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Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
Chapter Organisation
2.1 Production Approach 2.2 Expenditure Approach 2.3 Some Important Identities 2.4 Measuring Gross Domestic Product 2.5 Inflation and Price Indices 2.6 Inflation and Interest Rates 2.7 Where to Find the Data
Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
Indian GDP for 2010-11 was Rs. 78,75,626 crores at market prices Per capita GDP = Rs. 78,75,626 crores /1186m pop. = Rs. 66,404 in 2010-11
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Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
Chapter Organisation
2.1 Production 2.2 Expenditure Approach 2.3 Some Important Identities 2.4 Measuring Gross Domestic Product 2.5 Inflation and Price Indices 2.6 Inflation and Interest Rates 2.7 Where to Find the Data
Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
Expenditure Approach
Indian GDP Components (Quarterly):
Industry / Year Figures in Rs. Crores 1. Private Final Consumption Expenditure 2. Government Final Consumption Expenditure 3. Gross Fixed Capital Formation 4. Change in Stock 5. Valuables 6. Export of goods & Services 7. Import of goods & Services 8. Discrepancies 9. GDP at market prices Q1 1031118 195413 535894 60804 34596 365290 453521 -6800 1762793 2010-11 Q2 Q3 Q4 1077076 1224350 1170430 196498 259898 254857 551793 576198 658212 63112 64571 72457 40120 42833 37717 374264 449579 507091 463086 481298 553760 -30812 -56716 77451 1808963 2079416 2224454
Source: Central Statistics Office (CSO); Table 164(a), Handbook of Statistics on Indian Economy, 2011
Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
Consumption
From the earlier Table India s household consumption was Rs. 45,02,975 crores in 2010-11. This comprises 57.2% of GDP at market prices
Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
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Government Purchases
Government spending represents purchases Transfer payments (e.g., pensions, subsidies etc.) are not purchases Government expenditure comprises purchases and transfers Only Govt. purchases are counted as part of GDP.
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Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
Investment
Investment means additions to the physical stock of capital This includes new construction, machinery, factories and additional inventories Investment in human capital increases the labour force knowledge and skill Gross investment = net investment + depreciation
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Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
Net Exports
Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
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Chapter Organisation
2.1 Production 2.2 Components of Aggregate Demand 2.3 Some Important Identities 2.4 Measuring Gross Domestic Product 2.5 Inflation and Price Indices 2.6 Inflation and Interest Rates 2.7 Where to Find the Data
Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
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Simple economy no government and foreign trade (Two Sector) Output produced equals output sold Y|C+I (2.4)
(2.5)
Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
Y | C + I + G + NX
(2.8)
Disposable income (YD) includes transfers (TR) and is net of taxes (TA) YD | Y + TR - TA (2.9)
Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
Using (2.9) and (2.10) to eliminate YD, substituting for C in (2.8) and rearranging gives S - I | (G + TR - TA) + NX
(G + TR - TA) represents the excess of government spending over receipts, called the budget deficit (BD) This gives: S - I | BD + NX (2.12)
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Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
S - I | BD + NX shows important relations between S - I, BD and NX If S = I then the (positive) budget deficit must be equal to the (negative) external deficit (twin deficits) If S = Rs. 1000 cr, I = Rs. 950 cr and the budget deficit is Rs. 150 cr then NX equal to ? NX = -Rs. 100 cr. This is the trade deficit.
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Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
Chapter Organisation
2.1 Production 2.2 Components of Aggregate Demand 2.3 Some Important Identities 2.4 Measuring Gross Domestic Product 2.5 Inflation and Price Indices 2.6 Inflation and Interest Rates 2.7 Where to Find the Data
Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
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GDP is the value of final goods and services produced Including semi-processed goods will cause double counting GDP is therefore the sum of value added in each production stage GDP excludes the resale of existing commodities
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Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
Measurement Problems
Most household-work, work in unorganized sector and illegal activity are not traded in the market Data on India s Underground Economy have been estimated India s underground economy was about 23% of GDP in 1997-98 (Chattopadhyay et al. 2005) Government services may not be priced by the market
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Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
Measurement Problems
Pollution and environment degradation effects not included in GDP How to account correctly for improvements in the quality of goods? National accounts data is collected and frequently revised Quarterly GDP growth figures can change by 1 2% at an annual rate
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Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
Chapter Organisation
2.1 2.2 2.3 2.4 2.5 2.6 2.7 Production Components of Aggregate Demand Some Important Identities Measuring Gross Domestic Product Inflation and Price Indices Inflation and Interest Rates Where to Find the Data
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Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
Nominal GDP measures output at nominal (market) prices An increase could be due to increased production and/or prices There is a need to estimate real GDP Physical output for each year is multiplied by the prices that prevailed in the base year These estimates represent real GDP
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Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
Price Indices
The GDP deflator is the ratio of nominal GDP to real GDP for a year It is a broad-based price index The consumer price index (CPI) measures
a typical urban consumers cost of purchases based on a fixed basket of goods and services
Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
Inflation
Pt Pt 1 T! Pt 1
India s inflation rate was reported to be 9.36% p.a. in October 2011 Over the long term the CPI and GDP deflator produce similar measures of inflation
Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
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Chapter Organisation
2.1 2.2 2.3 2.4 2.5 2.6 2.7 Production Components of Aggregate Demand Some Important Identities Measuring Gross Domestic Product Inflation and Price Indices Inflation and Interest Rates Where to Find the Data
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Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
Interest rates reported in the media are nominal rates Real interest rate = nominal interest rate (expected) inflation rate A Treasury bond paying 5.01% p.a. with -0.7% annual inflation rate has a real return of ? Real return = 5.01% - (-0.7)% = 5.71%
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Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
Chapter Organisation
2.1 2.2 2.3 2.4 2.5 2.6 2.7 Production Components of Aggregate Demand Some Important Identities Measuring Gross Domestic Product Inflation and Price Indices Inflation and Interest Rates Where to Find the Data
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Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
Copyright 2002 McGraw-Hill Australia Pty Ltd PPTs t/a Macroeconomics by Dornbusch, Bodman, Crosby, Fischer and Startz
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