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Basic Concepts of Macroeconomics

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Basic Concepts of Macroeconomics

Basic Concepts :-

Good- Any physical object, natural or man-made, or service rendered, that could command a price in the market.

Consumption goods- Goods purchased or owned for satisfaction of wants. Eg. Food, clothes, vehicle,etc.

  1. Durable – Goods which yield services overtime, eg. Tv sets, cars, etc.
  2. Non- durable – Goods completely used up at the moment of use. Eg. Electricity, food items, etc.

Final consumers are-

  1. Consumer households
  2. Govt.
  3. NGO’s

Capital goods:- Goods capable of being used for producing other goods for generating income. Eg. Buildings, machines , etc.

  1. Durables – Provide service overtime to production units. Eg. Buildings, machinery,etc.
  2. Non- durables- single use capital goods eg. Stock of raw materials.

A car purchased by family is a consumer good but when purchased by a factory is a capital good.

All capital goods are producer goods, but all producer goods are not capital goods  #
All capital goods are producer goods which are used in the process of production . They are durable –use producer goods. But single-use producer goods cannot be used again and again in the  process of production.
Investment- Addition made to the stock of capital during a period It is also called capital formation.

Capital vs Investment-
They both compose capital goods but accumulated stock of capital goods at the beginning of the year is  called capital and capital goods added to this capital is called investment.

Fixed invst.- Invest. In fixed capital. It is also called fixed capital formation( as it increases stock  
                      of capital in terms of capital goods which can be repeatedly used in the process  
                      of prod.over the years).

Fixed invst.  = St. of fixed assets at the end of a/cing year – St. of fixed assets at the beginning of a/cing year.
                        = Increase in stock of fixed assets. 

 Stock invst.- ( Inventory invst.) Invest.in stock of raw materials, semi-finished goods and finished  

Significance if Inventory Invst.- It is maintained to cope with the uncertainties of the mkt.

Gross  vs  Net  invst. Total addition of capital  goods to the existing stock of capital during a time period is the gross invst. But the net availability of the capital goods after taking into consideration the depreciation is the net invst.


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