BASICS OF

MACRO ECONOMICS
 CONTENTS
 India: Facts  Important Terms in Banking Sector
 Definition of Macro and Micro Economics  Traditional Tools of Economic Policy
 Central Banks
 Macroeconomic Concepts
 Monetary Policy Instruments
I. Unemployment
 Balance of Payment
II. Inflation I. Current Account
 Basic Terminology II. Capital Account

 Measuring Economic Activity III. BOP Deficit

IV. Fiscal Deficit
 Gross Domestic Product
 Exchange Rates
I. Components of GDP
 Purchasing Power Parity
II. GDP v/s GNP
 Basics of Stock Market
III.Types of goods and services I. What are stocks

IV.Old v/s New method of GDP calculation II. The Markets

V. Real v/s Nominal GDP III. Exchange and Indices

IV. What causes stock prices to fluctuate
VI.Measuring Economic Success

 Trade Policy Explained

 Human Development Index
INDIA: FACTS
•FDI inflows in India stood at US$ 39.93 billion between April 2020 and September 2020, 10%
higher than the first six months of 2019-20 (US$ 36.05 billion).
•India's foreign exchange reserves stood at US$ 575.29 billion as of November 20, 2020,
according to data from RBI.
•India’s overall exports from April 2020 to November 2020 were estimated at US$ 304.25 billion,
(a 14.03% decrease over the same period last year). Overall imports from April 2020 to
November 2020 were estimated at US$ 290.66 billion, (a 29.96% decrease over the same period
last year).
•Indian pharmaceutical exports are anticipated to cross US$ 25.0 billion by FY21 from US$ 20.5
billion in FY20.
•The combined index of eight core industries stood at 124.2 in October 2020 (Coal, Crude Oil,
Natural Gas, Refinery Products, Fertilizers, Steel, Cement and Electricity)
•India’s Index of Industrial Production (IIP) for October 2020 stood at 128.5, against 123.2 for
September 2020.
•Wholesale Price Index (WPI) for all commodities increased to 124.2 in November 2020 from
123.8 in October 2020.
•Consumer Food Price Index (CFPI) – combined inflation was 9.43% in November 2020, against
11.07% in October 2020.
•Consumer Price Index (CPI) – combined inflation was 6.93% in November 2020, against 7.61%
in October 2020.
INDIA: FACTS
 DEFINITION OF MACRO- & MICRO-ECONOMICS

Macroeconomics deals with total or aggregate level of output,

aggregate level of consumption, aggregate level of investment,
aggregate level of employment and general price level in
economy.

Macroeconomics is the branch of economics dealing with

the performance, structure, behavior and decision-making of
an economy as a whole, rather than individual markets. This
includes national, regional and global economies.

Microeconomics is the study of individuals, households and

firms' behavior in decision making and allocation of resources.
It generally applies to markets of goods and services and deals
with individual and economic issues.
 MACROECONOMIC CONCERNS

Three of the major concerns of

macroeconomics are:

 Unemployment

 Inflation

 Output Growth
 UNEMPLOYMENT
Unemployment refers to the situation where the population of a
country do not find work to earn their livelihood. The
unemployment rate is a key indicator of the economy’s health.
The existence of unemployment seems to imply that the
aggregate labor market is not in equilibrium.

Problem of unemployment
Classical economists believed in full employment i.e., all
resources of economy are fully employed and there is no
possibility of unemployment.

But the Great Depression of 1930 brought a lot of miseries in

the form of slump and vast unemployment. So, Keynes wrote a
book in 1936 “General Theory” in which he rejected the
philosophy of full employment
 INFLATION
Inflation is an increase in the overall price level.

Hyperinflation is a period of very rapid increases in the overall price level.

Hyperinflation is a rare phenomenon.

Deflation is a decrease in the overall price level. Prolonged periods of

deflation can be just as damaging for the economy as sustained inflation.

