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Undesirable situations that exist in the macro economy, largely because one or more of
the macroeconomic goals are not satisfactorily attained. The primary problems are unemployment,
inflation, and stagnant growth. Macroeconomic theories are designed to explain why
these problems emerge and to recommend corrective policies. Macroeconomic problems
arise when the macro economy does not satisfactorily achieve the goals of full employment,
stability, and economic growth. Unemployment results when the goal of full employment
is not achieved. Inflation exists when the economy falls short of the stability goal.
These problems are caused by too little or too much demand for gross production. Unemployment
results from too little demand and inflation emerges with too much demand. Stagnant
growth means the economy is not adequately attaining the economic growth goal. Each
of these situations is problematic because society is less well off than it would be by
reaching the goals

Importance of Macroeconomics
It helps to understand the functioning of a complicated modern economic system.
It describes how the economy as a whole functions and how the level of national income and
employment is determined on the basis of aggregate demand and aggregate supply. It
helps to achieve the goal of economic growth, higher level of GDP and higher level of
employment. It analyses the forces which determine economic growth of a country
and explains how to reach the highest state of economic growth and sustain it. It helps
to bring stability in price level and analyses fluctuations in business activities. It
suggests policy measures to control inflation and deflation. It explains factors which
determine balance of payment. At the same time, it identifies causes of deficit
in balance of payment and suggests remedial measures. It helps to solve economic
problems like poverty, unemployment, inflation, deflation etc., whose solution is possible
at macro level only, i.e., at the level of whole economy. With detailed knowledge of
functioning of an economy at macro level, it has been possible to formulate correct
economic policies and also coordinate international economic policies.

Last but not the least merit is that macroeconomic theory has saved us from the
dangers of application of microeconomic theory to the problems of the economy as a

Since 1991, the Indian economy has pursued free market liberalisation, greater
openness in trade and increase investment in infrastructure. This helped the Indian
economy to achieve a rapid rate of economic growth and economic development. However, the
economy still faces various problems and challenges.
1. Inflation

Fuelled by rising wages, property prices and food prices inflation in India is an
increasing problem. Inflation is currently between 8-10%. This inflation has been a
problem despite periods of economic slowdown. For example in late 2013, Indian
inflation reached 11%, despite growth falling to 4.8%.This suggests that inflation is
not just due to excess demand, but is also related to cost push inflationary factors.
For example, supply constraints in agriculture have caused rising food prices. This
causes inflation and is also a major factor reducing living standards of the poor
who are sensitive to food prices. The Central Bank of India have made reducing
inflation a top priority and have been willing to raise interest rates, but cost push
inflation is more difficult to solve and it may cause a fall in growth as they try to
reduce inflation.

2. Poor educational standards

Although India has benefited from a high % of English speakers. (important for call
centre industry)there is still high levels of illiteracy amongst the population. It
is worse in rural areas and amongst women. Over 50% of Indian women are illiterate.
This limits economic development and a more skilled workforce.

3. Poor Infrastructure

Many Indians lack basic amenities lack access to running water. Indian public
services are creaking under the strain of bureaucracy and inefficiency. Over 40%
of Indian fruit rots before it reaches the market; this is one example of the
supply constraints and inefficiencys facing the Indian economy

4. Balance of Payments deterioration.

Although India has built up large amounts of foreign currency reserves the
high rates of economic growth have been at the cost of a persistent current
account deficit. In late 2012, the current account reached a peak of 6% of
GDP. Since then there has been an improvement in the current account. But, the
Indian economy has seen imports growth faster than exports. This means India
needs to attract capital flows to finance the deficit. Also, the large deficit caused
the depreciation in the Rupee between 2012 and 2014. Whilst the deficit remains,
there is always the fear of a further devaluation in the Rupee. There is a need
to rebalance the economy and improve competitiveness of exports.

