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Economics
• Economics is a study of
man in the ordinary
business of life.
• It enquires how he gets
his income and how he
uses it.

Economics is the study of scarcity
and its implications for the use of
resources, production of goods
and services, growth of
production and welfare over time,
and a great variety of other
complex issues of vital concern to
society.

• The two main purposes of managerial economics are:
• To optimize decision making when the firm is faced with
problems or obstacles, with the consideration and application
of macro and microeconomic theories and principles.
• To analyze the possible effects and implications of both short
and long-term planning decisions on the revenue and
profitability of the Business.
• The core principles that managerial economist use to achieve
the above purposes are:
– monitoring operations management and performance,
– target or goal setting, and
– talent management and development.

Microeconomics &
Macroeconomics
• Microeconomics analyzes what's viewed as basic
elements in the economy, including individual agents
and markets, their interactions, and the outcomes of
interactions. Individual agents may include, for
example, households, firms, buyers, and sellers.
• Macroeconomics analyzes the economy as a system
where production, consumption, saving, and
investment interact, and factors affecting it:
employment of the resources of labour, capital, and
land, currency inflation, economic growth, and public
policies that have impact on these elements.

• Macroeconomics is the study
of whole economies--the part
of economics concerned with
large-scale or general
economic factors and how
they interact in economies

• Macroeconomics is a branch
of economics that deals with the
performance, structure, behavior, and
decision-making of an economy as a
whole—for example, using interest rates,
taxes, and government spending to regulate
an economy's growth and stability.
• This includes regional, national, and global
economies.

Scope of Macro-economics
1. Major sectors
2. National income
3. General employment
4. Theory of general price
5. Theory of money
6. International trade.

• Macroeconomic output is usually measured by gross domestic
product (GDP) or one of the other national accounts.
• Economists interested in long-run increases in output, study
economic growth.
• Advances in technology, accumulation of machinery and
other capital, and better education and human capital, are all
factors that lead to increase economic output over time.
However, output does not always increase consistently over
time.
• Business cycles can cause short-term drops in output
called recessions.
• Economists look for macroeconomic policies that prevent
economies from slipping into recessions, and that lead to faster
long-term growth.

Limitations of Macro-economics
1. Excessive generalisation
2. Obsession of aggregation
3. Based on inferences
4. No clear picture
5. The problem of aggregation
6. Depends on Micro-economics

• MODULE 1: INTRODUCTION TO MACRO ECONOMICS Nature and scope of
macroeconomics; Meaning and definition, Circular flow of income and
expenditure; National Income: Basic Concepts, Components of GDP, GNP,
Disposable Personal Income and PCI
• MODULE 2: CLASSICAL & KEYNESIAN MODELS Classical approach: Full
employment equilibrium – Says’s Law of Market; Keynesian approach:
Keynes theory of employment, consumption demand, investment
demand, Effective demand: determination of equilibrium income; Theory
of multiplier.
• MODULE 3: CONSUMPTION, SAVING AND INVESTMENT Consumption
Functions- APC, MPC, APS and MPS(concepts), Keynesian Absolute income
Hypothesis, Relative Income Hypothesis, Life Cycle Hypothesis, Permanent
Income HypothesisInvestment Demand.
• MODULE 4: SUPPLY OF MONEY & DEMAND FOR MONEY Functions and
Classification of Money, Money Supply and Money Demand –Keynes
Liquidity preference theory, Monetary policy & objectives, Functions of
Central Bank, Fiscal policy & objectives, IS – LM Model
• MODULE 5: INFLATION & TRADE CYCLES Inflation: Concept, Types, Causes
and Measurement – Effects of Inflation - Concepts of Phillips Curve,
Deflation and Stagflation –Trade Cycles: Concept, Causes and Phases of
trade cycle.

Mac Eco- Course File.docx
ERP Teaching Plan - Mac
Eco.xlsx

• Macroeconomics encompasses a variety of
concepts and variables, but there are three
central topics for macroeconomic research.
• Macroeconomic theories usually relate the
phenomena of output, unemployment, and
inflation.
• Outside of macroeconomic theory, these
topics are also important to all economic
agents including workers, consumers, and
producers.

Output and income
• National output is the total amount of
everything a country produces in a given period
of time.
• Everything that is produced and sold generates
an equal amount of income.
• The output and income are usually considered
equivalent and the two terms are often used
interchangeably, output changes into income.
• Output can be measured or it can be viewed
from the production side and measured as the
total value of final goods and services or the
sum of all value added in the economy.

• Gross Domestic Product (GDP)
• GDP measures the monetary value of
final goods and services—that is, those
that are bought by the final user—
produced in a country in a given period
of time (say a quarter or a year).
• It counts all of the output generated
within the borders of a country.

• Gross National Product (GNP)
• Gross national product is another metric used
to measure a country's economic output.
• Where GDP looks at the value of goods and
services produced within a country's borders,
GNP is the market value of goods and services
produced by all citizens of a country—both
domestically and abroad.

