BASIC CONCEPT OF MACRO
ECONOMICS.
National income
It is the total value of all final goods and services produced in
the country during a financial year.
The growth of national income helps to know the progress of
the country.
Only final goods are included in national income the
intermediate goods are not included in the national income
as they are already included in the final goods. If their value
is added again, it will lead to double counting.
For example out of wheat and flour, only flour (final goods) its
included in national income as value of flour already includes
the value of wheat( intermediate goods)
INTRODUCTION TO GOODS AND SERVICES.
• DEFINITION OF GOODS: all thinks that satisfy human wants are called
goods. Goods are classified into two groups
• Final Goods
• Intermediate Goods
MEANING OF THE FINAL GOODS
• Final goods refer to those goods which are used either for
Consumption or for Investment. For example bread, butter,
shirts, pens television , furniture, etc.
Final goods include:
1.Goods purchased by consumer or households as they meant for
final consumption like milk purchased by households
2. Goods purchased by firms for investment like car purchased
by taxi driver as taxi.
Meaning of Intermediate goods
• Intermediate goods refer to those goods which are used
either for resale or for further production in the same year.
• Intermediate goods include:
1.Goods purchased for resale for example milk purchased by a
milk vender.
2.Goods used for further production for example sugar parched
by sweet shop after it making sweets. Car purchased by car
dealer for resale.
Distinguish between final goods and
intermediate goods
Basis Final goods Intermediate good
Definition Final goods refer to those goods Intermediate goods refer to those
which are used either for goods which are used either for resale
Consumption or for Investment. or for further production in the same
year.
Production They have crossed the production They are still within the production
boundary boundary. boundary.
resale These goods not for resale. These goods may be resold by the firms
to make profits.
Items categorised as intermediate
products or final products.
1.Paper purchased by publisher.
2.Computer purchased by students.
3.Coal used by households.
4.Wheat used by the flour mill.
5.Mobile sets purchased by a mobile dealer
Classification of final goods
Capital goods : Capital goods are
Consumption goods: consumption those final goods which help in
goods refer to those goods which production of other goods and
satisfy the wants of the consumers services.
directly
CONSUMPTION GOODS AND CAPITAL
GOODS .
• Consumption goods refer to • Capital goods are those final
those goods which satisfy the goods which help in
wants of the consumers production of other goods
directly, and services.
• for example: bread, butter, • For example: plant and
shirts, pens television , machinery, equipment's, etc.
furniture, etc.
• Capital goods generally have
• Most of ted expected
an expected life of more
consumption goods have
than one year.
limited expected life.
• They help in raising
• They do not promote
production capacity.
production capacity.
• A machine purchased by a • If machine purchased by a
household is consumption firm for use in the business,
good then it is a capital good.
Consumption goods can further be sub-divided into following categories
There are four sub categories of consumption goods
Durable goods
semi durable goods
Non durable goods
services
DURABLE GOODS
Durable goods: it refers those goods
which can be used again and again
over a considerable period of time.
For example: television, computer, car
Semi durable goods
Semi- durable goods: those goods
which can be used for a limited
period of time. These goods have a
life span of around one year. for
example: Cloths, shoes, toys.
Footwear, clocks, etc.
Non-durable goods
• Non-durable goods: goods which
are used up in a single act of
consumption. these goods cannot
used more than once
• For example: milk, bread, food
grains, etc.
services
Services : refer to non-material goods
which directly satisfy the human wants.
They are intangible activities, i.e. they
can neither be seen nor touched
for example: services of teachers
doctors, banks et.
Concept of Stock and flow
The concepts of stock and flow are used frequently in macroeconomics.
Some of the macro variables relate to stock , while others relate to flow.
Stock variable is a quantity measurable at a particular point of time.
for example population of India as on 31.03 .2018,
total number of maruti cars in Delhi.
National wealth of india as of today.
Flow variable refer to that variable, which measured over a period of
time.
for example production of goods during the month of June 2019,
birth rate in the year 2018,
and national income in the year 2018,
Income of a household in the month of April 2017.
A stock variable is measuring at a
Meaning of factor income
Factor income : is the income received by the factors of
production for rendering factor services in the process of
production . Examples: rent wages, interest and profit.
What are the four factors of production? Mention their
rewards.
• The factors of production are land , labour , capital, and arganisation.
• The reward for land is rend , the reward for labour is wage, the reward for
capital is interest and reward for organisation is profit.
Transfer income
• Transfer income refers to the income received
without rendering any productive service in
return. For Examples: old age pension ,
scholarship ,unemployment allowance .pocket money
subsidies, taxes etc
