Economics for Engineers

V SEMESTER HS-301

Department of Electrical and Electronics Engineering, BVCOE, New Delhi Subject: Economics for Engineers, Instructor: Dr. Sandeep Sharma

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Economics for Engineers Course Objectives

• To explain the basic micro and macro economics concepts.
• To analyze the theories of production, cost, profit and break even analysis.
• To evaluate the different market structures and their implication for the behavior of the firm.
• To apply the basics of rational income accounting and business cycles

to Indian economy.

Department of Electrical and Electronics Engineering, BVCOE, New Delhi

Subject: Economics for Engineers, Instructor: Dr. Sandeep Sharma

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Economics for Engineers Course Outcomes (CO)

• CO1: Analyze the theories of demand, supply, elasticity and consumer choice in the market.
• CO2: Analyze the theories of production, cost, profit and break even analysis.
• CO3: Evaluate the different market structures and their implication for the

behavior of the firm.

• CO4: apply the basics of rational income accounting and business cycles to Indian economy.

Department of Electrical and Electronics Engineering, BVCOE, New Delhi

Subject: Economics for Engineers, Instructor: Dr. Sandeep Sharma

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Economics for Engineers Course Outcomes (CO)

Department of Electrical and Electronics Engineering, BVCOE, New Delhi

Subject: Economics for Engineers, Instructor: Dr. Sandeep Sharma

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National Income Accounting

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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Overview of Macroeconomics: Macroeconomics refers to the study of the overall performance of the economy. While microeconomics studies how individual people make decisions, macroeconomics deals with the overall aggregate effect of microeconomics. Macroeconomics is crucial for the government to understand and predict the long-term consequences of their decisions.

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Macroeconomics refers to the study of the aggregate economy.

The primary goals of macroeconomics are to achieve stable economic growth and maximize the standard of living.

Economic indicators are a good source of information to track macroeconomic performance.

Monetary policy and fiscal policy are tools used by the government to control economic performance and reach macroeconomic goals.

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National Income Accounting

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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Overview of Macroeconomics: The overarching goals of macroeconomics are to maximize the standard of living and achieve stable economic growth. The goals are supported by objectives such as minimizing unemployment, increasing productivity, controlling inflation, and more. The macroeconomy of a country is affected by many forces, and as such, economic indicators are invaluable to assessing different aspects of performance.

Gross Domestic Product (GDP)

Often used as the primary indicator of macroeconomics, absolute GDP represents the economy’s size at a point in time. GDP is usually calculated and released by the government on a quarterly or annual basis.

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National Income Accounting

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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Overview of Macroeconomics:

Inflation

Inflation is the increase of overall price levels and consequently the decrease in purchasing power. It occurs primarily due to increased demand for products and services, which, in turn, raises prices. Inflation, therefore, represents growth.

However, too much inflation is also harmful if purchasing power decreases much more than inflated prices, decreasing overall spending and devaluing the currency. The target inflation rate is usually around 1% to 3%.

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National Income Accounting

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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Overview of Macroeconomics:

Unemployment

Unemployment accounts for individuals who are jobless and are actively seeking one. Individuals who are retired or disabled are not included as unemployed. Unemployment is a natural occurrence and cannot be completely eliminated. We can distinguish unemployment into different categories:

Frictional unemployment occurs when individuals spend time searching for a job.

Structural unemployment occurs when jobs are eliminated due to economic structural changes.

Cyclical unemployment occurs due to fluctuations in the business cycle.

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National Income Accounting

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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Basic concepts of National Income Accounting :

National income accounting refers to the set of methods and principles that are used by the government for measuring production and income, or in other words economic activity of a country in a given time period.

The various measures of determining national income are GDP (Gross Domestic Product), GNP (Gross National Product), and NNP (Net National Product) along with other measures such as personal income and disposable income.

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National Income Accounting

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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Basic concepts of National Income Accounting : The importance of national income accounting is that it is helpful in facilitating techniques and procedures for measurement of output and income at the aggregate level. It is a process of preparing national income accounts that is based on the principles of double entry system of business accounting.

National income accounting helps in summarising the economic performance of a country by measuring the national income aggregates for the year.

The government policies are framed on the basis of the data obtained from national income accounting.