• Gross domestic product (GDP) and gross national product
(GNP) are both widely used measures of a country's
aggregate economic output.
• GDP measures the value of goods and services produced
within a country's borders, by citizens and non-citizens alike.
• GNP measures the value of goods and services produced by
a country's citizens, both domestically and abroad.
• GDP is the most commonly used by global economies. The
United States abandoned the use of GNP in 1991, adopting
GDP as its measure to compare itself with other economies.
• Many sources now use the term Gross National Income, or
GNI(GNP)

• https://mospi.gov.in/sites/def
ault/files/reports_and_public
ation/statistical_manual/Chap
ter%208.pdf

• Gross domestic product (GDP) is a monetary
measure of the market value of all the final
goods and services produced in a specific time
period by a country or countries.
• GDP is most often used by the government of a
single country to measure its economic health.
• Due to its complex and subjective nature, this
measure is often revised before being
considered a reliable indicator.

• GDP measures the monetary value of
final goods and services—that is, those
that are bought by the final user—
produced in a country in a given period
of time (say a quarter or a year).
• It counts all of the output generated
within the borders of a country.

• Nominal GDP or GDP at Current Prices
in the year 2022-23 is estimated at
₹272.04 lakh crore

History
• William Petty came up with a basic concept of GDP to attack
landlords against unfair taxation during warfare between the
Dutch and the English between 1654 and 1676.
• Charles Davenant developed the method further in 1695.
• The modern concept of GDP was first developed by Simon
Kuznets for a 1934 U.S. Congress report.
• After the Bretton Woods conference in 1944, GDP became the
main tool for measuring a country's economy.
• At that time gross national product (GNP) was the preferred
estimate, which differed from GDP in that it measured
production by a country's citizens at home and abroad rather
than its 'resident institutional units'.
• The switch from GNP to GDP in the United States occurred in
1991.

• Types of GDP
– #1 – Nominal GDP
– #2 – Real GDP
– #3 – Potential GDP
– #4 – GDP Per Capita
– #5 – GDP Growth Rate
– #6 – GDP Purchasing Power Parity (PPP)

• #1 – Nominal GDP
• Nominal GDP evaluates a country’s overall economic output without
taking inflation into account. Instead, it assesses all domestically produced
goods and services based on current market prices. Furthermore, it is an
excellent tool for comparing economic output from different quarters of
the same year.
• #2 – Real GDP
• Real GDP is the most precise indicator of a country’s economic activity,
such as growth or decline and production of goods and services in a
particular year. The calculation of actual gross domestic product uses
the GDP deflator, i.e., measuring the difference in the values of all
products and services between the current and the base year. It helps
compare the gross domestic product of several years by adjusting changes
in market prices for inflation or deflation.
• #3 – Potential GDP
• It is a benchmark set for a country’s economic output that it can achieve
in perfect conditions when everything is under control. Examples include
low inflation, steady or increased purchasing power of the currency, full
employment, optimal resource utilization, and so on.

• #4 – GDP Per Capita
• It measures a nation’s total economic output by dividing its nominal gross
domestic product for a specific period by its total population. As a result,
it shows the average per capita income, living standards, and worker
productivity.
• #5 – GDP Growth Rate
• It measures changes in a country’s overall economic production on a
quarterly or annual basis to aid in managing issues such as unemployment
and inflation. A negative real-gross domestic product growth rate suggests
economic contraction, recession, or depression, whereas an overly
positive growth rate indicates inflation.
• #6 – GDP Purchasing Power Parity (PPP)
• It determines a country’s gross domestic product based on the purchasing
power parity (PPP) of numerous nations’ economic production, market
prices of goods and services, incomes, living costs, and living standards.

• https://en.wikipedia.org/wiki/
Gross_domestic_product#/m
edia/File:Countries_by_GDP_(
Nominal)_in_2014.svg

• GDP is often considered to be the
world's most powerful statistical
indicator of national development
and progress.
• It is often used as a metric for
international comparisons as well
as a broad measure of economic
progress.

Rank Country
GDP (in
U.S.
dollars)
Annual
Growth
rate
1
United
States of
America
23.3 trillion 1.58%
2
People's
Republic of
China
17.7 trillion 6.3%
3 Japan 4.9 trillion 1.3%
4 Germany 4.3 trillion 0.2%
5 India 3.75 trillion 7.2%
India’s rank in GDP

https://www.mospi.gov.in/sites/default/files/press_re
lease/PressNoteNAD_28feb23final.pdf
World GDP.xlsx

• How is GDP calculated
• GDP = private consumption + gross
private investment + government
investment + government spending +
(exports – imports).
• GDP is usually calculated by the national
statistical agency of the country
following the international standard.

• Production (Output or Value Added)
Approach: Subtracting total sales from the
value of intermediate inputs used in the
manufacturing process, i.e., the total of the
“value-added” at each step of production.
• Income Approach: Summing up incomes
earned from production factors.
• Expenditure (Speculated or Spending)
Approach: Totaling the amounts spent by
end-users on goods and services.

