Economics 2nd sem

Variables of micro economic

Rent, wages, prices, individual demand, profit revininue

Central problems of micro ecnomics

Resource allocation and price determination

Method used by micro economics

Partial equilibrium, equilibrium of 1 market

Macroeconomics deals with how

General price lvl ans quantities of goods and services are determined in an entire economy

Macro economics uses method of

General equilibrium

Variable of macroeconomics

Aggregate demand, supply, price and inflation and unemployment

Central problem of macroeconomics

Determination of lvl of income and employment

What is circular income

Process by which national income and expenditure of an ecnomy flow in a circular manner continusly throughout time

Who are the owners of production and consumer of goods and services

Households

Who produces goods and services and sells them to household sectors

Business sector

Who sells factors of goods to business sector

Household sector

Outer circle of diagram

Flow of goods and services and factor of production such as land labour, capital and enterprise

Inner circle

Flow of factor payments such as rent, profit, wages and consumption expenditure

Gross national product

Total measure of flow of goods and services, at market value resulting from current production during an year in the country, including income from foreign countries

Gross national product at market price

Gross value of the goods and services provided annually in a country, measured acc to market price and cost of production and indirect taxes

Net domestic market at market

Net market value of all final goods and services produced in a year

Net domestic product at factor cost

Net value of the final goods and services in a country by its residents in a year

National income at factor price

Sum of all income earned by resource supplies for contribution of land labour capital

Personal income

Sum of all income actually received by individuals or households

Personal disposable income

Part of personal income after direct taxes are paid off

Output method also know a

Product or inventory method

According to output method

Ecnomy is divided into different sectors

Output method is followed by

Valuing of final goods and services annually at market price or adding all values at higher stages of production until these are burned into the final product

Income method also known as

Factor cost method

Income method apporches national income from

Distribution side

According to income method

All income payments received by citizens of country is added up I. E money by factors of production by way of rent, wages, profit etc but income by transfer payments are ignored

Sources by which data for income menthod is obtained

Income tax returns, books of accounts etc

Expenditure method also know as

Outlaw method

According to expenditure method

Total expenditure of society in a year is added together, income can be spent either on consumer or capital goods

How to get national income by expenditure method

By adding all consumption and investment expenditure of individuals, firms and government annually

What is a variable

Anything undergoing changes

Variable are classifies into

Stocks and flows on basis of time, dimension and measurement

What is stock

Any quantity that is measured in a particular point in time, has no specific time limit

Example of stock

Bank deposit, foreign currency reserves

What is flow

Quantity that can be measured over a period of time

Flow is expressed in

Per unit of time such as day, week etc

Purpose of stock and flow in economic

Helps to understand development of economic variables

How National income showthe economic conditions of a country

High national income and per capita income are signs of development of economic conditions and social welfare. Per capita incone is derived from national income

How can national income be used for comparison

National income stats can be used to compare the prosperity of 1 country to another or prosperity of 1 country at different stages

How is national income related with policies

National income data is helpful for framing national policies on matters of employment, investment etc