Economic Management and Business Environment:

Uses of macroeconomic indicator in business. Business decision in inflationary, deflationary and recessionary condition. Objectives and functions of RBI and Business Decisions. Fiscal policy of India and Business Decisions. Impact of monetary and fiscal impact on business.

USES OF MACROECONOMIC INDICATOR IN BUSINESS.

1. Current Price and Base Price

2. Index Number: Index number is the ratio of current number to constant number. Current price Index Number Price = ------------------ x 100 Constant price 3. GNP Deflator: The GNP deflator is the ratio of price index number (PIN or WPI) of current year to the PIN of base year. GNP Deflator = PIN of current Yr. / 100 or = WPI of chosen Yr. / WPI of base year

4. Real GNP = Nominal GNP / GNP Deflator 5. GNP Implicit Deflator or Implicit Price Deflator : The GNP Implicit deflator is the ratio of Nominal GNP to Real GNP. GNP Implicit Deflator = Nominal GNP / Real GNP 6. PIN or WPI = GNP Implicit Deflator x 100 Current Yr. WPI Base Yr. WPI 7. Rate of Inflation = --------------------------------------------- x 100 Base Yr. WPI

8. Factor Cost and Market Price Factor Cost : value of goods & services in factor market for sale.

or Factor Cost = Wage + Rent + Interest + Profit.

Market Price: value of goods & services in the market for sale. or Market Price = Wage + Rent + Interest + Profit + Indirect Tax subsidy

9. GDP, GNP or GNI, NDP and NNP or NI

GDP

C+I+G C+I+G+XM

GNP or GNI =

NDP
NNP or NI
GDP
GNP NDP NNP

=
=

C+I+GD
C+I+G+XMD

Where: GNI = Gross National Income

=
= = =

Gross Domestic Product.

Gross National Poduct Net Domestic Product or Net Domestic Income. Net National Product or Net National Income.

C
I G X M D

=
= = = = =

Gross Consumption
Gross Investment Gross Government Export Import Depreciation

10. Per Capita Income and Personal disposable Income Per Capita Income (PCI) : Personal Income (PI) is the value arrived after net national income divided by total population. PCI = NI / Population

Personal disposable Income (Yd): Yd = PCI (Personal Direct Tax + Non-tax payment to Govt.)

INFLATION, DEFLATION, STAGFLATION, SLOWDOWN AND RECESSION INFLATION : The increase in demand for goods and services exceeds the supply available at existing price. Or, Ad is greater than AS. Or, I is greater than S. Or, increase in the supply of money. Or, increase in the wage rate and profit. Or, Drastic/unexpected shortage in the supply of resources.

DEFLATION : Deflation is just opposite to the inflation. Or, it arises when general price level decrease by appreciation of money, excess supply and lower demand of product. Or, deflation simply state that there are fall in the general price level. Or, AS is greater than AD. Or, S is greater than I. Or, decrease in the supply of money.

REINFLATION: Continuing situation of inflation, end/downtrend of inflation again start/uptrend of inflation.

STAGNATION: Situation of persistence lower employment.

STAGFLATION: Coexistence of higher unemployment with

persistence inflation. Or, inverse relationship between inflation and employment. Or, existence of inflation & Stagnation.

SLOWDOWN : Continuous decrease in the output and employment of resources for at least six months. Or, trough situation of absolute and real business cycle for at least six months.

RECESSION : Decrease in the output and employment of

resources for at least six months and continue for longer period
(may be up to 10 Yrs). Or, trough situation of absolute and real business cycle for at least 6 months and continue for longer period.

BUSINESS DECISION IN INFLATIONARY, DEFLATIONARY

AND RECESSIONARY CONDITION:

Business decision in Inflationary condition: 1. Continue production quantity at previous level, c.p.

2. Continue production quantity at previous level without increase of

price. 3. Continue production quantity at previous level with increase of

price.
4. Increase of production quantity with maintaining product quality at previous level.

5. Increase of production quantity without maintaining product quality.

where c. p. = citreous paribus.

Business decision in Deflationary condition: 1. Continue production quantity at previous level, c.p. 2. Continue production quantity at previous level with decrease in price. 3. Decrease of production quantity at previous level, c.p. 4. Decrease of production quantity with decreasing product quality and decreasing price level. 5. Proportionate changes in other factors of production due to deflation. Business decision in Slowdown/Recessionary condition: 1. Stop Production. 2. Decrease production quantity. 3. Continue production quantity at previous level, c.p. 2. Proportionate changes in other factors of production due to slowdown/ recession.

Impact of monetary policy on business :

Monetary measure are :

1. Open Market Operations e.g. TB, Govt. Bond, RR, RRR etc. 2. Bank Rate - RBI Lending Rate

3. Reserve Ratio - CRR, SLR.

4. Credit Rationing 5. Change in Lending Margin,

6. Moral Suasion and

7. Direct Control. All above measure can increase or decrease the money supply in system

which leads to increase or decrease in production cost and ultimately

increase or decrease the demand/supply of goods and services.

Impact of fiscal policy on business : Fiscal Policy Instruments are 1. Policy of Government Expenditure: 2. Taxation Policy 3. Policy of Public Borrowing (Internal and External) 4. The Budgetary and Deficit Policy. All above fiscal measure (instruments) can increase or decrease the Spending (G), Revenue (T), Consumption Expenditure (C), Investment Spending (I) and Expenditure on Net Foreign Income (Xn) which leads to increase or decrease in forthcoming production cost, consumption quantity, purchasing propensity, purchasing capacity, taxation burden, savings and investment pattern and so forth. Business Analyst must find out the impact of above stated four instruments on his production process, availability of fund with the consumer.