ONLINE CLASS 4 - BASIC CONCEPTS OF NATIONAL INCOME (2)

*DAY #04          30.03.2020*

*TOPIC – BASIC CONCEPTS IN MACROECONOMICS*

*Factor Income, Transfer Income, Depreciation*

*FACTOR INCOME*

* It refers to the income received by factors of production for rendering their services in the production process.

* It is included in both National and Domestic Income.

* Earning Concept.

* Received by factors of production ( Land, labour, Capital and Entrepreneur)

*TRANSFER INCOME*

* It refers to the income received without rendering any productive services in return.

* It’s neither included in National nor in Domestic Income.

* Receipt concept.

* Generally received by household and government.

*DEPRECIATION*–

Loss in the value of assets due to normal wear and tear; passes of time and expected obsolescence in technology. Also known as *Consumption of Fixed Capital* and *Current Replacement Cost*

*CONSUMPTION GOODS*

* These goods satisfy human wants directly.

* These goods have direct demand.

They do not promote production capacity.

* Most of the consumption goods (except durable goods) have limited expected life.

*CAPITAL GOODS*

* Such goods satisfy human wants indirectly.

* Such goods have derived demand.

* They help in rising production capacity.

* Capital goods generally have an expected life more than one year.

*FINAL GOODS*

* Those goods which are used either for consumption or for investment.

* They have a direct demand as they satisfy the want directly.

* It is included in both National and Domestic Income.

* Crossed the production boundary.

* They are ready for use by their final users i.e. no value has to be added to the final goods.

*INTERMEDIATE GOODS*

* Those goods which are used either for resale or for further production.

* They have a derived demand as their demand depends on the demand for final goods.

* It’s neither included in National nor in Domestic Income.

* Still within production boundary.

* They are not ready for use, i.e. some value has to be added to the intermediate goods

QUESTIONS AND ANSWERS

Question - What is Depreciation and how is it calculated?

Answer - To calculate depreciation subtract the asset's salvage value from its cost to determine the amount that can be depreciated. Divide this amount by the number of years in the asset's useful lifespan. Divide by 12 to tell you the monthly depreciation for the asset.

Question - Is depreciation an asset or liability?

Answer - Depreciation is an expense, not a liability. An expense is a decrease in resources available to the company. As the asset ages, it decreases in value and becomes closer to the end of its usable life.

Question - Why is depreciation important?

Answer - Depreciation is an expense that relates to a company's fixed assets. It is important because depreciation expense represents the use of assets each accounting period. Many different types of assets can incur depreciation. Facilities, vehicles and equipment are among the most common assets depreciated.

Question - What is depreciation rate?

Answer - The depreciation rate is the percent rate at which asset is depreciated across the estimated productive life of the asset. It may also be defined as the percentage of a long term investment done in an asset by a company which company claims as tax-deductible expense across the useful life of the asset.

  

QUESTIONS AND ANSWERS – 1 MARK

*3* Goods purchased for the following purpose are final goods: (Choose the correct alternative)

(a) For satisfaction of wants

(b) For investment in firm

(c) Both (a) and (b)

(d) None of these

*4* Which one of the following is an intermediate product? (Choose the correct alternative)

(a) Purchase of pulses by consumers

(b) Machine purchased by a firm

(c) Wheat used by a flour mill

(d) Wheat used by households

*5* Which of the following us an example of an intermediate good? (Choose the correct alternative)

(a) Copper purchased for making utensils

(b) Steel and cement used to construct a timer

(c) Fertilizers purchased by a farmer

(d) All of these

*6* Which of the following is an example of consumer non-dutable good? (Choose the correct alternative)

(a) Milk

(b) Bread

(c) Both (a) and (b)

(d) Clothes

*7* Addition to the capital stock of an economy is termed as: (Choose the correct alternative)

(a) Investment  

(b) Capital loss

(c) Consumption of fixed capital

(d) All of these

*8* Refrigerator purchased by a confectionery shop is an example of: (Choose the correct alternative)

