Macroeconomics

CIA

Sreyansh Devnath
Roll No-2123544
BBA FIB A
Macroeconomics
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What is GDP?
Gross domestic product (GDP), total market value of the goods and services produced by a
country’s economy during a specified period of time. It includes all final goods and services
—that is, those that are produced by the economic agents located in that country regardless of
their ownership and that are not resold in any form. It is used throughout the world as the
main measure of output and economic activity.

What are macroeconomic factors?

Macroeconomic factors are the broad indicators of financial growth or decline that affect an
economy. A macroeconomic factor is a geopolitical, environmental or economic event that
can impact the monetary stability related to the whole economy of a country or region instead
of a specific part of the population.

Macroeconomics Variables
1) Inflation
Inflation is a progressive increase in the average cost of goods and services in the
economy over time When the supply of money exceeds the demand for money, which
occurs when the supply of money increases faster than the economy. People and
businesses are negatively impacted by short-run inflation, but over the long term, the
economy adapts to the greater supply of money, causing higher wages and prices. The
main beneficiary of inflation is the government, since the government can create more
money before it has an impact on prices. Often, crooked governments will print
massive amounts of money to enrich government employees and policymakers and to
pay government bills.

2) Interest rate
The interest rate is the amount a lender charges a borrower and is a percentage of the
principal the amount loaned. is the cost of credit, the cost of borrowing money.
Although there are many types of interest rates, the prime rate. Central banks have
significant control over the interest rate, since they can set interest rates for other
banks and they can also control the money supply. A greater supply of money leads to
lower interest rates, while a contraction of the money supply raises rates. Interest rates
affect not only how much consumers will borrow, but it will also affect how much
businesses will borrow, especially since businesses will only borrow if they can invest
the money for a higher expected return than the interest rate on the borrowed funds.

3) Fiscal policy
fiscal policy, measures employed by governments to stabilize the economy,
specifically by manipulating the levels and allocations of taxes and government
expenditures. Fiscal measures are frequently used in tandem with monetary policy to
achieve certain goals.
The usual goals of both fiscal and monetary policy are to achieve or maintain full
employment, to achieve or maintain a high rate of economic growth, and to stabilize
prices and wages.
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4) Population
As the population increases the workforce increases as well as labour force which can be
both positive and negative for the GDP , due to population growth, the total output may
increase causing the GDP to increase. The wages for labour may also decrease due to an
abundance of labour, this would allow the cost of production to decrease. Thus the
producer may choose to employ more people and increase production.

5) Unemployment
Unemployment is the amount of people within an economy who are willing and able
to work, but do not have a job. Unemployment rises when businesses reduce their
production, usually when the economy enters a recession. The unemployment rate
falls when the economy is growing. If the economy grows too fast, shortages may
increase, leading to higher prices.

Comparison between China, India, FRANCE

Impact of inflation
China-After 15 years of economic reforms, the most notable feature of today's
Chinese economy is high economic growth compounded with high inflation. China's
annual inflation rate fell to 1.5% in December 2021 from a 15-month high of 2.3% a
month earlier. Falling rate of inflation results in prices rising at a slower rate in China.
Goods of that country becoming more internationally competitive increasing exports
and growth
For China the benefits for lower inflation are-
• Increase rates of return for savers
• Improved confidence, encouraging firms to invest and boost long-term economic
growth.
• Increased disposable incomes

India-India's retail price inflation rose to 5.59 percent in December 2021 from 4.91
percent in the previous month, but below market expectations of 5.80 percent. As in
the case of India rise in inflation causes price of a normal commodity to rise for the
same price hence a decrease in GDP. Prices rose at a faster pace for food (4.05
percent vs 1.87 percent in November) and clothing and footwear (8.30 percent vs 7.94
percent), while inflation slowed for fuel and light (10.95 percent vs 13.35 percent),
housing (3.61 percent vs 3.66 percent), pan, tobacco and intoxicants (3.22 percent vs
4.05 percent)

France-The annual inflation rate in France is expected to rise to 2.9% in January of

2022 from 2.8% in December, above market expectations of 2.4%. As a result The
purchasing power of individuals is also reduced, especially when interest rates are
lower than inflation. Hence decreasing the GDP of France. Prices of manufactured
goods should slow down (0.6% vs 1.2%) and those of tobacco should fall back
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slightly (-0.1% after being flat). On a monthly basis, consumer prices are seen rising
0.3%, slightly above a 0.2% increase in December and against market forecasts of a
0.2% drop, driven by energy prices in the wake of those of petroleum products. The
harmonised index should increase by 3.3% on the year and by 0.1%

Impact of Interest rate

China- China has cut interest rates or the first time in almost two years to help bolster
an economy that’s lost momentum because of a property slump and repeated virus
outbreaks. As a result GDP has risen 4% in the fourth quarter and 8.1% in the full
year. As interest rates are reduced, more people are able to borrow more money. The
result is that consumers have more money to spend. This causes the economy to grow
and inflation to increase in China recently.

