In this ppt we can include so many thing for the better preparation.

1. Imran sir success point
Imran khan (PGT)
www.imransirsuccesspoint.in

2.  The term Macro in English has its origin in the Greek term Makros which
means large.
 Large means economy as whole.
 Macro economics is defined as that branch of economics which studies
economics issues or economic problems at the level of economy as a whole.
 It studies such economics questions that concern the welfare of all residents as
a whole.
 These question are like employment for the resident, growth of output in the
economy, the problem of price rice etc.
 It also studies how government can improve the state of economy of a country.

3.  It is very important concept in national income accounting.
 In the layman’s language domestic territory means the political frontiers of a
country.
 According to United Nation, Economic territory is the geographical territory
administered by a government with in which persons, goods, and capital
circulate freely.
 In addition to political frontiers domestic territory includes:-
 (1) Ships and aircraft owned and operated by normal resident between two or
more countries.
 (2) Embassies, consulates and military establishment of a country located
abroad.
 (3) Fishing vessels, oil and natural gas rigs and floating platform operated by
the resident of a country in the international water where they have exclusive
right of operation.
 Domestic territory does not include:-
 Embassies, consulates and military establishment of a foreign country.
 International organisation like UNO, WHO etc loacated with in the
geographical boundaries of a countries.

4.  Normal resident of a country refers to an individual or an institution who ordinarily
resides in the country and whose center of economics interest also lies in that country.
 Following are not included under the category of Normal resident.
 Foreign tourists and visitor.
 Foreign staff of embassies, official diplomats and member of the armed force.
 International organization.
 Employees of International organisation.
 Crew members of foreign vessels, commercial traveller and seasonal worker.
 Border worker.

5.  Factor Income:- It refers to an income by factor of production for rendering factor
services in the production process.
 Factor income of normal resident of a country is included in the National income.
 It should be noted that factor income and factor payment are the two sides of the same
coin. It is factor income from the viewpoint of the owners of production, while it is
factor payment from the view point of the producers of goods and services.
 Transfer Income:- It refers to income received without rendering any productive
services in return.
 It is not included in National income as it does not reflect any production of goods
and services.
 It is received either within the domestic territory of a country or from abroad.

6. GOVERNMENT
SALARY PENSION
2-WAY 1-WAY

7.  Final Goods:-It refers to those goods which are used either for consumption or for
investment.
 Final Goods include:- 1. Goods purchased by consumer households as they are
meant for final consumption (Like milk purchased by household)
 2. Goods purchased by firms for capital formation or investment (like machinery
purchased by firm)
 Expenditure on final goods purchased by household is called household
consumption and expenditure on final goods purchased by the producer is called
investment expenditure. So expenditure on
 Final goods =Consumption expenditure + investment expenditure
 Intermediate Goods:- It refers to those goods which are used either for resale or
for further production in the same year.
 Intermediate Goods include:- 1. Goods purchased by resale (like milk purchased
by a diary shop)
 2. Goods used for further production (like milk used for making sweets.)
 They are generally purchased by one production unit form another production unit
that is intermediate goods remain with in the production boundary.
 They are not yet ready for use by their final users, some value has to be added to
the intermediate goods.

9.  The concept of production boundary is very significant to understand the
difference between intermediate and final goods.
 The production boundary is the line around the production sector.
 As long as goods remain with the production boundary, they are intermediate
goods and when a good comes out of this boundary, it become a final good.
 For example:- 1. Sugar is an intermediate goods when it is used by sweet
shop for making sweets. However if it is used by the consumer then it
becomes a final goods.

10.  Consumption Goods:- It refers to those goods which satisfy the wants of the
consumers directly. For example Bread, butter, Shirts, Pens, television etc.
 Consumption Goods can be further be divided into following categories.
 (a) Durable Goods:- It refers to those goods which can be used again and
again over a considerable period of time. For example T.V. Reffigertors.

