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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

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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.

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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

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INTRODU TION

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.

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GROSS DOM ESTI C 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 householdson goods & services.

Include food,rent ,medical expenses.

Examples-Refrigerators,Washing machine &Toster.

I nvestment

I is defined as business investment capital. Ex Investment in new mine

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

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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.

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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

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Consumer Price I ndex

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 andsub-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.

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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%

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2) Income Approach

FormulaGNP (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

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GDP= Total Expenditure

Net Population

= 2292000 = 2.29%

1000000

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Calculation of I nf lation

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%

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Calculation of CPI

FORMULA USED FOR CPI

Laspeyre's formula as given below is being used for the computation ofCPI.

(Pn/Po) x wi

In = --------------------- x 100

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

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EXAMPLE FOR COMPUTATION OF CPI

S( P n /P o) x W i

Index = -------------------------------- x 100

S W i

1.3246

I = -------------------------- x 100 = 123.41

1.0733