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Macro And Micro Economic Analysis

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Sample on Macro And Micro Economic Analysis

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Introduction

According to the topic the present report is divided in two parts. First part included the analysis of the country and for this India has been chosen. In this part GDP, earning yield, price level, currency appreciation or depreciation are evaluated. And the second part explains the analysis of industry, for this retail grocery has been taken. In this market structure, characteristics of demand and its elasticity, features of costs, pricing strategies, structural barriers to entry and entry decision have been explained.

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PART 1

In part 1 country analysis has been done, for this India has been chosen.

1. GDP and TFP

GDP and its growth rate

GDP of India

GDP Growth rate of India

GDP Growth rate of India

Year

GDP(in millions of 2015 US $)

Growth rate

2012

6332251.12

4.81

2013

6733625.13

6.34

2014

7205575.33

7.01

2015

7731582.33

7.3

2016

8257329.93

6.8

GDP of India

GDP Growth rate of India

The growth rate of GDP is increasing gradually till 2015 and it fall slightly in 2016 due to economic crisis. Country need to improve it again for its development.

Total Factor Productivity (TFP)

Year

Labour

Capital

2010

454

60000

2011

461

65000

2012

470

68000

2013

475

69000

2014

479

76000

2016

488

78000

SUMMARY Output

         
           

Regression Statistics

         

Multiple R

0.969484611

       

R Square

0.93990041

       

Adjusted R Square

0.924875513

       

Standard Error

3.376594877

       

Observations

6

       
           

ANOVA

         
 

df

MS

F

SignificanceF

 

Regression

1

713.2277615

62.55619501

0.001382576

 

Residual

4

11.40139296

     

Total

5

       
 

Coefficients

Standard Error

tStat

P-value

Lower 95%

Upper 95%

Lower 95.0%

Upper 95.0%

Intercept

348.3592375

15.58813965

22.34771084

2.3738E-05

305.0796235

391.6388516

305.0796235

391.6388516

XVariable 1

0.001771261

0.000223948

7.909247436

0.001382576

0.001149481

0.002393041

0.001149481

0

Y = AKα Lβ

     

Alpha

348.3592375

 

Beta

0.001771261

 

2858

=

23486825.2

67125346434

   

2. Earnings yield

Earnings price share are the Earnings yield. It is to be calculated for the recent 12 months duration is divided by the current market price per share (Stewart, 2004). This shows the percentage of each dollar which has invested in the stock which was earned by the company.

The percentage of yield can be calculated by inverting the Price-to-earning ratio (P/E ratio). The domestic market is to be considered by National Stock Exchange (Nifty-Fifty) and the P/E ratio is 21.94

P/E ratio = 21.94

Yield = (1/ PE ratio) * 100

= (1/ 21.94) * 100

= 4.46%

The growth rate of India was growing at 6.8% per annum while earning yield on the domestic market was 4.46%. There is little difference between these two ratios which is normal in emerging markets.

3. Price level, Inflation rate, Nominal interest rate and Real interest rate

Inflation is occur when the annual percentage change in prices of the products. To calculate inflation rate the most commonly used measure is Consumer Price Index (CPI).

table

Year

CPI

Inflation rates (%)

2012

119

9.3

2013

132

10.92

2014

140.4

6.37

2015

148.6

5.88

Inflation  Rates

Inflation Rates

Year

Nominal Interest rates (%)

Real Interest rates (%)

2012

9

8.16

2013

9.5

8.46

2014

9

8.43

2015

8.5

8

2016

6.75

6.41

Nominal and Real Interest rates of India

Nominal and Real Interest rates of India

India's economy is at emerging stage, the inflation rates are falling down as compared to last five year's data. And the nominal and real interest rates are also falling down in comparison to previous five years. The decreasing interest rates show more people are able to borrow more money. The inflation and interest rates are interrelated.

4. Money supply and correlation between money supply, inflation and economic growth

The correlation between money supply and economic growth is positive. If there is rise in money supply then there is also rise in economic growth (Metcalf, 2008). And if there is rise in economic growth then money supply will also increase. According to the data of December 2016, the money supply (M3) was Rs.120449.5 billion and in December 2015 it was Rs.113324.7 billion. It can be analysed that the supply was increased by 6.28% in comparison to the same period of previous year (2015). On the other hand, the rate of inflation has been reduced in 2016 (4.97%) from the previous year rate i.e. 5.88% in 2015.

Analysis:

  • In case of India, there is a correlation between growth rate of money supply (6.28%) and economic growth rate (6.8%) for the same period which is almost in same line.
  • On the other side there is negative correlation between money supply and inflation, as money supply increases the rate of inflation goes down. It has shown in the above graphs that the economic growth of 6.8% and inflation does down to 4.9%, if it compare with the same period of previous year.