11.  (b) Semi durable Goods:- Goods which can be used for a limited period of
time are treated as semi durable goods. For example:- Cloth, shoes etc.
 (c ) Non Durable Goods:-Goods which are used up in a single act of
consumption are known as non durable goods. These goods cannot be used
more than once, they loose their identity in single act of consumption. For
example:- bread, milk, food grains paper etc.
 (d) Services:-It refers non material goods which directly satisfy the human
wants.. They are intangible activities they can be neither be seen nor
touched. For example service of teachers, doctors, bank etc.

12.  Capital Goods:- It refers to those final goods which help in production of
other goods and services. For example Plant and machinery, equipment
etc.
 Some points about capital goods:-
 1. They are used in future for productive purpose.
 2. They donot lose their identity in the production process.
 3. They need repair or replacement over time as they depreciate over a
period of time.
 4. When a good is used by a producer then it is a capital good. However
the same good refrigerator is a durable use consumer good for the
households.

13.  This is the first concept of National Income
 Gross & Net :-
 Gross is the actual value and net is that value which we get after deduction
here deduction means depreciation.
 Suppose you have gross value and you find the net value then,
 Net=Gross- Depreciation
 There are two side L.H.S. & R.H.S. A value which you find you take on the
L.H.S. and value which you given are placed on the right hand side.
 Net = Gross - Depreciation
 Now you have net value and you find gross value then
 Gross = Net + Depreciation

14.  Now we talk about the second concept of National Income.
 In this concept we talk about Market price and Factor price/Factory price.
 NIT:- Net indirect tax:- It refers to the difference between indirect tax and
subsidies.
 Indirect tax:- It refers to those taxes which are imposed by the
government on production of goods and services.For example:- GST,
Basic custom Duty, VAT on petroleum products, Stamp duty, Entry taxes ,
Toll taxes, property tax etc.
 It increase the price of the product.
 Subsidies:- Subsidies are the financial assistance provided by the
government to producers to fulfill its social welfare objectives.
 It is opposite to indirect tax as they reduces the market price of the
commodity.
 For example:- If cost of producing one set of the speakers is Rs.500 and
government levies GST on 10% then the price of speaker will increases to
Rs. 550 due to indirect tax ,if government grants a subsidy of Rs. 10 then
the price of speaker will fall to Rs. 540 due to subsidies.

15.  Factory Cost +NIT= Market price
 NIT=(IT-Subsidies)
 500+(50-10)=540
 If you have market price and you want to get factory cost then you will do this
FC = MP - NIT (IT-SUBSIDIES)
 If you have factor cost and you want to get market price then you will do this
MP = FC + NIT (IT-SUBSIDIES)

16.  Now the third concept is Net factor income from abroad ,in this concept we
talk about National and Domestic concept.
 It refers to the difference between factor income received from the rest of
the world and factor income paid to the rest of the world.
 NFIA = FIFA - FITA
 FIFA is the income earned by the normal resident of a country form the rest
of the world in the form of wages and salaries rent, interest, dividend and
retained earning.
 FITA is the factor income paid to the normal residents of other countries for
their factor services with in the economic territory.
 The main thing we have to understand that is
 National income= Domestic income + FIFA(due to contribution of normal
resident to production outside the economic territory)-FITA(due to
contribution of non resident to production inside the economic territory).
 If you at national level and you want to go at domestic level then you will
do this
DOMESTIC = NATIONAL - NFIA(FIFA-FITA)
 If you at domestic level and you want to go at national level then you will
do this
NATIONAL = DOMESTIC + NFIA(FIFA-FITA)

17.  National Income is an important concept of macroeconomics. There are various
variants of national income. Each aggregates has a specific meaning , method of
measurement and use.
 The various aggregates of national income are:
 GDPMP=It refers to gross market value of all final goods and services produced
within the domestic territory of a country during a period of 1 year.
 GDPFC=It refers to gross money value of all final goods and services produced
within the domestic territory of a country during a period of 1 year.
 NNPMP= It refers to net market value of all final goods and services produced by the
normal resident of a country during a period of one year.
 NNPFC = It refers to net money value of all final goods and services produced by the
normal resident of a country during a period of one year.
 NDPMP= It refers to net market value of all final goods and services produced with in
the domestic territory of a country during a period of one year.
 NDPFC= It refers to net money value of all final goods and services produced with in
the domestic territory of a country during a period of one year.
 GNPMP= It refers to gross market value of all final goods and services produced by
the normal resident of a country during a period of one year.
 GNPFC= It refers to gross money value of all final goods and services produced by
the normal resident of a country during a period of one year.

