenue and expenditure programs to
produce desirable effects on
National income
Production
Economy
Used as a balancing device
Two elements of Fiscal Policy
Taxation
Public Expenditure
Fiscal Policy - 2
24
Objectives of Fiscal Policy
Mobilization of resources
Acceleration of economic growth
Minimization of the inequalities of income and
wealth
Increasing employment opportunities
Price stability

Reflationary Fiscal Policy
Deflationary Fiscal Policy


Says Law
25
Jean Baptiste Say - Products are paid for with Products

It is worthwhile to remark that a product is no sooner created than it,
from that instant, affords a market for other products to the full extent of
its own value. When the producer has put the finishing hand to his product,
he is most anxious to sell it immediately, lest its value should diminish in
his hands. Nor is he less anxious to dispose of the money he may get for it;
for the value of money is also perishable. But the only way of getting rid of
money is in the purchase of some product or other. Thus the mere
circumstance of creation of one product immediately opens a vent for other
products

What does it mean Supply equals Demands
In order to obtain a desired commodity, one must first and necessarily
produce a commodity which is itself desirable. Those who produce
undesirable commodities, or produce desirable commodities but at
unprofitable costs, will fail.
Great Depression
26
Coined by Lionel Robbins Great Depression
Started in 1929 and lasted till 1940
Global Scale
Black Tuesday 29
th
Oct, 1929
Large Scale Unemployment 25% in US
Frantic Attempts at Protectionism Smoot Hawley Tariff Act
Causes
Collapse of banks
Smoot Hawley Act
Monetary Contraction
Recovery in 1933
Public Works
Government Spending
WWII
HDI
27
US- GDP & Unemployment
28
Worldwide Impact
29
Great Depression in Pics
30
Great Depression in Pics
31
Great Depression in Pics
32

Great Depression in Pics
33
Dorothea Lange

Migrant Mother

Stamp
GDP Growth - Worldwide
34
GDP - Nominal
35
GDP - PPP
36
Gini Coefficient
37
HDI
38
Key Terms - 1
39
Cash Reserve Ratio CRR is the portion of deposits (as
cash) which banks have to keep/maintain with the RBI.
This serves two purposes:
Ensures that a portion of bank deposits is totally risk-free
Enables that RBI control liquidity in the system, and thereby, inflation
Bank Rate - is the rate at which the central bank lends to
the commercial banks
SLR is the portion of their deposits banks are required to
invest in government securities
Repo rate - is the rate at which the RBI borrows short
term money from the market. After economic reforms RBI
started borrowing at market prevailing rates. So it makes
more sense to banks to lend money to RBI at competitive
rate with no risk at all
Key Terms - 2
40
Balance of Payments ( BoP)
A statement of economic transactions showing the relative
difference between the inflow and outflow of goods, services,
and capital claims and liabilities between a country and its
trading partners
BoP= (Exports + Inflows)- (Imports + Outflows)

1991 Crisis
Key Terms - 3
41
Exchange Rate
the price of a national currency in terms of the currency of another
nation.
The exchange rate is a way of stating how many units of currency (dollars,
for example) it would take to buy a unit of a foreign currency
Changes in the exchange rate of a country's currency can make a
difference in the price of its imports and exports
Fixed
Rate held fixed in terms of a foreign currency
Floating
Market forces allowed to determine the rate
Mixed

Vous aimerez peut-être aussi