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Macroeconomics-GDP & Inflation

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Macroeconomics project on India's GDP & INFLATION

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Macroeconomics-GDP & Inflation

  1. 1. MACROECONOMICS PROJECT GDP & INFLATION
  2. 2. GDP GROSS DOMESTIC PRODUCT 2
  3. 3. “The monetary value of all the finished goods and services produced within a country's borders in a specific time period though GDP is usually calculated on an annual basis. It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory. 3 Definition of Gross Domestic Product(GDP)
  4. 4. GDP=C + G + I + NX where: "C" is equal to all private consumption, or consumer spending, in a nation's economy "G" is the sum of government spending “I” is the sum of all the country's businesses spending on capital "NX" is the nation’s total net exports, calculated as total exports minus total imports. (NX =Exports - Imports) 4
  5. 5. 5 ➔ First its equal to the total expenditure for all final goods and services produced within the country in a specified period of time (usually a 365-days year ) ➔ Second ,its equal to the sum of the value added at every stage of production by all the industries ,plus taxes and minus subsidies on products. ➔ Third ,it is equal to the sum of the income generated by productionlike compensation of employees ,taxes on production and imports less subsidies , and gross operating surplus.
  6. 6. 6 • India’s GDP for 2018 was $2,726.32B, a 2.78% increase from 2017. • India’s GDP for 2017 was $2,652.55B, a 15.81% increase from 2016. • India’s GDP for 2016 was $2,290.43B, a 8.88% increase from 2015. • India’s GDP for 2015 was $2,103.59B, a 3.16% increase from 2014.
  7. 7. 7
  8. 8. • India GDP growth rate for 2018 was 6.98%, a 0.19% decline from 2017. • India GDP growth rate for 2017 was 7.17%, a 1% decline from 2016. • India GDP growth rate for 2016 was 8.17%, a 0.17% increase from 2015. • India GDP growth rate for 2015 was 8.00%, a 0.59% increase from 2014.
  9. 9. 9
  10. 10. • India GDP per capita for 2018 was $2,016, a 1.72% increase from 2017. • India GDP per capita for 2017 was $1,981, a 14.59% increase from 2016. • India GDP per capita for 2016 was $1,729, a 7.7% increase from 2015. • India GDP per capita for 2015 was $1,606, a 2.02% increase from 2014.
  11. 11. 11
  12. 12. 12 Reasons for declining GDP • The latest decline was driven largely by slower private consumption and near stagnation in manufacturing, which was growing by 12% just a year ago. The rate of growth in agriculture more than halved in the June quarter. • Nominal GDP growth, a measure of GDP without adjusting for inflation, rose just 8%, the least in the current series of national accounts going back to FY12, indicating a deep slowdown. Comparing across different series, it could be the lowest since FY03, economists said. • Consumption, the bedrock of growth in the past few years, collapsed to an 18-quarter low of 3.1% from 10.6% in the March quarter, pointing to fragile sentiment. Investments grew 4%, up from 3.6% in the previous quarter. • The slowdown in investment and consumer demand derailed manufacturing, which grew just 0.6%. A meagre 2% rise in farm sector added to the demand slowdown
  13. 13. Why is India’s Gross Domestic Product falling? ● Sharp decline in overall demand: ● Sharp fall in consumption ● Wrong procedure in the GST implementation ● Decline in investment ● Poor condition of banking sector ● Agricultural crisis 13
  14. 14. List of measure made: ╺ To boost liquidity in the market, the government has cleared dues worth more than 60% of 32 CPSEs in the last two months. ╺ The govt provided support to NBFCs/HFCs under the partial credit guarantee scheme. The govt sanctioned support for Rs 4.47 lakh crore to NBFCs & HFCs which includes Rs 1.29 lakh crore for pool buyout of assets. ╺ Within two days of cabinet approval, 17 proposals worth more than Rs 7,000 crore approved. Proposals worth Rs 20,000 crore will be approved over next two weeks under the partial credit guarantee scheme. 14
  15. 15. On investment side, the government has taken steps to boost investment, support real estate, credit expansion, corporate tax and bank recapitalization. FDI inflows of $35-billion in first half of FY20 vs $31 billion in the same period last year has been achieved 15
  16. 16. How to increase economic growth Economic growth is an increase in national output/income (higher real GDP). There are two main aspects of economic growth: ➔Aggregate demand (AD) (consumer spending, investment levels, government spending, exports-imports) ➔Aggregate supply (AS) (Productive capacity, the efficiency of economy, labour productivity) We need to see a rise in demand and/or an increase in productive capacity: 16
  17. 17. Economic growth AGGREGATE DEMAND CAN INCREASE FOR VARIOUS REASONS. • LOWER INTEREST RATES – REDUCE THE COST OF BORROWING AND INCREASE CONSUMER SPENDING AND INVESTMENT. • INCREASED REAL WAGES – IF NOMINAL WAGES GROW ABOVE INFLATION THEN CONSUMERS HAVE MORE DISPOSABLE TO SPEND. • HIGHER GLOBAL GROWTH – LEADING TO INCREASED EXPORT SPENDING. • DEVALUATION, MAKING EXPORTS CHEAPER AND IMPORTS MORE EXPENSIVE, INCREASING DOMESTIC DEMAND. • RISING WEALTH, E.G. RISING HOUSE PRICES CAUSE CONSUMERS TO SPEND MORE (THEY FEEL MORE CONFIDENT AND CAN REMORTGAGE THEIR HOUSE. 17