(a) Final good

(b) Intermediate good

(c) Capital Goods

(d) Both (a) and (c)

*9* State giving reason whether the following statement is True or False: Bread is always a consumer good. *False*

*10* State giving reason whether the following statement is True or False: Butter is only a final product.       *False*

*11* State giving reason whether the following statement is True or False: Capital goods are used up to produce other goods.                *False*
*12* New addition to capital stock in an economy is_______.        *Net Investment / Net Capital Formation*

*13* Which of the following define 'investment’ in economics? (Choose the correct alternative)

(a) Purchase of share or property.

(b) Having an insurance policy.

(c) Using money to buy physical or financial assets.

(d) Capital formation, i.e. a gross or net addition to capital stock.

*14* In economics, investment implies using money to buy physical or financial assets. (True/False? Give reason)

*False*

*15* Total final output produced in an economy in a given year are used: (Choose correct alternative)

(a) To substain the consumption of the entire population of the economy.

(b) For maintenance and replacement of the existing capital stock.

(c) For new addition to the capital stock.

(d) All of the above

*16* More capital goods would always mean more consumer goods. True/ false     *False*

*17* ________ add to, or maintain, the capital stock of an economy and thus make production of other commodities possible.          (Fill in the blank) *Capital Good*

*18* Match the following:

(i) Fertilisers or pesticides used by a farmer to produce wheat.  *Intermediate*

(ii) Bread produced by a baker for selling it to consumers or restaurants.  *Intermediate*

(a) Intermediate goods                      (b) Final goods

*19* Depreciation is also known as: Choose the correct alternative)

(a) Consumption of fixed capital

(b) Annual replacement cost

(c) Value of capital consumption

(d) All of the above

*20* Depreciation is an accounting concept.  True/False, Give reason.           *True*

*21* Which of the following does not explain the concept of depreciation? (Choose the correct alternative)

(a) An annual allowance for wear and tear of a capital good.

(b) Cost of the capital good (minus scrap value) divided by number of years of its useful life.

(c) Unexpected or sudden destruction or disuse of capital as can happen with accidents, natural calamities etc.

(d) Maintenance and replacement cost of existing capital goods. etc.

*22* Depreciation of fixed capital assets refers to: (Choose the correct alternative)

(a) Normal wear and tear

(b) Foreseen obsolescence

(c) Normal wear and tear and foreseen obsolescence

(d) Unforeseen obsolescence

*23* Unforeseen obsolescence of fixed capital assets during production is: (Choose the correct alternative)

(a) Consumption of fixed capital

(b) Capital loss

(c) Income loss

(d) None of the above

*Video #05*

*Factor Income and Transfer Income - Basic concepts of National Income*

https://youtu.be/4TvxHPrTGEU

Video #07
Basic concepts of National Income - Depreciation
https://youtu.be/mj91IrG4J7o

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Dr. Asad Ahmad
KV IIM, Lucknow
##pls share other educational / official school group, so that more students will get benefit. Thanks a lot.
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ONLINE CLASS 3 - BASIC CONCEPTS OF NATIONAL INCOME (1)

*DAY #03          29.03.2020*

*TOPIC – BASIC CONCEPTS IN MACROECONOMICS*

*Consumption goods, capital goods, final goods, intermediate goods*

*CONSUMPTION GOODS*

* These goods satisfy human wants directly.

* These goods have direct demand.

They do not promote production capacity.

* Most of the consumption goods (except durable goods) have limited expected life.

*CAPITAL GOODS*

* Such goods satisfy human wants indirectly.

* Such goods have derived demand.

* They help in rising production capacity.

* Capital goods generally have an expected life more than one year.

*FINAL GOODS*

* Those goods which are used either for consumption or for investment.

* They have a direct demand as they satisfy the want directly.

* It is included in both National and Domestic Income.

* Crossed the production boundary.

