Macroeconomic Indicators
What They Are?
What are the data sources?
Macroeconomics
• developments that involve the
economy as a whole, such as
• total output,
• rates of inflation and unemployment,
• balance of international payments, and
• exchange rate.
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Macroeconomy
•
•
•
•
Main macroeconomic indicator:
Total output of an economy from
2 sectors:
Real and Financial
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Real Sector
• The sector in which there are productions of goods
and services through combined utilization of raw
materials and other production factors such as
labour force, land and capital.
• Two major markets :
1) Production factor market:
raw material market,
labour market,
land and capital market.
2) Output market (both goods and services)
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Financial Sector
• Paper economy
• concerned with buying and selling on the financial
markets
• a broad range of organizations that manage money,
including
• credit unions, banks, credit card companies,
• insurance companies, accountancy companies,
consumer finance companies, stock brokerages,
investment funds and
• some government sponsored enterprises.
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Economic Sectors
• three main sectors
• primary, secondary, and tertiary.
• Primary sector: makes direct use of natural
resources.
• Includes agriculture, forestry, fishing, mining, and
extraction of oil and gas.
• Secondary sector (industrial sector) : sectors that
create a finished, tangible product:
• Includes manufacturing and construction.
• Tertiary sector (service sector) : producing services:
• Includes transportation, finance, tourism, retail
stores….
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Economic Sectors
• Movement of goods and services through the
primary, secondary, and tertiary sectors 
• the chain of production.
• For example,
• trees are sourced (primary),
• then the pulp is processed to create paper
(secondary),
• and then the finished product is sold in stores
(tertiary).
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Economic Sectors
•
•
•
•
2 more sectors
the quaternary and the quinary
The quaternary sector :
that of intellectual organization in a society such as
government, research, cultural programs,
information technology (IT), education, and
libraries.
• The quinary sector :
• Top management in
• non-profit organizations, media, arts,
culture, higher education, science and
technology, and government
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Macroeconomic Indicators:
Gross output
• The value of all goods and services produced in the
economy, whether final products or not,
• and sold to consumers, foreigners, or other
enterprises.
• Problem of double-counting.
• For example,
• the value of wheat may be counted twice:
•
when it is sold by farmers,
•
and again as part of the value of bread.
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Macroeconomic Indicators:
Value added
• The value of gross output less the value of
intermediate consumption.
• use value added to measure a country's output.
• Only market output;
• Not nonmarket output: own-account production,
• such as subsistence farming and owner-occupied
housing
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Macroeconomic Indicators:
Consumption
• 2 distinct kinds: intermediate and final consumption.
• Intermediate consumption :
•
inputs into production,
• final consumption :
•
goods and services—
•
both imported and domestically produced—
•
used by households and the government sector.
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Macroeconomic Indicators:
Investment (gross capital formation)
• Additions to the physical stock of capital in an
economy.
• Output produced during the current year but not
used for present consumption.
• Investment in the macroeconomic sense includes
• the building of machinery, factories, and houses and
changes in inventories.
• Inventories of finished goods and work in progress
only.
• Inventories of intermediate inputs are not included
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Macroeconomic Indicators:
Depreciation
• used to differentiate net from gross investment
• sometimes called the consumption-affixed capital.
• Since capital stock wears out over time,
depreciation, or the cost of replacing the capital
used up during a period, is subtracted from gross
investment to derive net investment.
• Net investment = Gross investment - Depreciation.
• Net investment more accurate measure of the
addition to productive capacity than gross
investment.
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Macroeconomic Indicators:
Net exports
• equal to the value of exports of goods and services
less the value of imports of goods and services,
• used to measure the impact of foreign trade on
aggregate demand.
• Net exports are a component of the total demand for
domestic goods and services
• plays an important role in determining GDP.
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Macroeconomic Indicators:
Inflation
• a persistent increase in the general price
level of goods and services in an economy
over a period of time.
• reflects a reduction in the purchasing power
per unit of money – a loss of real value in the
medium of exchange and unit of account
within the economy.
• Central to LT interest rates
• A chief measure of price inflation is the
inflation rate, the annualized percentage
change in a general
price index.
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Macroeconomic Indicators:
Interest rates
• Rate at which interest is paid by a borrower
(debtor) for the use of money that they
borrow from a lender (creditor).
• Comparing economies and returns in other
currencies.
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Quantity Aggregates
• To understand the macroeconomy, we need to
measure it.
Chief measure of economy is the level of
production
• We need to combine the many goods produced
or consumed in an economy into one measure.
