EE Unit 4

Economics for Engineers
V
SEMESTE
R HS-301
1 Department of Electrical and Electronics Engineering, BVCOE, New
Delhi Subject: Economics for Engineers, Instructor: Dr. Sandeep
Sharma
Economics for
Engineers Course

Objectives
To explain the basic micro and macro economics concepts.
 To analyze the theories of production, cost, profit and break
even analysis.
 To evaluate the different market structures and their implication
for the behavior of the firm.
 To apply the basics of rational income accounting and business
cycles
to Indian economy.
Department of Electrical and Electronics Engineering, BVCOE, New

2 Delhi
Subject: Economics for Engineers, Instructor: Dr. Sandeep Sharma
Economics for
Engineers Course
 CO1: AnalyzeOutcomes
the theories of demand,(CO)
supply, elasticity and consumer choice
in the market.
 CO2: Analyze the theories of production, cost, profit and break even
analysis.
 CO3: Evaluate the different market structures and their implication for the
behavior of the firm.
 CO4: apply the basics of rational income accounting and business cycles to
Indian economy.

3 Delhi
Economics for
Engineers Course
Outcomes (CO)
Course Outcomes (CO to Programme Outcomes (PO) Mapping (scale 1: low, 2: Medium,
3: High
CO/PO PO01 PO02 PO03 PO04 PO05 PO06 PO07 PO08 PO09 PO10 PO11 PO12
-
CO1 1 2 1 2 1 - 1 1 1 3 1
-
CO2 1 2 1 2 1 - 1 1 1 3 1
-
CO3 1 2 1 2 1 - 1 1 1 3 1
CO4 1 2 1 2 1 - 1 - 1 1 3 1

4 Delhi
National Income Accounting
Overview of Macroeconomics: Macroeconomics refers to
the study of the overall performance of the economy. While
microeconomics studies how individual people make decisions,
macroeconomics deals with the overall aggregate effect of
microeconomics. Macroeconomics is crucial for the government to
understand and predict the long-term consequences of their decisions.
Macroeconomics refers to the study of the aggregate economy.

The primary goals of macroeconomics are to achieve stable economic
growth and maximize the standard of living.
Economic indicators are a good source of information to track
macroeconomic performance.
Monetary policy and fiscal policy are tools used by the government to
control economic performance and reach macroeconomic goals.
5 Department of Electrical and Electronics Engineering, BVCOE New Delhi
Subject: Economics for Engineers , Instructor: SANDEEP SHARMA
Overview of Macroeconomics: The overarching goals of
macroeconomics are to maximize the standard of living and achieve
stable economic growth. The goals are supported by objectives such as
minimizing unemployment, increasing productivity, controlling inflation,
and more. The macroeconomy of a country is affected by many forces,
and as such, economic indicators are invaluable to assessing different
aspects of performance.
Gross Domestic Product (GDP)
Often used as the primary indicator of macroeconomics, absolute GDP
represents the economy’s size at a point in time. GDP is usually calculated
and released by the government on a quarterly or annual basis.

Overview of Macroeconomics:
Inflation
Inflation is the increase of overall price levels and consequently the
decrease in purchasing power. It occurs primarily due to increased demand
for products and services, which, in turn, raises prices. Inflation, therefore,
represents growth.
However, too much inflation is also harmful if purchasing power
decreases much more than inflated prices, decreasing overall spending and
devaluing the currency. The target inflation rate is usually around 1% to
3%.

Overview of Macroeconomics:
Unemployment
Unemployment accounts for individuals who are jobless and are actively
seeking one. Individuals who are retired or disabled are not included as
unemployed. Unemployment is a natural occurrence and cannot be
completely eliminated. We can distinguish unemployment into different
categories:
Frictional unemployment occurs when individuals spend time searching
for a job.
Structural unemployment occurs when jobs are eliminated due to
economic structural changes.
Cyclical unemployment occurs due to fluctuations in the business cycle.

Basic concepts of National Income Accounting :
National income accounting refers to the set of methods and principles
that are used by the government for measuring production and income, or
in other words economic activity of a country in a given time period.
The various measures of determining national income are GDP (Gross
Domestic Product), GNP (Gross National Product), and NNP (Net
National Product) along with other measures such as personal income and
disposable income.

The importance of national income accounting is that it is helpful in
facilitating techniques and procedures for measurement of output and
income at the aggregate level. It is a process of preparing national income
accounts that is based on the principles of double entry system of business
accounting.
National income accounting helps in summarising the economic
performance of a country by measuring the national income aggregates for
the year.
The government policies are framed on the basis of the data obtained from
national income accounting.