* They are ready for use by their final users i.e. no value has to be added to the final goods.

*INTERMEDIATE GOODS*

* Those goods which are used either for resale or for further production.

* They have a derived demand as their demand depends on the demand for final goods.

* It’s neither included in National nor in Domestic Income.

* Still within production boundary.

* They are not ready for use, i.e. some value has to be added to the intermediate goods

*MUST KNOW IN DETAIL*

*Consumption Goods and Capital Goods*

Final goods can be classified into two groups: Consumption Goods and Capital Goods.

*Consumption Goods:*

Consumption goods refer to those goods which satisfy the wants of the consumers directly. For example, Bread, butter, shirts, pens, television, furniture, etc.

*Consumption goods can further be sub-divided into following categories:*

*1. Durable goods:*

It refers to those goods which can be used again and again over a considerable period of time. For example, television, refrigerators, etc.

*2. Semi-durable goods:*

Goods which can be used for a limited period of time are termed as semi-durable goods. These goods have a life span of around one year. For example, clothes, crockery, shoes, etc.

*3. Non-durable goods:*

Goods which are used up in a single act of consumption are known as non-durable goods. These goods cannot be used more than once, i.e. they lose their identity in single act of consumption. For example, milk, bread, food grains, paper, etc.

*4. 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, etc.

*Capital Goods*

Capital Goods are those final goods which help in production of other goods and services. For example, plant and machinery, equipment’s, etc.

*Some Points about Capital Goods:*

(i) They are used in future for productive purposes and have expected life time of several years.

(ii) They do not lose their identity in the production process, i.e. they do not get merged in the process of production.

(iii) They need repairs or replacement over time as they depreciate over a period of time.

(iv) They have derived demand as their demand is derived from the demand for other goods, which they help to produce.

*How to Classify Goods as: Consumption Goods and Capital Goods:*

There is no clear cut line of demarcation between consumption goods and capital goods. The same good can be consumption good and also capital good. It depends on the ultimate use of the good. For example, a machine purchased by a household is consumption good, whereas, if it is purchased by a firm for use in the business, then it is a capital good. However, if the machinery is bought by the firm for resale, then it will be treated as an intermediate good.

*Consumption Goods Vs. Capital Goods*

*Basis -* Satisfaction of Human wants:

*Consumption Goods -* These goods satisfy human wants directly. So, such goods have direct demand.

*Capital Goods -* Such goods satisfy human wants indirectly. So, such goods have derived demand.

*Basis -* Production Capacity:

*Consumption Goods -* They do not promote production capacity.

*Capital Goods –* They help in raising production capacity.

Basis - Expected Life:

*Consumption Goods -* Most of the consumption goods (except durable goods) have limited expected life.

*Capital Goods -* Capital goods generally have an expected life of more than one year.

*FACTOR INCOME*

* It refers to the income received by factors of production for rendering their services in the production process.

* It is included in both National and Domestic Income.

* Earning Concept.

* Received by factors of production ( Land, labour, Capital and Entrepreneur)

*TRANSFER INCOME*

* It refers to the income received without rendering any productive services in return.

* It’s neither included in National nor in Domestic Income.

* Receipt concept.

* Generally received by household and government.

*QUESTIONS AND ANSWERS*

*Question -* What is an example of a capital good?

*Answer -*They are purchased and used to help your company produce consumer goods or provide services. They are reported as assets on a company's balance sheet and often can be depreciated over time. Examples of capital goods include buildings, machines, equipment, furniture and fixtures.

*Question -* What are the types of capital goods?

*Answer -*They include tools, buildings, vehicles, machinery, and equipment. Capital goods are also called durable goods, real capital, and economic capital.
The other three are:

Natural resources, such as land, oil, and water.

Labor, such as workers.

Entrepreneurship, which is the drive to create new companies.

*Question -* What are consumption goods and services?

*Answer -*A consumption good or service is one that is used (without further transformation in production) by households, NPISHs or government units for the direct satisfaction of individual needs or wants or the collective needs of members of the community.

