BASIC CONCEPT OF MACRO ECONOMICS 1

• BASIC CONCEPT OF MACRO ECONOMICS 1
  PLUS TWO INTRODUCTION TO MACRO ECONOMICS
• NET UGC ECONOMICS
  SHASHI AGGARWAL ECONOMICS AND LAW CLASSES
• CLASSIFICATION OF GOODS

1. FINAL GOODS AND INTERMEDIATE GOODS
2. CONSUMPTION GOODS AND CAPITAL GOODS

• FINAL GOODS
• FINAL GOODS ARE READY FOR CONSUMPTION AFTER CROSSING BOUNDARY LINE OF PRODUCTION. THESE ARE NOT USED AS INTERMEDIATE GOODS NOR SOLD.FINAL USERS ARE CONSUMERS AND PRODUCERS

1. CONSUMER GOODS:- WHICH ARE BOUGHT BY CONSUMER FOR SATISFACTION OF HUMAN WANTS. LIKE BREAD AND BUTTER,
2. PRODUCER GOODS :- THESE ARE THOSE FINAL GOODS WHICH ARE USED FOR FURTHER PRODUCTION BY THE FIRMS FOR EXAMPLE MACHINERY,TRACTORS AND HARVESTERS
3. EXPENDITURE ON FINAL CONSUMER GOODS BY THE HOUSEHOLD IS CALLED_ CONSUMPTION EXPENDITURE  AND EXPENDITURE ON FINAL PRODUCER GOODS BY THE  PRODUCER IS CALLED  INVESTMENT EXPENDITURE

• FINAL GOODS

• EXPENDITURE ON FINAL GOODS:_ CONSUMPTION EXPENDITURE PLUS INVESTMENT EXPENDITURE

• INTERMEDIATE GOODS
• WHICH ARE USED EITHER FOR RESALE OR FOR FURTHER PRODUCTION IN SAME YEAR. THESE GOODS ARE PURCHASED FROM ONE PRODUCTION UNIT BY OTHER PRODUCTION UNIT. OR
• INTERMEDIATE GOODS ARE THOSE GOODS:

1. WHICH HAVE NOT YET CROSSED BOUNDARY LINE OF PRODUCTION
2. VALUE IS STILL TO BE ADDED
3. WHICH ARE NOT YET READY FOR THE USE BY THEIR FINAL USERS
4. BUT SAME ITEM IS NOT ALWAYS AN INTERMEDIATE BECAUSE IT DEPENDS UPON ITS USE

• EXAMPLE OF INTERMEDIATE

1. SHIRTS PURCHASED BY ONE FIRM A FROM FIRM B FOR RESALE IS INTERMEDIATE GOODS ( VALUE IS ADDED THROUGH RESALE)
2. WOOD PURCHASED FOR MAKING FURNITURE IS ALSO A INTERMEDIATE GOODS
3. VALUE OF INTERMEDIATE GOODS ULTIMATELY BECOMES PART OF VALUE OF THE FINAL GOODS
4. INTERMEDIATE GOODS ARE NOT INCLUDED IN THE ESTIMATION OF  NATIONAL PRODUCT OF NATIONAL INCOME

• INTERMEDIATE GOODS

1. EXPENDITURE ON INTERMEDIATE GOODS BY THE PRODUCERS DURING AN ACCOUNTING YEAR IS CALLED INTERMEDIATE CONSUMPTION
2. IF INTERMEDIATE CONSUMPTION IS DEDUCTED FROM THE VALUE OF THE OUTPUT WE GET GROSS VALUE ADDITION/GROSS VALUE ADDED/GROSS PRODUCT OF THE PRODUCT)
3. VALUE OF OUTPUT MINUS INTERMEDIATE CONSUMPTION=GROSS VALUE ADDED

• DISTINCTION BETWEEN FINAL AND INTERMEDIATE GOODS

1. SAME GOOD MAY BE FINAL OR INTERMEDIATE DEPENDS ON THE END USE OF THE GOODS
2. DISTINCTION DEPENDS UPON THE END USE OF THE PRODUCT
3. LIKE SUGAR USED BY THE HOUSEHOLD IS FINAL GOODS
4. SUGAR USED BY BAKING INDUSTRY IS INTERMEDIATE GOODS
5. END USE  OF THE GOODS IS THE PRINCIPAL BASIS OF CLASSIFYING THE GOODS AS INTERMEDIATE GOODS AND FINAL GOODS