Recession is when the economy experiences a marked slippage in economic

activity or a drop in the following five economic indicators: real gross
domestic product, income, employment, manufacturing, and retail sales

Stagflation or recession-inflation, is a situation in which the inflation rate

is high, the economic growth rate slows, and unemployment remains
steadily high
IMPACT OF INFLATION ON THE
ECONOMY
 Inflation may or may not result in an increase
in production
 As long as the economy does not reach the full employment
stage, inflation has a favorable effect on production
 Usually, as the price level increases, profits increase too
 During inflation, businessmen tend to raise the prices of
their products to earn better profits
 However, if the wages and production costs start rising
rapidly, then this favorable effect of inflation does not last
long
 If the inflation in an economy is of the cost-push type, then
the inflationary situation usually leads to a fall in
production
 There is no direct correlation between prices and output
 BASIC TERMINOLOGY

Open vs Closed Economy:

- presence of foreign sector

Private Vs. Mixed:

- presence of government sector

Economic Growth:
- per capita GDP based on PPP
 MEASURING ECONOMIC ACTIVITY

 Stock
point in time
exp: wealth, debt, unemployment, account
balance
 Flow
over a period of time
exp: income, GDP
 GROSS DOMESTIC PRODUCT
 Total market value of all FINAL goods and services
produced within a country in a given period of time
 Note:
 Included in GDP:
 Not only goods but also services
 Only those with market value
 Even if not sold

 Excluded in GDP:
 Financial assets like stocks
 Foreign produced goods & services

 Used goods
 Pension and other transfer payments

 FINAL: does not mean intermediate goods & services

are ignored

*Refer to Appendix for ‘The Problem of Double Counting’, ‘The circular Flow’
and ‘Value Added'
 COMPONENTS OF THE GDP
GDP = C + I + G + NX
The national income accounts identity divides total expenditure
into four broad heads: consumption C, investment I, government
expenditures G, and net exports NX
 NX= X-M (exports – imports)
 Consumption: households and individuals receive income and
spend them on domestic, as well as, foreign goods and services,
and pay taxes. They also save what is not consumed
 Investment: it is the business spending on equipment (business
fixed investment), structures (residential fixed investment) and
inventories (can be negative)
 Government expenditures : government makes payments for
buying and using goods and services as well as equipment and
structures
 Net exports: exports are foreigners’ demand for our goods and
hence contributes to our income
 GDP VS. GNP
• Gross Domestic Product: The total market value of all final
goods and services produced by factors of production located
within a nation’s borders over a period of time (usually one year)
• Gross National Product: The total market value of all final
goods and services produced by factors of production owned by a
nation over a period of time (usually one year)
• Limitations of GDP as indicator of economic welfare:
1. Many gods and services contributing economic welfare not
included in GDP
2. Externalities not taken into account in GDP, but affect welfare
3. Changes in distribution of income may affect welfare
4. All products may not contribute equally to economic welfare
5. Contribution of some products may be negative
MEASURING ECONOMIC SUCCESS

 GDP (gross domestic product)/GNI

(gross national income)
 Annual growth rate
 Per capita GDP/GNI
 Price level:
 Inflation rate
 External balance :
 Trade deficit as % of GDP
 Current account deficit (CAD) as % of GDP

 Unemployment (and poverty)

rates
 TYPES OF GOODS AND SERVICES

 Intermediate goods and services, i.e, those

which are used up in the process of
production, e.g., yarn for weaving cloth,
iron-ore for producing steel, fertilizers for
producing wheat
 Final consumption goods and services, i.e.,
those which are purchased by the
household sector. Examples are: rice,
garments, fees paid to doctors, bus fare
refrigerator, TV
 Final investment goods, i.e., durable goods
like plant and machinery, buildings, roads,
bridge
FINAL GOODS V/S INTERMEDIATE GOODS
 REAL VS. NOMINAL GDP
The main difference between nominal and real values is that real values are
adjusted for inflation, while nominal values are not. As a result, nominal GDP
will often appear higher than real GDP.
The GDP Deflator
The GDP deflator is an economic metric that converts output measured at
current prices into constant-dollar GDP. This includes prices for business and
government goods and services, as well as those purchased by consumers.
This calculation shows how much a change in the base year's GDP relies upon
changes in the price level.
Example: Suppose we wish to calculate the real GDP for the year 2001 in
terms of 1996 dollars. The value for (note that these values are for illustration
purposes only) 1996 price deflator is 100 and the 2001 price deflator is 115.
The 2001 GDP in nominal terms is $10 trillion dollars.

