Page 23 - DECO402_Macro Economics

Macroeconomic Theory

Notes y Intermediate Goods: Intermediate goods are those goods which is under production line in
value addition is to be done. These goods are purchased by firms so that it can be used as raw
material or it can be sold ahead.

y Domestic Territory: Under this besides political border, under country water region and
for residents in different countries for earning operation of aeroplane and ships are also
included.

y Primary Inputs: In its factors of inpurt are included – land, labour, capital and
entrepreneur.
y Secondary Inputs: Besides primary inputs, in production process used inputs as a raw
material, fuel etc.
y Normal Residents: Normal residents of a country are those people that generally resides in
that country, to his economic interest is centred to that country.
y Market Price and Bank Price: Market price is that price on which final goods are purchased
by consumer. Basic price is called that price that is obtained by producer. Basic price = Market
price – indirect tax + subsidy

Self Assessment

Fill in the blanks:
1. A nation’s national income relationship is only that country’s ---------------residents.
2. --------------- generation of income is done only by residents of the country.
3. The normal residents of a country are those whose economic interest is centred to
that---------------.

2.2 Measurement of National Income
A country’s national income or national product is measured at three different levels (1) Production
Level (2) Income or Distribution Level and (3) Expenditure Level. Such is due to three aspects circular
flow, as a production of goods and services, distribution of income in honours of factors of production
and at purchase of final goods and services doing expenditure of income They are following:
Income’s circular flow’s three aspects accordingly, generally technique of measure to national income
is called methods of measuring of national income.
1. Product or Value Added Method
2. Income Method
3. Expenditure Method

1. Product Method or Value Added Method

Product Method: It is called Value Added Method, Industrial Origin Method or Net Out Put Method
also.
According to this method, in an economy in a financial year produced final goods and services adding
the market value, national income is estimated. As far as on enterprise’s relationship is, he assumes his
sell as final sell. For example, a farmer produces one ton of wheat and sell it to a flour mill at `. 400. As
far as farmer’s relationship is for his sell of wheat is final sell and he gains `. 400 exchange of it. But
purchasing wheat for flour mill is intermediate goods. Mill converting it to flour sells to a bakery at

16 LOVELY PROFESSIONAL UNIVERSITY