• DIFFERENCE
• INTERMEDIATE GOODS

1. ARE NOT PART OF NATIONAL INCOME.
2. REMAIN WITH IN THE PRODUCTION PROCESS
3. ARE USED IN PRODUCTION PROCESS AS RAW MATERIAL
4. VALUE IS YET TO BE ADDED TO THESE GOODS
5. THESE GOODS MAY BE RESOLD BY THE FIRMS FOR PROFIT DURING THE ACCOUNTING YEAR

• FINAL GOODS

1. FORM A PART OF NATIONAL INCOME
2. REMAIN OUT OF PRODUCTION PROCESS TO BE CONSUMED
3. READY FOR CONSUMPTION.
4. NOT RESOLD BY THE FIRMS FOR FURTHER PROFIT
5. VALUD IS NOT TO BE ADDED

• MEANING OF CONSUMER GOODS

1. CONSUMPTION GOODS ARE THE GOODS,THOSE SATISFY CONSUMER’S WANTS DIRECTLY
2. LIKE BREAD,SURF ,SOAPS.TV,FRIDGE,FURNITURE ,CAR ETC
3. TOTAL EXPENDITURE ON CONSUMPTION GOODS IS KNOWN AS FINAL CONSUMPTION EXPENDITURE.
4. FINAL GOODS ALSO INCLUDES SERVICES.
5. HOUSEHOLD SECTOR GETS VARIOUS SERVICES SUCH AS BANKING,MEDICAL AND EDUCATION ETC
6. HOUSEHOLD CONSUMER SECTOR FORMS THE BIGGEST PART OF THIS EXPENDITURE.

• CONSUMPTION GOODS
• CONSUMPTION EXPENDITURE REFERS TO AGGREGATE CONSUMPTION EXPENDITURE IN THE ECONOMY

1. HOUSEHOLD : BUY GOODS FOR SATISFACTION OF THEIR NEEDS AND WANTS
2. GOVERNMENT :-BUYS CONSUMER GOODS FOR DISTRIBUTION AMONG DEFENCE FORCE,FOR MID DAY MEALS IN THE GOVT SCHOOL AND SUCH OTHER PURPOSE.
3. NON PROFIT PRIVATE INSTITUTIONS : LIKE NGO,TEMPLES,MOSQUES,GUDWARAS AND OTHERS . BUY FOR CHARITY

·         BY ADDING THREE OF THEM WE WILL GET AN ESTIMATE OF TOTAL CONSUMPTION EXPENDITURE IN THE ECONOMY

• AGGREGATE CONSUMPTION EXPENDITURE
• CONSUMPTION EXPENDITURE  BY THE HOUSEHOLDS+ CONSUMPTION EXPENDITURE BY THE GOVERNMENT + CONSUMPTION EXPENDITURE BY NON PROFIT PRIVATE INSTITUTIONS
• CONSUMPTION GOODS

1. DURABLE GOODS: LONG LIFE AND CAN BE USED FOR MANY YEARS.
2. LIKE TV.CARS,FRIDGE ETC
3. SEMI-DURABLE GOODS: RELATIVELY LIFE  SHORTER THAN DURABLE GOODS AND MORE THAN NON DURABLE GOODS. CLOTHES,SHOES ETC
4. NON DURABLE GOOD: ARE OF MUCH SHORTER LIFE IN DAYS. GET DESTROYED AFTER USE. PERISHABLE GOODS.MILK,VEGETABLES,FRUITS ETC
5. SERVICES:-SOLD AND PURCHASED LIKE OTHER GOODS. NON MATERIAL GOODS. SERVICES OF FINANCIAL ADVISER,TEACHERS,DOCTORS
6. CONSUMPTION GOODS ARE USED BY HOUSEHOLD SECTOR AND IT IS THE MAJOR PART OF NATIONAL INCOME

• CAPITAL GOODS
• CAPITAL GOODS ARE FIXED ASSETS OF THE PRODUCERS. PLANT AND MACHINERY ARE THE EXAMPLE OF CAPITAL GOODS. THESE GOODS ARE USED IN THE PROCESS OF PRODUCTION FOR SEVERAL YEARS AND ARE OF HIGH VALUES. USE OF THESE GOODS LEADES TO DEPRECIATION . FOR EXAMPLE PLANT AND MACHINERY
• GOODS ARE USED BY :

