Rs.

GDP 7000
Gross investment 800
Net investment 550
Consumption 4500
Government purchase of goods 1100
Budget surplus 30
 Formula Value
Depreciation (Gross investment- Net investment) 250
NDP (GDP- Depreciation)
(NDP - Consumption - Gross Investment - 6750
Net Exports government purchases
(Government purchases of
of goods
goods and
and services)
services - 350
Government taxes minus transfer Budget Surplus) 1070
Disposable Income (GDP - Government taxes minus transfer) 5930
Personal Saving (Disposable income - Consumption) 1430
Q2
Closing stock of firm A 30
Closing stock of firm B 20
Opening stock of Firm A 5
Opening stock of Firm B 10
Domestic sales of Firm A 250
Purchase of Firm A from Firm B 100
Purchase of Firm B from Firm A 80
Domestic sales of Firm B 250
Import of raw materials by Firm A 65
Export by Firm B 30

Value added (VA) = Value of output - Cost of intermediate Inputs (domestic + imports)
Value of output = Sales (Domestic + Exports) + Change in stocks (Closing- opening)

Calculating Value of output (VO)

Firm A Firm B
Sales (Domestic+ Exports) 250 280
Change in stock (closing - opening) 25 10
Value of Output ( VO) 275 290

Calculating Value added ( VA )

Firm A Firm B
Value of Output 275 290
Cost of intermediate inputs (domestic+ imports) 165 80
Value added 110 210

Value added of two firm 320

 GDP
Factor Payments received from abroad
Factor Payments sent abroad

GNP = GDP + Factor Payments received from abroad - Factor Payments sent abroad
5000
150
90

5060
Question 4. In a speech that Senator Robert Kennedy gave when he was running for president in 1
“[It] does not allow for the health of our children, the quality of their education, or the joy of their p
or the strength of our marriages, the intelligence of our public debate or the integrity of our public o
wisdom, nor our devotion to our country. It measures everything, in short, except that which makes l
about America except why we are proud that we are Americans.”

Was Robert Kennedy right? If so, why do we care about GDP?

Answer: GDP is an imperfect indicator of economic performance or well-being, as Senator

excludes the imputed rent on durable goods such as vehicles, refrigerators, and lawnmowers
produced in the home, such as cooking and cleaning, and the value of things produced and so
trade. These flaws in GDP measurement do not automatically imply that it is less valuable. G
from year to year as long as these measurement difficulties remain constant throughout time.
provide our children with better medical care, fresher books for their education, and more toy
higher GDP tend to have longer life expectancies, better access to clean water and sanitation
result, GDP is a valuable metric for evaluating the rate of growth and development in differe
as running for president in 1968, he said the following about GDP:

ucation, or the joy of their play. It does not include the beauty of our poetry
the integrity of our public officials. It measures neither our courage, nor our
t, except that which makes life worthwhile, and it can tell us everything

or well-being, as Senator Robert F. Kennedy pointed out. GDP

gerators, and lawnmowers, as well as numerous services and products
of things produced and sold in criminal activities, such as the drug
y that it is less valuable. GDP is useful in comparing economic activity
constant throughout time. Furthermore, a high GDP helps us to
ir education, and more toys for their play. Finally, countries with
clean water and sanitation, and more educational attainment. As a
nd development in different countries.
CPI is calculated using only 2 commodities that food and clothes and for understanfing purpose, let us as
Rs 150 respectively for the Sept- 2020.

Commodities Weightage Basket Price (Sept- 2020)

Food 60% ₹ 100.00

Clothes 40% ₹ 100.00
Basket Price

CPI (Base: Sept- 2020 = 100)

CPI = (cost of basket in current period/ cost of basket in base period) = (112/100) = 112

The CPI is for the Sept- 2021 is 112 and the inflation stands at 12%.
As per Database on Indian Economy (DBIE), the CPI of food & clothing stands at 164 & 164.5 re
od and clothes and for understanfing purpose, let us assume the price of food and clothes be Rs 100 &

Effective Price (Sept- 2020) Basket Price (Sept- 2021) Effective Price (Sept- 2021) Inflation (Y-o-Y)

₹ 60.00 ₹ 110.00 ₹ 66.00

₹ 40.00 ₹ 115.00 ₹ 46.00
₹ 100.00 ₹ 112.00

₹ 100.00 ₹ 112.00 12.00%

sket in base period) = (112/100) = 112

ion stands at 12%.

the CPI of food & clothing stands at 164 & 164.5 respectively and inflation (Y-o-Y) is 1.67 & 7.03 respectively.
 Question 6
Data of real GDP and nominal GDP at markett price

YEARS (1993-2006) GDP Real (billions of $)

1993 1,268.35
1994 1,381.70
1995 1,517.52
1996 1,661.97
1997 1,759.10
1998 1,888.91
1999 2,085.68
2000 2,214.21
2001 2,371.93
2002 2,501.11
2003 2,747.80
2004 3,045.34
2005 3,389.02
2006 3,773.02

A country's GDP represents the value of all the goods and

services it produces in a given time period. Furthermore, it
considers the income received by foreign citizens locally
and the lack of income earned by residents abroad.
Nominal GDP is measured at current prices, whereas real
GDP is evaluated at fixed prices.
Both GDPs are financial tools for estimating a nation's
economic development and growth. However, there is still
some confusion about how to determine the GDP of a
nation. In this article, we will examine the differences
between nominal and real GDPs.

