Economics Class 12 Revision Notes Macroeconomics Chapter 2 National Income Accounting

1.Final Goods
These are those goods which have crossed in boundary line of production and are ready for use by their final users.
Final goods are often classified as
(i)Final consumer goods.
(ii)Final producer goods.

2.Intermediate Goods
These are those goods which have v not crossed the boundary line of production.
Example Shirts purchased by firm x from firm y for resale are intermediate goods.

3.Consumption Goods
These are those goods which are directly used for the satisfaction of human wants. These are not used in the production of other goods.
Example Ice cream and milk used by the household Consumption goods are classified into four categories.
(l) Durable Consumer Goods: TV, radio, car etc.
(ii) Semi-Durable Consumer Goods: Clothes, furnitures etc.
(iii) Non-Durable Consumer Goods: Bread.
(iv) Services: Doctor, lawyer etc.

4.Capital Goods
These are those goods which are used in the process of production for several years and which are of high value.
Example Plant and machinery

5.Investment Investment is a process of capital formation, or a process of increase in the stock of capital.
Investment has two Components
(i) Fixed investment (ii) Inventory investment

6.Gross Investment Expenditure on the purchase of fixed
assets during the accounting year.  + Expenditure on the inventory stock during the accounting year.

7. Net Investment
Gross investment – Depreciation
(Consumption of fixed capital)

A stock is a quantity of any economic variable which is measured at a particular point of time, e.g., 100 crores population of India in 2001.

A flow is a quantity of any economic variable which is measured during a period of time, e.g., Monthly wages of a worker.

Depreciation refers to loss of value of fixed assets in use on account of
(i) Normal wear tear
(ii) Normal rate of accidental changes
(iii) Expected or foreseen obsolesencene.
Annual amount of depreciation=
Original value of the machine/Number of years of the life of the machine

11. Circular Flow of Income
It refers to the uneding flow of the activities of production, income generation and expenditure involving different sectors of the economy.
There are three phases of circular flow (i) Production (ii) Income generation (iii) Expenditure

12.Money Flow
It refers to the flow of money across different sectors of the economy.

13.Real Flow
It refers to the flow of goods and services across different sectors of the economy.

14.Condition for Equilibrium in Four Sector Economy
C + S + T = C+I + G + (X-M)
Here, C = Consumption S = Saving I = Investment T= Tax revenue G = Government expenditure

X = Exports, M= Import, (X – M)= Net Exports

15.Injection It refers to the additions to the circular flow injections causes expension of the circular flow.
Example Government, expenditure, export and investment.

It refers to the withdrawFs from the circular flow leakages cause contraction of the circular flow.

17.Normal Residents of a Country
These are the people who
(i) normally reside in the country concerned and
(ii) whose centre of economic interest lies in the country concerned.

18.Domestic Territory of a Country
It refers to that area of economic activity which generates domestic income.

19.Factor Incomes
These are the income received by e owners of factors of production for rendering their factor services to the producer.

20.Transfer Payment These are all those unilateral payments corresponding to which there is no value-addition in the economy.
Example Gifts, donations etc

21.Methods of Measurement of National Income
* Product or Value Added Method
*Income Method
*Expenditure Method

22.Value Added
Value of output – Intermediate consumption
*Value of output = sales + change in stock
*Change in stock = closing stock – opening stock

23.Planned Change in Inventories
It means that the actual change in inventories is just equal to what was planned.

24.Unplanned Change in Inventories
Unexpected rise in inventories during a year is termed as unplanned change in inventories.

25.Components of Domestic Factor Income
* Compensation to Employees
it includes following components-wages and salaries in cash, compensation in kind, employer’s contributions to social security scheme
*Operating Surplus
It has two main components
(a) Income from Property
(b) Income from entrepreneurship
*Mixed income of the self employed.

26. Final Expenditure
The main components of final expenditure are
* Private final consumption expenditure
* Gross domestic capital formation
* Government final consumption expenditure
* Net export (X-M)

27. National Income
It is sum total of factor incomes accruing to the normal residents of a country.

28. Domestic Income
It is the sum total of factor income generated with in the domestic territory of the country no matter it is the income accruing to residents or non-residents of the muntry.

29. National Income at Current Price
It is the money value of all final goods and services measured at current prices.

30. GDP It is the sum total of (i) Compensation of employees (ii) Operating surplus
(iii) Mixed income
(iv) Consumption of fixed capital with in the domestic territory of the country during the period of one year.

31. NNP at Market Price
It refers to the market, value of final goods and services produced during the year inclusive of net factor income from abroad but exclusive of depreciation.

32.NNP at Factor Cost
It is the sum total of factor incomes earned by normal residents of a country during the period of one year.

33.Private Income
It is the total income from all sources that accrues to the private sector during the period of one year.

34.Personal Income
If is the income actually received by the individuals and households from all sources in the form of current transfer payment and factor incomes.

35. Personal Disposable Income
It is the personal income remaining with individuals after deduction of all taxes levied against their income and their property as well as payment miscellaneous fees and fines.

36.National Disposable Income
It is the income from all sources available to residents of a country for consumption expenditure or for saving during a year.

37. Nominal GDP
It refers to GDP at current price.

38.Real GDP
It refers to GDP at constant price.

39.GNP Deflator
The GNP deflator measures the average level of the prices of all goods and services that make-up GNP. GNP deflator is measured as the ratio of nominal GNP to real GNT

40.Consumer Price Index (CPI)
This is the index of prices of a given basket of commodities which are bought by the representative consumer. CPI is generally expressed n percentage terms.

It refers to the benefits a firm or an individual causes to another for which they are not paid.