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National Income Accounting

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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Basic concepts of National Income Accounting :

National income accounting equation is an equation that shows the relationship between income and expense of an economy and other categories. It is represented by the following equation:

Y = C + I + G + (X – M)

Where

Y = National income

C = Personal consumption expenditure

I = Private investment

G = Government spending

X = Net exports

M = Imports

The most important metrics that are determined by national income accounting are GDP, GNP, NNP, disposable income, and personal income.

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National Income Accounting

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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Basic concepts of National Income Accounting : GDP works as a scorecard that reflects the economic health of a country. It is calculated on an annual basis. GDP helps in estimating the growth rate of a country. GDP can be calculated using the three methods, which are expenditures method, production method, and income method.

The other indicators of national income are derived from GDP.

GDP can be calculated by the following two methods:

Expenditure approach

Income approach

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National Income Accounting

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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Basic concepts of National Income Accounting :

Calculation of GDP by expenditure approach is,

GDP = C + I + G + (X – M)

Where

GDP = Gross domestic product

C = Personal consumption expenditure

I = Private investment

G = Government spending

X = Net exports

M = Imports

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National Income Accounting

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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Basic concepts of National Income Accounting :

Gross national product or GNP is a measure of the total value of all the finished goods and services that is produced by the citizens of a country irrespective of their geographic location. It calculates only the final or finished goods.

It signifies how much the citizens of a country are contributing to the economy. It does not include income earned by foreign nationals within the country.

GNP is calculated using the following formulae:

GNP = C + I + G + X + Z

Where

C = Consumption I = Investment G = Government X = Net exports

Z = Net factor income from abroad

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National Income Accounting

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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Basic concepts of National Income Accounting : Net national product or NNP is the total value of all goods and services that are produced in a country during a given period of time minus the depreciation. It is represented as follows:

NNP = GNP – Depreciation

The basic functions of national income accounting are as follows:

To determine the economic status of a country.

To provide a basis of evaluation and reviewing of policies that are under implementation.

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Macro Economics Issues

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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Introduction to Business Cycle:

A business cycle is a cycle of fluctuations in the Gross Domestic Product (GDP) around its long-term natural growth rate. It explains the expansion and contraction in economic activity that an economy experiences over time.

A business cycle is completed when it goes through a single boom and a single contraction in sequence. The time period to complete this sequence is called the length of the business cycle.

A boom is characterized by a period of rapid economic growth whereas a period of relatively stagnated economic growth is a recession. These are measured in terms of the growth of the real GDP, which is inflation-adjusted.

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Macro Economics Issues

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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Introduction to Business Cycle:

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Macro Economics Issues

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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Introduction to Business Cycle:

the straight line in the middle is the steady growth line. The business cycle moves about the line.  Below is a more detailed description of each stage in the business cycle:

1. Expansion

The first stage in the business cycle is expansion. In this stage, there is an increase in positive economic indicators such as employment, income, output, wages, profits, demand, and supply of goods and services. Debtors are generally paying their debts on time, the velocity of the money supply is high, and investment is high. This process continues as long as economic conditions are favorable for expansion.

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Macro Economics Issues

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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Introduction to Business Cycle:

Peak

The economy then reaches a saturation point, or peak, which is the second stage of the business cycle. The maximum limit of growth is attained. The economic indicators do not grow further and are at their highest. Prices are at their peak. This stage marks the reversal point in the trend of economic growth. Consumers tend to restructure their budgets at this point.

Recession

The recession is the stage that follows the peak phase. The demand for goods and services starts declining rapidly and steadily in this phase. Producers do not notice the decrease in demand instantly and go on producing, which creates a situation of excess supply in the market. Prices tend to fall. All positive economic indicators such as income, output, wages, etc., consequently start to fall.

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Macro Economics Issues

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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Introduction to Business Cycle:

Depression

There is a commensurate rise in unemployment. The growth in the economy continues to decline, and as this falls below the steady growth line, the stage is called a depression.

Trough

In the depression stage, the economy’s growth rate becomes negative. There is further decline until the prices of factors, as well as the demand and supply of goods and services, contract to reach their lowest point. The economy eventually reaches the trough. It is the negative saturation point for an economy. There is extensive depletion of national income and expenditure.

