Course code: ECOM525

Managerial Economics
CA: 02
Course Instructor: Dr. Tawheed Nabi

Ayan Bera 12305760 RQ2324A07

Topic: Macroecomics

Group Members of Group “B”

S no. Name Registration Roll Number Peer Rating
Number
1 Shreya Sinha 12305752 RQ2342A05 10
2 Sujith S S 12305759 RQ2342A06 07
3 Ayan Bera 12305760 RQ2342A07 10
4 Aizah Nazir 12305794 RQ2342A08 10
❖ Macroeconomics
Macroeconomics is the part of economics that takes into consideration the huge or broader part
of the economy or economic activity of that country. It focuses on the nature, behavior, and
performance of economies. In addition to that, macroeconomics takes a holistic approach
towards phenomena such as inflation, unemployment, economic growth, GDP, and national
income.
Not only this, but even policy makers and various businesses use the concept of macroeconomics
to strategize and promote sustainable economic development on a national or global scale.
Macroeconomics is very crucial for justifying the intricate link between various economies and
understanding how government policies and external shocks can impact the whole well-being of
nation. As the Indian economy continues to grow and evolve it affects economic stability and
promotes the prosperity of societies worldwide.
One of the central elements of macroeconomics is GDP, that determines the total value of goods
and services produced within the country’s borders. India’s GDP rate reflects the pace of economic
expansion and is closely monitored to assess the nation’s overall health. The multiple sectors are
contributing to GDP, including agriculture, manufacturing and services, these sectors showcase
the multifaceted nature of Indian economy.
Nowhere is this more evident than in this dynamic and diverse canvas of the Indian economy. As
a hubbub hub of a billion aspirations, India's economic journey has been shaped and guided by the
hand of government, carving several pathways through the ebbs and flows of global economic
currents.

❖ Importance of Macroeconomics in Economic Policy:

Macroeconomics plays a crucial role in shaping and guiding economic policy for a nation. Its
importance lies in providing policymakers with a framework to understand, analyze, and influence
the overall economic performance of a country. Here are several reasons highlighting the
significance of macroeconomics in economic policy:

1. Holistic Perspective: Macroeconomics focuses on the economy, providing a comprehensive

view of aggregate economic variables such as GDP, inflation, and unemployment. This holistic
perspective helps the policymakers to understand the interconnectedness between different
economic sectors and about the overall health of the economy.

2. Policy Formulation and Implementation: Policymakers also use macroeconomic principles

to formulate and implement policies which are aimed at achieving specific economic
objectives. For example, fiscal and monetary policies are designed to address issues such as
economic growth, price stability, and full employment.

3. Economic Stability: Macroeconomics helps in identifying factors that contribute to economic

instability, such as business cycles, inflationary pressures, or recessions. Policymakers use this
 information to implement measures that are aimed at stabilizing the economy, promoting
sustainable growth, and minimizing fluctuations.

4. Employment and Unemployment: It also helps in understanding the dynamics of labor

markets and is crucial for policymakers. Macroeconomic analysis provides insights into the
factors influencing employment and unemployment rates, allowing for the development of
targeted policies to enhance job creation and reduce unemployment in the country.

5. Inflation Control: Macroeconomics is also instrumental in managing inflation, which is a key

concern for economic stability. Policymakers use various tools like monetary policy to control
inflation rates, ensuring that the price levels remain stable and do not erode the purchasing
power of the currency.

6. Monetary Policy Implementation: Central banks of the countries rely on macroeconomic

principles to formulate and implement monetary policies. Adjustments in interest rates, open
market operations, and reserve requirements are used to influence money supply, credit
availability, and, consequently, economic activity in the market.

7. International Trade and Exchange Rates: Macroeconomics helps policymakers understand

the impact of international trade on the domestic economy. Exchange rate policies and trade
strategies are developed with the aim of fostering economic growth, ensuring competitiveness,
and maintaining a favorable balance of payments.