1. REPLACEMENT OF THE CAPITAL STOCK OR FOR
2. ADDITION TO THE CAPITAL STOCK

• ALL PRODUCER GOODS ARE NOT CAPITAL GOODS
•  ALL CAPITAL GOODS ARE PRODUCER GOODS BUT ALL PRODUCER GOODS ARE NOT CAPITAL GOODS
• PRODUCER GOODS INCLUDE :

1. GOODS USED AS RAW MATERIAL LIKE WOOD FOR MAKING FURNITURE
2. AND GOODS USED AS FIXED ASSETS LIKE PLANT AND MACHINERY

3.     CAPITAL GOODS INCLUDE ONLY FIXED ASSETS AND THESE ARE DURABLE USE PRODUCER GOODS

4.     GOODS USED AS RAW MATERIAL ARE SINGLE USE PRODUCER GOODS. THESE ARE NOT REPEATEDLY USE IN THE PROCESS OF PRODUCTION SO PRODUCER GOODS ARE NOT CAPITAL GOODS

• DIFFERENCE
• CONSUMPTION GOODS

1. SATISFY HUMAN WANTS DIRECTLY
2. OFTEN FINAL GOODS
3. MOSTLY CONSUMPTION GOODS ARE USED ONCE ONLY
4. DO NOT HELP TO PROMOTE PRODUCTIVITY

• CAPITAL GOODS

1. SATISFY HUMAN WANTS INDIRECTLY
2. OFTEN INTERMEDIATE NATURE
3. ARE USED REPETITIVELY
4. RAISING PRODUCTIVITY
5. USED TO PRODUCE CONSUMER GOODS

• PRODUCER AND CAPITAL GOODS

1. WE ALSO REQUIRE RAW MATERIAL ALONG WITH CAPITAL GOODS. SO MACHINES ALONG WITH RAW MATERIAL ARE KNOWN AS PRODUCER GOODS.
2. RAW MATERIAL CAN BE CONSUMED ONCE ONLY.
3. ALL CAPITAL GOODS ARE PRODUCER GOODS. BECAUSE THEY ARE USED IN THE PROCESS OF PRODUCTION.
4. ALL PRODUCERS GOODS ARE NOT CAPITAL GOODS

• CONCEPT AND COMPONENTS OF INVESTMENTS

1. INVESTMENT REFERS TO CAPITAL FORMATION OR A PROCESS THAT INCREASES THE STOCK OF CAPITAL
2. FROM THE VIEW POINT OF THE ECONOMY AS A WHOLE,INVESTMENT REFERS TO TOTAL PRODUCTION OF CAPITAL GOODS DURING AN ACCOUNTING YEAR. THESE GOODS MAY BE USED EITHER FOR THE REPLACEMENT OF THE EXISTING STOCK  OR FOR ADDING TO THE EXISTING CAPITAL STOCK
3. INVESTMENT REFERS TO INCREASE IN THE STOCK OF CAPITAL
4. I=∆K

• COMPONENTS OF INVESTMENTS

1. FIXED INVESTMENT
2. INVENTORY MANAGEMENT

• FIXED INVESTMENTS

1. REFERS TO INCREASE IN THE STOCK OF FIXED ASSETS OF THE PRODUCERS DURING AN ACCOUNTING YEAR
2. FIXED INVESTMENT= STOCK OF FIXED ASSETS WITH PRODUCERS AT THE END OF THE ACCOUNTING YEAR-STOCK OF FIXED ASSETS WITH THE PRODUCERS AT THE BEGINNING OF THE YEAR
3. = INCREASE IN THE STOCK OF FIXED ASSETS WITH THE PRODUCERS DURING AN ACCOUNTING YEAR
4. ALSO CALLED FIXED CAPITAL FORMATION WHICH MEANS INCREASE IN THE STOCK OF CAPITAL IN TERMS OF FIXED ASSETS

• SIGNIFICANCE OF FIXED INVESTMENT

1. FIXED ASSETS ARE REPEATEDLY USED IN THE PROCESS OF PRODUCTION FOR SEVERAL YEARS
2. FIXED INVESTMENT RAISES PRODUCTION CAPACITY OF THE PRODUCTION
3. WILL LEAD TO HIGHER LEVEL OF OUTPUT IN THE ECONOMY
4. HIGHER LEVEL OF OUTPUT LEADS TO HIGHER RATES OF ECONOMIC GROWTH WHICH IS KNOWN AS GDP GROWTH

