The firm as a Producer in the marketplace ,

takes decisions on optimal Production, On the Price that it should charge, On the Input combination to be employed, And , on the Prices that it should buy the inputs

at , given the broader environment that it operates in.

This broader environment is the macroeconomic environment.

Macroeconomic environment.

It is essential that firms keep a continuous

watch over the macro environment. The Performance of an economy is evaluated

by considering its Performance indicators. Some of these indicators are:Some of these indicators are: Aggregate output levels Aggregate Price levels Aggregate Investment levels Aggregate consumption levels Balance of Payments

Each of the above indicators is an aggregate. Macro economy is an aggregation of the micro

entities of households and firms & thus we are concerned about national output rather than the output of one particular Product ,

and movements in the overall Price level rather than in the Price of any specific commodity.

•Gross domestic product, a measure of economic activity in a country. •It is calculated by adding the total value of a country's annual output of goods and services. •GDP = private consumption + investment + public spending + the change in inventories + (exports -imports).

GDP: Gross Domestic GDP: Gross Domestic ProductProduct

• It is usually valued at market prices;

by subtracting indirect tax and adding any government subsidy.

• This measure more accurately reveals the income paid to factors of production.

• Short for gross national product, another measure of a country's economic performance. It is calculated by adding to gdp the income earned by residents from investments abroad, less the corresponding income sent home by foreigners who are living in the country.

• Adding income earned by domestic residents from their investments abroad, and subtracting income paid from the country to investors abroad, gives the country's gross national product (GNP).

GNP: Gross national GNP: Gross national ProductProduct

• GNP=GDP + Net Factor Income

from abroad• This ‘net’ factor income is

measured as factor incomes flowing in from abroad minus factor incomes flowing out from the home country.

If the aggregate value of output is

arrived at after deducting the depreciation , it is a net measure.

Therefore; GDP-Depreciation=Net Domestic

Product; GNP-Depreciation=Net National

Product.

Gross Product &Net Gross Product &Net ProductProduct

The Overall Price level is an important

indicator of the Performance of an economy. The method used to aggregate the Prices of

different commodities is the construction of Index

There are variety of indices that capture Price movement.

The interest in these movement is due to the effect that these movements have on the Purchasing Power of money.

There are three indices that are widely used:

Consumer Price Index(Cost of Living Index)

Wholesale Price Index(WPI)

GDP Deflator

The CPI Is often used to assess the money outlays

required to Purchase a basket of consumption goods and services.

This Basket is a representative of the specific group of consumers for whom the CPI is being constructed.

If the basket of goods consumed is significantly different for different groups of consumers

We can have a CPI constructed for each group of consumers

In India there are a CPI for agricultural labourers and another is for urban industrial workers.

Consumer Price Index:

WPI is constructed in a manner similar to CPI , but

there are differences in the data used as input. Differences are: The Basket of goods used for the construction of

WPI is different from the basket of goods used in the case of CPI

The WPI basket includes raw materials used in industrial Production ; industrial goods like equipments ,machinery ; includes items of food category and items in the category of fuel , Power, light , and lubricants.

Wholesale Price Index:

Thus Main Group Included in the WPI are: Primary articles : food, non food , and minerals Manufactured Articles Fuel , Power, Light, and Lubricants.

The Prices used are different. The CPI uses retail Prices , while the WPI uses wholesale prices.

The Weights are different. For agricultural Products , the value of

the marketable surplus is used and for manufactured Products , the value of Production is used.

It refers to the index of the average Price of all the goods and services Produced in the economy.

It is computed as the ratio of the nominal GDP in a given year to the real GDP of that year.

The Purpose of GDP deflator is to remove the effect of increased Prices in the valuation of real GDP

It is used to know the growth rate of the economy.

GDP Deflator: