Basic concepts of Macro Economics
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- The flash cards includes the following topics
- Classification of Goods in economics
- Gross Investment and net investment
- circular flow of income in two sector economy
- Depreciation in economics
- Obsolescence in economics
- consumer goods and capital goods
- Final goods and intermediate goods
Card 1 of 0
What is national income defined as?
National Income and GDP
The sum of income of all the persons residents in a country.
National Income and GDP
What is the main purpose of calculating national income?
National Income and GDP
To understand a nation's economic standing and compare its growth with other nations.
National Income and GDP
What is a financial year in India?
National Income and GDP
A 12-month period starting in April and ending in March of the next year.
National Income and GDP
Define Gross Domestic Product (GDP).
National Income and GDP
The money value of the total production of goods and services in a country in a year.
National Income and GDP
Why is the classification of goods and services important for GDP calculation?
National Income and GDP
To make the calculation of Gross Domestic Product easier.
National Income and GDP
What is the problem of double counting in GDP calculation?
National Income and GDP
When the value of some goods or services is counted more than once.
National Income and GDP
What are the two main methods to avoid the problem of double counting?
National Income and GDP
Consider only the value added by producers OR consider only the value of final goods.
National Income and GDP
What is value addition?
National Income and GDP
The expenditure incurred by a producer at their level in producing goods or services. It's Value of Output minus Intermediate Consumption.
National Income and GDP
What is the boundary line of production?
National Income and GDP
The stage when goods are completely manufactured and no more value addition is pending.
National Income and GDP
What are the three methods for finding national income?
National Income and GDP
Production method, Income Method, and Expenditure Method.
National Income and GDP
What are consumer goods?
Classification of Goods
Goods directly used for the satisfaction of human wants.
Classification of Goods
Give an example of a durable consumer good.
Classification of Goods
TV, fridge, washing machine.
Classification of Goods
What are producer goods?
Classification of Goods
Goods used by producers and businesses for making other goods and services.
Classification of Goods
What are intermediate goods?
Classification of Goods
Goods that have not yet crossed the boundary line of production and are used for further production.
Classification of Goods
What are final goods?
Classification of Goods
Goods that have crossed the boundary line of production and are ready for use by the consumers or producers
Classification of Goods
What are capital goods?
Classification of Goods
Producer goods which can be used for a long time repeatedly in the production process.
Classification of Goods
What is the key difference in demand between consumer goods and producer goods?
Classification of Goods
Consumer goods have direct demand, while producer goods have derived demand.
Classification of Goods
Can the same goods be both consumer goods and producer goods?
Classification of Goods
Yes, it depends on the end use.
Classification of Goods
Are intermediate goods included in national income?
Classification of Goods
No, to avoid double counting.
Classification of Goods
What are the two types of final goods?
Classification of Goods
Consumer Goods and Producer Goods.
Classification of Goods
Define a stock variable.
Stock and Flow Concepts
Something which is calculated at a point of time.
Stock and Flow Concepts
Give an example of a stock variable.
Stock and Flow Concepts
Money in your bank account, wealth, capital.
Stock and Flow Concepts
Define a flow variable.
Stock and Flow Concepts
Something which is measured over a period of time.
Stock and Flow Concepts
Give an example of a flow variable.
Stock and Flow Concepts
Money deposited in your bank account during the year, income, expenses, savings, capital formation/investment.
Stock and Flow Concepts
Is wealth a stock or a flow concept?
Stock and Flow Concepts
Stock concept.
Stock and Flow Concepts
Is income a stock or a flow concept?
Stock and Flow Concepts
Flow concept.
Stock and Flow Concepts
Is capital a stock or a flow concept?
Stock and Flow Concepts
Stock concept.
Stock and Flow Concepts
Is capital formation a stock or a flow concept?
Stock and Flow Concepts
Flow concept.
Stock and Flow Concepts
What is the relationship between stock and flow?
Stock and Flow Concepts
Greater the stock, greater the flow. Also, flow impacts the stock.
Stock and Flow Concepts
Is the purchase of machinery a stock or flow?
Stock and Flow Concepts
Flow.
Stock and Flow Concepts
What is investment generally defined as?
Investment and Capital Formation
Putting our money at some place to get some benefit in the future.
Investment and Capital Formation
What is capital in a business context?
Investment and Capital Formation
Anything that the owner invests in their business, either money or goods/assets.
Investment and Capital Formation
What is capital formation?
Investment and Capital Formation
The increase in capital during a year. It's also called a change in capital.
Investment and Capital Formation
What is the formula to calculate investment (capital formation)?
Investment and Capital Formation
Closing Capital Less Opening Capital.
Investment and Capital Formation
What are the two main types of investment based on where money is invested?
Investment and Capital Formation
Fixed Investment and Inventory Investment.
Investment and Capital Formation
Card Front
Category
Card Back
Category
What is fixed investment?
Investment and Capital Formation
Any amount invested in purchasing fixed assets for business
Investment and Capital Formation
What is inventory investment?
Investment and Capital Formation
Amount invested in purchasing inventory (raw materials, semi-finished goods, finished goods, traded goods) for business
Investment and Capital Formation
What is the significance of fixed investment?
Investment and Capital Formation
Raises production capacity and leads to economic growth
Investment and Capital Formation
What is the significance of inventory investment?
Investment and Capital Formation
Maintains uninterrupted supply of raw materials and helps fulfil potential demand for finished goods
Investment and Capital Formation
What is another term for investment?
Investment and Capital Formation
Capital formation
Investment and Capital Formation
What is depreciation?
Depreciation
Decrease in the value of an asset due to wear and tear, normal accident, expected obsolescence. Also known as consumption of fixed capital.
Depreciation
What are some causes of depreciation?
Depreciation
Wear and tear, Accidental damage, expected obsolescence (due to change in technology or demand)
Depreciation
What is gross investment?
Depreciation
Net Investment plus Depreciation. It includes investment in both additional and replacement assets.
Depreciation
What is net investment?
Depreciation
Gross Investment minus Depreciation. It refers to only additional assets.
Depreciation
Why is net investment considered more important than gross investment?
Depreciation
Net Investment leads to a rise in production capacity and GDP growth
Depreciation
What is expected obsolescence?
Depreciation
Fall in market value of fixed assets due to change in technology or change in demand. It is part of depreciation.
Depreciation
What is unexpected obsolescence?
Depreciation
Fall in market value of fixed assets due to natural calamities or economic recession. It is considered a capital loss, not part of depreciation.
Depreciation
What is a depreciation reserve fund?
Depreciation
A fund made for the replacement of depreciated fixed assets
Depreciation
What is consumption of fixed capital?
Depreciation
Another term for depreciation
Depreciation
What is the difference between depreciation and capital loss?
Depreciation
Depreciation is due to normal wear and tear and expected obsolescence, while capital loss is due to unexpected obsolescence like natural disasters or recession
Depreciation
What are the three phases of the circular flow of income?
Circular Flow of Income
Production, Income Generation, and Expenditure
Circular Flow of Income
What happens in the production phase of the circular flow?
Circular Flow of Income
Value addition by producing goods and services
Circular Flow of Income
What happens in the income generation phase of the circular flow?
Circular Flow of Income
Households provide factor inputs and receive factor incomes (rent, wages, interest, profit)
Circular Flow of Income
What happens in the expenditure phase of the circular flow?
Circular Flow of Income
Households and producers spend on final goods and services (consumption and investment expenditure)
Circular Flow of Income
What is the triple identity in a two-sector economy?
Circular Flow of Income
Production = Income = Expenditure
Circular Flow of Income
What are leakages in the circular flow of money?
Circular Flow of Income
Withdrawal of money from the circular flow, e.g., savings, taxes, import payments
Circular Flow of Income
What are injections in the circular flow of money?
Circular Flow of Income
Introduction of income into the circular flow, e.g., borrowings, export payments
Circular Flow of Income
When is equilibrium achieved in the money flow?
Circular Flow of Income
When leakages are equal to injections
Circular Flow of Income
What does the circular flow model help us understand?
Circular Flow of Income
Interdependence among different sectors of the economy
Circular Flow of Income
How is national income defined in terms of the circular flow?
Circular Flow of Income
Market value of goods and services flowing from producers (Production), aggregate of factor incomes (Income), or sum total of expenditure (Expenditure)
Circular Flow of Income
What are the four sectors of the economy ?
Basic Economic Agents
Household Sector, Producer Sector, Government Sector, and External Sector
Basic Economic Agents
What is the main role of the Household Sector?
Basic Economic Agents
Consumers of goods and services, and owners of factors of production
Basic Economic Agents
What is the main role of the Producer Sector?
Basic Economic Agents
All producing units in the economy that hire factors of production
Basic Economic Agents
What are factor services?
Basic Economic Agents
Resources like land, labour, capital, and entrepreneurship used in the production of goods and services
Basic Economic Agents
What are factor payments?
Basic Economic Agents
Payments made by producers to households for their factor services (rent, wages, interest, profit)
Basic Economic Agents
What are real flows in a two-sector economy?
Basic Economic Agents
Flow of factor services from households to firms and the flow of goods and services from firms to households
Basic Economic Agents
What are money flows in a two-sector economy?
Basic Economic Agents
Flow of money as payment for factor services and expenditure on the purchase of goods. It is the reciprocal of real flows.
Basic Economic Agents
What are the two roles of the Government Sector?
Basic Economic Agents
As a producer and as a welfare agency
Basic Economic Agents
What does the External Sector include?
Basic Economic Agents
Rest of the world. It covers the exports and imports from the economy
Basic Economic Agents
What is intersectoral dependence?
Basic Economic Agents
1) Activities related to export and import of goods and 2) flow of capital between the domestic economy and the rest of the world
Basic Economic Agents
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