• INVENTORY INVESTMENT
• AT THE POINT OF TIME ,PRODUCER HOLD THE STOCK OF :

1. FINISHED GOODS ( UNSOLD GOODS)
2. SEMI FINISHED GOODS ( GOODS WHICH ARE IN THE PROCESS OF PRODUCTION)
3. RAW MATERIAL

·         CHANGE IN THE INVENTORY STOCK DURING THE YEAR IS CALLED INVENTORY INVESTMENT

·         INVENTORY INVESTMENT=INVENTORY STOCK AT THE END OF THE ACCOUNTING YEAR-INVENTORY STOCK AT THE BEGINNING OF THE ACCOUNTING YEAR

·         = CHANGE IN INVENTORY STOCK DURING AN ACCOUNTING YEAR

• SIGNIFICANCE OF INVENTORY INVESTMENT
• THE STOCK OF RAW MATERIAL IS SIGNIFICANT

1. ENSURES SMOOTH SUPPLY OF THE PRODUCERS
2. UNCERTAINTY OF MARKET RELATED TO PRICE AND AVAILABILITY OF RAW MATERIALS ARE AVOIDED
3. THE STOCK OF FINISHED GOODS:
4. FACILITATES THE PRODUCERS TO MEET THE POTENTIAL DEMAND FOR THEIR PRODUCT

·         DESIRED INVENTROY STOCK : REFERS TO PLANNED INVENTORY STOCK. THIS IS MAINTAINED BY THE PRODUCERS TO MEET THE FUTURE DEMAND

·         UNDESIRED INVENTORY STOCK :- UNPLANNED INVENTORY STOCK ARISES BECAUSE OF DEMAND FOR THE PRODUCT TURNS OUT OT BELOWERS THAN THE EXPECTED. UNPLANNED INVENTORY STOCK LEADS TO LOSSES

• CONCEPT OF INVESTMENTS
• GROSS INVESTMENT : REFERS TO TOTAL PRODUCTION OF CAPITAL GOODS DURING THE YEAR
• CAPITAL GOODS USED FOR THE REPLACEMENT OF THE EXISTING CAPITAL STOCK WHICH IS WORN OUT ( DEPRECIATION)
• CAPITAL GOODS USED AS NET ADDITION TO THE EXISTING CAPITAL GOODS IS CALLED NET INVESTMENT

·         GROSS INVESTMENT=NET INVESTMENT + DEPRECIATION( REPLACEMENT INVESTMENT)

·         NET INVESTMENT= GROSS INVESTMENT-DEPRECIATION

·         ONLY NET INVESTMENT LEADS TO ADDITION OF THE STOCK OF CAPITAL

·         DEPRECIATION REPLACES THE WORN OUT AND IT HELPS TO MAINTAIN THE EXISITNG STOCK OF CAPITAL.

• SIGNIFICANCE OF NET INVESTMENT

1. ENHANCES PRODUCTION CAPACITY
2. GENERATE OPPORTUNITIES OF EMPLOYMENT
3. PROMOTE EFFICIENCY OF LABOUR AND ACCELERATES THE GDP GROWTH

4.     HIGHER RATE OF NET CAPITAL FORMATION IMPLIES  GREATER AVAILABILITY OF CAPITAL IN TERMS OF MACHINE PER UNIT OF LABOUR. IT WILL ENHANCE THE  EFFICIENCY OF LABOUR

·         BOTH GROSS INVESTMENT AND FIXED INVESTMENT INCLUDE:

1. FIXED INVESTMENT
2. INVENTORY MANAGEMENT

• DIFFERENCE IN GROSS INVESTMENT AND FIXED INVESTMENT
• GROSS INVESTMENT

1. INCLUDES PURCHASE OF THE NEW ASSETS PLUS REPLACEMENT OF THE EXISTING ASSETS
2. INCLUDE REPLACEMENT OF ASSETS
3. DOES NOT SHOW NET ADDITION TO THE EXISTING CAPITAL STOCK

• NET INVESTMENT

1. DOES NOT INCLUDE EXPENDITURE ON THE REPLACEMENT OF THE EXISTING ASSETS AND INCLUDES EXPENDITURE BY THE PRODUCERS ON THE PURCHASE OF NEW ASSETS
2. DOES NOT INCLUDE REPLACEMENT INVESTMENT
3. NET ADDITION TO THE EXISTING CAPITAL STOCK