A PROJECT REPORT ON Calculation of GDP, CPI & Inflation

Presented to :Prof -Rahim Munshi Submitted by:Kevin Patel Enrollment No:138220592024

MBA PROGRAMME ACADEMIC YEAR:2013-2015 Institute of Technology & Management Universe

ACKNOWLEDGEMENT
It is really much pleasure for me to prepare project report on Calculation of GDP, CPI & Inflation. At this stage while persuing my MBA I feel highly priviledge to work on this topic. I take this opportunity to express my profound gratitude and deep regards to my guide (Prof: Rahim Munshi Sir) for his exemplary guidance, monitoring and constant encouragement .The blessing, help and guidance given by him time to time shall carry me a long way in the journey of life on which I am about to embark.

Table Of Content

1) Introduction 2) Gross Domestic Product 3) Inflation 4) Consumer Price Index 5) Calculation of GDP 6) Calculation of Inflation 7) Calculation of CPI

INTRODUCTION
Economics was formerly called political economy. The term Political economy means the management of the wealth of the state. Adam Smith, the father of modern Economics, in his book entitled 'An Enquiry into the Nature and Causes of the Wealth of Nations (Published in 1776) defined Economics as a study of wealth. Smith considered the acquisition of wealth as the main objective of human activity. According to him the subject matter of Economics is the study of how wealth is produced and consumed.In this project I have explained brief information about GDP,CPI & Inflation and their Calculation.

GROSS DOMESTIC PRODUCT

Gross Domestic Product-It is total measure of goods and services sold within country in specific period of time. Components of GDP Y = C + I + G + (X-M) (1) Consumption (2) Investment (3) Goverrment spending (4) Net exports Consumption C is private consumption the economy.Consumption is spending by households on goods & services. Include food,rent ,medical expenses. Examples-Refrigerators,Washing machine &Toster. Investment I is defined as business investment capital. Ex Investment in new mine

company.Government spending - G is the sum of expenditure on final goods and services in concerned salaries weapons for military etc.

Government spending G is the sum of expenditure on final goods and services. In concerned salaries weapons for military etc. Examples of government spending-Weapons,Salaries& Etc.

Net exports (X-M) (x-m) is gross exports. Include goods and services.

INFLATION
LAYMAN-Rise in price TECHNICAL-It is a rise in the general price level caused by an imbalance between the quantity of money and trade needs. The word "inflation" originally applied solely to the quantity of money. It meant that the volume of money was inflated, blown up, overextended.

Causes of Inflation 1) Demand pull inflation (ex: petrol) 2) Cost push inflation (ex: cement) 3) Over- Expansion of Money Supply 4) Increase in Population 5) Expansion of Bank Credit 6) Black Money 7) Poor Performance of Farm Sector

Consumer Price Index

CPI measures Inflation rate in the country 1) Main measure of price changes at the retail level 2) Measures changes in the cost of buying a representative fixed basket of goods and services 3) Generally accepted as a measure of inflation in the country The CPI is a statistical estimate constructed using the prices of a sample of representative items whose prices are collected periodically. Sub-indexes and sub-sub-indexes are computed for different categories and sub-categories of goods and services, being combined to produce the overall index with weights reflecting their shares in the total of the consumer expenditures covered by the index.

Calculation of GDP

1) Expenditure Approach

Personal Consumption-5000000 Gross Investment-1000000 Government Consumption-2000000 Net exports-3000000 Net Population-10000000

Formula

GDP = personal consumption + gross investment + government consumption + net exports of goods and services

= 5000000+1000000+2000000+3000000 = 110000000/10000000 = 11%

2) Income Approach Formula

GNP (Gross National Product) = employee compensation + proprietors' income + rents + corporate profits + interest income GDP = GNP + indirect business taxes + depreciation + net income of foreigners*

Employees Compensation-500000 Proprietor Income-1000000 Rents-12000 Corporate Profit-120000 Interest Income-100000 Indirect business taxex-10000 Deprication-50000 Net income of foreigner-500000 Net Population-1000000

GNP (Gross National Product) = employee compensation + proprietors' income + rents + corporate profits + interest income

= 500000+1000000+12000+120000+100000 =1732000

GDP = GNP + indirect business taxes + depreciation + net income of foreigners*

= 1732000+10000+50000+500000 = 2292000

GDP= Total Expenditure Net Population = 2292000 = 2.29% 1000000

Calculation of Inflation

Formula for calculation of Inflation New price Old price * 100 Old price

Inflation for todays petrol price. Old price = 70 New price = 75

75-70/70*100=7.14%

Calculation of CPI

FORMULA USED FOR CPI Laspeyre's formula as given below is being used for the computation of CPI. (Pn/Po) x wi In = --------------------wi Where: In = CPI for the nth period Pn = price of an item in the in the nth period Po = price of an item in the base period wi = weight of the ith item in the base period = Po x qo / Po x Qo wi = Total weight of all items x 100

EXAMPLE FOR COMPUTATION OF CPI

S( Pn/Po) x Wi Index = -------------------------------- x 100 S Wi

1.3246 I = -------------------------- x 100 = 123.41 1.0733