Unit-4 A. Mohamed Riyazh Khan Assistant Professor (SE.G) Dept. of Management Studies.

Slides:



Advertisements
Similar presentations
ANALYSIS OF NATIONAL INCOME
Advertisements

Circular Flow.
The influence of monetary and fiscal policy
1 Chapter 21 Fiscal Policy Key Concepts Key Concepts Summary Practice Quiz Internet Exercises Internet Exercises ©2002 South-Western College Publishing.
NATIONAL INCOME (NI).
Some Key Terms Fiscal policy Stabilization policy Budget deficit
Product Markets and National Output Chapter 12. Discussion Topics Circular flow of payments Composition and measurement of gross domestic product Consumption,
The Short – Run Macro Model
ECON 1211 Lecturer: Dr B. Nowbutsing Topic 1: Introduction to Macroeconomics and National Income Accounting.
Chapter 13 Fiscal Policy “Democracy will defeat the economist at every turn at its own game” – Harold Innis, Canadian Economist and Historian.
Macroeconomics. 1. Circular flow – the movement of output and income from one sector of the economy to another.
Demand-Side Policy: Greater Spending Means Higher Prices
GDP = C + I + G + NX MV = P Q (= $GDP)
Micro and Macro- the difference?
 How does demand and supply change when things happen in the economy, like:  Inflation  Unemployment  Levels of spending  Real output  We look at.
Chapter 8 Aggregate Demand and the Powerful Consumer Men are disposed, as a rule and on the average, to increase their consumption as their income increases,
LEARNING OUTCOME 5 NATIONAL INCOME National Income is a measure of the value of economic activity in an economy. The basis of National Income is Aggregate.
NATIONAL INCOME Macroeconomics TOPIC 1  NI is the value of all goods and services produced in the economy in a year.  It measures the economic performance.
Economic Fluctuations Aggregate Demand & Supply. Aggregate Demand and Real Expenditures Aggregate Demand: The relationship between the general price level.
Mr. Sloan Riverside Brookfield High school.  2 Hours and 10 Minutes Long  Section 1-Multiple Choice ◦ 70 Minutes Long ◦ Worth 2/3 of the Score  Section.
Chapter 13 We have seen how labor market equilibrium determines the quantity of labor employed, given a fixed amount of capital, other factors of production.
© 2008 The McGraw-Hill Companies, Inc., All Rights Reserved.
The Classical Long-Run Model © 2003 South-Western/Thomson Learning.
© John Tribe 12 Income, employment and prices. © John Tribe.
 Circular Flow of Income is a simplified model of the economy that shows the flow of money through the economy.
1 Chapter 21 Fiscal Policy Key Concepts Key Concepts Summary Practice Quiz Internet Exercises Internet Exercises ©2002 South-Western College Publishing.
Eco 6351 Economics for Managers Chapter 12. Fiscal Policy Prof. Vera Adamchik.
Economic Issues: An introduction
© The McGraw-Hill Companies, 2002 Week 8 Introduction to macroeconomics.
The Macroeconomic Environment By the end of this class you should be able to: 1)Define macroeconomics 2)Explain the flow of income in an economy 3)Recognise.
Lecture 5 Business Cycles (1): Aggregate Expenditure and Multiplier 1.
Aim: What can the government do to bring stability to the economy?
MACRO – Aggregate Demand (AD). key macroeconomic concept Aggregate Demand The total demand (expenditure) for an economy’s goods and services at a given.
Gross Domestic Product (GDP) What is Gross Domestic Product and how we measure it? Why is this measure important? What are the definitions of the major.
National Income Determination For more, see any Macroeconomics text book.
The Multiplier How much will NI change by when there is an increase in injections?
Aggregate Demand ECON 2. Aggregate Demand Aggregate demand is the total demand for a country’s goods and services at a given price level and in a given.
MGMT 510 – Macroeconomics for Managers Presented By: Prof. Dr. Serhan Çiftçioğlu.
Chapter 12SectionMain Menu What Is Gross Domestic Product? Economists monitor the macroeconomy using national income accounting, a system that collects.
 A piece of economic data (statistic)  indicates the direction of an economy.
Introduction to Macroeconomics “The study of of a national economy”
124 Aggregate Supply and Aggregate Demand. 125  What is the purpose of the aggregate supply-aggregate demand model?  What determines aggregate supply.
Macroeconomics Econ 2301 Dr. Frank Jacobson Coach Stuckey Chapter 11.
Copyright © 2008 Pearson Education Canada Chapter 6 Determination of National Income.
Objectives After studying this chapter, you will able to  Explain what determines aggregate supply  Explain what determines aggregate demand  Explain.
Advanced Macroeconomics Lecture 1. Macroeconomic Goals and Instruments.
Circular Flow Model and Economic Activity
Topic 5 1 The Short – Run Macro Model. 2 The Short-Run Macro Model In short-run, spending depends on income, and income depends on spending. –The more.
PowerPoint Slides prepared by: Andreea CHIRITESCU Eastern Illinois University 1 © 2012 Cengage Learning. All Rights Reserved. May not be copied, scanned,
2.6 Aggregate Demand and the Level of Economic Activity What happens to a snowball as you continue to roll it?
Achievement Standard 3.5 Demonstrate understanding of macro-economic influences on the New Zealand economy.
Unit 2 Glossary. Macroeconomics The study of issues that effect economies as a whole.
National Income Concept and Measurement
Introduction to Economics Dr. Dnyandev C. Talule Professor Dept. of Economics, Shivaji University, Kolhapur Professor of Economics Yashwantrao Chavan Academy.
IB Economics SL Syllabus Content Review Section 3: Macroeconomics.
7 AGGREGATE DEMAND AND AGGREGATE SUPPLY CHAPTER.
Dr.L.Krishna Veni. Unit I: National Income Analysis:Definition, Circular Flow of Income, Methods of measurement of National Income and problems involved,
1 Chapter 22 The Short – Run Macro Model. 2 The Short-Run Macro Model In short-run, spending depends on income, and income depends on spending –The more.
National Income.
Macroeconomics Issues and Measurement Chapter 15
The Short – Run Macro Model
Fiscal Policy How the government uses discretionary fiscal policy to influence the economies performance.
Business Economics (ECO 341) Fall: 2012 Semester
Measures of Economic Activity
National Income 9/12/2018 Dr.P.S EAB IV unit.
2.1 The Level of Overall Economic Activity
The Circular Flow of Income
National Income.
An Explanation of the Measurement and Control of National Income
Presentation transcript:

