Chapter II: Macroeconomic Context and Indicators

1.1 Introduction Macroeconomics is the study of overall economy, includes assessing the positive and negative impacts of overall economic performances to society as whole without mentioning personal and legal entities. Classical Economists: David Ricardo (1772-1823), John Stuart Mill (1806-1873), J.B Say (1767-1832) had conducted research on global economic crisis and its impact on society, industrial productivity, investment growth, uncertain impacts on standard of livings… Major Macroeconomic Indicators:

emeronTI2³ bribTma:RkUesdækic© nigsucnkreKal1>1 esckþIepþIm ma:RkUesdækic©viTüa

KWkarsikSaesdækic©kñúgRTg;RTayTUlay eday BinitüemIlplb:HBal;CaviC©man nigGviC¢maneTAelIsgÁmTaMgmUl nigminepþateTAelIrUbvnþbuKÁl nignItibuKÁlNamYyeT.

tamelak David Ricardo (1772-1823), John Stuart Mill (1806-1873), J.B Say (1767-

1832) Cama:RkUesdækic©viTYkøasik )ansikSa RsavRCavGMBIvibtþiesdækic©sakl nigplb:HBal;eTAelIsgÁm plitPaB]sSahkmµ nigkarvinieyaK GsgÁtPaBénCIvPaBrs;enA>>>

sucnkrsMxan;²

• Indicators is the economic determinants being used to measure and assess the economic and business performances. The key macroeconomic indicators are:– GDP is used to measure economic size and growth but it

cannot reflect the living standards, only if the society is more equitable distribution.

– Unemployment is a core stone to indicate the economic function of the nations.

– Inflation is to measure the change in prices of goods and services, and fluctuation in values of currencies influencing the purchasing power and commercial sectors.

– Balance of Payment and Exchange Rate are used to measure international trade and financial transaction.

– Interest Rate and Taxes indicate the investment capital flow-in and out, banking cash flow, and taxes and public expenditure.

sucnkr KWCaktþamUldæanEdleRbIR)as;sRmab;vas;Evg nigvaytémø sßanPaBesdækic© nigFurkic©. sucnkrsMxan;²mandUcCa³ plitplsrubkñúgRsuk ¬p>s>s¦ eKeRbIR)as;Casucnkrvas; EvgTMhM nigkMeNInesdækic©.

p>s>sminEmnvas;EvgkMeNIn CIvPaBBlrdæenaHeT elIkElgEtsgÁmmansmFm’ GRtanikmµPaB

KWCasucnkrvaytémøkRmitmuxgaresdækic©Blrdæ nigkmøaMgBlkmµ GtiprNa KWCasucnkrvas;EvgkarERbRbYltémøTMnij nigtémø rUbiyb½NÑ Edlman\T§iBleTAelIcMNayBlrdæ nigBaNiC¢kmµ CBa©IgTUTat; nigGRtabþÚrR)ak;

KWCasucnkrvag;EvgBaNiC¢kmµGnþrCati nigRbtibtþikarsac;R)ak; GRtakarR)ak; nigGRtaBn§

KWCasucnkrvas;EvglMhUrvinieyaK crnþ sac;R)ak;rbs;FnaKar cMNUlBn§ nigcMNaysaFarN³

• Prof. John Maynard Keynes (1883-1946) observed the relationship between unemployment, interest rate and money, he defined following:– Decreasing the investment reduces aggregate planned

expenditure, volumes of sales, and dumping products. Unemployment increases as of this result,

– Classical economists said the economy will have its own recovery, and yet, Prof. Keynes said there is a need of government interventions,

– Global economic recession appears in almost 10 years such as 1930, 1940-45, 1960, 1970, 1979-80, 1987-88, 1997-98, and recently 2008-09 as the result of product surplus and degrading standards of livings, and

– In the period of recessionary gap, reducing interest rate on loan, financial bail-out and international trade cooperation are seen as an effective economic tool.