  18. 18. Growth in productivity THIS IS GROWTH IN AGGREGATE SUPPLY (PRODUCTIVE CAPACITY). THIS CAN OCCUR DUE TO: • DEVELOPMENT OF NEW TECHNOLOGY. • INTRODUCTION OF NEW MANAGEMENT TECHNIQUES, E.G. BETTER INDUSTRIAL RELATIONS HELPS WORKERS BECOME MORE PRODUCTIVE. • IMPROVED SKILLS AND QUALIFICATION. • MORE FLEXIBLE WORKING PRACTICES – WORKING FROM HOME, SELF-EMPLOYMENT. • INCREASED NET MIGRATION – ESPECIALLY ENCOURAGING WORKERS WITH THE SKILLS THAT ARE IN SHORT SUPPLY (E.G. BUILDERS, FRUIT PICKERS) • RAISE RETIREMENT AGE AND THEREFORE INCREASING THE SUPPLY OF LABOR. • PUBLIC SECTOR INVESTMENT 18
  19. 19. To what extent can the government increase economic growth? A government can try to influence the rate of economic growth through demand-side and supply-side policies, ╺ Expansionary fiscal policy – cutting taxes to increase disposable income and encourage spending. However, lower taxes will increase the budget deficit and will lead to higher borrowing. The expansionary fiscal policy is most appropriate in a recession when there is a fall in consumer spending. ╺ Expansionary monetary policy (now usually set by independent Central Bank) – cutting interest rates can boost domestic demand. ╺ Stability. A key function of the government is to provide economic and political stability which enables the usual economic activity to take place. Uncertainty and political tension can discourage investment and economic growth. . 19
  20. 20. INFLATION THE TRENDS IN INDIAN ECONOMY
  21. 21. Objective: ❖ To study the causes and effects of inflation in the Indian economy and analyze its trends in the past few years. 21
  22. 22. What is Inflation? ❖ Inflation can be defined as a rise in the general price level and therefore a fall in the value of money that is it takes more currency units to buy the same amount of goods and services. ❖ Inflation occurs when the amount of buying power is higher than the output of goods and services. ❖ Inflation also occurs when the amount of money exceeds the amount of goods and services available. 22
  23. 23. Inflation In India ❖ inflation is most closely observed economic variables in India as it has considerable influence on the life of an average consumer. ❖ Most of the developed countries use the Consumer Price Index CPI to calculate Inflation, but in India Wholesale Price Index WPI is used. ❖ WPI is generally used in India because they are many problems associated with the CPI. ❖ Economic survey 2008-09 depicts that the years 2000-01,2004- 05,2008-09 show the highest average rates of inflation with 2008-09 being the highest in the decade. 23
  24. 24. 24 • India inflation rate for 2018 was 4.86%, a 2.37% increase from 2017. • India inflation rate for 2017 was 2.49%, a 2.45% decline from 2016. • India inflation rate for 2016 was 4.94%, a 0.93% decline from 2015. • India inflation rate for 2015 was 5.87%, a 0.48% decline from 2014.
  25. 25. Major Causes of Inflation in India There can be two set of factors that can cause inflation in the economy. ❖Demand Pull Inflation ❖Cost Push Inflation 25
  26. 26. Cost Push Inflation Cost-push inflation, or the decrease in the aggregate supply of goods and services stemming from an increase in the cost of production. An increase in the costs of raw materials or labor can contribute to cost- pull inflation.
  27. 27. 27 Demand-pull inflation Demand-pull inflation, or the increase in aggregate demand, Demand-pull inflation can be caused by an expanding economy, increased government spending, or overseas growth.
  28. 28. Demand Pull Factors Of Inflation ❖Rise in population ❖Black money ❖Rise in income ❖Excessive government expenditure 28
  29. 29. Cost Push Factors of Inflation ❖Infrastructure bottlenecks which lead rise in production and distribution costs. ❖Rise in Minimum Support Price (MSP). ❖Rise in international prices. ❖Hoarding and black marketing. ❖Rise in indirect taxes. 29
  30. 30. Measures of inflation ╺ Monetary Measures: ❖ Credit Control ❖ Demonetization of currency ❖ Issue of new currency Fiscal Measures: ❖Reduction in Unnecessary Expenditure ❖ Increase in Taxes ❖ Increase in Savings 30
  31. 31. Control of Inflation As far as the demand side is concerned restrictive monetary and fiscal policy are commonly used to control inflation. In supply side inflation the restrictive monetary and fiscal policy are not appropriate to control which is because the rising prices and output below the full employment level 31
  32. 32. Relationship between gdp and inflation When the economy is healthy, there is usually low unemployment and wage increases, as businesses demand labor to meet the growing economy. Due to low unemployment and increase in wages, there is an increase in the purchasing power of people. This leads to an increase in demand for goods and services, which leads to an increase in general price levels. Hence Inflation will Increase due to an Increase in GDP. However, if the GDP growth rate is speeding up too fast, the Federal Reserve/Reserve Bank may raise interest rates to stem inflation—or the rising of prices for good and services. That could mean loans for cars and homes would be more expensive. Businesses too would find the cost of borrowing for expansion and hiring to be on the rise. In short, the Federal Reserve/Reserve Bank will try to remove some money from the economy to reduce the spending power of people, and gain a control on the rising general prices. A fall in the purchasing power will lead to a fall in demand, which will lead to a fall in production, resulting in a fall in the GDP of the nation.
  33. 33. 33 THANK YOU SUBMITTED TO: PROF. MS. SHALI BOPANA (MACROECONOMICS) SUBMITTED BY: APOORVA GUPTA MOHITA AHUJA VIDIT JAIN. References : ● JSTOR ● ACADEMIA ● Economicsdiscussion.net ● quora

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