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It is called an aggregative economics. In short, it is concerned with the economic activity in large or the economy as a whole. It is a study of aggregates such as employment, total output, total investment, total consumption. Total saving, national income, aggregate demand, aggregate supply, general price level etc.
Theory of Economic Growth: Theories of economic growth and various growth models designed by various economists like HarrodDomar, Solow, Schumpeter etc. are the subject matter of Macro-economics. It also studies the factors affecting the economic development such as investment and the full utilization of capacity etc.
Theory of Distribution: Theory of Rent, Interest, Wage, Profit etc. are the subject matter of Macro-economics. Thus Macro-economics is related with the study of the relative shares of factors of production. How the shares of factors of production are determined? How these shares affect the income and employment level in an economy? Etc.
Significance of Macro-economics
Policy formulation: In all economic systems, government intervention in all economic affairs has become indispensable. All governments, especially of the developing countries face problems such as unemployment, inflation, overpopulation etc. Proper knowledge of these aggregates is essential in framing and formulating the policies to solve these problems.
Micro analysis: Macro approach provides basis for the micro-economic analysis that helps to verify the behavior of individual units. Multi-dimensional study: Macro economics deals with the problems relating to total output, employment, national income etc.. Study of these variables is helpful to the state in initiating necessary measures to control fluctuations in them.
Growth models: In the postkeynesian period, General Theory of Keynes became very popular and its application in the economic development proved very effective.
Monetary Policies: Fluctuations in the demand for and supply of money causes economic stability. Suitable monetary policy helps in solving the problems of inflation and deflation. E.g. RBI announces credit policy very often to control inflation by bringing changes in CRR, Bank rate, Repo rates etc. Fiscal policies: Good taxation policy also helps in economic stability of an economy. Public finance a branch of macro economic deals with this aspect. Effective budgetary policy of the govt. helps in rapid economic growth with stability.
Quantitative
refers to increases over time in a countrys real output of goods and services. On the other hand economic development measures progress in terms of socio economic development of an economy. It is more comprehensive in nature. According to Charles P. Kindleberger economic growth refers to rise in output and economic development implies changes in technological and institutional organization of production as well as in distributive pattern of income. Example: Rise in NI, PCI, Employment level etc. indicate economic growth. Whereas Rise in literacy level, Rise in life expectancy of population, reduction in poverty, improvement in the standard of living and standard of life, modernisation of agricultural, industries etc. indicate economic development.
Development
without growth is unimaginable. A substantial rise in a countrys GNP is required before it can hope to expand its industries, financial institutions, trade, public utilities and government administration. Nowhere in the world has the occupational distribution of population changed in the absence of growth. From the welfare viewpoint of the people economic growth alone is not enough for underdeveloped countries; it must be accompanied by development.
According to former World Bank president Robert McNamara about 40% of the developing worlds population did not benefit at all from the economic growth during the 1950s and 1960s. Thus economic growth is accompanied by greater industrialization and greater commercialization, whereas economic development also includes structural changes in the economy and includes the measurement of benefit of economic growth accruing to all. In India only the educated middle class in benefited from rapid economic growth in recent days.
Widespread Poverty:
The problem of poverty results due to income inequality. According to Sixth plan, the overall percentage of the people below the poverty line had declined to 36.0% in 1993-94 while the incidence of poverty was 37.3% in rural areas and 32.4% in urban areas. According to National Sample Survey 61st round, the poverty ratio was 27.5% at the national level in 2004-05. According to TOI report published on 22nd september10, 37% population still lives below poverty line. 46% children are underweight. 35% population does not have an access to toilets. 283 people per one lakh population suffers from TB.
Predominance of agriculture:
Occupational distribution of population in India reflects the economic backwardness of the economy. In 1951 about 70% of the population of the country was dependent on agriculture. Since then little change has occurred in the situation. In 1951 around 69.7% of the working population was employed in agriculture. In 2001, 56.9% of the main workers were employed in agriculture and allied activities. Thus agriculture still remains the biggest employer in India.
GDP by Industry of Origin in 2006 (percentage) Source: World Bank, World Development Report 2008.
Country
Agriculture
Industry
Service
U.K.
USA Germany China Indonesia India
1
1 1 12 12 18
26
22 30 47 42 28
73
77 69 41 46 55
Widespread Unemployment:
The nature of unemployment in India is different from that in developed countries. Most of the cases of unemployment in India is chronic in nature which results due to structural defects in the economy. People in a large number in the countryside do not have adequate work throughout the year and many of them suffer from disguised unemployment for long periods. According to Ragner Nurksey, if some of these people are removed from agriculture and absorbed in other productive activities, farm output may not fall, while the national income will increase due to their productive activity in the absorbed sector.