23.  This method is used to measure national income in different phase of
production in the circular flow.
 It shows the contribution of each producing unit in the production process.
 (a) Every individual enterprises adds certain value of the products which it
purchases from some other firm as intermediate goods.
 When value is added by each and every individual firm is summed up, we
get the value of national income.
 Value added refers to the addition of value to the raw material by a firm by
virtue of its production activities.
 In this method we have to understand three main things:-
 1. PRODUCTION:- Production is a process in which raw material is
converted into finished goods and sell it to consumer. It is necessary to come
income (revenue) and income (revenue) comes when we sell products.
 A income which you have to collect distribute to workers for their productive
services, when worker get salary he goes to the market and spend some for
buying goods and services and some money he save.
 Due to this money circulate in our economy freely.

24.  Now we have to understand how we convert the production into GDP.
 GVOMP=Sales + Change in Stock
 GVOMP is that value which we produce in a factory/ output .
 2. SALES:- Now we talk about sales when we produce something and
sell it then we can see it is sales.
 Now the question arise that in the question only sales is given or in the
question domestic sales and export are given. If any question only sales
are given then we confessed that domestic sales and export are already
added.
 And sales are not given clearly then we find domestic sale and export and
then add both these then we get.
 Sales = Domestic Sales+ Export.
Sales
Domestic
sales
Export

25.  3. CHANGE IN STOCK:- Closing Stock-Opening Stock:- Now we have to
understand what is Change in stock.
 For example :- Last year we have produce some goods approx 80% of that
goods are sold rest are unsold this unsold quantity are closing stock.
 When financial year will start my closing stock will known as opening stock on
1 April.
 If I ask to you when will the value of change in stock is positive then your
answer is when value of closing stock is more than the opening stock.
 Now the second formula is
 GVAMP= GVOMP-IC(Intermediate consumption )/purchase of Raw material.
 In the GVAMP What is mean by A.

27.  Precautions of Value Added Method:
 1. Intermediate Goods are not to be included in the national income since such
goods are already included in the value of final goods. If they are included again,
it will lead to double counting.
 2. Sale and Purchase of second-hand goods is not included as they were included
in the year in which they were produced and do not add to current flow of goods
and services.
 However, any commission or brokerage on sale or purchase of such goods will be
included in the national income as it is a productive service.
 3. Production of Services for self-consumption (Domestic Services) are not
included. Domestic services like services of a housewife, kitchen gardening, etc.
are not included in the national income since it is difficult to measure their market
value. These services are produced and consumed at home and never enter the
market place and are termed as non-market transactions.
 It must be noted that paid services, like services of maids, drivers, private tutors,
etc. should be included in the national income.
 4. Production of Goods for self-consumption will be included in the national
income as they contribute to the current output. Their value is to be estimated or
imputed as they are not sold in the market.

28.  5. Imputed value of owner-occupied houses should be included. People,
who live in their own houses, do not pay any rent. But, they enjoy housing
services similar to those people who stay in rented houses. Therefore, value
of such housing services is estimated according to market rent of similar
accommodation. Such an estimated rent is known as imputed rent.
 6. Change in stock of Goods (inventory) will be included. Net increase in
the stock of inventories will be included in the national income as it is a part
of capital formation.

