University Institute of Liberal

Arts and Humanities

BA LLB (Hons)
Course Name – Economics
Course Code – 21LAT162
Faculty Name – Anushruti Agarwal

TOPIC OF PRESENTATION: Factors DISCOVER . LEARN . EMPOWER

affecting MEC
 COURSE OBJECTIVES
The Course aims to:

This course discusses the preliminary concepts associated with the

1 determination and measurement of aggregate macroeconomic variable like
savings, investment, money and inflation.

It also helps in understanding of macroeconomic theoretical structure which is

2 considered essential for the proper comprehension of the different issues and
policies

The subject equips the students to understand systemic facts and latest
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theoretical developments for empirical analysis

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 COURSE OUTCOMES
On completion, the students are expected to
CO Title Level
Number
CO1 Students will analysis macroeconomics or Understand
aggregative economics and establish the  
functional relationship between the large
aggregates
CO2 Students will able to understand that the
Macroeconomics now is not only a scientific  Analyse
method of analysis; but also a body of empirical
economic knowledge
CO3 Students will evaluate the Investment and Apply
Consumption pattern and its impact on the
economy 3
 Factors affecting MEC
• Expected demand: If the demand for the product is expected to be high in future,
the MEC will be high and the investment will increase. On the other hand if the
demand for the product is expected to decline in future the MEC will be low and
investment will fall.
• Costs and prices: If the costs are expected to decline and if the prices are
expected to increase, the expectation of the producer will go up. On the other
hand if the costs are expected to go up and prices are to decline the MEC will
receive a set back and the investment will be less.

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• Propensity to consume: If the propensity to consume is more then the volume of
investment will be more and vice versa.
• Changes in income: An increase in the level of income will stimulate investment
while a decrease in the level of income will discourage investment.
• Current state of expectation: Businessmen while making expectations take into
account the current state of affairs regarding costs, prices, returns etc. If they are
high the MEC is bound to be high for new projects of investment.

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• Level of confidence: During period of optimism the businessmen over estimate
and boost the MEC of capital assets. During period of pessimism they under
estimate and reduce the MEC of capital assets.

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 Long run factors affecting MEC
• Population growth: A rapidly growing population means a rapid increase in the
demand for all types of goods and hence investment rises and conversely, a
decline in population will decrease the demand investment.
• Development of new areas: When a new area is developed heavy investments in
all fields such as agriculture, industries, electricity, housing etc., are to be
undertaken.

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• Technological factors: New invention or new discovery may necessitate the
installation of new machineries in the industrial enterprise and encourage
investment.
• Productive capacity of the Industry: If the existing capacity is fully utilised then
any further increase in demand will be met with by making fresh investment on
new capital equipment.
• Level of current investment: If the existing level of investment is already high
there will be little scope for further investment and vice versa.

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 MEI
• It shows the rate of return on just those units of capital over and above the
existing capital stock.
• It is a flow concept
• It determines the net investment of the economy at each interest rate
given the capital stock whereas MEC determines optimum capital stock in
an economy at each level of interest rate.
• Elastic MEI the changes in rate of interest will lead to higher change in
investment
• Inelastic MEI changes in rate of interest will lead to lesser change in
investment.

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MEI

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 Assessment Pattern
Students are assessed on the basis of the following
parameters:
• Hourly Tests - 2
• Assignments
• Surprise Test
• Quiz
• Student Engagement
• End Semester Exam

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 REFERENCES

Textbooks
• HL Ahuja – Macroeconomic theory and policy
• https://www.studocu.com/in/document/guru-gobind-singh-
indraprastha-university/bachelors-of-business-administration/unit-2-
mec-mei-bba-notes/3529651

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THANK YOU

For queries
Email: anushruti.e12418@cumail.in