Then: Real GDP year 2001 in 1996 dollars =$10 trillion × (100 / 115) = $8.6 trillion
 GDP PER CAPITA

GDP (Nominal) Per Capita of India = $ 1983 (IMF 2017)

Ranked 140th in the world

GDP (PPP) Per Capita of India = $ 7174 (IMF 2017)

Ranked 122nd in the world
 TRADE POLICY EXPLAINED
The trade theory assumes the existence of free trade. In Fig., the curves DD and SS are
the demand and supply curves of say, Indian consumers and producers, respectively.
These two curves intersect each other at point E. Thus the pre-trade price prevailing in
India is OP. However, as soon as this particular commodity goes outside the country
where price is determined in the world market, it becomes lower than the domestic price
OP.
• Let the world price be OP, (<OP). Now in the absence
of tariff and with the opening of trade, the price in
India (OP) becomes equal to the world price (OP,).
But, why? Since trade is free, the foreign country
would then export in the Indian market where price is
higher than the global price. It is because of
competition between the countries price would then
fall to OP, in the Indian market.
• Note that at this lower price, Indian producers would
reduce supply from PE to P1M1while domestic
demand would increase by M1N1. The horizontal line
represents the supply curve for import. This is a
perfectly elastic supply curve. Anyway, with the
opening of trade, the supply-demand gap to the tune
of M1N1is to be met by imports from the foreign
country.
 HUMAN DEVELOPMENT INDEX

A composite index prepared and published

by UNDP based on three basic dimensions
of human development:
 HEALTH: life expectancy at birth.
 EDUCATION: Mean of years of schooling
(adults) and expected years of schooling
(children)
 LIVING STANDARDS: GNI per capita PPP $
 TERMS TO REMEMBER…
 Business cycles are short-run contractions and expansions of economic
activity.
 Recession is the downward phase of a business cycle when national
output is falling or growing slowly/ two consecutive quarters of negative
growth.
 Hard times for many people
 A major political concern
• Depression is defined as a severe and prolonged recession. A recession is a
situation of declining economic activity. Declining economic activity is
characterized by falling output and employment levels. Generally, when
an economy continues to suffer recession for two or more quarters, it is
called depression.

Unemployed
Unemployme nt Rate   100%
Labour Force
 IMPORTANT TERMS IN BANKING
SECTOR
 Bank Rate: Bank rate (which is also referred to as the Discount rate in American English) is
the rate of interest which a Central bank (RBI in India) charges on the loans and advances to
a commercial bank.The current Bank rate is 6.00%.
 Repo Rate: Repo rate is the rate at which the Central bank (RBI in India) lends money to
commercial banks. Repo rate stands for Repurchase Rate. Repo rate is usually offered for
loans of short durations (up to 2 weeks). Repo rate is used by monetary authorities to control
inflation.The current Repo rate is 5.75%.
 Reverse Repo Rate: Reverse Repo Rate is defined as the interest rate, that is offered by RBI
to the commercial banks within the country, to deposit their surplus funds with RBI for short
period of time.The current reverse repo rate is 5.50%.
 Cash Reserve Ratio (CRR): Cash Reserve Ratio is defined as the minimum specified
fraction/ share of the net demand and time liabilities, that the commercial banks in the
country are required to maintain in form of cash or deposits with the central bank (RBI in
India).The current CRR is 4.00%.
 Statutory Liquidity Ratio (SLR): Statutory Liquidity Ratio is defined as the percent/ share
of the net demand and time liabilities, that the commercial banks in the country are required
to maintain in form of gold and government securities. RBI determines SLR in the country, in
order to keep a check on the expansion of Bank credit.The current SLR is 18.75%.
 TRADITIONAL TOOLS OF ECONOMIC
POLICY
 Shortterm Demand management for
avoiding recession/inflation:
 Fiscal Policy:
 Government expenditure and taxes
 Monetary Policy:
 Money, Credit, interest rates
 Longterm intervention for economic
development