8. Long-Term Economic Growth: Policies which are aimed at fostering sustainable long-term
economic growth often draw on macroeconomic insights. Investments in education,
infrastructure, and technology are examples of strategies derived from macroeconomic
analysis to enhance a nation's productive capacity.

9. Public Finance and Fiscal Policy: Macroeconomics also guides policymakers in managing
public finances through fiscal policy. Decisions on government spending, taxation, and
budgetary allocations are based on macroeconomic principles to achieve economic stability
and desired growth rates.

10. Crisis Management: During economic crises, such as financial downturns or recessions,
macroeconomic tools are employed to mitigate the impact and restore stability. Policymakers
use countercyclical measures to stimulate economic activity or implement regulatory measures
to address systemic risks.

In summary, macroeconomics provides the analytical framework necessary for policymakers to

understand the broader economic context and formulate effective strategies to achieve national
economic goals. Its importance lies in its ability to guide policy decisions that impact the overall
well-being and prosperity of a nation.
❖ Brief overview of Role of government
The government plays a crucial role in shaping and managing the economic landscape of a country.
In an Indian economy, the government's influence is vast and diverse, deals with the overall
performance, structure, behavior, and decision-making of an Indian economy. The Indian
government's involvement in macroeconomic management, encompasses policies, regulations,
and interventions aimed at achieving stability, growth, and equitable development. This includes
the key economic indicators such as inflation, unemployment, economic growth, etc. In nation
like, India, where the population is large and diverse, achieving stability poses unique challenges
and with these challenges there comes an opportunity too. This sets the stage for a nuanced
exploration of the symbiotic relationship between the Indian government and the macroeconomics,
delving into the policy decisions, regulatory frameworks, and socio-economic dynamics that shape
the economic destiny of a nation pulsating with potential. As we unravel the layers of this intricacy
between governance and macroeconomics, we embark on a journey through the corridors of policy
chambers and the bustling markets, where the voice of government decisions resonates through
the heartbeat of an Indian economy. From steering the car through the peripheral of fiscal policy
to navigating the details of monetary interventions, the Indian government plays a multifaceted
role in creating the contours of its macroeconomic landscape.

❖ Macroeconomics Indicators:
Macroeconomic indicators are key metrics that provide insights into the overall health and
performance of an economy. These indicators help policymakers, businesses, and the public assess
the economic situation and make informed decisions. In this section, we will delve into the major
macroeconomic indicators: Gross Domestic Product (GDP), Unemployment Rate, and Inflation
Rate.

1. Gross Domestic Product (GDP): GDP represents the total market value of all goods and
services produced within a country over a specific period. Components of GDP include
consumption, investment, government spending, and net exports (exports minus imports).
Types of GDP:
a. Nominal GDP: It measures the value of goods and services at current prices.
b. Real GDP: It adjusts nominal GDP for inflation, providing a more accurate representation
of economic output.

Significance in Macroeconomics:
a. GDP is a key indicator of economic health, reflecting the overall size and growth of an
economy.
b. Changes in GDP influence government policies and business strategies.
c. Per capita GDP provides insights into the standard of living.
GDP in India Perspectives: In the vast landscape of global economies, India stands out with
its meteoric rise and unwavering determination to reach new heights. With its rich cultural heritage
and a population of over 1.4 billion people, India has emerged as an economic powerhouse,
consistently showcasing its prowess on the global stage. 2023 has proven to be a turning point as
India's GDP surges, solidifying its position as a frontrunner in the global economic race. According
to government data, India’s GDP growth rate is higher than the major economies such as Russia,
the USA, China, and the UK, which have registered a growth of 5.5 percent, 5.2 percent, 4.9
percent, and 0.6 percent, respectively, in the same period. India is now the fifth-largest economy
in the world GDP rankings list due to its strong economic foundations, thriving domestic demand,
careful financial management, high saving rates, and favorable demographic trends. The country's
major economic contributors are traditional and modern agriculture, technology services, the
handicraft industry, and business outsourcing.

