Macro Economics: GDP & Fiscal Policy

Microeconomics is about your wallet. Macroeconomics is about the country's wallet.

1. Gross Domestic Product (GDP)

GDP is the total market value of all final goods and services produced within a country in a year. It is the "Scorecard" of the economy.

Formula: GDP = C + I + G + (X - M)

• C (Consumption): What you and I spend (Food, Phones). ~60% of India's GDP.
• I (Investment): What businesses spend (Factories, Machines).
• G (Government Spending): Roads, Defense, Salaries.
• X - M (Net Exports): Exports minus Imports. (India is usually negative here).

Real GDP vs Nominal GDP:

• Nominal: Current prices (includes inflation).
• Real: Adjusted for inflation (True growth).

2. Fiscal Policy (The Government's Tool)

Fiscal Policy is how the Govt adjusts its Spending and Taxation to influence the economy.

• Expansionary Policy:

  • Action: Cut Taxes or Increase Spending.
  • Goal: Boost growth (during recession).
  • Side Effect: Inflation might rise.

• Contractionary Policy:

  • Action: Increase Taxes or Cut Spending.
  • Goal: Control Inflation.
  • Side Effect: Growth might slow down.

3. The Budget & Deficits

The Budget is the Govt's annual financial plan.

Fiscal Deficit

• Formula: Total Expenditure - Total Income (excluding borrowings).
• Meaning: How much the Govt needs to borrow to pay its bills.
• Target: Ideally less than 3% of GDP.
• High Deficit: Bad. Leads to inflation and debt trap.

Current Account Deficit (CAD)

• Meaning: Value of Imports > Value of Exports.
• India has CAD because we import a lot of Oil and Gold.

7-Day Action Plan

Day 1: Find out India's current GDP (approx $3.7 Trillion).
Day 2: Check the latest GDP Growth Rate (e.g., 7-8%).
Day 3: Read the "Budget Highlights" of the current year.
Day 4: Understand "Capex" in Budget (Spending on infrastructure). It's good for long-term growth.
Day 5: Check India's Fiscal Deficit number (e.g., 5.9%).
Day 6: Compare India's GDP with USA and China.
Day 7: Watch a video on "Keynesian Economics" to understand why Govts spend during recession.

Quiz

💡 Final Wisdom: "The economy depends about as much on economists as the weather does on weather forecasters." — Jean-Paul Kauffmann. But understanding the forecast helps you carry an umbrella.