National income accounting equation is an equation that shows the
relationship between income and expense of an economy and other
categories. It is represented by the following equation:
Y = C + I + G + (X – M)
Where
Y = National income
C = Personal consumption expenditure
I = Private investment
G = Government spending
X = Net exports
M = Imports
The most important metrics that are determined by national income
accounting are GDP, GNP, NNP, disposable income, and personal income.
GDP works as a scorecard that reflects the economic health of a country. It
is calculated on an annual basis. GDP helps in estimating the growth rate
of a country. GDP can be calculated using the three methods, which are
expenditures method, production method, and income method.
The other indicators of national income are derived from GDP.
GDP can be calculated by the following two methods:
Expenditure approach
Income approach

Calculation of GDP by expenditure approach is,
GDP = C + I + G + (X – M)
Where
GDP = Gross domestic product
C = Personal consumption expenditure
I = Private investment
G = Government spending
X = Net exports
M = Imports

Gross national product or GNP is a measure of the total value of all the
finished goods and services that is produced by the citizens of a country
irrespective of their geographic location. It calculates only the final or
finished goods.
It signifies how much the citizens of a country are contributing to the
economy. It does not include income earned by foreign nationals within
the country.
GNP is calculated using the following formulae:
GNP = C + I + G + X + Z
Where
C = Consumption I = Investment G = Government X = Net exports
Z = Net factor income from abroad

Basic concepts of National Income Accounting : Net
national product or NNP is the total value of all goods and services that
are produced in a country during a given period of time minus the
depreciation. It is represented as follows:
NNP = GNP – Depreciation
The basic functions of national income accounting are as follows:
To determine the economic status of a country.
To provide a basis of evaluation and reviewing of policies that are under
implementation.

Macro Economics Issues
Introduction to Business Cycle:
A business cycle is a cycle of fluctuations in the Gross Domestic Product
(GDP) around its long-term natural growth rate. It explains the expansion
and contraction in economic activity that an economy experiences over
time.
A business cycle is completed when it goes through a single boom and a
single contraction in sequence. The time period to complete this sequence
is called the length of the business cycle.
A boom is characterized by a period of rapid economic growth whereas a
period of relatively stagnated economic growth is a recession. These are
measured in terms of the growth of the real GDP, which is inflation-
adjusted.


the straight line in the middle is the steady growth line. The business cycle
moves about the line. Below is a more detailed description of each stage
in the business cycle:
1. Expansion
The first stage in the business cycle is expansion. In this stage, there is an
increase in positive economic indicators such as employment, income,
output, wages, profits, demand, and supply of goods and services. Debtors
are generally paying their debts on time, the velocity of the money supply
is high, and investment is high. This process continues as long as
economic conditions are favorable for expansion.

Peak
The economy then reaches a saturation point, or peak, which is the second
stage of the business cycle. The maximum limit of growth is attained. The
economic indicators do not grow further and are at their highest. Prices are
at their peak. This stage marks the reversal point in the trend of economic
growth. Consumers tend to restructure their budgets at this point.
Recession
The recession is the stage that follows the peak phase. The demand for
goods and services starts declining rapidly and steadily in this phase.
Producers do not notice the decrease in demand instantly and go on
producing, which creates a situation of excess supply in the market. Prices
tend to fall. All positive economic indicators such as income, output,
wages, etc., consequently start to fall.
Depression
There is a commensurate rise in unemployment. The growth in the
economy continues to decline, and as this falls below the steady growth
line, the stage is called a depression.
Trough
In the depression stage, the economy’s growth rate becomes negative.
There is further decline until the prices of factors, as well as the demand
and supply of goods and services, contract to reach their lowest point. The
economy eventually reaches the trough. It is the negative saturation point
for an economy. There is extensive depletion of national income and
expenditure.

Recovery
After the trough, the economy moves to the stage of recovery. In this
phase, there is a turnaround in the economy, and it begins to recover from
the negative growth rate. Demand starts to pick up due to low prices and,
consequently, supply begins to increase. The population develops a
positive attitude towards investment and employment and production
starts increasing.
Employment begins to rise and, due to accumulated cash balances with
the bankers, lending also shows positive signals. In this phase, depreciated
capital is replaced, leading to new investments in the production process.
Recovery continues until the economy returns to steady growth levels.
This completes one full business cycle of boom and contraction. The
extreme points are the peak and the trough.
Explanations by Economists
John Keynes explains the occurrence of business cycles is a result of
fluctuations in aggregate demand, which bring the economy to short-term
equilibriums that are different from a full-employment equilibrium.
Keynesian models do not necessarily indicate periodic business cycles but
imply cyclical responses to shocks via multipliers. The extent of these
fluctuations depends on the levels of investment, for that determines the
level of aggregate output.
In contrast, economists like Finn E. Kydland and Edward C. Prescott, who
are associated with the Chicago School of Economics, challenge the
Keynesian theories. They consider the fluctuations in the growth of an
economy not to be a result of monetary shocks, but a result of technology
shocks, such as innovation.
Inflation‐causes: Inflation is a measure of how fast prices of
goods and services are rising. If inflation is occurring, leading to higher
prices for basic necessities such as food, it can have a negative impact on
the overall economy.
Inflation can occur in nearly any product or service, including need-based
expenses such as housing, food, medical care, and utilities, as well as want
expenses, such as cosmetics, automobiles, and jewelry. Once inflation
becomes prevalent throughout an economy, the expectation of
further inflation becomes an overriding concern in the consciousness of
consumers and businesses alike.
Inflation can be a concern because it makes money saved today less
valuable tomorrow. Inflation erodes a consumer's purchasing power and
can even interfere with the ability to retire.