2. Unemployment Rate:

Measurement and Types of Unemployment:

a. The unemployment rate measures the percentage of the labor force that is unemployed and
actively seeking employment.
b. Types of unemployment include frictional, structural, and cyclical.
 Government Interventions:
a. Policies such as job training programs, unemployment benefits, and labor market reforms
aim to reduce unemployment.
b. The government may implement fiscal and monetary policies to stimulate economic
growth and job creation.

Unemployment Rate and India: unemployment is a critical issue that continues to

challenge the economic landscape of India. As one of the world's most populous nations with
a diverse workforce, fluctuations in the unemployment rate have far-reaching implications for
the country's growth and development. The latest data indicates a glimmer of hope, as India's
unemployment rate has recently declined. According to the National Sample Survey (NSSO),
the unemployment rate for individuals aged 15 years and above in urban areas decreased to 6.8
percent during January-March 2023 from 8.2 percent a year ago. This positive development
suggests a potential turnaround in the job market amidst the prevailing economic complexities.
Unemployment remains a pressing concern in India, with fluctuations observed across
different regions and sectors. According to the recent Bloomberg report that references data
from the Centre for Monitoring Indian Economy (CMIE) for July, the overall unemployment
rate in India is 7.95 percent as of July 2023.

3. Inflation Rate:
Causes and Effects:
a. Inflation is the rate at which the general level of prices for goods and services rises.
 b. Demand-pull and cost-push inflation are common causes.
c. Effects of inflation include reduced purchasing power and uncertainty in financial markets.
Government Policies to Control Inflation:
a. The central bank may use monetary policy tools, such as interest rate adjustments, to
control inflation.
b. Fiscal policies, including taxation and government spending, can also influence inflation.
c. Striking a balance between economic growth and price stability is crucial.

Inflation Rate and India: India’s retail inflation, which is measured by the consumer price
index (CPI), eased to a four-month low of 4.87% in Oct. 2023, from 5.02% in Sep. this year,
according to the latest data from the Ministry of Statistics and Programmed Implementation. The
lowest CPI this year was recorded in May at 4.25%. In the last two years, CPI hit the highest of
7.79% in April 2022, and the lowest of 4.06% in Jan. 2021. The wholesale Price Index (WPI),
which calculates the overall prices of goods before selling at retail prices, is at (-)0.52% in Oct., (-
)0.26% in Sep., and (-)0.52% in Aug., this year. India’s retail inflation eased to a four-month low
of 4.87% in Oct. 2023. The CPI reading continues to cross the Reserve Bank of India’s upper
tolerance medium-term target of 4% within a band of 4+/- 2%. Amid the rising prices, especially
across food prices and vegetables like onions, due to the essentially weak kharif harvest, the
Reserve Bank of India (RBI) decided to continue to pause rate hikes and keep the benchmark repo
rate unchanged at 6.50%.
❖ Fiscal Policy:
Fiscal policy is a crucial component of economic management that involves the use of government
spending and taxation to influence the overall economic activity. It is one of the primary tool’s
governments employ to achieve macroeconomic objectives such as economic growth, price
stability, and full employment. In this section, we'll explore the key aspects of fiscal policy,
including its definition, objectives, tools, and implications.
Tools of Fiscal Policy
Fiscal policy utilizes several tools to achieve its objectives, influencing the economy through
government spending, taxation, and transfer payments. Each of these tools has specific impacts on
aggregate demand, economic growth, and income distribution.

1. Government Spending: Government spending refers to the expenditures made by the

government on goods, services, and infrastructure projects.
Impact on the Economy:
1. Stimulating Economic Growth: Increased government spending can boost aggregate
demand, leading to higher production and employment levels.
2. Infrastructure Investment: Allocating funds to infrastructure projects can enhance long-term
productivity and competitiveness.
3. Countercyclical Role: During economic downturns, increased government spending can
offset reduced private sector activity.
Examples: Funding for education, healthcare, defense, and public infrastructure projects. Stimulus
packages during economic recessions.

