7/28/2019 Business Envt & Macroeconomics

1/11

Business Environment and Macroeconomics #2

- NMIMS Hyderabad

7/28/2019 Business Envt & Macroeconomics

2/11

7/28/2019 Business Envt & Macroeconomics

3/11

Tableau Economique Francois Quesnay, a French medical practitioner,

inspired by his knowledge of human blood circulation,was the first to model the economy as a circular flow.

His model, called Tableau Economique, distinguishedbetween three economic sectors: The productive class, which consists of peasants and tenant

farmers The class of the land owners that consisted of the nobility and

the clergy The sterile class covering all other occupations.

The Tableau Economique shows the relations of supplyand demand that take place between these threesectors, depicting only the monetary flow.

October 6, 2012 JMG-BEME-NMIMS Hyderabad #2 3

7/28/2019 Business Envt & Macroeconomics

4/11

Two-sector model

October 6, 2012 JMG-BEME-NMIMS Hyderabad #2 4

7/28/2019 Business Envt & Macroeconomics

5/11

Two-sector contd Two significant differences from Tableau Economique

One, the economy is partitionedfunctionally and notpersonally. A person does not belong to one of the sectors pure and simple; but

he belongs to the firms when producing and to the households,when consuming.

Second, here it is considered that any commercial activityresults in value-addition and not just agriculture.

Given that there are no injections and leakages, the sum of

factor incomes equals total consumption expenditure. Total Factor Income = Total Consumption Exp.

This is a stationary economy... Total productive equipmentremains unchanged.

October 6, 2012 JMG-BEME-NMIMS Hyderabad #2 5

7/28/2019 Business Envt & Macroeconomics

6/11

Three-sector model

October 6, 2012 JMG-BEME-NMIMS Hyderabad #2 6

7/28/2019 Business Envt & Macroeconomics

7/11

Four-sector model

October 6, 2012 JMG-BEME-NMIMS Hyderabad #2 7

7/28/2019 Business Envt & Macroeconomics

8/11

Leakages and Injections Two sector model Savings and Investment

Y = C + I

Y = C + SY as product, Y as income

S=I, ex-post

To deal with this, Financial markets are introduced

October 6, 2012 JMG-BEME-NMIMS Hyderabad #2 8

7/28/2019 Business Envt & Macroeconomics

9/11

National IncomeAggregate Income / National Product

Four classifications

Gross vs. Net Gross Depreciation = Net

Domestic vs. National

Domestic + NFIA = National

Product at Market Price vs. Product at Factor Price FC+Net Indirect Taxes = MP

Nominal vs. Real (Current prices vs. Constant prices)

NNP at FC!

October 6, 2012 JMG-BEME-NMIMS Hyderabad #2 9

7/28/2019 Business Envt & Macroeconomics

10/11

Calculation Methods Three different ways to calculate aggregate products.

Net Output or Value-Added Method

Expenditure Method GDP at MP = C + I + G + (X M).

Income Method

The components of national income could consist of

Income from employment, Income from property andIncome from entrepreneurship etc...

Problems involved in measurement...

October 6, 2012 JMG-BEME-NMIMS Hyderabad #2 10

7/28/2019 Business Envt & Macroeconomics

11/11