India- The Reserve Bank of India held its benchmark repo rate at 4 percent during its
December meeting, as widely expected, saying it was maintaining an accommodative
monetary policy stance as long as necessary to support economic growth and keep
inflation within the target. The RBI retained inflation projection at 5.3 percent for the
full year 2021/22. As a result of this GDP will have a increase in the country if the
interest rate increases.

France- A slowdown in productivity, and excessive demand for “risk-free” assets,

have led France to currently experience ultra-low interest rates. Its GDP expanded at a
solid rate in the third quarter, largely on accelerating household spending growth. It
has a lesser chance of increase in GDP due to this reason.

Fiscal Policy Expenditure

China-China will roll out fiscal policies proactively next year to stabilise economic
growth, the finance ministry said on Monday, vowing that the impact of the drive
would be felt earlier than usual.The government will launch another round of tax and
fee cuts to support businesses and help them make infrastructure investments. Fiscal
expenditures will be kept up to bolster growth and the central government will step up
transfers to local governments to support necessary spending. These changes in fiscal
policy will boost the GDP of China and positively affect
India/France- Both governments use spending and taxing powers to promote stable
and sustainable growth. It has managed to achieve the followings objectives-
 Economic growth
 Price Stability
 Full Employment
It has had a positive effect on both France and Indias GDP.

Population
China's population increased by less than half a million to 1.413 billion in 2021, the
slowest pace in decades, with officials saying that the country's population has entered
a "zero growth" period amid concerns over a faster than expected pace in citizenry
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aging. China will contribute more than one-fifth of the total increase in global GDP in
the five years through 2026.As population increases the GDP will ascend but if
overpopulation occurs then China have to keep it under control.

India- Indias economic growth has been increasing since the rise of population as
there has been a rise of manpower and workforce but due to over population and less
wages there has been a slow growth in the GDP. No significant negative impact of
population growth on the GDP growth of India and the fact is that as the population
increases so does the GDPA rapidly increasing population plunges the economy into
mass unemployment and under-employment. As population increases, the proportion
of workers to total population rises. But in the absence of complementary resources, it
is not possible to expand jobs. The result is that with the rise in labor force,
unemployment and under-employment increases.
A rapidly increasing population reduces income, savings and investment.

France- A slow rate of increase the economy may not have enough available jobs for
the population, which would cause the unemployment rate to increase. Meaning an
increase in population does not always result in growth in GDP.

Unemployment
China-China's surveyed urban unemployment inched up to 5.1 percent in December
2021 from 5.0 percent in the previous month, reaching the highest rate since August.
The jobless rate of the population aged 16-24 was unchanged at 14.3 percent in
December. As Chinas unemployment rate is increasing the job opportunities will
decrease and resources will be not fully utilized causing a negative and adverse effect
on GDP.

India- In 2020, the unemployment rate in India was estimated to be 7.11 percent.
While China experienced the most apparent growth, India’s efficiency and
productivity remained somewhat stagnant over the course of 3 or 4 years. India also
reported a rather large trade deficit over the past decade, implying that its total
imports exceeded its total amount of exports, essentially forcing the country to borrow
money in order to finance the nation. Most economists consider trade deficits a
negative factor, especially in the long run and for developing or emerging countries.
The majority of the population of India works in this sector. India’s notable economic
boost can be attributed to significant gains over the past decade in regards to the
efficiency of the production of goods as well as maintaining relatively low debt,
particularly when compared to the total amount earned from goods and services
produced throughout the years.

France- France has one of the largest economies in the world and is the second
largest economy in the European Union, behind Germany, with whom France often
partnered in order to support the structure of the European Union. France is also the
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fourth most populated country in Europe and has maintained slow population growth
since the mid 2000s.
Despite being not only a European but also a global economic power, France
struggled with maintaining a low unemployment rate and experienced a significant
increase in unemployment after the 2008 crash, just like many other prominent
industrial countries. However, unlike these other nations, unemployment continued to
rise well into the 2010s, while the employment situations in neighboring and
international countries improved almost every year. The lack of working opportunities
is related to the Eurozone crisis that primarily affected southern European countries,
such as Spain, Portugal and Italy.