Summary Introduction to macro and National Income Accounting
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Course
Macroeconomics
Institution
The sub topics covered in these notes are as follows-
INTRODUCTION TO MACRO ECONOMICS
INTER DEPENDANCE BETWEEN MICRO & MACRO
GENERATION OF INCOME
Two Sector Model
NATIONAL INCOME AND RELATED AGGREGATES
IMPORTANT DIFFERENCES
Some Important Formulas
National Income Accounting
Items Includ...
Macro Economics
It is a branch of economics which deals with the study of aggregates.
In other words it is study of the economy as a whole.
It is concerned with the income theory.
INTRODUCTION TO MACRO ECONOMICS-
● Types of goods produced in the economy-
i. Final goods- these are those goods which have crossed the boundary
line of production. These goods are either used for consumption or for
production.
ii. Intermediate goods- these are those goods which are within the
boundary line of production. These goods are purchased either as raw
materials or for re-sale.
iii. Consumer goods- these are those goods which are directly used for
the satisfaction of human wants. These goods are not used in the
production of other goods.
iv. Capital goods/producer goods- these are the fixed assets of the
producers. These goods are repeatedly used for production, for several
years.
● Investment- it is a process of capital formation. Capital formation is the
stock of the capital assets, which helps in the production process.
Investment is of two types-
i. Fixed investment- it refers to the increase in the stock of fixed
assets of the producer, in an accounting year.
, ii. Inventory investment- it is the stock of finished goods, semi-
finished goods and raw-material, that a producer hold at a point of
time.
● Types of transfers in the economy-
VOLUNTARY TRANSFERS:
Those transfers which are given by the payer by his / her own will
Eg: charity, scholarship.
INVOLUNTARY TRANSFERS (Forced)
Those transfers which are legal compulsory payments and which are not given by
the payer on his / her own will.
For eg: Tax.
CURRENT TRANSFERS
Those transfers which are made out of current income of the payer and added to
the current receipts for consumption purpose.
For eg. Food, medicine etc given by Rajasthan Govt. to Bihar Govt.
CAPITAL TRANSFERS:
Those transfers which are made out of savings or wealth of donor for investments
purpose.
MICRO – MACRO PARADOX:
It is a situation where whatever is true & logical at the micro level may not be so at
the macro level.
This can be explained with the following example:-
If an individual saves more out of his monetary income he adds to his future
property. But if all the people save more and buy /spend less then demand for
goods and services would decline consequently, investment would decline and
ultimately production and employment would fall.
This situation will lead an economy towards poverty.
● INTER DEPENDANCE BETWEEN MICRO & MACRO:
,Micro variables depend on the level and behaviour of macroeconomic variables.
For example:
1. Investment in one industry depends upon overall investment in economy.
2. Aggregate demand is the sum total of demand at micro level.
Why do we need separate theory of macro economics?
1. Micro – Macro Paradox (explained above).
2. There are certain problems which are of critical significance in the world. These
issues cannot be handled at micro level.
*NOTE:
Method of study in Macro Economics is often described as "General Equilibrium
Analysis". Method of study in Micro economics is often described as "Partial
Equilibrium Analysis"
● Difference between stock and flow-
Stock Flow
Economic variables, whose Economic variables, whose quantity
quantity can be measure at a can be measured over a specific
particular point of time are called period of time are called flow
stock variables. variables.
It has no time dimension It has time dimensions
It is not a going on process It is a going on process
Wealth, capital money supply, are all Income, capital formation, change in
stock concepts. money supply, profit are all flow
concepts.
For Example :Cement production as For Example: Cement production
on 1/1/2014 is 10,000 during 2014 was 5000.
, ● GENERATION OF INCOME
Income is generated by the process of selling the output. The income is divided
among the factor inputs.
Factors of production
(Factor Inputs) (Non-Factor Inputs)
Primary Factors Secondary Factors
Land Labour Capital Entrepreneurship Raw Fuel Power
material
Output (Goods and Services) is produced, using these inputs.
Value of Output
Income Generated
(Factor Income) Land (rent)
Labour (wages and salaries)
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