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Revision Notes For Class 12 Macro Economics Chapter 2 - Free PDF Download
Revision Notes For Class 12 Macro Economics Chapter 2 - Free PDF Download
Revision Notes for Class 12 Macro Economics Chapter 2 – Free PDF Download
CBSE Class 12 economics revision notes chapter 2 national income and related aggregates
Net Investment = Gross investment – Depreciation.
Scope of Economic Territory :
Domestic Aggregates
NATIONAL AGGREGATES
Methods of Estimation of National Income:
Components of Final Expenditure:
Components of Domestic Income :
Concept of Value Added of One Sector or One Firm
Limitation of percapita real GDP/GDP as a indicator of Economic welfare :
CLASS 12 Macro ECONOMICS REVISION NOTES
CBSE CLASS 12 STUDY MATERIALS
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Consumption Goods : Those final goods which satisfy human wants directly. ex- ice-cream
and milk used by the households.
Capital Goods :Those final goods which help in production. These goods are used for
generating income. These goods are fixed assets of the producers.ex- plant and machinery.
Final Goods are those goods which are used either for final consumption or for investment.
Intermediate Goods refers to those goods and services which are used as a raw material for
further production or for resale in the same year.
Investment :Addition made to the physical stock of capital during a period of time is called
investment. It is also called capital formation.
capital formation:- Change in the stock of capital is also called capital formation.
Depreciation :means fall in value of fixed capital goods due to normal wear and tear and
expected obsolescence. It is also called consumption of fixed capital.
Gross Investment :Total addition made to physical stock of capital during a period of time. It
includes depreciation. OR Net Investment + Depreciation
Flows :Variables whose magnitude is measured over a period of time are called flow variable.
Eg. National income, change in stock etc.
Circular flow of income :It refers to continuous flow of goods and services and money income
among different sectors in the economy. It is circular in nature. It has neither any end and nor
any beginning point. It helps to know the functioning of the economy.
Leakage :It is the amount of money which is withdrawn from circular flow of income. For eg.
Taxes, Savings and Import. It reduces aggregate demand and the level of income.
Injection :It is the amount of money which is added to the circular flow of income. For e.g.
Govt. Exp., investment and exports. It increases the aggregate demand and the level of
income.
(c) Ships and aircraft operated by the residents between two or more countries.
(c) People working in international organizations like WHO, IMF, UNESCO etc. are treated as
normal residents of the country to which they belong.
(i) Gross Domestic Product at Market Price : It is the money value of all the
final goods and services produced within the domestic territory of a country
during an accounting year.
GDPMP = Net domestic product at FC (NDPFC) + Depreciation + Net
Indirect tax.
(ii) Gross Domestic Product at FC : It is the value of all final goods and services
produced within domestic territory of a country which does not include net
indirect tax.
GDPFC = GDPMP – Indirect tax + Subsidy
(iii) Net Domestic Product at Market Price : It is the money value of all final
goods and services produced within domestic territory of a country during an
accounting year and does not include depreciation.
NDPMP = GDPMP – Depreciation
(iv) Net Domestic Product at FC : It is the value of all final goods and services
which does not include depreciation charges and net indirect tax. Thus it is
equal to the sum of all factor incomes (compensation of employees, rent,
interest, profit and mixed income of self employed) generated in the domestic
territory of the country.
NDPFC = GDPMP – Depreciation – Indirect tax + Subsidy
(v) Net National Product at FC (National Income) : It is the sum total of factor
incomes (compensation of employees + rent + interest + profit) earned by
normal residents of a country in an accounting year
or
NNPFC = NDPFC + Factor income earned by normal residents from abroad –
factor payments made to abroad.
(vi) Gross National Product at FC: It is the sum total of factor incomes earned
by normal residents of a country along with depreciation, during an accounting
year.
GNPFC = NNPFC + Depreciation OR
(vii) Net National Product at MP : It is the sum total of factor incomes earned by
the normal residents of a country during an accounting year including net
indirect taxes.
NNPMP = NNPFC + Indirect tax – Subsidy
Domestic Aggregates
Gross domestic Product at Market Price is the market value of all the final goods and
services produced by all producing units located in the domestic territory of a country during
an accounting year. It includes the value of depreciation or consumption of fixed capital.
Net Domestic Product at Market Price Depreciation (consumption of Fixed capital). It is the
market value of final goods and services produced within the domestic territory of the
country during a year exclusive of depreciation.
NATIONAL AGGREGATES
Gross National Product at Market Price ) is the market value of all the final goods and
services produced by normal residents (in the domestic territory and abroad) of a country
during an accounting year.
National Income :It is the sum total of all factors incomes which are earned by normal
residents of a country in the form of wages. rent, interest and profit during an accounting
year.
Y=QxP
P = Prices of goods and services prevailing during the current accounting year
National Income at Constant Prices :It is also called as real national income. When goods and
services produced by normal residents within and outside of a country in a year valued at
constant price i.e. base year’s price is called National Income at Constant Prices.
Y’ = Q x P’
Value of Output :Market value of all goods and services produced by an enterprise during an
accounting year.
Value added :It is the difference between value of output of a firm and value of inputs bought
from the other firms during a particular period of time.
Problem of Double Counting :Counting the value of a commodity more than once while
estimating national income is called double counting. It leads to overestimation of national
income. So, it is called problem of double counting.
Hints
VO=Value of output
IC=Intermediate Consumption
VO=Price X quantity OR
3. Net Export(X-M)
a. Export(X)
b. Import(M)
2. Operating surplus
a. Rent
c. Profit
i. Corporate Tax
ii. Dividend
Net Factor Income from Abroad NFIA = It is difference between factor income
received/earned by normal residents of a country and factor income paid to non-residents of
the country.
Components of NFIA :
OR
Net National Disposable Income (NNDI): It is defined as net national product at Market price
NNDI = NNPMP
=National income + net indirect tax + net current transfers from the rest of the world.
Gross National Disposable Income (Gross NDI + Net current Transfers from rest of
the world.
Net National Disposable Income (Net NDI) + Net current Transfers from rest of the
world.
OR
Real GDP : When the goods and services are produced by all producing units in the domestic
Nominal GDP : When the goods and services are produced by all producing units in the
domestic territory of a country during an a/c. year and valued these at current year’s prices
or current prices, it is called Nominal GDP or GDP at current prices. It is influenced by change
in both physical output and price level. It does not consider a true indicator of economic
development.
Price index plays the role of deflator deflating current price estimates into constant price
estimates. In this way it may be called GDP deflator.
Welfare mean material well being of the people. It depends on many economic factors like
national income, consumption level quality of goods etc and non-economic factor like
environmental pollution, law and order etc. the welfare which depends on economic factors is
called economic welfare and the welfare which depends on non-economic factor is called
non-economic welfare. The sum total of economic and non-economic welfare is called social
welfare. Conclusion thus GDP and welfare directly related with each other but this relation is
incomplete because of the following reasons.