Prof. John Maynard Keynes (1883-1946) in 1936 )ansikSaGMBI TMnak;TMngnikmµPaB karR)ak; nigrUbiyvtßú. eK)ankt;smÁal;fa³ karFøak;cuHvinieyaKnaM[cMNaysrubfycuH Edlbnþb:HBal;

dl;karlk;plitpl nigGacmanplitplkksÞH. nikmµPaB ekIneLIgenAeBlvinieyaKfycuH.

pÞúyBIesdæviTUkaøsikEdlfa esdækic©Føak;cuHnwgEktRmUveday

xøÜnÉg EtelakEkn)anepþatsMxan;eTAelIrdæaPi)alkñúgkarEk

tRmÚvesdækic© tamryHeKalneya)ayesdækic©vibtþiesdækic©)anekIteLIgCaerogral;10qñaMmþg dUcCa

1930 1940- 45 1960 1970 1979-80 1987-88 1997-98 2008-

2009 edaysarvibtþiplitplelIs nigkRmitCIvPaBFøak;cuH kñúgkrNIesdækic©fycuH karbBa©úHkarR)ak;

kBa©b;seRgÁaH nigkic©shkar BaNiC¢kmµGnþrCati KWCatMrUvkard¾skþisiT§

1>2 plitplsrubkñúgRsuk ¬p>s>s GDP= Gross Domestic Product¦p>s>s KWCacMnYnsrubénTMnij nigesvaEdlplitenAkñúgesdækic© RbCaCatimYyenAkñúgryHeBlmYy. CaTUeTAp>s>s KWplitenAkñúgRsuk rWplitplCakmµsiT§m©as;Rsuk enAkñúgryHeBlmYyqñaM. eKGacKNna p>s>stambIrebob³

viFIsaRsþplitkmµ ¬Production Approach¦ viFIsaRsþcMNUl ¬Income Approach¦ viFIsaRsþcMNay ¬Expenditure Approach¦

kMNt;smÁal;³ ¬1¦ ecosvagKitpÞÜn ¬2¦ minrab;bBa©ÚlplitpleRbIrYc ¬3¦KitEtplitplseRmcb:ueNaÑH

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i. Product Approach• viFIsaRsþplitkmµ

Kwrab;bBa©Úlral;témøsrubénTMnij nigesvaEdl CaplitplseRmcplitedayRbCaCatimYykñúgryHeBlmYyqñaMeBj. eyIgtagbrimaNplitpl Q1, Q2, Q3, …, Qn nigtémø P1, P2, P3, …, Pn, where n stands for the total number of goods and services. rUbmnþ The size of national income

Y = P1Q1 + P2Q2 + P3Q3 +…+ PnQn

Y = Σ PQThe production sectors are conveniently classified

into (1) primary, (2) secondary and (3) tertiary.

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• The primary sector includes agriculture, forestry and fishing, and mining and quarrying. The secondary sector consists of manufacturing, electricity, gas and water supply, and construction.

• The tertiary sector consists of all items under services (trade, hotels and restaurants; transport, storage and communication; banking and insurance; real estate, dwelling and business services; public administration and defence etc.)

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ii. Income Approach• In this approach, national income can

be measured by annual flows of factor earnings (wages, rents, interests and profits, which are the earnings of labor, land, capital and organization respectively) accruing during the process of production of final output.

• For a particular good, value of final output can be expressed as total factor earnings from this output, that is, say for good 1:

P1Q1 = W1 + R1 + I1 + P1

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Or, by generalizing,PiQi = Wi + Ri + Ii + Pi

Where,W = WageR = RentI = InterestP = Profit

• Total income (national income) generated by this way is expressed as:

Y = Σ (Wi + Ri + Ii + Pi), i = 1, 2,….,n.

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iii. Expenditure Approach• National income can be estimated by

aggregating the flows of expenditure on final goods and services.

• The flow of total expenditure should be measured by aggregating the flows of expenditure on final goods and services incurred by each of the three major sectors, viz., the household sector, the business sector and the government sector.

Y = Eh + Eb + Eg

Where Eh, Eb and Eg denote the annual flows of expenditure by the household sector, the business sector and the government sector respectively.

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• Alternatively, expenditure incurred on final goods and services should be either consumption expenditure or investment expenditure so that national income, in expenditure form, may also be written as

Y = C + Iwhere C is the expenditure on consumption goods and I expenditure on investment goods.

(The above equation is the famous Keynesian income equation, is for a closed economy, i.e., without foreign transactions as either exports or imports)

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• In an open economy with exports and imports, the income equation will change.

