3. Macro Economics.pptx - Understanding the Economic...

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1 Understanding the Economic Environment Dr.Sarabjeet Kaur
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2 Macroeconomics and Managerial Decision-Making Sustained Profits Revenue Cost Demand Funding/utilization Internal Effort External Support Internal Effort External Support Dr.Sarabjeet Kaur
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3 Macroeconomic Policy Objectives Sustained Growth in GDP Price Stability Macroeconomic Policy Tools Fiscal Policy Monetary Policy Government Expenditure, Taxes Money Supply Aggregate Demand, Prices, Interest rates, Tax rates, Exchange rates Business Environment Understanding the Macroeconomic Policy Environment Dr.Sarabjeet Kaur
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4 GDP and related figures Dr.Sarabjeet Kaur
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5 What is GDP? GDP refers to the market value of final goods and services produced in an economy during a given period GDP is a good measure of overall economic activity in a country, but does not say much about welfare Dr.Sarabjeet Kaur
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Dr.Sarabjeet Kaur
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National Income Determinants Dr.Sarabjeet Kaur
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Aggregate Demand and Supply Dr.Sarabjeet Kaur
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Aggregate Demand (AD) Dr.Sarabjeet Kaur
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Key Variables Dr.Sarabjeet Kaur
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Aggregate Supply (AS) Dr.Sarabjeet Kaur
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Three Approaches in calculating GDP
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The GDP measures the value of all final goods and services (output) produced domestically over some given interval of time. Since the market value of the final output already reflects the value of its intermediate products, adding the value of intermediate materials to the value of final output would overstate the true value of production in an economy (one would, in effect, be double counting) .
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Three Approaches Mary spends on final good $10, the market value is $10, the income to the factors is $10 National Expenditure =National Output = National Income 1. Expenditure approach 2. Output approach 3. Income approach
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Expenditure Approach GDP = C + I + G + (X- M) C = Private consumption expenditure I = Investment Expenditure G= Government Consumption Expenditure X = Value of Exports M = Value of Imports
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Investment Expenditure (I) = Gross Domestic Fixed Capital Formation + Change in Stock (Inventories) Gross Domestic Fixed Capital Formation : Expenditure on purchasing land, factories, flats, office, machinery, commission, legal charges + Depriciation
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Production (Valued-added) approach Measures the total market value of all final goods and services It is difficult to distinguish between intermediate goods and final goods. To avoid double counting, valued-added method is used.
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Income approach Measure the sum of income for the factors of production distributed by the RPUs. The rewards to their production of goods and provision of services.
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a) Compensation of employees b) Interest plus Rent plus Profit or Gross Operating Surplus c) Mixed Income
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Real GDP and Monetary GDP To remove the effects of price change, We have Real GDP, = GDP at constant market price = Price in base year x Output in current year Money GDP, = GDP at current market price = Price in current year x Output in current year
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