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Signature of the student Signature of the Faculty MANAGERIAL ECONOMICS Question 1:- Elucidate the various phase of Trade Cycle in Indian economy. The Trade Cycle (Business cycle) is a term used to describe the various fluctuations that occurs in the aggregate economic activity of nations that organize their work mainly in business enterprises. These periodic comparable fluctuations are described by economists as business cycle and British economists call them as Trade Cycle. The business cycle is very complex economic phenomenon. The business cycle associated with fluctuations in economic activity, such as production, price, employments, income and sales. The cyclical Fluctuations in these variables are highly diffused across the economy yet also sufficiently synchronized to dominate national aggregates. The same applies to many other economic and financial variables that participate in business cycles: money and credit, interest rates, yields and prices of assets, rate of inflation and sensitive commodity prices; unemployment and government budget balance, imports and trade balance. Phases of Trade cycle:Standard Trade cycle is characterized by five different phases -Depression (Decline), Recovery (or Revival), Prosperity (or Full Employment), Boom (or Overfull Employment) and Recession. This sequence of changes is recurrent but not periodic. Business cycles vary in duration from more than one year to ten or twelve years Depression (Decline): This is first stage of a trade cycle where business activity in the country is far below the normal. Sharp reduction of production, mass unemployment, falling prices falling profits, low wages, contraction of credit, a high rate business failure, pessimistic and despair atmosphere. Recovery (or Revival): Recovery refers to the period from the trough to the point at which business activity returns to its previous peak level. In this phase, the economy starts growing eventually and the demands gradually reach high levels and the investor confidence also gets restored.

Prosperity (or Full Employment): In this stage increased production, high capital investment in basic industries, and formation of new business enterprises and full of employment. In this period the economy increases beyond previous boundaries. Boom (or Overfull Employment): In this phase, there is fast growth in economy and demands and outputs are high, resulting in high growth in stocks and commodity prices, high profits. There are investments and low unemployment. Recession: The term recession refers to the period from the upper turning point (the initial peak) to the lower turning point (the trough), the economic growth is low and there is low output. Investors lose their confidence and unemployment increases, so fall in income, expenditure, price and profits. Once reception starts, it goes on gathering momentum and finally assumes the shape of depression the first phase of the business cycle is complete. Role of Trade Cycle in Indian Economy:There are ups and downs in Indian economy, particularly in the industrial and agriculture sector has raised significant interest in business cycle indicators. For India the interest in business cycle research is relatively new though industrialized economies have witnessed business cycles for many decades. From the great depression of the thirties to the most recent slowing down of growth in the US economy, which is now affecting entire world economy, there have been numerous ups and downs. Consequently most of the research on business cycles has been addressed from the point of view of advanced industrialized countries. Research on Trade cycles in India has been based on an analysis of data mainly using National Bureau of Economic Researchs (NBER) methods. Evidence suggests that the Indian economy has experienced cycles that can be tracked by changes in annual GDP. Since in the Indian context variables such as sales, retail trade employment etc. are not often available even on annual basis, we can see periods of recession if we look at annual GDP series. Studies of Trade cycles in India show slowdown in that prior to the nineties GDP growth fell in 1957-8, 1965-66, 1972-73 and 1979-80. However, before the nineties, fluctuations in economic activity in India were primarily on account of the monsoon. In the 1990s there has not been an actual fall in output. Cycles, that did occur, can be defined more accurately as "growth cycles" in which there is a periodic fluctuation in the growth rate of output, rather than in the output. There is a growth cycle in the Indian economy in1990s with a Peak in February 1997. There have been four episodes since 1950-51 when growth in GDP has fallen sharply. These have been in 1957-58, 1965-66, 1979-80 and 1991-92. In each of these years there was observed a sharp decline in agricultural output, decline in growth in manufacturing. In 1991-92 there was a balance of payment crisis, a fall in agricultural and manufacturing growth and a decline in GDP growth. The concept of the business cycle here is contrary to the perception of business cycles as continuous expansions that follow contractions and are followed by recoveries caused by the intrinsic characteristics

of market economies. These are cycles caused purely by an external factor - the monsoon. Since agriculture accounted for up to 40 per cent of output till the end of the 1970s, the fall in GDP was mainly due to a monsoon failure. In the Indian economy it was mainly monsoon cycles rather than market related factors that caused a decline in GDP. Current depression since mid of 2008 is the recessive phase of a trade cycle; the present depressive trend can be a consequence of the successive downward phase (after boom) of the same trade cycle. The cyclical rise and fall in the level of economic activities, employment and national income is a part of trade cycle. This type of cyclical fluctuations has been experienced in past. There has been considerable interest and a number of studies in business cycles in Indian economy. The research is ongoing in the quest of characterizing the Trade cycles, identifying appropriate indicators and construction of composite indicators based on latest methodologies.

Question 2:- Define National Income and discuss any one of the methods for calculating national income of Indian economy. National Income:Performance of an economy is related to the level of production (of goods and services) or total economic activity. Measures of national income and output are used in economics to estimate the total value of production in an economy. The standard measures of income and output are Gross National Product (GNP), Gross Domestic Product (GDP), Gross National Income (GNI), Net National Product (NNP), and Net National Income (NNI). In India, the Central Statistical Organization has been estimating the national income. a countrys economic performance has been measured by indicators of national income such as GDP or GNP. National income per person or per capita income is often used as an indicator of peoples standard of living or welfare. Definitions of National Income:The national Income is defined as the aggregate factor income of the country earned by the national through the production of goods and services by the nations economy for a certain period of time. In general annual output in terms of goods and services produced during a particular period of time, usually a year. As per National Income Committee of India, National income estimate measures the volume of commodities and services turned out during a given period counted without duplication. Methods of Calculating National Income:There are three different methods of calculating national income. They are 1. Product or Output Method

2. Income Method 3. Expenditure Method

Income Method

This method approaches nation income from distribution side as income earned or received by individuals of the country. National income is obtained by summing group of income of all individuals of a country. Individuals earned income by contributing their own services and servicers of their property such as land, capital, profits of entrepreneurs and income of self employed people. The components are:Wages and salaries Interest and dividends from shares Rent including imputed rent. Profits and dividends from business Net flow of income from abroad Income of self-employed workers The way calculation of income approach:Wages and salaries (including compensation for employees) + Interest and dividends + Rent + Profits (including undistributed profits and income from self employment/proprietors income) = Gross domestic income at market price (GDImp) - Income paid abroad + Income received from abroad = Gross national income at market price (GNImp) + Subsidies - Indirect taxes or taxes on expenditure = Gross national income at factor cost (GNIfc) - Depreciation or capital consumption = Net national income at factor cost (NNIfc) = National Income This method of estimating national income has the grate advantage of indicating the distribution of national income among different income group such as landlords, capitalist, workers etc. therefore this is called national income by distributive shares.