• If we consider government expenditure as a separate component of aggregate expenditure, then national income by expenditure approach may be rewritten as

Y = C + I + G + X – MC = Expenditure on private consumptionI = Total investment expenditure – both public and privateG = Government expenditureX = Expenditure of foreign countries on a country’s exportsM = Home country’s expenditure on imports from abroad

lMhat;TI1³ cUrKNnaplitplsrubkñúgRsuk ¬landuløa¦

Sectors 2010 2011 2012

Agriculture 2100 2410 2810

Industry 2100 2540 2620

Services 2860 3000 3500

Tax minus Subsidy 560 620 740

Total

Growth Rate if GDP deflator 103.5 and

108.6 and 110.2 respectively

Conclusions if the 2009 GDP = 7000

lMhat;TI2³ cUrKNnatamviFIsaRsþcMNUl ¬landuløa¦

Income 2010 2011 2012

Wage 4200 4950 5430

Rent 1860 2000 2200

Interest 500 520 740

Profit 1060 1100 1300

Total

Growth Rate if GDP deflator 103.5 and

108.6 and 110.2 respectively

Conclusions if the 2009 GDP = 7000

lMhat;TI3³ cUrKNnatamcMNay ¬landuløa¦Sectors 2010 2011 2012

Consumption 4320 4940 5190

Investment 500 700 920

Public Expenditure 4860 5450 6300

EX-IM -2060 -2520 -2740

Total

Growth Rate if GDP deflator 103.5 and

108.6 and 110.2 respectively

Conclusions if the 2009 GDP = 7000

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p>s>s minGacvas;EvgkRmitCIvPaBBlrdæ nigvismPaB

p>s>s min)anrab;bBa©ÚlKuNPaBbrisßan eKhkic© esva

sµ½RKcitþ suxmalPaBesdækic© suxPaBBlrdæ kRmitrs;ran nigGb;rM

sMNYrBicarNa1> GVIeTACaPaBxusKñarvagplitplTunCati ¬Gross National Product = GNP¦ nigplitplsrubkñúgRsuk ¬Gross Domestic

Product = GDP¦ ?

GDP is estimated value of the total worth of country’s production and services, on its land by its nationals and foreigners calculated over

the course on one year

GNP is estimated value of the total worth of country’s production and services by its

citizens of a country on its land and on foreign land calculated over the course on one year

GDP = C+I+G+NX GNP = GDP + Net Income Inflows – Net Payment Outflow

To see the strength of a country ‘s local economy

To see how the nationals of a country are doing economically

Total value of products and services produced within the territorial boundary of a country

Total value of products and services produced by all nationals of a country whether within

or outside the country

GDP USA in 2010 is $14.59 trillion and Ireland GDP $211.39 billion

GNP USA in 2010 is $14.64 trillion and Ireland GNP $149.54 billion

1.3 Unemployment• Unemployment is defined as the situation in which

people who are capable to work at the current wage rate cannot find a job. It is noteworthy to know that:– There is no full employment in the World. If the economic

recession is appeared, there is a decline in production, and income while unemployment arises. For example, a global economic crisis in 2008-2009, 70 factories were closed down causing 60,000 workers unemployed.

– The global estimation of unemployment is 197 million people accounted 6 per cent while Cambodia is 2 per cent (ILO 2012).

– The measure of unemployment can be conducted monthly or yearly based upon the availability of resources and labour management.

1>3 nikmµPaB ¬Unemployment¦nikmµPaB KWCasßanPaBEdlbuKÁlmansmtßPaBsmRsbsRmab;kargarkñúg kRmitebovtSr_bc©úb,nñ EtminGacTTYl)ankargareFVI. eKkt;smÁal;mYycMnYn³ esdæviTUcg;[sgÁmmYymannieyaCn_bribUrN_ ¬Full Employment¦ Et minekItman)aneLIy edaysarenAeBlesdækic©Føak;cuH plitkmµfy cuH R)ak;cMNUlfycuH nigGRtanikmµPaBekIneLIg. enAeBlmanvibtþi esdækic©sakl 2008-2009 kmµkr-kmµkarnI)an)at;bg;kargar 60000nak; edaysareragcRk70)anbiTTVar nikmµPaBsakl197lannak; rW 6PaKry nigkm<úCargVg;2PaKry ¬ILO 2012¦ karvas;EvgnikmµPaBGaceFVIRbcaMEx rWqñaMGaRs½ylT§PaBFnFan nig karRKb;RKgkmøaMgBlkmµ