Some Characteristics of GDP
• Standard of living and GDP: wealth distribution and externalities GDP per capita
is often used as an indicator of living standards.
• The major advantage of GDP per capita as an indicator of standard of living is
that it is measured frequently, widely, and consistently. It is measured frequently
in that most countries provide information on GDP on a quarterly basis, allowing
trends to be seen quickly. It is measured widely in that some measure of GDP is
available for almost every country in the world, allowing inter-country
comparisons.
• It is measured consistently in that the technical definition of GDP is relatively
consistent among countries.
• Increased industrial output might grow GDP, but any pollution is not counted.
• Non-market transactions – GDP excludes activities that are not provided through
the market, such as household production, bartering of goods and services, and
volunteer or unpaid services.
• Non-monetary economy – GDP omits economies where no money comes into
play at all, resulting in inaccurate or abnormally low GDP figures.

• Quality improvements and inclusion of new products
– by not fully adjusting for quality improvements and
new products, GDP understates true economic
growth.
• The introduction of new products is also difficult to
measure accurately and is not reflected in GDP
despite the fact that it may increase the standard of
living.
• Sustainability of growth – GDP is a measurement of
economic historic activity and is not necessarily a
projection.
• Wealth distribution – GDP does not account for
variances in incomes of various demographic groups.

Figure 01: GDP per capita in different countries
Countries continuously attempt to maintain an increasing GDP per capita since i

Circular Flow of Income
• The circular flow means the unending flow of
production of goods and services, income, and
expenditure in an economy.
• It shows the redistribution of income in a
circular manner between the production unit
and households.
• These are land, labour, capital, and
entrepreneurship.

Disposable Income
• Disposable income, also known as disposable
personal income (DPI), is the amount of money
that an individual or household has to spend or
save after income taxes have been deducted.
• At the macro level, disposable personal income
is closely monitored as one of the key economic
indicators used to gauge the overall state of the
economy.

• Disposable income is net income. It's the amount left over
after taxes.
• Discretionary income is the amount of net income remaining
after all necessities are covered.
• Economists monitor these numbers at a macro level to see
how consumers save, spend, and borrow.
• Shelter, food, and debts are usually paid using disposable
income.

• Importance of Disposable Income
• Disposable income is not only important to
individuals but holds massive value to society as a
whole. Highlights of why disposable income is
important includes:
– Financial Flexibility: Having disposable income gives people the
freedom to decide how to spend their money. Greater
flexibility is possible when managing personal money, taking
care of current requirements, and making long-term plans.
– Higher Level of Living: A higher level of living is influenced by
disposable money. It makes it possible for people to enjoy
higher quality goods and services, leisure pursuits, hobbies,
and participation in social and cultural events.

• Economic Growth: Consumer spending, a major contributor
to macroeconomic growth, is driven in large part by disposable
income. When people have extra money, they are more inclined to
spend it on products and services, which boosts economic activity
and opens up job chances.
• Savings and Investments: People with disposable income can put
money away for the future. It makes it possible for people to achieve
long-term financial objectives such as saving for emergencies,
purchasing investments, paying into retirement plans, and more. In
addition, investing disposable income allows companies to receive
capital for further economic growth.
• Tax Revenue: If a person has no disposable income, this means all of
their wages have been captured for taxes or they do not make any
money. This model may be demotivational in a capitalistic society
and not sustainable in the long run

PCI
• Per Capita Income is a metric used to
determine the amount of money earned
per individual in a nation or
geographical area.
• PCI of a specific geographical location is
obtained by dividing a population's total
income by that area's population.

• What is the difference between disposable
income and per capita income?
• Real per capita incomes is often taken as a
benchmark for improvements (or a worsening)
in the average real living standards of the
population. Real Disposable Income =
Household income after the deduction of taxes
and the addition of benefits.

Key Difference – GDP Per Capita vs Income Per Capita
• The economic status of countries is vital due to a number of reasons,
and many methods are used to measure the economic conditions.
• GDP per capita and income per capita are two such pioneer
measures that are partly considered the same.
• This is due to the fact that GDP can also be used to calculate income
per capita.
• The key difference between GDP per capita and income per capita is
that GDP per capita is the measure of the total output of a country
where the Gross Domestic Product (GDP) is divided by the total
population in the country whereas income per capita is a measure
of income earned per person in a country within a given period of
time.

• What is the Difference Between GDP Per Capita and Income Per Capita?
• GDP per capita is the measure of the total output of a country where the Gross
Domestic Product (GDP) is divided by the total population in the country.
Income per capita is a measure of income earned per person in a country within
a given period of time.
• Calculation GDP per Capita is calculated as (GDP/Population).
• Income per Capita is calculated as (Income / Population).
• Summary – GDP Per Capita vs Income Per Capita
• The difference between GDP per capita and income per capita is that GDP per
capita is derived by dividing the total population by the GDP while income is
divided by the total population to arrive at income per capita.
• However, in practice, GDP per capita is commonly used for both measures where
GDP and income is considered similar to each other.
• Furthermore, developed countries typically have a superior GDP per capita and
income per capita compared to developing countries.

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