Through the graph we can say that our Real GDP is higher
than our nominal GDP which might be because of when the
economy is producing above its sustainable limits, and
aggregate demand is outpacing aggregate supply.

GDP increases due to inflation and does not reflect actual

economic growth. That is why GDP must be divided by the
inflation rate (raised to the power of units of time in which
the rate is measured) to calculate the real GDP's growth.
 Real and Nominal G
GDP Nominal (billions of $) GDP Deflator Inflation Rate
279.3 22.020736 NA
and
327.28 23.686762684 7.57% GDP Real (billions of
360.28 23.741367494 0.23%
4000
392.9 23.640619265 -0.42%
3500
415.87 23.641066454 0.00%

GDP (Billions of $)
3000
421.35 22.306515398 -5.65%
-1.38% 2500
458.82 21.998580799
468.4 21.154271727 -3.84% 2000
485.44 20.466033989 -3.25% 1500
514.94 20.588458724 0.60% 1000
607.7 22.115874518 7.42% 500
709.15 23.286398235 5.29% 0
1993 1994 1995 1996 1997 1998 19
820.38 24.206997893 3.95%
940.26 24.920620617 2.95%

Formulas
 and Nominal GDP between year 1993-94
and 2005-06
GDP Real (billions of $) GDP Nominal (billions of $)

994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006

Years
 WPI (All Commodities) Inflation rate (%) CPI (Industrial Workers) Inflation rate (%)
Year
(base year 1993-94) based on WPI (base year 1982) based on CPI
1993-94 100 N/A 252 N/A
1994-95 111.2 11.20% 278 10.32%
1995-96 120.2 8.09% 306 10.07%
1996-97 125.6 4.49% 334 9.15%
1997-98 131.3 4.54% 358 7.19%
1998-99 138.9 5.79% 405 13.13%
1999-00 143.8 3.53% 424 4.69%
2000-01 152.8 6.26% 441 4.01%
2001-02 160.7 5.17% 458 3.85%
2002-03 164.7 2.49% 477 4.15%
2003-04 173.4 5.28% 496 3.98%
2004-05 184.9 6.63% 514 3.63%
2005-06 193.7 4.76% 536 4.28%

Inflation given by CPI (Industrial Workers) price index results in higher average inflation rates over time than the
other two inflation rates.
The CPI is what is used to measure the average changes in prices over time that consumers pay for goods and
services. The weighted average of the prices of goods and services that approximates an individual's consumption
patterns is used to calculate CPI.
Changes in the CPI reflect price changes in the economy. When there is an upward change in the CPI, this means
there has been an increase in the average change in prices over time. This eventually leads to adjustments in the cost
of living and income
The CPI tends to overstate inflation because of the following biases:
1. Substitution Bias: When the price of a product in the consumer basket rises significantly, consumers seek to
substitute lower-cost alternatives.
2. Quality Bias: Technological advancements extend the life and utility of things.
3. New Product Bias: Because new items are not included in the index until they become conventional, the index does
not reflect the huge price drops that are often associated with new technology.
4. Outlet Bias: The CPI does not accurately represent the customer shift to new outlets such as wholesale clubs and
internet merchants.
 Inflation Rate
(GDP Deflator) 3 Inflation Rates Plot
NA
0.23% Inflation rate (%) Inflation rate (%) Inflation Rate
based on WPI based on CPI (GDP Deflator)
-0.42%
0.00% 0.15
-5.65%
-1.38%
-3.84%
-3.25% 0.1
0.60%
7.42%
5.29%
3.95% 0.05
2.95%
Inflation rate

on rates over time than the

0
mers pay for goods and
ndividual's consumption

nge in the CPI, this means

s to adjustments in the cost
-0.05

y, consumers seek to

onventional, the index does -0.1

1993- 1994- 1995- 1996- 1997- 1998- 1999- 36526 36923 37316 37712 3
h as wholesale clubs and 94 95 96 97 98 99 00

Year
Plot
Inflation Rate
(GDP Deflator)

526 36923 37316 37712 38108 38504

 Reserve Broad
Year Multiplier
Money Money
1993-94 138672 431084 3.109
1994-95 169283 527596 3.117
1995-96 194457 599191 3.081 6.000
1996-97 199985 696012 3.480
1997-98 226402 821332 3.628
1998-99 259286 980960 3.783 5.000
1999-00 280555 1124174 4.007
2000-01 303295 1313204 4.330
4.000
2001-02 337952 1498336 4.434
2002-03 369038 1717936 4.655
2003-04 436490 2005654 4.595 3.000
2004-05 489111 2245653 4.591
2005-06 571932 2719493 4.755
2006-07 708861 3310038 4.670 2.000
2007-08 928275 4017855 4.328
2008-09 987961 4794775 4.853
2009-10 1155653 5602698 4.848 1.000