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Macro Economics Issues

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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Introduction to Business Cycle:

Recovery

After the trough, the economy moves to the stage of recovery. In this phase, there is a turnaround in the economy, and it begins to recover from the negative growth rate. Demand starts to pick up due to low prices and, consequently, supply begins to increase. The population develops a positive attitude towards investment and employment and production starts increasing.

Employment begins to rise and, due to accumulated cash balances with the bankers, lending also shows positive signals. In this phase, depreciated capital is replaced, leading to new investments in the production process. Recovery continues until the economy returns to steady growth levels. 

This completes one full business cycle of boom and contraction. The extreme points are the peak and the trough.

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Macro Economics Issues

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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Introduction to Business Cycle:

Explanations by Economists

John Keynes explains the occurrence of business cycles is a result of fluctuations in aggregate demand, which bring the economy to short-term equilibriums that are different from a full-employment equilibrium.

Keynesian models do not necessarily indicate periodic business cycles but imply cyclical responses to shocks via multipliers. The extent of these fluctuations depends on the levels of investment, for that determines the level of aggregate output.

In contrast, economists like Finn E. Kydland and Edward C. Prescott, who are associated with the Chicago School of Economics, challenge the Keynesian theories. They consider the fluctuations in the growth of an economy not to be a result of monetary shocks, but a result of technology shocks, such as innovation.

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Macro Economics Issues

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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Inflation‐causes: Inflation is a measure of how fast prices of goods and services are rising. If inflation is occurring, leading to higher prices for basic necessities such as food, it can have a negative impact on the overall economy.

Inflation can occur in nearly any product or service, including need-based expenses such as housing, food, medical care, and utilities, as well as want expenses, such as cosmetics, automobiles, and jewelry. Once inflation becomes prevalent throughout an economy, the expectation of further inflation becomes an overriding concern in the consciousness of consumers and businesses alike.

Inflation can be a concern because it makes money saved today less valuable tomorrow. Inflation erodes a consumer's purchasing power and can even interfere with the ability to retire. 

Macro Economics Issues

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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, Inflation‐causes: For example, if an investor earned 5% from investments in stocks and bonds, but the inflation rate was 3%, the investor only earned 2% in real terms. In this article, we'll examine the fundamental factors behind inflation, different types of inflation, and who benefits from it.

Inflation is a measure of the rate of rising prices of goods and services in an economy.

Inflation can occur when prices rise due to increases in production costs, such as raw materials and wages.

A surge in demand for products and services can cause inflation as consumers are willing to pay more for the product.

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Macro Economics Issues

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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Inflation‐causes:

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Macro Economics Issues

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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consequences and remedies: Monetary and Fiscal policy: Monetary policy and fiscal policy are two different tools that have an impact on the economic activity of a country.

Monetary policies are formed and managed by the central banks of a country and such a policy is concerned with the management of money supply and interest rates in an economy.

Fiscal policy is related to the way a government is managing the aspects of spending and taxation. It is the government’s way of stabilizing the economy and helping in the growth of the economy.

Governments can modify the fiscal policy by bringing in measures and changes in tax rates to control the fiscal deficit of the economy.

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Macro Economics Issues

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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consequences and remedies: Monetary and Fiscal policy:

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Macro Economics Issues

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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consequences and remedies: Monetary and Fiscal policy:

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Managed By

Central Bank of an economy

Ministry of Finance of an economy

Measures

It measures the interest rates applicable for lending money in the economy

It measures the capital expenditure and taxes of an economy

Focus Area

Stability of an economy

Growth of an economy

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Macro Economics Issues

Department of Electrical and Electronics Engineering, BVCOE New Delhi

Subject: Economics for Engineers , Instructor: SANDEEP SHARMA

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consequences and remedies: Monetary and Fiscal policy:

Impact on Exchange rates

Exchange rates improve when there is higher interest rates

It has no impact on the exchange rates

Targets

Monetary policy targets inflation in an economy

Fiscal policy does not have any specific target

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Key points to note by student

Department of Electrical and Electronics Engineering, BVCOE New Delhi Subject: SUBJECT NAME , Instructor: INSTRUCTOR NAME

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