Concept of final and intermediate Goods 

 Final Goods

 They are those goods which are acquired for personal consumption and investment . These goods reach their final user . They remain outside the production boundary. 

 Examples . 

( a ) Wheat , furniture , cloth bread , butter , etc. , used by the consumers . 

( b ) Machines used by producers 

 ( c ) Government Services are also treated as final good in National Income Accounting . 

Feature of final goods are :

 ( a ) The value of final goods is included in the calculation of national income . 

( b ) Final goods are consumed by consumers ( called consumption goods ) or used as investment by producers ( called capital goods ) .

 ( c ) They remain outside the production boundary .

Intermediate Goods :

 They are those goods which are acquired for further production or for resale during the same year . They remain within the production boundary. 

Examples . 

Wheat purchased by a restaurant , cotton purchased by thread making mill , furniture purchased by a furniture shop for resale , cloth purchased by manufacturer of ready - made garments , etc. 

Features of intermediate Goods: 

 ( a ) The value of intermediate goods is not added in national income ( to avoid the problem of double counting ) . 

( b ) These goods are not consumed by consumers . 

( c ) They remain within the production boundary . Production boundary is an imaginary line drawn around the production sector of an economy . Within the line firms purchase each other's goods for further production .

National income and concept of GDP 

National Income NI or National Product is defined as the money value of all final goods and services produced within the domestic territory of a country in an accounting year plus net factor income from abroad . 

Domestic income is the value of production within the domestic territory of a country .These different concepts of national income are :

1. Gross Domestic Product at Market Price ( GDP at MP )

 2. Gross National Product at Market Price ( GNP at MP )

 3. Net National Product at Market Price ( NNP at MP ) 

4. Net Domestic Product at Market Price ( NDP at MP )

 5. Net Domestic Product at Factor Cost ( NDP at FC )

 6. Gross Domestic Product at Factor Cost ( GDP  at FC )

 7. Gross National Product at Factor Cost ( GNP at FC )

 8. Net National Product at Factor Cost ( NNP at FC  ) 

Concept of GDP

1 .GDP at MP is a macro concept which is defined as the market value of the final goods and services produced within the domestic territory of a country during one year by all production units inclusive of net indirect taxes and depreciation .

2.  Gross National Product at Market Price ( GNP ):

 GNP is defined as the market value of the final goods and services produced in the domestic territory of a country by normal residents during an accounting year including net factor income from abroad . GNP is measured by the formula : GNP at MP = GDP + Net factor income from abroad

3. Net National Product at Market Price ( NNP at MP ) NNP is defined as the market value of the output of final goods and services produced by normal residents of an economy in its domestic territory during an accounting year exclusive of depreciation and inclusive of net factor income from abroad . 

4 .Net Domestic Product at Market Price ( NDP at MP )

 NDP MP is defined as the market value of final goods and services produced in the domestic territory of a country by its normal residents and non residents or by all during an accounting year less of depreciation .

 NDP at MP can be calculated by the following formula : 

5.Net Domestic Product at Factor Cost ( NDP at FC )

 NDP is alternatively known as Net Domestic Income . NDP is defined as the total factor incomes earned by the factors of production . In other words , NDP is the sum of domestic factor incomes .

 NDP at FC can be calculated by the following formula:

 6 .Gross Domestic Product at Factor Cost ( GDP at FC ) GDP at factor cost is defined as the sum of net value added by all the producers in the domestic territory of a country inclusive of depreciation during an accounting year . 

GDP is measured by the following formula : 

 Circular flow of income 

  An economy is an integrated system of production , exchange and consumption . In carrying out these activities , people buy and sell goods and services . Income generated in the production process flows in a circular manner. It is circular because there is no beginning or an end. 

 Circular flow of income refers to flow of money income or the flow of goods and services across different sectors of an economy in a circular flow . 

Circular Flow of income in a Two- Sector economy: To present the flows of income and expenditure , the economy is divided into two sectors : 

( a ) Household sector , 

( b ) Firm sector . It is a model of private closed economy .

 Features of household sector are :

 ( a ) They are owners of all factors of production . 

( b ) The total income received is wages plus rent plus interest plus profit . 

( c ) They are the consumers of goods and services , i.e. , they make consumption expenditure to the business sector . 

 Features of firm sector are : 

 ( a ) They hire factors of production from the household sector . 

( b ) They produce and sell goods and services to the households and receive income from them . 