Unit-4 A. Mohamed Riyazh Khan Assistant Professor (SE.G) Dept. of Management Studies.

Meaning of Macro It is also known as the theory of income and employment, or simple income analysis. It is concerned with the problem of unemployment, economic fluctuation, inflation or deflation, international trade and economic growth. According to Edward Shapiro, “Macro economics deals with the functioning of the economy as a whole”

Important 1. Understanding the determination of income & employment 2. Determination of general level of prices 3. Economic growth 4. Deals with Business Cycle 5. Unemployment 6.Global economic system

Circular flow of Macroeconomics

National Income Economics the total of all incomes accruing over a specified period to residents of a country and consisting of wages, salaries, profits, rent, and interest. While per capita gross domestic product is the indicator most commonly used to compare income levels, there are two other measures are generally preferred by analysts: per capita Gross National Income (GNI) and Net National Income (NNI). Whereas GDP refers to the income generated by production activities on the economic territory of the country,

National Income / Concepts GDP: (Gross Domestic Product) It referred aggregate value of goods and services produce in the year with in the country itself. GDP = GNP – Income received from abroad. GNP: (Gross National product) GNP = GDP + foreign earnings. NNP: (Net National Product) The net national product is obtained after deducting the depreciation charges from GNP thus. NNP = GNP – depreciation.

Per- capita Income: It’s the real income indicator GNP ……..……… Population Disposable income: The disposable income refers that the amount which is ready for spending from the total of a person. Its mainly influence by the liabilities of the person.