• buKÁlEdleKmincat;TukCanikmµCnenAkñúgbIkrNI³– karmineBjcitþcMeBaHR)ak;ebovtSr_ ¬Unrealistic Wage

Expectation¦– GñkbeRmIkargareRkAema:g ¬Part-Time Workers¦– GñkenÓyNaykñúgkarEsVgrkkargar ¬Discourage or Hidden

Unemployed¦• bc©úb,nñ km<úCaRbQmnwgkgVHkmøaMgBlkmµ

minTan;eqøIytb)annwg kargarsmrmü kartRmg;TiskargaryuvCn Blkmµkumar lMhUreTsnþr Rbevsn_kargar karCYjdUrkmøaMgBlkmµ kgVHBt’manTIpSarkargar GPivDÆn_CMnaj RkbxNÐKuNvDÆn_Gb;rMbec©keTs nigbNþúHbNþal CMnajenAmankRmit.

• RbePTnikmµPaB³– nikmµPaBbeNþaHGasnñ ¬Frictional Unemployment¦ KWCanikmµPaB

EdlekIt eLIgCaFmµtaenAkñúgrbt;énTIpSarkargaredaysar ¬1¦karpøas;bþÚrskmµPaBesdækic© Furkic© nigmuxrbr ¬2¦crnþvivtþn_TIpSarkargar– nikmµPaBrcnasm<½næ ¬Structural Unemployment¦ KWCanikmµPaB

edaysar karpøas;bþÚrrcnasm<½næsaFarN³ ]sSahkmµ nigkarRbkYtRbECgtMbn; nigsakl– nikmµPaBvdþGaCIvkmµ ¬Cyclical Unemployment¦ KWCanikmµPaB

edaysar tMhycuHTMhM rWbirmaNGaCIkmµenAkñúgdMeNIrfycuHénesdækic©EdlEtgEtekIteLIg Caerogral;10qñaMmþgtamkarkt;smÁal;.– nikmµPaBrdUvkal ¬Seasonal Unemployment¦ KWCanikmµPaBEdlekIt eLIgeRkayrdUvkalplitkmµ)anbBa©b; rWkic©snüakargarmankalkMNt;

lMhUrTIpSarkargar

• plvi)akénnikmµPaB– kar)at;bg;Tinñpl nigcMNUl ¬Loss of Output and Income¦– kar)at;bg;mUlFnmnusS ¬Loss of Human Capital¦– kar)at;bg;esckþIéføfñÚrrbs;mnusS ¬Loss of Human

Dignity¦– kMeNIn]Rkidækmµ ¬Increase in Crimes¦– kMeNInPaBtantwgénbuKÁl nigRKYsar ¬Increase in

Stress on Individuals and Families¦elaketg sa‘vBIg )anniyayfa FnFanmnusS eRbob)annwgTwk ebIecHtRmg;TisBitCamanRbeyaCn_ EtebIminecHeRbInwgkøayeTACa mhnþraysRmab;sgÁmeRbob)annwgTwkCMnn;

• karKNnanikmµPaB(1) Labour Force = Employment + Unemployment (Labour Law stated active population between 15-60)(2) Labour Force Participation Rate = (3) Unemployment Rate =

lMhat;³ tamCMerOnRbCasaRsþ kñúgcMeNamRbCaCnkm<úCa14lan nak; mankmøaMgBlkmµsrub 6lannak; EdlkñúgenaHBlrdæman kargareFVImancMnYn5>8lannak;. cUrrkGRtacUlrYmkmøaMgBlkmµ nigGRtanikmµPaB.

