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Macro-Economics

1. WHAT IS ECONOMICS ?

Economics: Economics is a study which deals with how society use its limited resources to maintain unlimited wants and produce important goods and services and distribute them among different people. According to Robbins Economics is the science which studies human behavior as a relationship between ends and scarce means which have alternative uses.
2. WRITE THE SCOPE OF ECONOMICS.

Scope of Economics:
Scope means the sphere of study. We have to consider what economics studies and what lies beyond it. The scope of economics will be brought out by discussing the following.

1. Micro economics: Micro economics is a study which deals with individual firms, individual industry, individual households, particular commodity, individual price, wage particular output etc. Micro economic is considered to be basic economics. It is often know by price theory. It is study of one particular unite rather than the unites combined together. 2. Macro economics: Macroeconomics is a study which deals not with individual price but with national price level, not with individual output but with national output level, not with individual saving but with nation saving etc. According to the above discussion, we can find that macro economic deals with the whole economic along with boom and recession, inflation, unemployment, transfer payment, balance of payment, consumption government expenditure, saving, exchange rate etc. It is often called aggregative economics.
OTHER PARTS SHEET PAGE ..

National Income Gross national product (GNP) GNP is defined by the market value of all the goods and services produced by the inhabitants of a country in a year. There are no other ways to adding up different kinds of product without money value.

3. HOW CAN YOU MEASURE GNP?

GNP can measure in two ways: 1. According to Income 2. According to Expenditure Component of GNP according to Income 1. 2. 3. 4. Wage (w) The value of all income earned in the country. Rent (R) The value of income earned through rentals. Interest rate (r) The amount of interest earned in the country in a given year. Profit (P) The profit realized at all stages of production throughout the country by all sectors of
the economy. The following formula is used to determine GNP according to Income GNP = w+R+r+P

Component of GNP according to Expenditure 1. Consumption expenditure (c) The value of all goods and services purchased
by CONSUMERS.

2. Investment expenditure (I) The value of all spending by BUSINESS. 3. Government expenditure (G) The value of all spending by the GOVERNMENT. 4. Net export ( x ) Net Exports is determined by subtracting imports from exports (E-M)
The following formula is used to determine GNP according to Expenditure. GNE = C + I + G + (E - M)

Net national product: when charges of depreciation is deduced from GNP we get NNP NNP= GNP depreciation cost Depreciation cost is often known by capital consumption allowance Gross domestic product (GDP): GDP is defined by the market value of all the goods and services produced in a border area of a country in a year. GDP= GNP + Income of foreigner income of people who work in abroad

GNP = GDP + (X-M) X=M X>M GNP>GDP X<M GNP<GDP

Net domestic product (NDP): When charges of depreciation is deducted from GDP we get NDP NDP = GDP - Depreciation cost Depreciation cost is often known by capital consumption allowance

Nominal GNP: Normal GNP is measured at current year price. By multiply the current market price with the quantity of goods and services produced is a country in a year, we get Nominal GNP. Nominal GNP= p, q + p2q2 + ..+ pnqn (p1, p2..pn) price of goods and services produced in current year (q1, q2 .qn) quantity of produced goods and services

Real GNP: Real GNP is measured at base year price. By multiply the base market price with the quantity of goods and services produced is a country in a current, we get Real GNP. Real GNP = 100

4. Difference between Nominal GNP and Real GNP Nominal GNP Real GNP

We measure nominal GNP current year We measure real GNP base year price. price. Nominal GNP is current pries GNP Real GNP is fixed pries GNP

It inflation occurs Nominal GNP increased It inflation occurs real GNP will decreased

5. WHAT IS GNP DEFLATOR? GNP deflator: The ratio between national GNP and real GNP is called GNP deflator. GNP deflator = = =P

So, we often measure inflation by GNP Deflator.

6. What are the Problems of counting national income? There are some problems a country may face in counting national income. They are given below: Problems of counting national income:
1.

Double counting problem: Proper care is required for calculating national income so that double
counting may not take place. This problem usually arises in those countries where proper documentation or statistics are not available.

2. Inventory: Inventory is the total amount of goods and/or materials contained in a store or factory at any given time. 3. Transfer payment: One-way payment of money for which no money, good,
or service isreceivedin exchange. Governments usesuch payments as means of inco me redistribution by giving out money under social welfare programs Subsidies paid to exporters, farmers, manufacturers, however, are not considered transfer payments. Transfer payments are excluded in computing gross national product.