Estimation - Before Independence Dhada bhai nauroji Lord Curzan Wadia & Joshi Fridley Shirras Simal Ammission Dr. V.K.R.V. Rao (he was estimate two times for national income) After Independence C.S.O - Central Statistical Organisation

Methods of National Income Calculation Three important methods of calculation these are given below… Product Method: National income is calculated on the basic of the basic of the value of good & services produced by different sectors of the economy, in a given year. National Income = production of primary sector + production of secondary sector + production of Tertiary sector.

Income Method: Under this method the factor come is taken into account. National Income = the total rents for lands + wages & salaries for labour + interest for capitals + profits of entrepreneurs. Expenditure Method: The national income of a country can be calculated through the total expenditure spent by it in a particular year. National Income = expenditure on consumption goods + expenditure on investment + expenditure on capital goods.

Aggregate Demand & Aggregate Supply Aggregate demand is the total demand for final goods and services in the economy (Y) at a given time and price levels. This is the demand for the gross domestic product of a country when inventory levels are static. Aggregate Demand: Y= C+I+G+(X-M) C-consumption, I-investment G-government spending, X-total exports & M-total imports

Components 1. Consumption: (personal expenditure of household) 2.Investment (investment capital) 3. Government Spending 4. Net Exports

Aggregate-Demand Curve Aggregate demand curve is downwards sloping because at lower price a greater quantity is demanded. AD

Aggregate Supply The aggregate supply mean the total money value of goods and services produced in an economy in a year. There are two important constituents of aggregate supply. 1. the supply or output of final consumer goods and service in a year 2. the output of capital goods which are also called investment goods or producer goods. Keynes also derived his aggregate supply function from the short-run production function with a given capital stock and constant technology.

What is fiscal policy? changes in government spending or taxes to alter the economy Its embraces the tax &expenditure policies of the govt

What are examples of expansionary fiscal policy? Increase government spending Decrease taxes increase government spending and taxes equally

Objectives 1. Full employment 2. Economic stabilization 3. Economic Growth 4. Fiscal policy and social justice

Instruments 1. Taxation 2. Public Borrowing 3. Public spending & 4. deficit budget

Fiscal Policy & Eco Growth 1. Imposition of additional taxes 2.Direct physical control 3. Revenue of public enterprises 4. Increase in the rate of taxation 5. Public debt 6. Deficit finance

Controlling 1. Fiscal policy - taxation (at the time of inflation) * high rate of tax should be implemented * Reduce the public spending

Laffer Curve the idea that increasing taxes from zero will increase tax revenues up to a certain point. The Laffer curve is typically represented as a graph which starts at 0% tax with zero revenue, rises to a maximum rate of revenue at an intermediate rate of taxation, and then falls again to zero revenue at a 100% tax rate. Why does the shrink happen? Workers have less incentive to work and investors have less of an incentive to invest

Demand Side Management It is an economic theory which suggest that economic stimulation comes best from increasing for good and services. The simple Keynesian model of income, output and employment determination focuses on the relationship between aggregate income and expenditure. Effective demand: Effective demand represents that aggregate demand or total spending (consumption expenditure and investment expenditure which mates with aggregate supply). Effective Demand = National Income (Y) = National Output

Determination of Effective Demand 1. Determination of Employment 2. Say’s law falsified (how much you will produced part of the commodity you will save) 3. Role of Investment

Multiplier DEFINITION OF 'MULTIPLIER‘ In Keynesian economic theory, a factor that quantifies the change in total income as compared to the injection of capital deposits or investments which originally fueled the growth. It is usually used as a measurement of the effects of government spending on income, and it can be calculated as one divided by the marginal propensity to save. That any injection into the economy via investment capital, government spending or the like will result in a proportional increase in overall income at a national level. ∆Y K = Multiplier, ∆Y = Change in Income, ∆I= Change in investment K = ………… ∆ I

The Multiplier and Keynesian Economics The concept of the multiplier process became important in the 1930s when Keynes suggested it as a means to achieving full employment. This demand-management approach, meant to help overcome a shortage of business capital investment, measured the amount of government spending needed to reach a level of national income that would prevent unemployment. The higher the propensity to consume, the greater is the multiplier effect. The government can influence the size of the multiplier through changes in direct taxes. For example, a cut in the basic rate of income tax will increase the amount of extra income that can be spent on further goods and services.