, Inflation‐causes: For example, if an investor earned 5% from
investments in stocks and bonds, but the inflation rate was 3%, the
investor only earned 2% in real terms. In this article, we'll examine the
fundamental factors behind inflation, different types of inflation, and who
benefits from it.
Inflation is a measure of the rate of rising prices of goods and services in
an economy.
Inflation can occur when prices rise due to increases in production costs,
such as raw materials and wages.
A surge in demand for products and services can cause inflation as
consumers are willing to pay more for the product.

Inflation‐causes:

consequences and remedies: Monetary and Fiscal
policy: Monetary policy and fiscal policy are two different tools that
have an impact on the economic activity of a country.
Monetary policies are formed and managed by the central banks of a
country and such a policy is concerned with the management of money
supply and interest rates in an economy.
Fiscal policy is related to the way a government is managing the aspects
of spending and taxation. It is the government’s way of stabilizing the
economy and helping in the growth of the economy.
Governments can modify the fiscal policy by bringing in measures and
changes in tax rates to control the fiscal deficit of the economy.

policy:
Monetary Policy
Fiscal Policy
Definition
It is a financial tool that is used
It is a financial tool that is used
by the central government in
by the central banks in regulating
managing tax revenues and
the flow of money and the
policies related to expenditure for
interest rates in an economy
the benefit of the economy
Monetary policy has an impact Fiscal policy has an impact on
on the borrowing in an economy the budget deficit

policy:
Managed By
Central Bank of an economy
Ministry of Finance of an economy
Measures
It measures the interest rates applicable for lending money in the economy
It measures the capital expenditure and taxes of an economy
Focus Area
Stability of an economy
Growth of an economy

policy:
Impact on Exchange rates
Exchange rates improve when there is higher interest rates
It has no impact on the exchange rates
Targets
Monetary policy targets inflation in an economy
Fiscal policy does not have any specific target

Key points to note by student
20 Department of Electrical and Electronics Engineering, BVCOE New

Delhi Subject: SUBJECT NAME , Instructor: INSTRUCTOR

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Economics for Engineers

Department of Electrical and Electronics Engineering, BVCOE, New

Department of Electrical and Electronics Engineering, BVCOE, New

Department of Electrical and Electronics Engineering, BVCOE, New

Macroeconomics refers to the study of the aggregate economy.

6 Department of Electrical and Electronics Engineering, BVCOE New Delhi

7 Department of Electrical and Electronics Engineering, BVCOE New Delhi

8 Department of Electrical and Electronics Engineering, BVCOE New Delhi

9 Department of Electrical and Electronics Engineering, BVCOE New Delhi

10 Department of Electrical and Electronics Engineering, BVCOE New Delhi

12 Department of Electrical and Electronics Engineering, BVCOE New Delhi

13 Department of Electrical and Electronics Engineering, BVCOE New Delhi

14 Department of Electrical and Electronics Engineering, BVCOE New Delhi

15 Department of Electrical and Electronics Engineering, BVCOE New Delhi

16 Department of Electrical and Electronics Engineering, BVCOE New Delhi

17 Department of Electrical and Electronics Engineering, BVCOE New Delhi

18 Department of Electrical and Electronics Engineering, BVCOE New Delhi

20 Department of Electrical and Electronics Engineering, BVCOE New Delhi

23 Department of Electrical and Electronics Engineering, BVCOE New Delhi

24 Department of Electrical and Electronics Engineering, BVCOE New Delhi

25 Department of Electrical and Electronics Engineering, BVCOE New Delhi

26 Department of Electrical and Electronics Engineering, BVCOE New Delhi

27 Department of Electrical and Electronics Engineering, BVCOE New Delhi

28 Department of Electrical and Electronics Engineering, BVCOE New Delhi

29 Department of Electrical and Electronics Engineering, BVCOE New Delhi

20 Department of Electrical and Electronics Engineering, BVCOE New

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