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7/28/2019 Business Envt & Macroeconomics
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Business Environment and Macroeconomics #2
- NMIMS Hyderabad
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Tableau Economique Francois Quesnay, a French medical practitioner,
inspired by his knowledge of human blood circulation,was the first to model the economy as a circular flow.
His model, called Tableau Economique, distinguishedbetween three economic sectors: The productive class, which consists of peasants and tenant
farmers The class of the land owners that consisted of the nobility and
the clergy The sterile class covering all other occupations.
The Tableau Economique shows the relations of supplyand demand that take place between these threesectors, depicting only the monetary flow.
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Two-sector model
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Two-sector contd Two significant differences from Tableau Economique
One, the economy is partitionedfunctionally and notpersonally. A person does not belong to one of the sectors pure and simple; but
he belongs to the firms when producing and to the households,when consuming.
Second, here it is considered that any commercial activityresults in value-addition and not just agriculture.
Given that there are no injections and leakages, the sum of
factor incomes equals total consumption expenditure. Total Factor Income = Total Consumption Exp.
This is a stationary economy... Total productive equipmentremains unchanged.
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Three-sector model
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Four-sector model
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Leakages and Injections Two sector model Savings and Investment
Y = C + I
Y = C + SY as product, Y as income
S=I, ex-post
To deal with this, Financial markets are introduced
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National IncomeAggregate Income / National Product
Four classifications
Gross vs. Net Gross Depreciation = Net
Domestic vs. National
Domestic + NFIA = National
Product at Market Price vs. Product at Factor Price FC+Net Indirect Taxes = MP
Nominal vs. Real (Current prices vs. Constant prices)
NNP at FC!
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Calculation Methods Three different ways to calculate aggregate products.
Net Output or Value-Added Method
Expenditure Method GDP at MP = C + I + G + (X M).
Income Method
The components of national income could consist of
Income from employment, Income from property andIncome from entrepreneurship etc...
Problems involved in measurement...
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