1. Measurement of Macroeconomic Aggregates 1
Chapter – 3
Measurement of
Macroeconomic Aggregates

2. Measurement of Macroeconomic Aggregates2
Objectives of the Session
 To understand the concept of National Product
 To know about the eight variants of National
Product Aggregates
 To understand real and nominal GNP
 To understand price indices
 To understand index number of production
 To know about money and credit
 To know about the measurement and uses of
national income

3. Measurement of Macroeconomic Aggregates3
Introduction
 Economics analysis deals with those
concepts which can actually be measured
like price of industrial production, stock
prices, interest rates etc.
 The concepts like national income and
product are most significant in
macroeconomic accounting.

4. Measurement of Macroeconomic Aggregates4
The Concept of The National
Product
 The GDP growth rate, the most important indicator
of the nation’s economy.
 GNP and national income provide the policy
makers and business community with the most
useful tool for analyzing an economy’s
performance.
 In general, GNP is the sum of all final goods and
services produced during a specific time period.
 When measuring GNP, or any other aggregate of
national product, we are interested in the final
value of goods and services.

5. Measurement of Macroeconomic Aggregates5
Relationship among Eight Variants
of National Product Aggregates
- net income from abroad
-depreciation
=NDPMP
=NNPFC
GDPMP
GNPMP
=NNPMP
=NDPFC
=GDPFC
=GNPFC
- net income from abroad
-net indirect taxes
-depreciation
-depreciation- net income from abroad
-net indirect taxes
-net indirect taxes
-depreciation
-net indirect taxes
- net income from abroad

6. Measurement of Macroeconomic Aggregates6
Real vs. Nominal GNP
 Real GNP is the GNP in current rupees
deflated for changes in the prices of the
items included in GNP.
 Nominal GNP expresses in current rupees.
It measures the value of output in a given
period in the prices of that period, or as it is
sometimes put , in current rupees.

7. Measurement of Macroeconomic Aggregates7
Price Indices
 The Consumer Price Index (CPI)
 It depends upon the Cost of Living Index
(CLI)
 The Whole Sale Price Index
 National Income Deflators

8. Measurement of Macroeconomic Aggregates8
Index Number of Production
 Among the commonly used economic
indictors to monitor current trends in the
economy are indices of production.
 The index number of industrial production
which is regularly published in “Monthly
Statistics of production of Selected
Industries” is a quantity index which cover
mining; manufacturing; and electricity
generation.

9. Measurement of Macroeconomic Aggregates9
 In any modern economy, the quantity of
money, aggregate volume of credit and its
Sectoral composition are important
variables.
 They have significant influence on
expenditure flows such as consumption,
investment etc.
Money and Credit

10. Measurement of Macroeconomic Aggregates10
Definition: Money Stock
Measures
 The RBI has evolve four measures of money
denoted M1, M2, M3 and M4. They are as:
M1: RBI currency notes with public + small coins +
demand deposits with banks + other deposits
with RBI
M2: M1+ Post Office Savings Deposits
M3: M1+ Time Deposits with banks
M4: M3+ All Post Office Deposits (savings and time)

11. Measurement of Macroeconomic Aggregates11
The Measurement of National
Income
 The Output Method
 The Expenditure Method
 The Income Method

12. Measurement of Macroeconomic Aggregates12
The Output Method
 It is followed either by valuing all the final
goods and services produced during a year
or by aggregating the values imparted to
the intermediate products at each stage of
production by the industries and productive
enterprises in the economy.
 The sum of these values added gives the
gross domestic product at factor cost.

13. Measurement of Macroeconomic Aggregates13
The Expenditure Method
 It aggregates all money spent by private
citizens, firms and the government within
the year, to obtain total domestic
expenditure at market prices.
 This includes consumer spending and
investment i.e. total domestic spending.
 It aggregates only the value of final
purchases and excludes all expenditures on
intermediate goods.

14. Measurement of Macroeconomic Aggregates14
The Income Method
 It aggregates only those of that residents
of the nation, corporate and individual, that
obtain income directly from the current
production of goods and services.
 It aggregates the money payment made to
different factors of production.
 The total of all factor of income gives total
domestic income.

15. Measurement of Macroeconomic Aggregates15
Other Measures of National
Output
 Gross national product
 Net national product
 National income
 Personal income
 Disposable income

16. Measurement of Macroeconomic Aggregates16
Five Alternative Measures of
Income
Depreciation
Net Indirect
Taxes
Personal
Taxes
Personal
Savings
Net Export
(E-M)
Consumer
Expenditure
(C)
Gross Private
Domestic
Investment (I)
Government
Purchases (G)
Wages
Proprietors
Income
Interest
Rents
Corporate
Profit
Minus
Corporate profits
and security
insurance taxes
Plus
Transfer
Payments, net
Interest and
Dividends
Gross National
Product
GNPMP
Net National
Product
NNPMP
National
Income
NNPFC
Personal
Income
Disposable
Personal
Income
Personal
Consumption

17. Measurement of Macroeconomic Aggregates17
Difficulties in Measuring
National Income
 Non-market Production
 Imputed Values
 The Underground Economy
 “Side Effects” and Economic “Bads”
 Leisure and Human Costs
 Double Counting

18. Measurement of Macroeconomic Aggregates18
The Uses of National
Statistics
 As an instrument of economic planning
and review
 As a means of indicating changes in a
country’s standard of living
 To indicate changes in economic growth
of a country
 As a means of comparing the economic
performance of different countries