5. Exchange rate, appreciated or depreciated of domestic currency

Exchange rate in 2012 (on 1stJan 2012)

1 USD = 53.06 INR

Exchange rate in 2016 (on 31stDec 2016)

1 USD = 68.12 INR

Since 2012 the domestic currency has depreciated by INR 15.06. and in terms of percentage it has depreciated by 22.108%.

As per the analysis of five year period the interest rate parity did nit hold. This parity says that the domestic interest rate should be higher enough to cover the depreciated amount of domestic currency. According to the above rates the Indian currency should have depreciated to 81.44 INR but it has depreciated to only 68.12 INR. This shows that there is a significant upword deviation in the interest rates.

PART 2

For analysis of an industry, here 'Retail grocery' has been taken.

6. Market Structure

The degree of competition nature and the of the market for goods and services are defined as the Market Structure. There are market categorization as Monopolistic market, Competitive market and Oligopoly market. Retail industry comes under oligopolistic market structure. In this structure firms are having large cap of market shares (Dickens and Manning, 2004). Some of the major players in this sector are Bharti Retail, Reliance Retail and Aditya Birla Retail. Market Boundaries states the availability of potential competitor and substitutes. As in long run there is no fixed factor whereas in short run there are both fixed and variable factors present, so the price changes accordingly.

7. Characteristics and elasticity of Demand

As demand curve represents the price and quantity demanded of an item. There are three characteristics of demand which are as follows:

The position-The position can be seen where the curve is placed on the graph.

The slope- The demand curve slope is downward from left top to bottom right.

The shift- The demand curve shifts when more than one item is to be considered.

The closest substitute means the product which are having similar features and can be used over the other (Dolton, Bondibene and Wadsworth, 2012). For example, tea and coffee, coke and pepsi etc.

Price elasticity of demand for the retail market is generated when the percentage change takes place in quantity demanded is less than that in price.

8. Features of costs, Economies of scale and Pricing strategies

Variable cost:- Variable cost changes according to the per unit production. It varies from number of units produced like raw material cost, labour cost etc (MaCurdy, 2015).

Fixed cost:- Fixed cost do not change according to per unit production. It has to be incurred at any number of production like rent of building.

Importance of Economies of scale:-Economies of scale is important for those firms where large number of units are produce with less or average input cost (Dickens, Riley and Wilkinson, 2015).

Pricing strategies:- Pricing strategy is completely depends upon the company's goals and objectives. Price discrimination is come under micro economic price strategy, in which different prices are offered by identical or largely similar sellers of goods and services (Schmitt, 2013).

9. Structural barriers to entry

Barrier means the obstacle or restriction comes in entry of new firm. It can be removed deliberately by the strategies or artificial barriers. In case of oligopoly and monopoly market it is difficult and too costly for potential rivals to enter because existing firms may maintain their position of dominance (Schmitt, 2013).

10. Entry Decision

Entry decision in oligopolistic market is very difficult because there are already large market share companies existing. So the new entrants are come up with very effective and powerful strategy if they want to survive for long run (Reich, 2015). Otherwise they will have to wind-up in very short span of time, as there are large firms are present with highest market share.

Conclusion

Through this report it has been concluded that GDP of India is increasing gradually. There is positive relation between price level and inflation. The correlation between money supply and economic growth is positive. The domestic currency of India has depreciated. The market structure of retail sector in India is oligopoly. Demand curve has different characteristics. The features of variable cost and fixed cost have been discussed. Economies to sale and structural barriers to entry has also been explained.

References

  • Dickens, R. and Manning, A., 2004. Has the national minimum wage reduced UK wage inequality?. Journal of the Royal Statistical Society: Series A (Statistics in Society).167(4). pp.613-626.
  • Dickens, R., Riley, R. and Wilkinson, D., 2015. A Re‐examination of the Impact of the UK National Minimum Wage on Employment. Economica.82(328). pp.841-864.
  • Dolton, P., Bondibene, C.R. and Wadsworth, J., 2012. Employment, Inequality and the UK National Minimum Wage over the Medium‐Term. Oxford Bulletin of Economics and Statistics.74(1). pp.78-106.
  • MaCurdy, T., 2015. How effective is the minimum wage at supporting the poor?. Journal of Political Economy.123(2). pp.497-545.
  • Metcalf, D., 2008. Why has the British national minimum wage had little or no impact on employment?. Journal of Industrial Relations.50(3). pp.489-512.
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