25
 CENTRAL BANKS

 Federal Reserve in USA

 Bank of England

 European Central Bank

 Sweden’s Sveriges Rijksbank – world’s oldest

central bank
 Reserve Bank of India

 Etc

Refer to the Appendix for ‘Functions of RBI’, ‘IMF

v/s World Bank’
 MONETARY POLICY INSTRUMENTS

 Repo Rate: The interest rate at which RBI provides

liquidity to banks against the collateral of government and
other approved securities
 Reverse Repo Rate: The interest rate (currently 50 bps
below the repo rate) at which RBI absorbs liquidity from
banks against the collateral of government and other
approved securities.
 Marginal Standing Facility (MSF): A facility under
which scheduled commercial banks can borrow additional
amount from RBI by dipping into their Statutory
Liquidity Ratio (SLR) portfolio up to a limit (currently
two per cent of their net demand and time liabilities
deposits) at a penal rate of interest, currently 50 basis
points above the repo rate
 MONETARY POLICY INSTRUMENTS

 Bank Rate: It is the rate at which the Reserve

Bank is ready to buy or rediscount bills of
exchange or other commercial papers
 Cash Reserve Ratio (CRR): The share of net
demand and time liabilities that banks must
maintain as cash balance with the Reserve Bank.
 Statutory Liquidity Ratio (SLR): The share of
net demand and time liabilities that banks must
maintain in safe and liquid assets, such as,
unencumbered government securities, cash and
gold.
EXCESS DEMAND AND DEFICIT
DEMAND
 Excess demand refers to the situation when aggregate demand (AD) is more than the
aggregate supply (AS) corresponding to full employment level of output in the economy.
It is the excess of anticipated expenditure over the value of full employment output.
 Reasons for deficit demand: Rise in the Propensity to consume, reduction in taxes, increase in
Government Expenditure, increase in Investment, fall in Imports, rise in Exports
 Deficit Financing: Excess demand may be caused due to increase in the money supply
caused by deficit financing. Deficit financing means generating funds to finance the
deficit which results from excess of expenditure over revenue. The gap being covered by
borrowing from the public by the sale of bonds or by printing new money.
 Deficient demand refers to the situation when aggregate demand (AD) is less than the
aggregate supply (AS) corresponding to full employment level of output in the economy.
 BALANCE OF PAYMENTS (BOP)

Record of transactions between

residents and the rest of the
world during a specified period
usually a year.
 CURRENT ACCOUNT

 Merchandise - Goods
 Invisibles
 Services (Software, tourism, shipping,
insurance etc)
 Unilateral transfers (Grants, gifts, NRI
remittances etc)
 Income (Interest, dividends, Compensation of
employees)
 CAPITAL ACCOUNT

 Foreign investment:
 Foreign direct investment
 Foreign portfolio investment (e.g., FIIs)
 Loans:
 External assistance
 Commercial borrowings (MT & LT)
 Short-term
 Banking capital (NRI deposits etc)
 Other capital (e.g., leads & lags in export
receipts)
 BOP DEFICITS

 Trade deficit:
 Excess of Imports of (merchandise) goods over
exports of goods
 Current Account deficit (CAD):
 Excess of Outflow of foreign exchange in both goods
and invisibles transactions over such Inflow
 Overall balance:
 Aggregate figures after adding up all the current and
capital accounts adjusting for errors & omissions

33
 FISCAL DEFICIT
 The fiscal deficit is the difference between the government's
total expenditure and its total receipts (excluding borrowing)

 A fiscal deficit occurs when a government's total expenditures

exceed the revenue that it generates, excluding money from
borrowings. Deficit differs from debt, which is an accumulation
of yearly deficits.