5. High levels of private debt Buoyed by a property boom the amount of lending in India
has grown by 30% in the past year. However there are concerns about the risk of such
loans. If they are dependent on rising property prices it could be problematic.
Furthermore if inflation increases further it may force the RBI to increase interest
rates. If interest rates rise substantially it will leave those indebted facing rising
interest payments and potentially reducing consumer spending in the future

6. Inequality has risen rather than decreased.

It is hoped that economic growth would help drag the Indian poor above the poverty
line. However so far economic growth has been highly uneven benefiting the skilled and
wealthy disproportionately. Many of Indias rural poor are yet to receive any tangible
benefit from the Indias economic growth. More than 78 million homes do not have
electricity. 33% (268million) of the population live on less than $1 per day. Furthermore
with the spread of television in Indian villages the poor are increasingly aware of
the disparity between rich and poor. (3)

7. Large Budget Deficit

India has one of the largest budget deficits in the developing world. Excluding
subsidies it amounts to nearly 8% of GDP. Although it is fallen a little in the past year.
It still allows little scope for increasing investment in public services like health and

8. Rigid labour Laws As an example Firms employing more than 100 people cannot fire
workers without government permission. The effect of this is to discourage firms from
expanding to over 100 people. It also discourages foreign investment. Trades Unions
have an important political power base and governments often shy away from tackling
potentially politically sensitive labour laws.

9. Inefficient agriculture

Agriculture produces 17.4% of economic output but, over 51% of the work force are
employed in agriculture. This is the most inefficient sector of the economy and reform
has proved slow.

10. Slowdown in growth

2013/14 has seen a slowdown in the rate of economic growth to 4-5%. Real GDP
per capita growth seven lower. This is a cause for concern as India needs a high growth
rate to see rising living standards, lower unemployment and encouraging investment.
India has fallen behind China, which is a comparable developing economy

In spite of the problems listed above, if we compare the present economic condition of

country with the pre-independence period, we find that the long spell of stagnation in

economy was broken after Independence of India. The present position of Indian
economy, though

not satisfactory, is much better than it was some 50-70 years ago. With the beginning
of economic

planning an era of economic development started. Economic development in India has

broadly two faces

Quantitative and structural. We see a spectacular progress has taken place in the line

National income trends,

Rise in per capita income,

Sectorial distribution of domestic products,

Stability in the occupational distribution of population

Changes in land relations,

Growth of basic capital goods industries

Expansion in social overhead capital

Progress in the banking and financial sectors etc.

As a result investment in the economy has been stepped up. We also notice the increase
in agricultural

and industrial production. Steps have been taken to modernize these sectors in India.

The current economic scene in India is more or less encouraging, but we are still way
behind achieving

full employment, poverty eradication, education for all, and industrialization.

Indian economy is a developing economy. By taking the remedial measures to tackle the
economic problems,

India can surely target to become a developed economy.


Methodology is the systematic, theoretical analysis of the methods applied to a field of

study. It comprises the theoretical analysis of the body of methods and principles associated
with a branch of knowledge. Typically, it encompasses concepts such as paradigm,
theoretical model, phases and quantitative or qualitative techniques.[1]
A methodology does not set out to provide solutions - it is, therefore, not the same as a
method. Instead, a methodology offers the theoretical underpinning for understanding which
method, set of methods, or best practices can be applied to specific case, for example, to
calculate a specific result.
It has been defined also as follows:
1. "the analysis of the principles of methods, rules, and postulates employed by a
2. "the systematic study of methods that are, can be, or have been applied within a
3. "the study or description of methods".[3]

Macroeconomic objectives
Broadly, the objective of macroeconomic policies is to maximize the level of national income,
providing economic growth to raise the utility and standard of living of participants in the
economy. There are also a number of secondary objectives which are held to lead to the
maximization of income over the long run. While there are variations between the objectives
of different national and international entities, most follow the ones detailed below:
1. Sustainability - a rate of growth which allows an increase in living standards without
undue structural and environmental difficulties. 'Economic growth' will be studied
later on in this book.
2. Full employment - where those who are able and willing to have a job can get one,
given that there will be a certain amount of frictional, seasonal and structural
unemployment (referred to as the natural rate of unemployment).
3. Price stability - when prices remain largely stable, and there is not rapid inflation or
deflation. Price stability is not necessarily the same as zero inflation, but instead
steady levels of low-moderate inflation is often regarded as ideal. It is worth noting
that prices of some goods and services often fall as a result of productivity
improvements during periods of inflation, as inflation is only a measure
of general price levels. However, inflation is a good measure of 'price stability'. Zero
inflation is often undesirable in an economy. ("Internal Balance" is used to describe a
level of economic activity that results in full employment with no inflation.)
4. External Balance - equilibrium in the Balance of payments without the use of
artificial constraints. That is, the value of exports being roughly equal to the value of
imports over the long run.
5. Equitable distribution of income and wealth - a fair share of the national 'cake',
more equitable than would be in the case of an entirely free market. Like the other
economic objectives, the distribution of income is a partly subjective or normative
6. Increasing Productivity - more output per unit of labour per hour. Also, since labor
is but one of many inputs to produce goods and services, it could also be described
as output per unit of factor inputs per hour.
7. Thermal Equilibrium - equilibrium in the Balance of payments without the use of
artificial constraints. That is, exports roughly equal to imports over the long run.