+
+
+
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All goods sold in an
economy share a common
unit of measure: the price at
which they are sold.
Sum up
the
value of
goods
Gross Domestic Product (GDP)
• GDP is the sum of the value of new, final
goods produced within the domestic
borders of an economy.
Final goods are goods
sold to their end-users
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Macroeconomic Indicators:
Gross domestic product
• the sum of value added across all sectors in
the economy.
• measures the value of final goods and
services in an economy.
• Important for understanding Business
Cycles
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Macroeconomic Concepts:
Real and Nominal
• Measures of an economy expressed in real values
(adjusted for inflation),
• or in nominal values (unadjusted for inflation);
expressed in monetary terms, that is, in units of a
currency.
• Real values : a measure of purchasing power net of
any price changes over time.
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Macroeconomic Concepts:
Real and Nominal
• Arithmetic definition:
nominal value / real value = (P x Q) / Q = P.
• P = a price index, and
• Q = a quantity index of real value.
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Macroeconomic Concepts:
Real and Nominal
• Pi = the unit price of i, say, Rs5
• Qi = the quantity of good i, say, 10 units.
• nominal value of good i = Pi x Qi = Rs5 x 10 = Rs50.
• real value of good i = (Pi x Qi)/Pi = Qi = 50/5 = 10.
• The price "deflates" (divides) the nominal value to
derive a real value, the quantity itself.
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Macroeconomic Concepts:
Real and Nominal
• To derive a real-value series from a series of nominal
values in different years :
•
real value in year t =
•
(nominal value in year t) / (price index in year t).
• nominal wage rate:
•
Rs10 in year 1 and Rs18 in year 2
• price level:
•
1.00 in year 1 and 1.8 in year 2,
• then real wages using year 1 as the base year :
•
in year 1 : (Rs10/1.00) = Rs10 and
•
in year 2 : (Rs18/1.8) = Rs10
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Macroeconomic Concepts:
Real and Nominal
• nominal wage rate:
•
Rs10 in year 1 and Rs18 in year 2
• price level:
•
1.00 in year 1 and 1.8 in year 2,
• then real wages using year 1 as the base year :
•
in year 1 : (Rs10/1.00) = Rs10 and
•
in year 2 : (Rs18/1.8) = Rs10
• Nominal wage increase: (18 – 10)/10 = 80%
• Price increase: (1.8 – 1)/1 = 80%
• Real wage increase: (10 – 10)/10 = 0%
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Macroeconomic Concepts:
Real and Nominal
• Implicit price deflator of GDP =
•
(nominal GDP) / (real GDP)
• A measure of the change in the average price level
of an economy's output relative to the base year
• a value of 1.0 (or 100 if in index number form) in the
base year.
• The change in the average level of the GDP deflator,
from one year to the following year, is one broad
measure of inflation in the economy.
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Gross domestic product:
Alternative Approaches to Deriving GDP
• measures the value of final goods and services in an
economy.
• three basic approaches:
•
the production approach,
•
the income approach, and
•
the expenditure approach
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Gross domestic product:
The production approach
• the sum of value added across all sectors in the
• economy.
• or the difference between the value of production
(output) and the value of all goods and services used
up in the production process (i.e., intermediate
consumption).
• only production by residents.
• a gross concept : includes
• depreciation (consumption of fixed capital).
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Gross domestic product:
The income approach
• equal to the sum of incomes generated by resident
producers
• GDP (at factor cost) = W+OS
• W = aggregate wages and other remuneration of
employees;
• OS = operating surpluses of producing units
(includes rent, interest, depreciation and profits);
• GDP (at market prices) = GDP (at factor cost) + TPLS
• TPLS = taxes on products less subsidies (that is,
sales taxes and other business taxes paid by
enterprises to government, less transfers received
by enterprises from Vijayamohan
government).
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Gross domestic product:
The expenditure approach
• equal to the sum of its final uses.
• GDP = C+I+(X-M)
• C = final consumption of the government and
nongovernment sectors
• I = gross investment (fixed capital formation and
changes in inventories)
• X = exports of goods and nonfactor services
• M = imports of goods and nonfactor services.
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Gross national income
• GDP less incomes (compensation of employees and
property income) payable to nonresidents
• plus incomes receivable from nonresident producing
units.
• The difference between GDP and GNI = "net factor
income from abroad (Yf)"
• may be positive or negative.
• GNI = GDP+Yf.
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GNI vs. GDP
GDP
Gross Domestic Product
GNP
Gross National Income
= income earned by
domestic residents
= income created within
national borders.