 A fiscal deficit is regarded by some as a positive economic

event. For example, economist John Maynard Keynes believed
that deficits help countries climb out of economic recession. On
the other hand, fiscal conservatives feel that governments
should avoid deficits in favor of a balanced budget policy.

Note: Refer to the Appendix for ‘Components of Fiscal Deficit’.

 EXCHANGE RATES

 Nominal exchange rate

 Price of one currency in terms of another currency
 Real exchange rate
 Purchasing power of a currency
 Price of currency adjusted for cross-country differences in
prices of goods and service
 Example:
 Real exchange rate = Mexican pesos per $ x (Pusa/Pmexico)
PURCHASING POWER PARITY (PPP)

• The PPP between two countries’ currencies

is the exchange rate at which a given basket
of goods and services would cost the same
amount to buy in each country

• Suppose a basket of goods and services

that costs $ 100 in USA, costs Rs 2000 in
India. Then the PPP conversion factor (local
currency unit per $) is Rs 20
 THE BIG MAC INDEX

The Big Mac Index is published by The

Economist as an informal way of measuring the
purchasing power parity (PPP) between two
currencies and provides a test of the extent to
which market exchange rates result in goods
costing the same in different countries.

• The Big Mac Index was created to measure

the disparities in consumer purchasing power
between nations.
• The burger replaces the "basket of goods"
traditionally used by economists to measure
differences in consumer pricing.
 Indian Economy - Outlook
Changing trends and experiences of a few select industries in 2020-21:
1. Automotive industry:
• Sudden closure of factories leading to unprecedented supply chain disruptions and a collapse in
demand
• The micro, small, and medium enterprises (MSMEs) such as component manufacturers, dealers,
and vehicle financing institutions were among the hardest hit
• The industry, however, responded to the crisis through innovative ways-digitized and subscribed
services, contactless sales, and doorstep delivery/pick-up to reach out to customers
• To improve profits, several organized players are now entering the growing used-car market, which
is predominantly dominated by the unorganized sector
2. Trade, hotels, travel, and tourism:
• Known for creating direct and indirect jobs and the promotion of regional economic and product
development, this labor-intensive industry witnessed a sharp reduction in wages and job
opportunities
• Despite credit support and government schemes to several MSMEs in this sector, the rebound has
been muted because of continued mobility restrictions and health anxieties among consumers
• Several hotels made their venues available for hospital beds and front-line health professionals
• Businesses adopted new models and concepts to survive, such as packages targeted at staycation
and innovative delivery concepts.
3. Media and entertainment:
• This sector has been hit hard by unemployment and closed productions
• During the pandemic, entities improvised and adopted innovative ways to reach out to their
audiences- converging and remixing entertainment experiences through new service offerings and
entertainment bundles—and by adopting new strategies that can enable business agility
4. Retail industry for essential and nonessentials:
• Demand for essential goods remained strong while that of discretionary and nonessential goods
declined
• However, both these segments of the retail industry witnessed a perceivable tilt toward e-
commerce services to cater to new shopping habits
• With consumers preferring more online transactions to reduce exposure to infection, the retail and
FMCG industries have been rethinking their business priorities and strategies to build a flexible
distribution network and improve supply chains
5. Technology and telecom:
• E-commerce, fintech, food-tech, health-tech, and ed-tech have helped the country to deal with
lockdowns, movement restrictions, and social distancing
• From enabling virtual communication and manufacturing ventilators for use in hospitals and
homes to bolstering cybersecurity for industries that are going digital, innovations by technology
and broadband services companies have helped meet rapidly changing consumer and industry
demand
6. Pharmaceuticals and Healthcare:
• With the support of government spending, the sector has ramped up health facilities such as ICU
beds, ventilators, and testing capacities
• Trends such as telemedicine and the use of big data for maintaining health records are gaining
momentum
• Post–COVID-19, India aims to diversify sources or actively produce active pharmaceutical
ingredients (APIs) and key starting materials, and reduce dependence on China for imports
• Besides, India is likely to play a major role in vaccinating the world.
 Types of Markets in Economics
• Perfect Competition with Infinite Buyers and Sellers:
Perfect competition is a market system characterized by many different buyers and
sellers. In the classic theoretical definition of perfect competition, there are an infinite
number of buyers and sellers.
• Monopoly with One Producer:
A monopoly is the exact opposite form of market system as perfect competition. In a pure
monopoly, there is only one producer of a particular good or service, and generally no
reasonable substitute. In such a market system, the monopolist is able to charge whatever
price they wish due to the absence of competition, but their overall revenue will be limited
by the ability or willingness of customers to pay their price.
EXAMPLE: Government Utilities and Transportation
• Oligopoly with a Handful of Producers:
An oligopoly is similar in many ways to a monopoly. The primary difference is that rather
than having only one producer of a good or service, there are a handful of producers, or at
least a handful of producers that make up a dominant majority of the production in the
market system
EXAMPLE:markets for automobiles, cement, steel, aluminium
 Types of Markets in Economics

