*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*
*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
Basic concepts of National Income - Depreciation
https://youtu.be/mj91IrG4J7o
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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.
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