*Question -* Do Durable goods include both consumer and capital goods?

*Answer -*durable goods include both consumer goods and capital goods? ... Yes, durable goods are bought and used by consumers and are manufactured by other goods to producer them.

*Question -* Are capital goods intermediate goods?

*Answer -*Capital goods are also known as intermediate goods, durable goods or economic capital. They are different than financial capital, which refers to funds companies use to grow their businesses. Natural resources not modified by human hands are not considered capital goods, although both are factors of production.

*Question -* Can any final goods be capital goods?

*Answer -*On the contrary capital goods are not considered as final goods but they are used to make the final goods and services in the market. Capital goods themselves do not get fused to make the intermediate goods into final goods but rather support them to get finished into final goods.

*Question -* What is final goods example?

*Answer -*Food, gasoline, clothing, and televisions are examples of final goods if used by households. Final goods can either be durable or non-durable.

*Question -* What is called the final goods?

*Answer -* “A final good is an item produced for the direct use by end consumers. Final goods are also referred to as consumer goods.” Put simply; the term refers to any commodity that a company produces and a consumer subsequently consumes. The consumer consumes it to satisfy his or her current wants or needs.

*Question -* What are examples of intermediate goods?

*Answer -* “Products that are made during a manufacturing process but that are also used in the production of other goods. Wood, steel, and sugar are all examples of intermediate goods.”

*Question -* Why are intermediate goods not included in GDP?

*Answer -*Intermediate goods and services, which are used in the production of final goods and services, are not included in the expenditure approach to GDP because expenditures on intermediate goods and services are included in the market value of expenditures made on final goods and services.

*Question -* Are capital goods intermediate goods?

*Answer -*Capital goods are also known as intermediate goods, durable goods or economic capital. They are different than financial capital, which refers to funds companies use to grow their businesses. Natural resources not modified by human hands are not considered capital goods, although both are factors of production.

*Question -* Which is not a factor income?

*Answer -*Factors of production include: land whose income is rent, labor whose income is wages and capital whose income is interest and entrepreneurship whose income is profit. Income that is not derived from either of these factors is not factor income e.g. donations and gifts.

*QUESTIONS AND ANSWERS**1 MARKS* (

*1*. The good or service purchased by an Individual or an enterprise is for :

a. Final Use

b. Use in further production

*c. Both (a) and (b)*

d. Consumption

*2*. A good that is meant for final use and will not pass through any more stages of production or transformations at the hands of any producer is called _*A final Good*_.

*3* A final good may also undergo transformations. True/False *True*

*4* It is not in the nature of the good but in the _*Economic Nature of Its Use*_______ that a good becomes a final good. (FIII In the blank).

*5* If tea leaves are used In a restaurant for tea brewing, and the drinkable tea is sold to the customers, then the tea leaves will be. (Choose the correct alternative)

(a) Final goods

*(b) Intermediate good*

(c) Consumption goods

(d) Capital goods

*6* Final goods are: (Choose the correct alternative)

(a) Consumption goods

(b) Capital goods

*(c) Both (a) and (b)*

(d) intermediate goods

*7* Goods like food and clothing and services like recreation that are consumed when purchased by their ultimate consumers are called _*Consumption good or consumer good*_____. (Fill in the blank) .

*8* Goods of durable character which make production of other commodities feasible but they themselves don't get transformed in the production process, are called _*Capital Good*_. (Fill In the blank).