• Monopolistic Competition with Numerous Competitors:

Monopolistic competition is a type of market system combining elements of a
monopoly and perfect competition. Like a perfectly competitive market system, there
are numerous competitors in the market. The difference is that each competitor is
sufficiently differentiated from the others that some can charge greater prices than a
perfectly competitive firm.
EXAMPLE: FMCG products like soap, shower gels, facewash, biscuits
• Monopsony with One Buyer
Market systems are not only differentiated according to the number of suppliers in
the market. They may also be differentiated according to the number of buyers.
Whereas a perfectly competitive market theoretically has an infinite number of
buyers and sellers, a monopsony has only one buyer for a particular good or service,
giving that buyer significant power in determining the price of the products produced.
EXAMPLE: Procurement for Military hardware by government, printing machine for
currency
APPENDIX
SUMMARY
OF
ECONOMIC
INDICATORS
PILLARS OF INDIAN ECONOMY
 PROBLEM OF “DOUBLE COUNTING”

 Problem arises if we take value of production of

all goods and services, i.e., both intermediate and
final
 Problem tackled by taking:
 VALUE OF PRODUCTION of ONLY FINAL goods
and services
 or VALUE ADDED of ALL goods and services
 VALUE ADDED
 Intermediate products: inputs purchased by business on
which value is added for further sales: buy textiles, make
and sell, say ‘kurtas’
 We should avoid counting the value of the material of the
kurta, and also the value of the kurta (which includes the
value of the material)
 We need to avoid double or triple counting. We need to take
final goods and services only
 To avoid this there is an alternative way: ‘value added’
method
FUNCTIONS OF RBI
IMF vs. World Bank
 COMPONENTS OF FISCAL DEFICIT
Government’s Total Expenditure
Revenue expenditure is routine
government expenditure, which
neither creates any asset for the
government nor does it reduce the
liability of the government.
In other words, revenue
expenditure is incurred by the
government for the normal running
of government departments and
various services.
Examples of revenue expenditure
are salaries and pensions of
government employees, subsidy
payments, goods and services
consumed within the accounting
period, interest charges on debt
incurred by government etc.
Capital expenditure can be defined
as an expenditure which leads to
addition of material assets for the
economy.
One feature of capital expenditure
is that the benefits from capital
expenditure extend over a period of
time.
Capital expenditure does not
include operating expenditures.
Examples of capital expenditure are
building infrastructure projects
like roads and ports, buying land,
making buildings,
purchase of machinery and
equipment etc.
 COMPONENTS OF FISCAL DEFICIT
Government’s Total Receipts

Revenue receipts consist of :