According to the estimates of Census 2001, the population of India was 102.5 crores. During 1961 and 2001, growth rate of population was 2.14% p.a. India has passed through the second stage of demographic transition causing population explosion. In 1999-00 percentage of population of working age (15-64 years) was 63.8%. Growth rate of employment is poor.
The HDI is a composite of three basic indicators of human development- longevity (life expectancy at birth), knowledge (educational attainment by a combination of adult literacy) and standard of living (measured by real GDP per capita).
HDI value and Ranking of selected Developed and Developing countries, 2009
Country Developed countries Norway Japan U.S.A. U.K. Developing countries Cuba China India Bangladesh 0.863 0.772 0.619 0.547 51 81 128 169 0.971 0.960 0.956 0.947 1 8 12 16 HDI value HDI Rank
Above 0.9 is very high. Between 0.8 and 0.9 is high. Between 0.5 and 0.8 is medium. Below 0.5 is low. India falls in the category of Medium Human development countries.
Technological Backwardness:
While technological progress is at the heart of development process, over a wide range of productive activity, techniques of production are backward in India. Except in the green revolution belt of the country everywhere else farmers are persisting with centuries old outmoded production techniques. However, in large-scale industries, energy, transport and communications sectors modern production techniques have been introduced. Nevertheless there is still a wide gap between the sophisticated production techniques of the developed countries and Indias technology.
Lack of Entrepreneurs:
According to Joseph Schumpeter, the function of entrepreneurs is to reform or revolutionize the pattern of production by exploiting an invention or more generally, an untried technological possibility for producing a new commodity or producing an old one in a new way by opening up a new source of supply of raw materials or a new outlet for products, by reorganising an industry and so on. Obviously these activities require aptitudes that are present only in a small fraction of population. JRD Tata and Dhirubhai Ambani still remain the role models and it is difficult to name any other entrepreneur in the industrial sector.
National Income : National Income is the money value of all final outcome of all economic activities by the people of a country. Macro economic analyses different concepts of national income mainly Gross National Product (GNP) and Gross Domestic Product(GDP).
First Plan (1951-56): Annual average growth rate was 4.4% (1999-00 prices). Growth was steady and satisfactory. Second Plan (1956-61): The rise in national income was not satisfactory as it was 3.8%.
Third Plan (1961-66): The annual average growth rate was only 2.6%. It was just sufficient to neutralise the growth of population. It was mainly due to severe drought and slow down of the business in the country. This plan also witnessed Indo-China war which affected the economy. Fourth Plan(1969-74): The average annual growth rate declined to 3.1%. The rise in prices of petroleum oil, severe inflation, fall in the production etc. were the causes of slow growth.
Fifth Plan (1974-78): The average annual growth rate was 4.9%. It was a satisfactory growth rate. In 1979-80, there was a decline in National Income by 6% and economy suffered a setback in these two years. Sixth Plan (1985-90): Average annual growth rate was 5. 4%. It is not a realistic growth as the base year chose was 1979-80 when economy was facing problem of price rise and slow down. Seventh Plan (1985-90): The average annual growth rate was 5.5% p.a. This growth was appreciated and it was mainly due to satisfactory performance of agriculture and manufacturing sectors.
Seventh Plan (1985-90): The average annual growth rate was 5.5% p.a. This growth was appreciated and it was mainly due to satisfactory performance of agriculture and manufacturing sectors. Eighth plan (1992-97): Since 1992 there was an improvement as growth rate was 6.7%p.a. It was mainly due to high growth rate in agriculture, manufacturing, construction, electricity, trade and transport. Ninth Plan (1997-2002): The average annual growth rate was lesser than eighth plan at 5.3%.p.a. The main cause for decline was poor performance industrial sector.
Tenth Plan (2002-07): The growth rate was impressive at 7.8% p.a. The reasons for good performance of the economy was mainly due to heavy inflow of foreign capital, rise in government expenditure, liberalization of imports, efficient management of fiscal and current account deficit through external commercial borrowings. The good performance of service sector is also main contributor for high performance during this plan.
LIMITATIONS: Despite improvement in the economic growth rate India is lagging behind in many areas due to following reasons: Still 28% population suffers from poverty. Unemployment still a severe problem. Imbalanced regional growth. E.g. Bihar, Assam, Orissa and several other states remain undeveloped whereas Punjab, Andhra, Karnataka, Maharashtra, Gujarat etc. are developing at much faster rate. There is a lack of social security measures such as medical facilities, unemployment allowance, old age pension and several other relief measures which other Asian developing countries also provide. The deficiencies in primary education, primary health care, safe drinking water, sanitation etc. still exists in the economy.
China
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$1740
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