CH 1.

Microeconomics analyzes and studies decisions of individual economic agents and how
they interact in specific markets and allocate their limited resources to optimize their
own wellbeing.

Macroeconomics,It deals with aggregate economic behavior of a nation, a region or the

global economy. In other words, Macroeconomics deals with economy-wide phenomena
such as inflation, unemployment,and economic growth. Macroeconomics tells us about
what determines level of output in an economy, how are employment and prices
determined; how money supply affects rate of interest, how do the monetary and fiscal
policies of the government affect the economy etc.

Business Cycles: Growth of most countries—developed as well as developing countries

go through ups and downs. The term business cycle refers to economy-wide fluctuations in
production or economic activity over time between periods of relatively rapid economic
growth, and periods of relative stagnation or decline. The duration of a business cycle
can be several months or even a few years. Despite being termed cycles, these
fluctuations in economic activity usually do not follow a mechanical or predictable
periodic pattern.

Inflation is usually measured over a year and is expressed

in percentage terms. When we say that annual inflation on April 1, 2011 is 7 percent, it
means that the general price level increased by 7 percent between April 1, 2010 and
April 1, 2011.

 Monetary policy involves changing the interest rate and influencing the
money supply. By central bank.
 Fiscal policy involves the government changing tax rates and levels of
government spending to influence aggregate demand in the economy.

it is
Wholesale Price Index (WPI) is the index of prices prevailing in the wholesale market.
used to measure the average change in price in the sale of goods in bulk
quantity by the whole seller. WPI is a Wholesale prices index it is used to
measure the average change in price in the sale of goods in bulk quantity
by the whole seller. Financial year

it measures
Consumer Price Index is the index of prices prevailing in the retail market.
the price of goods or services sells directly to consumers. CPI is the final
level where the price increase of goods or services. CPI is published by
Central Statistic Office that Ministry of Statistic and Programme
Implementation. It is both for goods and services. Goods and services
covered under CPI are education, food, transport, communication,
recreation, apparel, housing, and medical care. It releases on monthly basis.
The base year for CPI is the calendar year.
There are three measures of CPI, which track the cost of living of
three different categories of consumers—industrial workers (IW), agricultural laborers
(AL)
and rural laborers (RL).

INFLATION

Aggregate demand pull inflation occurs when the aggregate demand 2 for output is in
excess of maximum feasible or potential or full-employment output (at the going price
level).

Cost push inflation occurs due to an increase in the cost of production. In contrast to
the demand-pull inflation, the cost-push inflation emphasizes increases in some
important
component or the other cost as the true source of inflation.

M1 = currency held by the public (currency notes and coins) + Demand deposits
with the banking system (on current and saving bank accounts) + Other demand
deposits with RBI.

M2 = M1 + saving deposits with Post office savings banks.

c. M3 = M1 + time deposits with the banking system.
d. M4 = M3 + total deposits with the post office savings organization (excluding
National Savings Certificates).

The most usual way for a central bank to change money supply is through open market
operations (OMOs). OMOs are sales and purchases of government securities or bonds. If
a
central bank buys bonds from the public in the nation’s bond markets, then it is
increasing
money supply in the economy. Conversely, when the central bank is selling bonds, it is
withdrawing money from the system and reducing the money supply.
The Reserve Bank of India was established on
April 1, 1935 under the Reserve Bank of India Act, which was passed in the year 1934.
Under the Banking Regulation Act, 1949, the RBI has been vested with extensive powers

SEBI is the regulator for the securities market in India. SEBI Act 1992, was enacted to
empower SEBI with statutory powers for :
• Protecting the Interests of investors in securities,
• promoting the development of the securities market, and
• regulating the securities market.
IRDA was constituted as an autonomous body to regulate and develop the business of
insurance and re-insurance in the country under the Insurance Regulatory &
Development
Authority Act, 1999. The key objective of IRDA is to promote market efficiency and
ensure
consumer protection in the insurance sector

The Forward Markets Commission (FMC) was set up in 1953 under the Forward
Contracts
(Regulation) Act, 1952. FMC is the commodities market regulator in India.
Y = C + I + G + (X-M) ………………………………………………………………………………………