PROBLEM: Ridiculously high, constantly rising property taxes

SOLUTION: Cut property tax rates in half over the course of a few years. A debate on this
suggestion rages in Baltimore, the only municipality in Maryland to have lost residents over the
last decade. Soaring property tax ratesmore than double the rate of surrounding countieshave
been blamed as a main reason for the population decrease. Carl Stokes, a councilman and
mayoral candidate, has proposed a plan to dramatically lower the citys property tax rateswith
the idea that the lower taxes would attract more residents and businesses, making up for the
decrease in individual property tax revenues.

PROBLEM: Not enough commuters using public transportation

SOLUTION: Create frequent commuter programs that reward loyal passengers in similar
fashion to airline reward programs. A Stanford computer scientist tells The Atlantic that such a
program, which is being tested in Bangalore and Singapore, would give commuters more
incentive to use public transportation rather than their cars, easing congestion on roads. If higher
reward points were given for riding public transit during off-peak hours, as is suggested, the
program could also ease congestion on buses and trains as well.

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PROBLEM: Unemployment benefits give some incentive to stay unemployed

SOLUTION: Award signing bonuses for unemployed who find work sooner rather than later. In
a Washington Post op-ed, Todd G. Buchholz, an economic adviser to President George H.W.
Bush, suggests that the government lure the unemployed back to the workforce by paying out
signing bonuses on a sliding scale, with a better payoff for those who find work quicker. The
theory is that workers would be more likely to accept jobseven lower-paying jobs theyre not too
crazy aboutif a bonus was thrown into the deal, and that the government would ultimately wind
up a net winner because it would pay less in the long run in unemployment benefits while also
collecting taxes on the wages of workers back in the labor pool. The economy, in theory, would be
better off with more people back at work, and the proposal would only be in effect while
unemployment rates remain over 7.5%.

PROBLEM: Global poverty

SOLUTION: Design and distribute radically affordable products, water-delivery systems, and
sustainable engineering projects for the other 90% of the worlds population who have little
access to services common in the U.S. The Denver Post describes a new exhibit opening tonight at
the citys Redline Main Gallery devoted to low-cost technologies and innovations designed to help
this other 90% out of poverty.
PROBLEM: Prisons are expensive to run, and ineffective at deterring crime
SOLUTION: Give less-serious offenders the option of being flogged as a substitute for jail time.
A John Jay College of Criminal Justice professor suggests that if flogging returned, the U.S.
prison population would drop from 2.3 million to 300,000, saving billions, and that the
punishment would not be cruel or unusualbecause the criminal would still have the choice of
serving time rather than getting whipped.

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PROBLEM: Consistently high jobless rates in the U.S.

SOLUTION: Lower the minimum wage, or kill it altogether. From BusinessWeek to the Wall
Street Journal, the idea seems to be coming up more and more that minimum wage requirements
are keeping unemployment rates high. Some economists are suggesting that the minimum wage
laws disappear, at least for teenagers, who suffer a much-lower rate of employment than the
general public. But would scrapping the minimum wage, or lowering it to, say, $4 an hour for
teenagers, get the economy humming along again? One University of California-Irvine
economist, who has done research on how minimum wage rules decrease job opportunities for
teens and young adults, says, Its not even in the top 10 list of how to recover from the Great

PROBLEM: Too much productive dog waste going to, well, waste
SOLUTION: Turn the poop abundant at dog parks into energy that lights street lamps.
The Arizona Republic (via The Consumerist) reports that Arizona State students hope to design a
dog waste digester and install it a popular dog park. After cleaning up after their dogs, owners
would place poop-filled biodegradable bags into the digester and turn a hand crank. The machine
converts the waste into methane gas, which would be the energy source for park lamps.