1>4 GtiprNa ¬Inflation¦• GtiprNa KWCadMeNIrénkMeNInkRmitéføTUeTA

nigkarFøak;cuHéntémø rUbiyb½NÑ. RKb;RbeTsTaMgGs;EtgEtmanGtiprNa dUcCashrdæ GaemricmanGtiprNakñúgrgVg;1° rIÉkm<úCargVg;8-10°. esßrPaBéfø KWGtiprNaesµIsUnü rWtémøefr dUcenH GtiprNa BitCabgá[man GesßrPaBma:RkUesdækic©• britþprNa rWGtiprNaGviC©man ¬Deflation¦

KWCasßanPaBEdléfø TMnij nigesvaPaKeRcIn)anfycuHkñúgryHeBlmYy. enAqñaM2009 GtiprNaenAkm<úCa . • enAeBlmanvibtþiesdækic© britþprNaGacekItman

rIÉeBlmankMeNIn esdækic©elÓn GtiprNaekIn EtesvaxøHefr dUcCaGKIÁsnI rdæakrTwk

KNnaGtiprNa• snÞsSn_éføTMnijeRbIR)as;

KWCa]bkrN_mYy edIm,IKNnaGtiprNa tamryHkartamdantémølk;ray EdlesdæviTUbegáItkERBa©gTMnij eRbIR)as;. viTüasßanCatisßitienAkm<úCa )aneRCIserIsTMnij295mux edIm,ItamdansnÞsSn_éføTMnijEdlCaTUeTAERbRbYlRbcaMEx0>2-0>4° • cUrKNnasnÞsSn_éføTMnij

Items Quantity Base Year Prices Current Prices

X 2 1.00 1.50

Y 1 3.00 4.00

Z 3 2.00 4.00

• cMNayRKaeKal • cMNayRKabc©úb,nñ

• snÞsSn_éføeFobnwgRKabc©úb,nñ

• kMeNInkRmitéfønigsnÞsSn_éføTMnijqñaM2010¬CPI2010¦

Year CPIIf CPI2009= 1.685

Inflation rate

2010 1.727

2011 1.746

2012 1.897

RbePTGtiprNa• GtiprNaGb,brma GtiprNamFüm nigmhaGtiprNa ¬Creeping

Trotting &Galloping Inflation¦– GtiprNaEdlsßitenAkñúgrgVg;ya:geRcInbMput2°

RbcaMqñaMeKcat;TukCa GtiprNaGb,brma ¬Creeping Inflation¦. GtiprNaenARbeTsGPivDÆn_ nigRbeTs]sSahkmµcas;mankRmitTabEbbenH. CaTUeTA GtiprNa EbbenH eFVI[éføekIneLIgminKYrcab;GarmµN_enaHeT – GtiprNa EdlmankMeNIncab;BI100°RbcaMeLIgeTA

eKcat;TukCa mhaGtiprNa ¬Galloping or Hyper-Inflation¦. RbeTshSIúm)aev nigRbeTsttiyelakmYycMnYnmankRmitGtiprNax<s;bMput– GtiprNamFümsßitenAcenøaHGtiprNaGb,brma

nigmhaGtiprNa

32

Open and Suppressed Inflation:• Sometimes inflation, i.e., price rise, may

be suppressed through government’s control on prices and distribution of commodities.

• The symptoms of inflation like shortages (demand outstripping supply) would exist, but because of administered prices, inflation would not be visible.

• The phenomenon of price increase would be replaced by long queues of waiting buyers at government controlled distribution centers.

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• If only, and as soon as, restriction on prices and rationing of supplies are removed, inflationary situations would develop.

• Suppressed inflation really implies postponement of present demand to future, and diversion of demand from one good to another (to the extent commodity substitution is possible) from those goods whose prices are controlled and supply is rationed to those whose prices and supply are not administered.

• Open inflation signifies a process in which prices are permitted to rise commensurate with market forces.

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• The post-war inflation in many countries and hyperinflations of the ‘Twenties’ in Germany, Austria and Russia and of the ‘Forties’ in China are examples of open inflation.

• The post-Second World War situation in Germany is the example of suppressed inflation.

• In the post-war period in Germany, prices were not allowed to increase although by usual standards, there existed significant inflationary potential.

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• If prices are allowed to rise freely, the price level might have shot up sufficiently (some say, it might have quadrupled), and there could be an inflationary spiral.

• Suppression of price or inflation through controls really means weakening or suspension of the market economy and this may disrupt the normal functioning of the economic system.