2. Taxation: Taxation involves the imposition of charges on individuals and businesses to fund
government activities.
Impact on the Economy:
1. Consumer Behavior: Changes in tax rates can influence disposable income and consumer
spending.
2. Investment: Corporate tax rates affect business investment decisions.
3. Income Distribution: Progressive or regressive tax policies can impact income inequality.
• Tools for Taxes:
1. Income Taxes: Levied on individuals and businesses based on their income.
2. Corporate Taxes: Applied to the profits of businesses.
3. Consumption Taxes: Applied to goods and services, e.g., value-added tax (VAT) or sales tax.
 • Examples: Cutting income taxes to boost consumer spending during a recession.
Implementing progressive tax policies to address income inequality.

3. Transfer Payments: Transfer payments involve direct financial assistance from the
government to individuals or groups without any expectation of goods or services in return.
Impact on the Economy:
1. Income Redistribution: Transfer payments can reduce income inequality by providing
financial assistance to lower-income groups.
2. Stabilization: Automatic stabilizers, such as unemployment benefits, automatically increase
during economic downturns.
• Types of Transfer Payments:
1. Social Security: Payments to retirees, disabled individuals, and survivors.
2. Unemployment Benefits: Financial support for individuals temporarily unemployed.
3. Welfare Programs: Financial aid to low-income families.
• Examples: Increasing unemployment benefits during periods of high unemployment. Social
welfare programs aimed at reducing poverty.

Fiscal Policy and India: Fiscal deficit refers to the amount by which a government's spending
exceeds its revenue in a given fiscal year, leading to increased borrowing and accumulation of
debt. It represents the amount of borrowing required by the government to meet its spending
obligations when its expenses surpass its income. India’s fiscal deficit amounted to Rs6.43 trillion
for the first five months of the current fiscal year. It is 36 percent of the annual estimates of Rs17.87
trillion. The current fiscal deficit is 6.5 percent of GDP. The central government aims to reduce the
fiscal gap to 5.9 percent of GDP in the fiscal year 2024.
• The Government of India levies tax upon the income of both salaried and self-employed
citizens of all age groups. Once you figure out which tax slab you fall into, it not only becomes
easier to calculate and file taxes and evade charges but also avail yourself of deductions or
exemptions accordingly. Several key personal income tax changes have been announced in the
Union Budget 2023-24. In a huge relief to taxpayers of the country, the government has taken
the initiative to reduce the number of slabs to five and has increased the tax exemption limit to
INR 3 lakh.
• As per the Indian corporate policy a resident company is taxed on its worldwide income. A
non-resident company is taxed only on income that is received in India, or that accrues or
arises, or is deemed to accrue or arise, in India. A beneficial CIT rate of 15% (plus surcharge
of 10% and applicable health and education cess of 4%) with effect from tax year 2019/20 for
newly set-up domestic manufacturing companies can be availed. The benefit of concessional
tax rate of 15% has been extended to domestic companies engaged in the business of generation
of electricity from tax year 2020/21.

❖ Government Debt:

Government debt is a critical aspect of fiscal policy and public finance. It represents the
accumulated amount of money that a government owes to external creditors and domestic
lenders. Understanding government debt is essential for assessing the fiscal health of a nation
and the potential implications for economic stability. In this section, we'll explore the various
facets of government debt, including its types, reasons for borrowing, implications, and debt
management strategies.
➢ Reasons for Government Borrowing:
1. Budgetary Deficits: When government expenditures exceed revenues, it leads to budget
deficits. Borrowing helps cover the gap and maintain essential services.
2. Economic Stimulus: During economic downturns, governments may borrow to fund stimulus
packages aimed at reviving economic activity.
3. Infrastructure Investment: Borrowing is often used to finance long-term infrastructure
projects that contribute to economic development.
4. War and Emergencies: Governments may borrow to fund defense spending or respond to
natural disasters and emergencies.