*9* The durable goods which undergo wear and tear with gradual use, and thus are repaired or gradually replaced over time are : (Choose the correct alternative)

(a) intermediate goods

(b) Capital goods

(c) Consumer durables

*(d) Both (b) and (c)*

*10* All the final goods and services produced in an economy in a given period of time are either in the form of _*Consumption Good- Durable and non durable* _ or _*Capital Good*_____. (Fill in the blanks)

*11* Of the total production taking place in the economy, a large number of products don't end up In final consumption and are not capital goods either. These are __*Intermediate Goods*_. (Fill in the blank)

*12* Raw materials or non-factor inputs used for production of other commodities are: (Choose the correct alternative)

(a) Capital goods

(b) Final goods

*(c) Intermediate goods*

(4) Consumer durable:

*13* Income, or output, or profits are concepts that make sense only when a time period is specified. These are called ___*Flows*________. (Fill In the blank)

*14* The part of final goods that comprises of capital goods constitutes of an economy. (Fill in the blank)     *Gross Investment*

*15* All the capital goods produced in a year do not constitute net addition to the capital stock already existing.  True / False? Give reason.  *True*

*DAY #03          29.03.2020*

*TOPIC – BASIC CONCEPTS IN MACROECONOMICS*

*Video #05*

*Factor Income and Transfer Income - Basic concepts of National Income*

https://youtu.be/4TvxHPrTGEU

*Video #06*

*Basic concepts of National Income - Consumption Goods and Capital Goods*

https://youtu.be/1qyl7x3ZnYc

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Regards 

Dr. Asad Ahmad

KV IIM, Lucknow

##pls share other educational / official school group, so that more students will get benefit. Thanks a lot.

To get link text on 

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ONLINE CLASS - 2 - CIRCULAR FLOW OF ECONOMY TWO SECTOR ECONOMY

*Day #02            28.03.2020*

*CIRCULAR FLOW OF ECONOMY TWO SECTOR ECONOMY*

*MEANING -* It refers to cycle of generation of income in the production process, its distribution among the factors of production and finally, its circulation from household to firms in the form of consumption expenditure on goods and services produced by them.

*PHASES –*

1- Generation Phase – Production of goods and services with help of factors of production.

2- Distribution Phase – Flow of factor income (Rent, Interest, Wages, and Profit) from firms to household.

3- Disposition Phase – Income received by household, spent on the goods and services produced by firms.

*Assumption -*

1. The two sector economy has the following assumptions

2. There are only two sectors in the economy; household sector and business sector

3. No government interventions over the economic activities

4. Business sectors do not carry out any import or export activities, creating a closed economy

*On the basis of the assumptions, the two sector economy is explained with the help of the following diagram*

* There are two sector in the economy; Households and firms. It means no Govt. and no foreign sector.

* Household supplies factor services (i.e. Land, Labour, Capital and Entrepreneur) to Firms.

* Firms produce goods and services and sell their entire product to household sector.

* Household receive factor income (i.e. Rent, Wages, Interest and Profit) for their services and spend the entire amount on consumption of goods and services.

* There are no savings in the economy.

Since the households spend their income, the total monetary receipts of business sector will be equal to the income and consumption expenditure of the household sector. This means, monetary receipts of the producers = income of the households = consumption expenditure of the households. In this way, an equilibrium state exists in the economy where total demand equals total supply.

Thus the circular movement of income and expenditure in the economy continues, leading to equalization in the gross national product and gross national income.

*With Financial Market -* If the Financial market (Banks, Insurance companies etc, which transact in loan able funds) available in the economy. The households will deposits their savings in banks and same as firms also will deposits their savings in bank. On the other hands firms also borrow money from the banks to finance their expansion programmes.

REAL FLOW

* It refers to the flow of factor services from households to firms and the corresponding flow of goods and services from firms to house hold.

* It Involves exchange of goods and services.

* There may be difficulties of barter system in exchange of goods and factor services.

* It is also known as Physical flow.

MONEY FLOW

* It is the flow of money between firms and households.

* It involves exchange of money.

* There are no such difficulties in case of money flow.

* It is also known as Nominal flow.