GNI = GDP +NFI
• Net Factor Income [NFI] is income earned on
overseas work or investments minus income
generated domestically but paid to foreigners.
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Gross national income
• GNI = GDP+Yf.
• GDP: a concept of both production and income,
• GNI : a concept only of income (primary income).
• GNI previously called gross national product (GNP)
• GNI not a concept of value added, but a concept of
income.
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Gross national disposable income
• The total income available to residents for either
final consumption or saving
• Equal to
• gross national income (GNI) + net current transfers
received from abroad (TRf)
• GNDI = GNI+TRf.
• TRf = current transfers received from nonresidents,
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Production
Income
Expenditure
Value added
by:
Agriculture
+Industry
+Services
+Government
Services
Compensation of
employees (W)
+ Operating surplus
of enterprises (OS)
(including
depreciation)
Private consumption
+ General government
consumption (CG)
+ Gross investment (I)
+ Exports of goods
and nonfactor services (X)
 Imports of goods and
nonfactor services (M)
= GDP (at mp) = GDP at mp
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= GDP (at mp)
+ Net factor income
from abroad (Yf)
= (GNI) (at mp)
+ Net factor from abroad
(Yf)
= GNI (at mp)
+ Net current
transfers (TRf) =
GNDI at mp
+ Net current transfers
(Trf) = GNDI at mp
 Depreciation
(D)
Vijayamohan
= NNDI at mp
 Depreciation (D)
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= NNDI at market prices)
CDS
Category
Personal expenditure
Proprietors' income
Imports
Net interest and rental
income
Government expenditure
Indirect business taxes
Exports
Employee compensation
Corporation pretax
profits
Business investment
Billions GVA= NVA=
of Rs GDPfc NDPfc
100
5
5
5
45
15
GDP GNP
mp
mp
NNPmp
NI
PI
PDI
5
5
5
5
5
5
15
15
15
15
15
15
20
20
20
15
40
20
40
90
15
90
90
90
90
90
90
90
90
15
30
15
15
15
15
15
15
15
15
Capital consumption
allowance
20
20
20
20
Net income from assets
abroad
10
10
10
10
10
Undistributed profits and
corporate taxes
15
-15
-15
Transfer payments and
interest
Personal income taxes
10
5
10
10
-5
125
10
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125
165
175
155
135
130
Comparing GDP levels
across time
• GDP measures the value of the goods
produced by an economy by using the
market price of each good to assign it a
value.
• Problem: Prices of goods in terms of money
are changing overtime making comparisons
in overall value difficult.
– Bias: Money prices are growing over time as
money supply grows.
• Solution: Choose a Base Year’s prices as a
fixed yardstick ofVijayamohan
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for different goods. 36
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Real GDP: Yt
• GDP aka Nominal GDP aka Current
Dollar GDP is the weighted sum of the
number of goods produced using their
current prices as the weight.
• Real GDP aka Constant Dollar GDP aka
GDP adjusted for inflation is the
weighted sum of the number of goods
produces using the Base Year prices as
yardsticks.
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1991
1995
500
1000
4000
2000
80000
160000
10
20
Compact disc players
Output
Price (Rs)
Compact discs
Output
Price (Rs)
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1991
1992
Nominal GDP
?
?
Real GDP (at 1991 price)
?
?
Real GDP (at 1995 price)
?
?
GDP deflator (at 1991 price)
?
?
GDP deflator (at 1995 price)
?
?
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1991
1992
Nominal GDP
2800000 5200000
Real GDP (at 1991 price)
2800000 5600000
Real GDP (at 1995 price)
2600000 5200000
GDP deflator (at 1991 price)
100
GDP deflator (at 1995 price) 107.692
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92.857
100
40
Price Indices: Pt
• Most commonly used price indices are
GDP Deflator, WPI and CPI
• The GDP deflator is the ratio of nominal
GDP to Real GDP (multiplied by 100).
Nominal GDP
P  GDP Deflator 
 100
Real GDP
GDP
P
 100
Y
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Wholesale/Consumer Price Index
• The WPI/CPI is the price of a
representative market basket of goods
relative to the price of that same basket
during a benchmark/base year (multiplied
by 100).
Cost of Market Basket in year t
CPI t 
100
Cost of Market Basket in Base year
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Q: What is Inflation?
A: The Growth Rate of Price Level
Pt  Pt 1
Inflation Rate 
x100%
Pt 1
Inflation: prices are growing
Disinflation: inflation is slowing down but
still positive
Deflation: inflation is negative and prices are
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Adjusting for Inflation
•
•
We can use some price index to “adjust for
inflation” effectively converting a variable
measured in money (nominal) into a
variable measured in the prices of some
reference year.
