A THEORETICAL INQUIRY INTO DEMONETIZATION AND ITS IMPACT ON REAL GDP OF INDIA - Moksh Garg (PGP 2017 - A THEORETICAL INQUIRY INTO DEMONETIZATION AND ITS

A THEORETICAL INQUIRY INTO DEMONETIZATION AND ITS IMPACT ON REAL GDP OF INDIA - Moksh Garg (PGP 2017

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A THEORETICAL INQUIRY INTO DEMONETIZATION AND ITS IMPACT ON GDP OF INDIA India’s demonetization has been a big rhetoric, of which so much has been said and written lately that it might seem pointless to deliberate on the issue almost six months after its implementation. Moreover, India shows signs of a swift rebound with Central Statistics Office (CSO) estimating India’s Gross Domestic Product (GDP) growth rate at 7.1% in Q4 2016-17- a marginal decrease from 7.4% in Q3 2016-17 indicating no major repercussions. The data doesn’t clearly add up and creates a ground for mutually exclusive viewpoints. This article tries to analyze the impact of demonetization on GDP of India with the help of Keynesian IS-LM (Investment Saving Liquidity Preference Money Supply) framework. The IS-LM analysis is based on the assumptions that the general price level (̅) is fixed and there’s no external sector (X=M=0). Time to investigate this matter further: A.Impact on Investment Saving (IS) Curve The IS curve represents various combinations of interest rate and national output for which product market is in balance. There’s a shift in IS curve due to change in autonomous factors that is unrelated to the interest rate. These factors include: Private Consumption Expenditure (C), Private Investment Expenditure (I), Government Expenditure (G) - sum total of these expenditures is the Aggregate Demand (AD) in an economy i.e. AD = C + I + G
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