Macroeconomic Indicators :
1. Consumption:- Consumption is the process of utilizing goods and services to fulfill human desires or wants. It refers to the expenditure on consumption at a given level of income. Thus, the level of consumption always depends on the level of income. Consumption is the positive function of income.
C = f(Y)
…………………………………..1
Average Propensity to Consume ( APC ) = Consumption (C) /
Level of Income (Y)
Marginal Propensity to Consume ( MPC )= Change in consumption / Change in income.
= ΔC/ ΔY
2. Saving:- Saving is the excess of income over consumption expenditure. In other words, it is the part of income that is not spent on consumption.
3. Investment:- Investment is the value of that part of economy for any time period that takes the new form of the new structure, new producer's durable equipment and change in inventories.
According to Classical Economists, investment is a negative function of the rate of interest.
I = f (r ) ……………………….(i)
Gross Investment is the total amount invested in new capital
goods for the act of production during a year.
Gross Investment minus depreciation value is called Net
investment.
The investment influenced by different factors is termed induced investment. Realized or expected level of profit is an important factor of induced investment.
The investment that is not influenced by the factors like income and interest rate is taken as autonomous investment. Mostly the investment made by the public sector is called autonomous investment.
4. Inflation:- inflation is a measure of a general increase of the price level in an economy, as represented typically by an inclusive price index.
Types of inflation based on speed :
- Creeping Inflation: - A sustained rise in price annually of less than 3 % is known as creeping inflation.
- Walking inflation:- less than 10 percent is known as walking inflation.
- Running Inflation:- 10 to 20 percent rise in the price level.
- Hyper Inflation:- when the price rises very fast at double or tripled digit rates from more than 20 to 100 percent per year.
Causes of Inflation :
1. Demand-Pull Inflation:-
According to demand-pull inflation, inflation is due to excess of aggregate demand over aggregate supply.
2. Cost-Push Supply:- Whenever there will be a rise in the price level due to an increase in the cost of production, it is known as cost-push inflation.
5. Public Debt:- Public debt refers to loans raised by the government within or outside the country.
In other words, the amount the government has as an obligation to repay.
External Borrowing Vs
Internal Borrowing
There are two major resources of public borrowings; internal and external. Internally, the government can borrow from individuals (citizens), commercial banks, financial institutions, and the central bank in a country.
Externally, the government can borrow from individuals, banks, international financial institutions, and foreign governments.
6. Foreign Trade:-
Trade among different countries is called foreign trade.
Types of Foreign Trade – The two types of Foreign Trade are:
Bilateral trade: This is a trade agreement in which two
countries exchange goods and services. Multilateral trade: This is the type of international trade where a country trade with two or more countries.
7. Remittance:- In general remittance is the transfer o fund from one place to another place. In foreign employment, a remittance is a transfer of money by a foreign worker to an individual in his her home country. Remittances to Nepal are money transfers from Nepalese workers employed outside the country to friends or relatives in Nepal.
8. Balance Of Payment:- The balance of payment of a country is a systematic record of all international economic transactions of that country during a given period, usually in a year. BOP accounting of any country uses a double-entry system of recording accounts with the rest of the world. Thus, the BOP account is divided into transactions giving rise to payments and receipts.
BOP is usually composed of two sections :
(1) Current Account:-
The main components of the Current Account are:
- Export and Import of Goods (Merchandise Transactions or Visible Trade):
- Export and Import of Services (Invisible Trade):
- Unilateral or Unrequited Transfers to and from abroad (One-sided Transactions):
- Income receipts and payments to and from abroad: 4
(2) Capital Account:- Capital account of BOP records all those transactions, between the residents of a country and the rest of the world, which cause a change in the assets or liabilities of the residents of the country or its government. It is related to claims and liabilities of financial nature.
The main components of capital account are:
- Borrowings and lendings to and from abroad: It includes:
- Investments to and from abroad: It includes:
- Change in Foreign Exchange Reserves:
Balance on Capital Account:
The transactions, which lead to inflow of foreign exchange (like receipt of loan from abroad, sale of assets or shares in foreign countries, etc.), are recorded on the credit or positive side of the capital account. Similarly, transactions, which lead to the outflow of foreign exchange (like repayment of loans, purchase of assets or shares in foreign countries, etc.), are recorded on the debit or negative side. The net value of credit and debit balances is the balance on the capital account.
( 9 ) Price Index:- Changes in the levels of prices are measured using a scale called a price index. This is the most useful device for measuring a change in the price level.
The Basic Equation:
The equation for calculating an index number for a given year is rupee outlay for a given year/rupee outlay for the base year x 100= price index number for a given year.
(10) Foreign Exchange:- Foreign exchange is the exchange of one currency for another or the conversion of one currency into another currency.
The Foreign Exchange Market is a market where the buyers and sellers are involved in the sale and purchase of foreign currencies. In other words, a market where the currencies of different countries are bought and sold is called a foreign exchange market.
A fixed exchange rate denotes a nominal exchange rate that is set firmly by the monetary authority concerning a foreign currency or a basket of foreign currencies. By contrast, a floating exchange rate is determined in foreign exchange markets depending on demand and supply, and it generally fluctuates constantly.
11. Gross Domestic Product (GDP)
The most important concept of national income is the gross domestic product (GDP). GDP is the sum of the money value of all final goods and services produced within the domestic territory of a country during a year.
In the expenditure approach, GDP is the sum total of consumption expenditure, investment expenditure, government expenditure, and net foreign exports (X-M) of the country during a year.
The algebraic expression under expenditure approach is
GDP = C + I + G + (X –M)
Where,
C = Consumption, I = Investment ,G = Government expenditure
12. Gross National Product (GNP)
The total market value of all final goods and services
produced within a given period by factors of production
owned by a country’s citizens regardless of where the
output is produced is called gross national product
(GNP). Thus, GNP is the total GDP and net factor income
from abroad (NFIA).5
GNP = GDP + NFIA