Real series measures the value of goods
that could have been purchased with that
amount of money in the reference year.
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Real Sector
•
•
•
•
Agriculture
Industrial Statistics
National Income
Prices
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Real sector: Agriculture
http://agricoop.nic.in/
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Real sector: Agriculture
• The primary source: Ministry of
Agriculture, Government of India.
• http://agricoop.nic.in/
• Annual data series for more than 18
variables under
• agricultural production and
• inputs.
•
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http://agricoop.nic.in/
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Real sector: Agriculture:
Agricultural Production
• Annual indices on Area under
Cultivation, Yield per Hectare and
Production Indices for 25 Crops.
• Production and Area under Cultivation
data from 1951 onwards for major food
grains and commercial crops.
• State-Wise Production data for major
food grains and non-food crops from
1981 onwards.
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Real sector: Agriculture:
Agricultural Inputs
• Data series on agricultural inputs like
Sown Area, Irrigated Area and
Consumption of Fertilizer 1951
onwards.
• Data series on Procurement, Off-Take
and Stock data for rice and wheat from
1972.
• Minimum Support Price for 7 food
grains and 9 major non-food grains
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from 1976 onwards.
Real sector: Industry
• The primary source: Central Statistics
Office, Ministry of Statistics and
Program Implementation (MOSPI).
• http://mospi.nic.in/Mospi_New/site/hom
e.aspx
• Monthly data series with respect to
• industry classification and
• use base classification
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http://mospi.nic.in/Mospi_New/site/home.aspx
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http://mospi.nic.in/Mospi_New/site/home.aspx
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http://mospi.nic.in/Mospi_New/site/home.aspx
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Real Sector: Industry:
Monthly Reports
• Group-Wise Index Number of Industrial
Production: March 1982 onwards
• Index Numbers of Twenty Two Major
Industry Groups of Manufacturing
Sector (Base: 2004-05 = 100): March
1995 onwards
• Industrial Production: April 1994
onwards
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Real sector: Industry:
Annual Reports
• Annual Survey of Industries - Principal
Characteristics: March 1991
• Implementation of Central Sector
Projects – Status: March 1995
• Index Numbers of Industrial Production
- Use-Based Classification: March 1982
• Index Numbers of Infrastructure
Industries: March 1995
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Real sector: Industry:
Annual Reports
• Index Numbers of Infrastructure
Industries - Growth Rate: March 1995
• Performance of SSI Sector: March 1974
• Production and Imports of Crude Oil
and Petroleum Products: March 1973
• Production of Select Industries: March
1982
• Sector-Wise Cost Overrun of Delayed
Central Sector Projects: March 1995
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Real sector:
National Income
• The primary source: Central Statistics
Office, Ministry of Statistics and
Program Implementation (MOSPI).
• http://mospi.nic.in/Mospi_New/site/hom
e.aspx
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Real sector:
National Income
• Quarterly estimates of Gross Domestic Products
at Factor Cost/Market Prices are available
industry wise at current and constant prices
from 2004-05 onwards.
• Components of GDP such as Private Final
Consumption Expenditure (PFCE),
• Government Final Consumption Expenditure
(GFCE), Gross Fixed Capital Formation GFCF),
• Exports, Imports are also available at current
and constant prices on a quarterly basis.
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Real sector:
National Income
• Annual data series at industry level are
available on Net State Domestic Products at
Factor Cost.
• Long time series data on various GDP
aggregates, Savings, Capital Formation at
various sector levels are available from 1950
onwards.
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Real sector:
Prices
• Weekly index on Wholesale Price Index (WPI)
are available for food and non-food primary
articles covering 121 commodities from
2 April 1994 onwards.
• Monthly index on WPI are available for 676
commodities.
• Inflation Rates Based on WPI is also
available for various commodity groups on
monthly basis.
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Real sector:
Prices
• Annual inflation rates based on monthly
Consumer Price Indices (CPI), viz., Industrial
Worker Index, Urban Non-Manual Employee
Index and Agricultural Laborers Index are
available.
• Monthly Average Prices of Gold and Silver is
also available from 1990 onwards.
• Housing Price Indices compiled based on
data from registrar offices for major cities are
available on a quarterly basis.
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http://www.rbi.org.in/scripts/AnnualPublications.aspx?head=Ha
ndbook%20of%20Statistics%20on%20Indian%20Economy
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