Economic Analysis and Principles

Economic Analysis

• Economics studies how people make choices in scarcity, impacting individuals and society.
• Rationality is assumed, meaning people have goals and seek to achieve them optimally.
• Scarce resources necessitate choices and trade-offs.

Principles of Microeconomics

• Microeconomics studies individual decisions on buying and consumption, influenced by prices.
• Prices signal economic activity, directing production.
• Microeconomics examines consumer demand and firm theory, emphasizing profit maximization.
• Microeconomics is a framework for understanding how a free market economy functions.

Principles of Macroeconomics

• Macroeconomics focuses on the overall economy, including factors like aggregate supply and demand, GDP, inflation, and unemployment.
• Macroeconomic analysis examines the general state of the economy, including production, consumption and investment.
• Governments and central banks influence the economy through fiscal and monetary policies.
• Macroeconomic models are used to formulate economic policies for growth and stability.

National Income

• National income is measured through Product Method (output), Income Method (income distribution), and Expenditure Method (expenditure on goods and services).
• GDP and GNP are key measures of national income, calculated by various methods.

Savings and Investment

• Personal, corporate, and government savings are aggregated to create national savings.
• Savings are crucial for economic investment in productive avenues.
• Government and central banks focus on converting savings into investments.

Inflation and Interest Rates

• Inflation represents a general increase in prices of goods and services.
• Inflation leads to decreased purchasing power of money.
• Inflation can be caused by factors such as demand exceeding supply, or cost-push factors.
• Inflation is calculated using indices like WPI and CPI, and monitored by governments and central banks.

Unemployment Rates

• Unemployment rates represent percentage of the labor force without employment who are looking for work.
• Unemployment rates reflect the state of the economy, and fluctuate with economic expansion and contraction cycles.
• Higher employment leads to potential growth in the economy.

International Trade

• International trade encompasses total trade of a country with other countries, showing balance of payments (current and capital accounts).
• A current account deficit occurs when imports exceed exports, while a surplus is the opposite.
• Exchange rates influence the relative values of currencies.

Globalization

• Globalization refers to the ability of individuals and businesses to trade globally, which allows resource & capital flow.
• Globalization can lead to economic growth in various aspects, such as the best allocation of resources, new opportunities.
• Negative impacts of globalization include increasing income inequality and competition.

Economic Trends

• Secular trends: Changes in economic or industry conditions with significant (long-term) duration.
• Cyclical trends: Temporary fluctuations affecting economic activity that repeat over time (business cycle).
• Aseasonal trends: Predictable, cyclical fluctuations connected to specific times of the year (agricultural output).

Sources of Economic Information

• Government websites.
• Websites of regulatory organizations (like RBI, SEBI, MOF).
• Economic analyses and research reports by various bodies
• Economic surveys.