4. Household work: in our country most of the women do household work as housewife. They can not take money for that work. Again if father or mother is doctor he/shee see up his children when they get sick but they dont take money for that. Although it is economic event but it is not joined with the national income. 5. Problems of change in price level: in the fiscal year the price of essential commodity go up and down many times in the year. But national income will count the last price of the commodity. It will create problem not to give the right figure. 6. Unfair activity: smagliing and unfair activity like robbery, thifing is not count in incomee 7. Production for self-consumption: few products Are produced for self-consumption.like if a farmer have small land he will cultivate rice for his own consumption but not to sell in the market. 8. Keeping secret of real income: to reduce the amount of tax people keep secret their real income which results in problem of counting national income. 9. Lack of proper survey: if survey team survey only few areas and give they average result it will not give the proper national income. For example: vegetables are mostly cultivated in the village area usually the price of that product is less in that area which become double or trippee in price when they come to the town area.
10.

Capital consumption allowance(depreciation cost) Another problem is the calculation of


depreciation. The main reason behind it is that both the amount and the composition of jour capital change from time to time. There are no standard or concept rules of depreciation that can be applied. Since depreciation is an estimate so correct deduction can be made until and unless these accurate depreciation estimates are not deducted from the estimate of net national product the net national income is bound to wrong.

7. HOW CAN YOU MEASURE GDP? Measures of GDP: 1. Find goals approach(GDP=C+g+G+ ) 2. Value added approach 3. Income approach

The final good approach: GDP adds up the total dollar value of goods and services produces, categorized by their ultimate user. Hare it is important to distinguish between final and intermediate goods is that the value of final goods includes the value of intermediate goods. When a company sells a car for $ 12000 that figure may include $ 100 worth of tire. It would double count list in GDP the revenues of both car maker and tire producer. Some final good consumed by individual --- we called aggregate consumption. Some are used by the firms to build building and make machines --- we called aggregate investment. Some are parched by government --- we called government expenditure. And some of the goods called export. Go abroad, some of the goods called import.

The value added approach: A second way to calculate the value of GDP is to study the intermediate goods directly. The production of most items of occurs in severs stage. Consider the automobile. At once stages in its production, ironer, coal and limestone are mined. At a second stage this raw materials are shipped to steal mils. At this stage find Steal Company this ingredient to make steal.

Value added: Firm revenue cost of intermediate goods GDP can be measured by calculating the value added at each stage of production.

The income approach: The third method used to calculating GDP involves measuring income generated selling product rather than the value of product. This is known as income approach. Firms do five things with their revenues. They pay for labors, they pay interest, they buy intermediate goods, they pay indirect taxes and they enjoy what left overs as profit.

8. GIVE THE DIFFERENCE BETWEEN GNP AND GDP. GNP(GROSS NATIONAL PRODUCT) 1. GNP IS DEFINED BY THE MARKET VALUE OF ALL
THE GOODS AND SERVICES PRODUCED BY THE INHABITANTS OF A COUNTRY IN A YEAR .

GDP(GROSS DOMESTIC PRODUCT) 1. GDP IS DEFINED BY THE MARKET VALUE OF ALL THE
GOODS AND SERVICES PRODUCED IN A BORDER AREA OF A COUNTRY IN A YEAR .

2. THE TOTAL INCOME ACQUIRED BY THE INHABITANTS OF A COUNTRY . 3. GNP FOCUSES ON EARNINGS OF A COUNTRY . 4. THE ACCOUNT SHOWS NET INVESTMENT INCOME TO FOREIGNERS IS GNP. 5. TO
SEE HOW THE NATIONALS COUNTRY ARE DOING ECONOMICALLY. OF A

2. THE TOTAL INCOME ACQUIRED IN THE BORDER AREA OF A COUNTRY . 3. GDP FOCUSES ON THE INCOMES MADE IN A COUNTRY . 4. THE
ACCOUNT SHOWS INCOMES INHABITANTS OF A COUNTRY IS GDP. OF THE

5. TO SEE THE STRENGTH OF A COUNTRY S LOCAL ECONOMY .

9. WHAT ARE THE GOALS OF ECONOMICS? GIVE BRIEFLY ABOUT THAT.


The economic policy is developed in every country to achieve some economic goals. Following are the main economic goals which are widely known in the world.

BRIEF ON THE SHEET PAGE.

10. WHAT IS POSITIVE AND NORMATIVE ECONOMICS ? Positive economics: Normative economics: Positive economics is relatively scientific (testable) and focuses on value-free descriptions of and predictions about economic relationships. Normative economics deals with values and addresses what should be rather than what is.