0.000
1993-94 1994-95 1995-96 1996-97

Slope of Money Multiplier curve represent slope of the LM

curve.
This shows as Income increases, thedemand for money
increase in the economy.
LM curve has an upward slope.
 Multiplier

993-94 1994-95 1995-96 1996-97 1997-98 1998-99 1999-00 2000-01 2001-02 2002-03 2003-04 2004-05 2005-06 2006-07

Years
003-04 2004-05 2005-06 2006-07 2007-08 2008-09 2009-10
Q. 9 Money Supply (Ms) = Gb + AR +FE - NML

SOURCES (i+ii+iii+iv-v) 2019

i) Net Bank Credit to Government Sector (Gb) ₹ 4,387,788.39
28%

ii) Bank Credit to Commercial Sector (AR) ₹ 10,380,180.06

67%

iii) Net Foreign Exchange Assets of Banking Sector (FE) ₹ 3,070,840.55

20%
Fraction of the central bank’s monetary base that is sourced from foreign-exchang
over time.

iv) Government's Currency Liabilities to the Public ₹ 25,887.34

0.17%

v) Banking Sector's Net Non-Monetary Liabilities (NML) ₹ 2,433,822.55

Total ₹ 15,430,873.79

*All amounts in Crores

Data Source: RBI.org.in
AR +FE - NML

2020 2021
₹ 4,960,362.11 ₹ 5,850,374.02
30% 31%

₹ 11,038,644.44 ₹ 11,668,466.35
66% 62%

₹ 3,801,036.28 ₹ 4,578,846.26
sourced from foreign-exchange23%
assets 24%

₹ 26,347.52 ₹ 26,912.61
0.16% 0.14%

₹ 3,026,426.90 ₹ 3,280,021.48

₹ 16,799,963.45 ₹ 18,844,577.75
 Rate of change
Rate of change Net Foreign of Net Foreign
Years Broad Money of Broad Money Exchange assests Exchange assests
2001 ₹ 1,628,346.44 0.00% ₹ 216,361.88 0.00%
2002 ₹ 1,939,605.79 19.12% ₹ 283,410.83 30.99%
2003 ₹ 2,276,316.62 17.36% ₹ 387,226.17 36.63%
2004 ₹ 2,698,918.08 18.57% ₹ 527,322.34 36.18%
2005 ₹ 3,177,526.37 17.73% ₹ 610,645.01 15.80%
2006 ₹ 3,784,302.30 19.10% ₹ 721,234.39 18.11%
2007 ₹ 4,491,197.14 18.68% ₹ 914,121.58 26.74%
2008 ₹ 5,606,851.20 24.84% ₹ 1,256,146.82 37.42%
2009 ₹ 6,489,521.60 15.74% ₹ 1,275,662.51 1.55%
2010 ₹ 7,502,314.97 15.61% ₹ 1,271,500.32 -0.33%
2011 ₹ 9,000,635.32 19.97% ₹ 1,410,375.61 10.92%
2012 ₹ 10,660,488.47 18.44% ₹ 1,529,054.21 8.41%
2013 ₹ 12,148,227.77 13.96% ₹ 1,646,457.05 7.68%
2014 ₹ 13,400,697.28 10.31% ₹ 1,866,501.93 13.36%
2015 ₹ 14,607,348.57 9.00% ₹ 2,207,788.42 18.28%
2016 ₹ 16,039,332.78 9.80% ₹ 2,415,939.15 9.43%
2017 ₹ 17,172,785.95 7.07% ₹ 2,499,387.44 3.45%
2018 ₹ 18,802,342.71 9.49% ₹ 2,782,412.54 11.32%
2019 ₹ 20,815,239.07 10.71% ₹ 2,977,231.51 7.00%
2020 ₹ 23,540,700.85 13.09% ₹ 3,805,782.56 27.83%
2021 ₹ 25,526,603.78 8.44% ₹ 4,391,983.72 15.40%
Average 14.85% 16.81%

Net Foreign Exchange Asset is rising at a faster rate

If Net Foreign Exchange Asset is increasing, then nation's funds are more utilized for acquiring
overseas assets than enhancing circulation of currency in the economy
 Broad Money vs Net Foreign Exchange Assets
₹30,000,000.00

₹25,000,000.00

₹20,000,000.00

₹15,000,000.00

₹10,000,000.00

₹5,000,000.00

₹-
2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017

Years

Broad Money Net Foreign

Exchange assests
ange Assets

013 2014 2015 2016 2017 2018 2019 2020 2021

ts