National Income

ACCOUNTING
Submitted By-
Abhijeet, Rytham, Karuna, Bhavya, Shivangi
TABLE OF CONTENTS
INFLATION AND
1
PRICE INDEXES

2 UNEMPLOYMENT

INTEREST RATES AND

3
REAL INTEREST RATES

4 EXCHANGE RATES
 INFLATION
Inflation is a rise in prices, which can be translated as the
decline of purchasing power over time. The rate at which
purchasing power drops can be reflected in the average price
increase of a basket of selected goods and services over some
period of time. The rise in prices, which is often expressed as a
percentage, means that a unit of currency effectively buys less
than it did in prior periods. Inflation can be contrasted with
deflation, which occurs when prices decline and purchasing
power increases.The inflation rates equals the percentage rate
of increase in the price index per period.
CAUSES OF INFLATION
Printing of more Money
Printing and giving away more money to
citizens
Devaluation
Legally devaluing (reducing the value of) the
legal tender currency

Loaning new money

Loaning new money into existence as reserve
account credits through the banking system
by purchasing government bonds from banks
on the secondary market.
 How does Inflation work?
Demand- Cost-Push Built-in
Pull Effect Effect Inflation

Demand-pull inflation occurs Cost-push inflation is a result of Built-in inflation is related to

when an increase in the the increase in prices working adaptive expectations or the
supply of money and credit through the production process idea that people expect
stimulates the overall inputs. When additions to the current inflation rates to
demand for goods and supply of money and credit are continue in the future. As the
services to increase more channeled into a commodity or price of goods and services
rapidly than the economy's other asset markets, costs for rises, people may expect a
production capacity. This all kinds of intermediate goods continuous rise in the future
increases demand and leads rise. at a similar rate.
to price rises.

PICTORIAL
DEPICTION
 PRICE INDEX
Price index, measure of relative price changes, consisting
of a series of numbers arranged so that a comparison
between the values for any two periods or places will show
the average change in prices between periods or the
average difference in prices between places
Price indexes were first developed to measure changes in
the cost of living in order to determine the wage increases
necessary to maintain a constant standard of living.
CONSUMER
PRICE INDEX
The Consumer Price Index (CPI) measures the cost of
buying a fixed baskets of goods and services
representative of the purchases of urban consumers.

Formula for CPI

Market basket of desired year
Consumer price index = 100
Market basket of Base year
CPI2 Price 2
=
CPI1 Price1
Where 1 is usually the comparison year and CPI 1
is usually an index of 100
 UNEMPLOYMENT
The term unemployment refers to a situation where a person actively
searches for employment but is unable to find work. Unemployment
is considered to be a key measure of the health of the economy. The
most frequently used measure of unemployment is the
unemployment rate. It's calculated by dividing the number of
unemployed people by the number of people in the labor force.
 TYPES OF
UNEMPLOYMENT
01
Frictional Unemployment
This type of unemployment is
usually short-lived. It is also
the least problematic from an
economic standpoint. It occurs
when people voluntarily
change jobs. After a person
leaves a company, it naturally
takes time to find another job.
Similarly, graduates just
starting to look for jobs to enter
the workforce add to frictional
unemployment.
02
Cyclical Unemployment
Cyclical unemployment is
the variation in the number
of unemployed workers over
the course of economic
upturns and downturns,
such as those related to
changes in oil prices.
Unemployment rises during
recessionary periods and
declines during periods of
economic growth.
03
Structural Unemployment
Structural unemployment comes
about through a technological
change in the structure of the
economy in which labor markets
operate. Technological changes
can lead to unemployment
among workers displaced from
jobs that are no longer needed.
Examples of such changes
include the replacement of
horse-drawn transport with
automobiles.
04
Institutional Unemployment
Institutional unemployment
results from long-term or
permanent institutional factors
and incentives in the economy.
The following can all contribute
to institutional unemployment:
Government policies, such as
high minimum wage floors,
generous social benefits
programs, and restrictive
occupational licensing laws.
 INTEREST RATES
Interest rates can be expressed in nominal or real terms. A
nominal interest rate equals the real interest rate plus a projected
rate of inflation. A real interest rate reflects the true cost of funds
to the borrower and the real yield to the lender

or to an investor.
Nominal Interest Rate Real Interest Rate
Equals real interest rate Equals nominal interest rate
plus inflation less inflation

Rate advertised by financial institutions for Shows the real cost of borrowing and
loans, savings accounts, and investments real returns from investing
REAL INTEREST
RATES
A real interest rate is the interest rate that is added to the projected
rate of inflation to provide the nominal interest rate. Put simply, this
interest rate provides insight into the actual return received by a
lender or investor after a rate of inflation is acknowledged. This type of
rate is considered predictive when the true rate of inflation is unknown
or expected.
You can also calculate the real rate of interest associated with a credit
or investment product. To do so, you first need the nominal rate and
an actual or estimated rate of inflation:

Real Interest Rate = Nominal Interest Rate - Projected Rate of Inflation

EXCHANGE RATE
An Exchange Rate is a rate at which one currency will be
exchanged for another currency and affects trade and the
movement of money between countries. Exchange rates are
impacted by both the domestic currency value and the foreign
currency value.
Most exchange rates are defined as floating and will rise or fall
based on the supply and demand in the market.
Some exchange rates are pegged or fixed to the value of a
specific country's currency.
 INDIAN RUPEE
EXCHANGE RATE
TABLE
THANK YOU