Definitions [5]
- Kenneth Boulding: "Macro Economics deals not with individual quantities as such but with the aggregates of these quantities, not with the individual incomes but with the national income, not with individual prices but with the general price level, not with individual output but with the national output."
- J.L. Hansen: "Macroeconomics is that branch of economics which considers the relationship between large aggregates such as the volume of employment, total amount of savings, investment, national income, etc."
- Prof Carl Shapiro: "Macroeconomics deals with the functioning of the economy as a whole."
- Gardner Ackley: "Macroeconomics concerns itself with such variables as the aggregate volume of the output of any economy, within the extent to which its resources are employed with the size of the national income, with the general price level."
Define the Gross Domestic Product.
Gross Domestic Product (GDP) is the total monetary value of all final goods and services produced within a country’s borders in a specific time period, usually a year. It is an essential indicator of a nation’s economic performance.
"Gross national product may be defined as current worked out value of all goods and services produced by the economy during an income period." - W.C. Peterson
"Net National Product at market price is the market value of the net output of final goods and services produced by an economy during an accounting year and net factor income from abroad." – Peterson
Define the following: Value Addition
Value Addition: Value addition on a good refers to the increase in the value of good at each successive stage of production. Algebraically, Value Addition is the difference between the total value of the output and the total value of the intermediate consumption.
Value Addition = Total Value of Output – Total Value of Intermediate Consumption.
Formulae [4]
GNP = P × Q,
Here GNP = Gross National Product
P = Market Price
Q = Final goods and services produced
NNP at Market Prices = GNP at Market Price – Capital Consumption Allowances
NNPMP = GNPMP – CCA
National Income (NI) using this income method is expressed as:
NI = R + W + I + P + MI + (X − M) + (R − P)
Where:
- R: Rent (including imputed rent of owner-occupied houses and income from government property)
- W: Wages and salaries (compensation of employees)
- I: Interest
- P: Profits (including distributed, undistributed, and corporate tax)
- MI: Mixed income of self-employed (where labour and capital income cannot be separated)
- X−M: Net exports (exports minus imports of goods and services)
- R−P: Net receipts from abroad (net income from abroad, such as factor income received from the rest of the world minus factor income paid abroad)
In words, national income is the sum of all domestic factor incomes plus net exports and net factor receipts from abroad.
National Income (NI) or Gross National Product at market prices can be written as:
NI = C + I + G + (X − M) + (R − P)
Where:
- C: Private Final Consumption Expenditure
- I: Private Domestic Investment Expenditure
- G: Government Final Consumption and Investment Expenditure
- : Net Exports (Exports minus Imports)
- : Net Receipts from abroad on account of goods and services
Key Points
Macroeconomics = Understanding the big picture of how India's economy affects your daily life, from job opportunities to price changes to government policies.
- Two sectors: Households & Firms
- Factor market (upper), Commodity market (lower)
- Households give factors → Firms
- Firms give goods & services → Households
- Money flow: Rent, wages, interest, profit
- Income becomes expenditure
- Flow is continuous due to unlimited wants
- In a simple economy (no government, no trade, no saving), households earn wages, rent, interest and profit, and spend all their income on firms’ goods and services.
- The same income circulates: firms’ factor payments = households’ spending = firms’ sales, so aggregate income = aggregate expenditure = total value of final output.
- Hence national income can be calculated in three equal ways: by total spending, by total output, or by total factor incomes.
Concepts [9]
- Macroeconomics
- Two Sector Model of Circular Flow of National Income
- Gross and Net Domestic Product at Market Price
- Gross National Product at Market Price
- Net National Product (NNP)
- Circular Flow of Income and Methods of Calculating National Income
- Methods of Measurement of National Income
- Income Method
- Expenditure Method