( c ) They make factor payments to the household sector . shows the circular flow in a two - sector economy . The upper half shows the factor market and the lower half the commodity / product market . Each market generates two flows : a goods ( or real ) flow and money flow . Money flow is shown by a dashed or broken line . Each sector is a buyer and a seller .

1. Total production of goods and services by Firms = Total consumption of goods and services by Household sector .

 2. Factor payments by Firms Factor incomes of Households . 

3. Consumption expenditure of Households Income of Firms sector . 

4. Real flow of production and consumption of Firms and Households = Money flow of income and expenditure of Firms and Households .

Circular Flow of income in a Three-Sector of an economy :

 The three sectors of an economy are - Household , Firm and Government . Features of government sector are :

 1. Government sector receives direct taxes from the household sector and indirect taxes from the firm sector .

 2. Government sector makes transfer payment to the household sector and gives subsidies to the business firm sector ( like food subsidy , fertiliser subsidy , etc. ) . 

3. Government's savings goes to the capital market and government borrows from the financial system . 

 Four - sector economy is an open economy . In an open economy , there are imports and exports with rest of the world . Today , all economies are open economies . The 4 - sector circular flow model is shown in 

Features of external or rest of the world sector are : 

Define Macroeconomics and it's major issues 

Macroeconomics is the study of the economic system as a whole . It examines the conditions involved in aggregate production , aggregate income , aggregate consumption , aggregate saving and investment as well as aggregate employment . That is why it is also called " Aggregate Economics ". Macroeconomics is the study of relationship between broad economic aggregates. Following are some of the definitions of Macroeconomics :

 " Macro economics deals not with individual quantities but with aggregates , not with individual income but with national income , not with individual price but with general price level , not with individual output but with national output " 

Major issues of macroeconomics 

1. Economic growth : In spite of short - term fluctuations of output that are associated with the trade cycle , the long - term trend of total output has been upward in most industrially advanced country . The trend in the nation's total output over the long period is known as economic growth. sion of society's production capacity such as bringing It refers to an new land under cultivation or setting up new factories . Growth is measured by the annual rate of increase of per capita income and is illustrated by a rightward shift of the production possibility curve. 

2.Business Cycle : The prices and output of an economy tends to move in a series of ups and downs. This situation is characterized by a term known as trade or business cycle. Expanding capacity during the onset of a recession could be disaster, while having too little opportunity. Macroeconomics production units to ameliorate a whole . There are four

1. Trough : The characteristics of trough are : high unemployment, low demand, low profits. If the bottom point is abnormally deep, it is called slump.

 2. Recovery or Expansion: The characteristics of recovery are: rise in employment, income and consumer spending. 

 3. Peak: Peak is the top of a business cycle. At this point, existing capacity is utilised to a maximum level. It creates a situation of excess demand. The top of abnormally strong recovery is called a boom . 

 4. Recession : A recession or contraction or downturn in economic activity is characterized by fall in real GDP , fall in demand resulting in fall in production , employment and profit . A long lasting recession is called depression .

3 Inflation : Inflation is a general rise in prices of almost all the commodities. Increase in GDP generally brings inflationary tendencies in an economy. This tendency affects people differently. C.N. Vakil calls it an invisible robbery. Hyper inflation must be controlled otherwise it will create a havoc in an economy. The study of macroeconomics helps us in controlling inflation . An important policy problem for the government is how to stimulate economic activities without adversely affecting inflation. 

4.Unemployment :The fluctuations in economic activities directly affect the level of employment in an economy. The development of macroeconomics was originally due to high rate of unemployment during 1930's . Macroeconomics is the off - spring of the problem of unemployment . Main method of reducing unemployment during 1930's was the intervention of the government in economic activities. Public finance was adopted as a tool to reduce the level of unemployment . 

5.Fiscal policy : Fiscal Policy is government's policy concerning taxes and expenditure. Earlier taxes were considered as a source of revenue for the government but presently it is a means to eradicate economic evils from an economy. Government of almost all the countries have an annual budget which is the statement of revenue and receipts of the state every year. 

6.Monetary Policy:6.   Fiscal policy is sometimes ineffective in checking the fluctuations in price level , unemployment , saving and investment in an economy . The Central Bank of a country plays an important role in improving the economic conditions of the people. Monetary policy involves changing interest rates , or the money supply , in order to influence the economy . High interest rates are a symptom of a tight monetary policy . When interest rates are high , firms find it more costly to borrow , and this makes them more reluctant to invest in expanding business , low interest rates tend to stimulate demand . Thus , monetary policy is another issue of macroeconomics . Thus , it is clear that macroeconomics have various issues issues , an appropriate policy instrument