Capital Receipts: Capital
 Tax collected by the Receipts include:
government
a. Non-debt receipts:
 Non-tax receipts which
include interest, dividend on 1.Recoveries of Loans
investments and profits made
by Govt. 2.Disinvestment of Govt.’s
equity holdings in Public
 Fees and other receipts for enterprises
services rendered by Govt
including revenue from b. Debt receipts
government services like 1. Internal and external
railways borrowings

 External assistance and

grants
Gross fiscal deficit in relation to gross domestic product
(GDP) across India
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 GOVERNMENT SECURITIES

 Typically government borrows funds by issuing

govt securities
 A government security, for example
 of face value Rs 100/-
 rate of interest 10% and
 maturity 20 years
 Means that the buyer of the govt security
 will give Rs 100/- to govt
 earn 10% of Rs 100/-, i.e., Rs 10/- per annum for 20
years
 Will get back Rs 100/- at the end of 20 years
 A short term govt security is known as a
Treasury bill
 BASIC TERMINOLOGIES
 Ticker Symbol – the alphabetic name that identifies the stock.
 Price – current stock price
 Open – current day’s opening price
 Close – the last trading price from the previous day
 Net Change – the net change from the previous day
 Day’s Range – the current day’s price range
 52-Week High and Low – the highest and lowest prices at which a stock
has traded over the past year
 Trading Volume – the total number of shares traded for the day
 Market Capitalization – the market value of the company
 Dividend Per Share – annual dividend payment per share.
 Price/Earnings Ratio – the current stock price divided by earnings per
share for the last four quarters
 WHAT ARE STOCKS?
 Stock is ownership in a publicly traded company
 Stock is a claim on the company’s assets and earnings
 The more stock you have, the greater your claim as an
owner

 Common Stock – most common form of stock.

 One vote per share
 Dividends are not guaranteed
 Preferred Stock
 Fixed dividend
 May not include voting
 Companies may customize other “classes” of stock.
 THE MARKETS
 Primary Markets – where stocks are created
 Secondary Markets – investors trade
previously issued stocks
 The Stock Market
 Companies are not involved in the buying and
selling of their stock.

Initial Public Offering (IPO)

 The first time a stock is sold to the public

 Sold in the Primary Market

 THE EXCHANGES & INDICES (INDEX)
 Where Stocks are Bought and Sold
 New York Stock Exchange (NYSE)
 American Stock Exchange (AMEX)
 NASDAQ
 NSE; BSE

 A collection of stocks—representative of the stock

market
 Dow Jones – 30 most significant stocks in the stock
market
 S&P 500 – 500 largest companies on the US stock market
 NASDAQ Composite – all stocks on the NASDAQ
 SENSEX - 30 well-established and financially sound
companies listed on BSE (Current Value = 36,025)
 NIFTY - weighted average of 50 stocks in NSE (Current
Value = 10,780)
STOCK MARKET INDICES: NIFTY AND
SENSEX
 While BSE and NSE are stock markets, both Sensex and Nifty are stock
market indices
 A stock market index statistically summarizes the movements of the
market in real-time
 A stock market index is created by selecting similar kinds of stock from a
market or exchange and grouping them together

 NIFTY: NIFTY is the equity benchmark index of the National Stock

Exchange (NSE). Nifty 50 includes stocks from the top 50 of nearly 1600
companies actively traded in NSE across 24 sectors. These 50 stocks
account for nearly 65% of the total free-float market capitalisation of the
index. Thence, Nifty reflects the performance of those top 50 stocks.

 SENSEX: Sensex is the market index of the Bombay Stock

Exchange (BSE). Sensex was meant to denote the most popular market
index of 30 companies listed under Bombay Stock Exchange. The
component companies listed in this index today are some of the biggest
companies in this country with the most actively traded stocks.
WHAT CAUSES STOCK PRICES TO CHANGE?

 Supply and Demand

 Earnings and Expectations

 Sentiments and Attitudes

 Economic Indicators

 Follow the Leader (volume)

 Anything Else
 BULLS AND BEARS

 BullMarket – the economy is great and

stock prices are rising
 BULL AND BEARS

 BearMarket –the economy is bad and a

recession is looming