*QUESTIONS AND ANSWERS*

*1. Match the following:*

Contribution made factors of production	Remuneration
(1) Human labour         (b)	(a) Rent
(2) Capital                     (c)	(b) Wage
(3) Fixed natural resources (called Land)          (a)	(c) Interest
(4) Entreprenurship        (d)	(d) Profit

*2*. In a two sector economy, in which of the following way the households may dispose off their entire earning or Income? (Choose the correct alternative)

(a) Spending on the goods and services produced by the domestic firms.

(b) Payment of taxes to the government.

(c) To buy imported goods.

(d) Savings.

*3.* Flow of factor payments and payments for goods and services between households and firms is called ______. Fill in the blanks.

*4.* Who earns money and spends their income on goods and services?

(a) Firms

(b) Business

(c) Households

(d) Schools

*5.* What is the role of firms in the circular flow of income?

(a) To purchase goods

(b) To produce Goods

(c) To earn income through wages

(d) To provide capitals

*6.* What is an expenditure?

(a) Land

(b) Labour

(c) Schools

(d) Money

*HOTS - Analyzing, Evaluating & Creating Type Questions*

*Question - “Circular flow of income in a two sector economy is based oon the axiom that one’s expenditure is other’s income.” Do you agree with the given statement? Support your answer with valid reason.*

Answer – Yes, the given statement it correct. In a two sector economy, the firms produce goods and services and make factors payments to the households. The factor income earned by the households will be used to buy the goods and services which would be equal to income of firms. The aggregate consumption expenditure by households in the economy is equal to the aggregate expenditure on goods and services produced by the firms in the economy. (Income of the producers)

*Question - What is circular flow of income in two sector economy?*

Answer - The circular flow model in the two-sector economy is a hypothetical concept which states that there are only two sectors in the economy, household sector and business sector (business firms). The household sector is the source of factors of production who earn by providing factor services to the business sector.

*Question - What are the two main flows in an economy?*

Answer - Production, consumption and exchange are the three main activities of the economy. Consumption and production are flows which operate simultaneously and are interrelated and interdependent. Production leads to consumption and consumption necessitates production.

*Question - How the flow of income is circular?*

Answer - The circular flow of income or circular flow is a model of the economy in which the major exchanges are represented as flows of money, goods and services, etc. between economic agents. The flows of money and goods exchanged in a closed circuit correspond in value, but run in the opposite direction.

*Question - What are the two basic principles of circular flow of income?*

Answer - The circular flow of income involves two basic principles:

(ii) Goods and services flow in one direction and the money payment to acquire them, flow in the return direction giving rise to a circular flow.

*Question - What is the flow of money?*

Answer - Key Takeaways. Money flows depict the way that money and credit circulate in the economy as income turns into savings and investment and back again. Real flows depict the way that commodities and products & services are produced and consumed in the economy.

*Question - What do you mean by real flow and money flow?*

Answer - Money flow and real flow are the two main aspects of the circular flow of income economic model. Real flows refer to the flow of the actual goods or services, while money flows refer to the payments for the services (wages, for example) or consumption payments

*Question - What is meant by the physical flow of goods?*

Answer - What is meant by the physical flow of goods? The physical flow of goods involves the movement of goods and services from the business sector to the household sector and vice versa.

*Question - What is nominal flow?*

Answer - Money flow or nominal flow refers to the flow of factor payments from firms to households for their factor services and the corresponding flow of money from households to firms, in the form of consumption expenditure on the purchase of goods and services produced by the firms

Online Class for XII

Video #02   

Day #02 - 28.03.2020

Concept of Circular Flow of Income

https://youtu.be/qFTzWLxk5-U

Online Class for XII

Video #03   

Day #02 - 28.03.2020

Concept of Real Flow and Money Flow

https://youtu.be/UsbRCROcaL0

Please like, Share Subscribe and download app from play store by link given in description.

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Dr. Asad Ahmad

KV IIM, Lucknow

##pls share other educational / official school group, so that more students will get benefit. Thanks a lot.

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Dr. Asad Ahmad

PGT Eco

KV IIM, Lucknow

08770981320

eco.lecturer1984@gmail.com