MBA 1st India’s Macro economic Scenario Case Study 3 With Question Answer

MBA 1st India’s Macro economic Scenario Case Study 3 With Question Answer

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MBA 1st India’s Macro economic Scenario Case Study 3 With Question Answer
MBA 1st India’s Macro economic Scenario Case Study 3 With Question Answer

Case Study 3 (India’s Macro-economic Scenario)

The growth of the Indian economy is expected to be 5.9 per cent in 1999-2000. There has been a sharp upturn in GDP growth in 1998-99, which reversed the deceleration in growth seen in 1997-98. GDP growth accelerated to per cent in 1998-99 from 5 per cent in 1997-98. The primary supply side factor of recovery was agriculture. On the demand side, private consumption recovered in 1998-99 from its slump in 1997-98, with real consumption growth doubling from 2.6 per cent in 1997-98 to 5.1 per cent in 1998-99.

Gross domestic saving declined sharply in 1998-99 to 22.3 per cent of GDP. Though household saving increased as a proportion of GDP, the overall private saving rate declined by 1 per cent of GDP. The decline in saving rate of the government and households is a counterpart of the higher consumption growth during 1998-99. Though in the short run, growth in government consumption may have a positive effect on aggregate recovery, government dissaving will have to be reduced if aggregate investment and growth of the economy is to increase.

Growth of government consumption expenditures in real terms has accelerated to 14.5 per cent in 1998-99 from 10.6 per cent in 1997-98. This provided an even greater stimulus to demand than in the previous year and contributed 1.6 per cent points to overall demand growth in 1998-99. A sharp slump in investment however had a deflationary impact and countered part of this stimulus. Total investment declined by about half a per cent in 1998-99 after increasing by over 13 per cent the year before. This deceleration in investment was linked to the deceleration in manufacturing and the slump in agriculture in 1997-98. Average real interest rates as measured by the cut off yield on 364 days treasury bills declined by 1 per cent points over the previous year, it was not sufficient to counter the negative factors

Inflation rate dropped to international levels of 2 to 3 per cent for the first time in decades. The balance of navments survived the twin shocks of East Asian crisis and the post Pokhran sanctions with a low current account deficit and sufficient capital inflows. This was demonstrated by the continuing rise in foreign exchange reserves coupled with a relatively stable exchange rate.

MBA 1st India’s Macro economic Scenario Case Study 3 With Question Answer

Questions

Q.1. Comment on the present macro-economic scene of India.

Ans. In macro-economics, problems are studied on aggregate level like total consumption of the economy as a whole, total employment national income, etc. by semi-general equilibrium method Macro-economics is also termed as the theory of income and employment. The present macro conomic scene is explained as:

1. Gross Domestic Product (GDP): It includes the growth of the Indian economy which is expected to be 5.9 per cent in 1999-2000 and the primary supply side factor for the recovery was agriculture, 

2. Consumption Expenditures: Growth in govt. consumption had a positive effect on aggregate recovery and to increase the investment and growth of the economy. dissavings have to be reduced Growth of govt. consumption expenditures in real terms has accelerated to 14. 5 per cent in 1998-99 from 10.6 per cent in 1997-98. This provided a greater stimulus to demand than in the previous year had a deflationary impact and total investment declined by about half a per cent in 1998-99 after increasing by over 13 per cent year before.

3. Inflation: It’s rate dropped to international levels of 2 to 3 per cent for the first time in decades. The balance of  payments survived the twin shocks of East Asian crisis and the post Pokhran sanctions with a low current account deficit and sufficient capital inflows.

MBA 1st India’s Macro economic Scenario Case Study 3 With Question Answer

Q.2. on the basis of given case study. Identify and explain the major concepts of macro-economics.

Ans. Following are the major concents of macro-economics on the basis of the given case study: 

1. Inflation: It is associated with high prices that leads to the decline in the purchasing power or the value of money. It is a monetary process and the prices keep on rising due to excess supply of money and lower production of goods.

4. Business Cycle: It refers to the fluctuations in economic activity that occurs in a more or less regular time sequence in all capitalist societies. The volume of economic growth is shown by the volume of employment, price level, output and income.

3. Stag Flation: It is a phenomenon of high unemployment and recession along with high inflation, This is focused on the demand side. Therefore, an economic thought of supply side economics emerged that explained this phenomenon by laying stress on supply side of economic activity. So, stagflation is an important issue of macro-economics.

4. Economic Growth: It is an increase in a country’s real level of national output that can be caused by an increase in the quality of the resources, quantity of resources, value of goods and services and improvements in technology.

So, economic growth is an increase in the amount of goods and services produced by an economy over time. It is measured as the per cent rate of increase in GDP. Thus, economic growth refers to growth of potential output caused by growth in observed output.

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