➢ Implications of High Levels of Government Debt:

1. Interest Payments: High levels of debt require significant interest payments, diverting funds
from other critical areas such as social programs and infrastructure.
2. Credit Rating Impact: Excessive debt can lead to a downgrade in a country's credit rating,
making it more expensive to borrow in the future.
3. Crowding Out: Government borrowing can crowd out private investment by increasing interest
rates, making it costlier for businesses to borrow.
4. Sustainability Concerns: If a country's debt becomes unsustainable, it may face challenges in
meeting its obligations, leading to economic crises.
➢ Challenges in Debt Management:
1. Currency Risk: External debt exposes countries to currency risk if the debt is denominated in
foreign currencies. Exchange rate fluctuations can affect the cost of repayment.
2. Global Economic Conditions: External factors, such as changes in global interest rates or
economic conditions, can impact a country's ability to manage its debt.
3. Political Considerations: Debt management decisions are often influenced by political
considerations, which may not align with optimal economic strategies.
4. Debt Transparency: Lack of transparency in reporting government debt can lead to
uncertainties and affect investor confidence.

Government Debt in case of India: India National Government Debt reached 1,972.9 USD
bn in Jun 2023, compared with 1,905.0 USD bn in the previous quarter. The current debt in India
is also high. It stands at 81.9% of GDP. Compared to China, which is 83%, it is very similar. Also,
when we compare India's debt to the pre-pandemic level in 2019, it was 75%. So it is still quite a
bit higher," Ruud de Mooij, Deputy Director, Fiscal Affairs Department at International Monetary
Fund, told PTI in an interview.
"What we also see in India is a deficit that is 8.8 per cent projected for 2023. In India, a large
portion of this is because of expenditures on interest. They pay a lot of interest on their debt: 5.4%
of GDP is spent on that, and the primary deficit is 3.45. So together they add up to 8.8%," he said.

❖ Exchange Rates and International Trade:

Exchange rates play a pivotal role in shaping a nation's international trade dynamics. The value of
a country's currency relative to others influences its competitiveness in the global market, affecting
exports and imports. In this section, we'll explore the importance of exchange rates, how they
impact international trade, and the role of government policies in managing currency values.
Determinants of Exchange Rates:
1. Supply and Demand: Like any other commodity, currencies are subject to the forces of supply
and demand in the foreign exchange market.

2. Interest Rates: Higher interest rates may attract foreign capital, leading to an appreciation of
the currency.

3. Inflation Rates: Countries with lower inflation rates often experience currency appreciation.

4. 4. Political Stability: Political stability and economic performance influence investor

confidence, affecting currency values.
Exchange Rates and International Trade in India’s perspective:
India's Foreign Trade Policy (FTP) 2023 has been launched to promote exports and facilitate ease
of doing business for exporters, while also placing a stronger emphasis on the "export control"
regime. The policy is built on the principles of trust and partnership with exporters and is based on
four pillars: Incentive to Remission, Export Promotion through Collaboration, Ease of Doing
Business, and Emerging Areas. The policy is based on the continuity of time-tested schemes while
being responsive to the emerging needs of the time.
The FTP 2023 introduces several new schemes, such as one time Amnesty Scheme for exporters
to close old pending authorizations and start afresh. It also encourages the recognition of new
towns through the Towns of Export Excellence Scheme and the recognition of exporters through
the Status Holder Scheme. The policy also streamlines the popular Advance Authorization and
EPCG schemes and enables merchanting trade from India.
• The Finance Ministry official told PTI that the rupee movement as of now was not of any
concern as exchange rates are always volatile. When US yields change it has an impact on all
currencies and the rupee is no exception. India's foreign exchange reserves continued to remain
high for the straight third week and rose to more than a four-month high of $604.04 billion as
of December 1, data from the Reserve Bank of India (RBI) showed on Friday. After
appreciating for the most part of this year, the Indian rupee started depreciating this month as
global investors reduced their exposure to emerging markets on expectations of higher interest
rates in the US and deepening concerns over the Chinese economy.