30.  Income Method:-1. It is also called distributed share method or factor
payment method.
 According to this method national income is estimated in term of factor
payments (COE, rent, interest and profit) to the owners (household) of
factor of production(Land, labour, capital, enterprises) during an
accounting year.
 The sum total of all the factor incomes earned within the domestic
territory of a country is known as domestic income NDP at FC.
 Component of National Income:- .
 1. Compensation of Employees (COE):
 COE refers to amount paid to employees by employer for rendering
productive services. It includes all the payments and benefits, which the
employees receive, directly or indirectly, from the employer.
 Compensation of Employees consists of 3 elements:
 (i) Wages and salaries in cash:
 It includes all monetary benefits, like wages, salaries, bonus, dearness
allowances, commission, etc. Any reimbursement of business expenses
incurred by the employees will be excluded from COE as such expenses
are part of intermediate consumption of business enterprises.

31.  (ii) Wages and salaries in kind:
 It includes all non-monetary benefits, like rent free home, free car, free
medical and educational facilities, etc. An imputed value of these benefits
should be included in national income. However, it does not include any
facility which is necessary for work and in which employees do not have
any discretion. For example, uniforms to be worn during work only or
vehicles to be used for work only. Such payments are intermediate
consumption of business enterprises.
 (iii) Employer’s contribution to social security schemes:
 It includes contributions made by employer for the social security of
employees. For example, contribution to provident fund, gratuity, labor
welfare funds, retirement pension, etc. The aim of such contributions is to
ensure safety and security of life of the employees.
 Any contribution by third party (say, an insurance company) to an
employee is not the part of COE as the insurance company is not the
employer of injured worker. Any contribution by employees is also not
included as such payments are made by the employees from COE only.

32.  2. Rent and Royalty:
 Rent is that part of national income which arises from ownership of land
and building. Rental income includes both actual rents (rent of let out
land) as well as imputed rent (rent of self-occupied properties). Imputed
rent of owner occupied houses is calculated on the basis of market rental
value of the house.
 Royalty refers to income received for granting leasing rights of sub-soil
assets. For example, owners of mineral deposits like coal, iron ore,
natural gas, etc. can earn income by giving rights of mining to the
contractors.
 3. Interest:
 Interest refers to amount received for lending funds to a production unit.
It includes both actual interest as well as imputed interest of funds
provided by the entrepreneur. ‘Interest income’ includes interest on loans
taken for productive services only.
 Interest income does not include:
 (i) Interest paid by government on public debt and interest paid by
consumers as such interest is paid on loans taken for consumption
purposes.

33. (ii) Interest paid by one firm to another firm as it is already included in the
profits of the firm which pays it.
 4. Profit:
 Profit is the reward to the entrepreneur for his contribution to the
production of goods and services. It is the residual income, which an
entrepreneur earns after paying all the other factors of production.
 The profit earned by an enterprise is used for 3 purposes:
 (i) Corporate Tax:
 It is the direct tax paid by an enterprise to the government on the total
profit earned by it. It is also known as Profit tax or Business tax.
 (ii) Dividend:
 It refers to that part of profit, which is paid to the shareholders in the ratio
of their shareholding. It is also known as distributed profits.
 It must be noted that dividend paid by one firm to another is not included
as it is already included in the profit of the firm which pays it.
 (iii) Retained Earnings:
 It refers to that part of profit, which is kept as reserve to meet unexpected
contingencies or for business expansion. It is also known as Undistributed
Profits or Savings of Private Sector or Reserves and Surplus.

34.  In short, Profit = Corporate Tax + Dividend + Retained Earnings
 5. Mixed Income:
 It is the income generated by own-account workers (like farmers, barbers,
etc.) and unincorporated enterprises (like retail traders, small
shopkeepers, etc.). It is the term used for any income that has elements of
more than one type of factor income.
 Mixed income arises from productive services of self-employed persons,
whose income includes wages, rent, interest and profit and these elements
cannot be separated from each other. For example, income of a doctor
running a clinic at his residence.
 Precautions of Income Method:
 Following precautions are to be considered while estimating national
income by Income Method:
 1. Transfer Incomes (like scholarships, donations, charity, old age
pensions, etc.) are not included in the National income because such
receipts are not connected with any productive activity and there is no
value addition.

35.  2. Income from sale of second-hand goods will not be included in
national income as their original sale has already been counted. If they
are included again, it would lead to double counting.
 However, any brokerage or commission received by brokers or
commission agents on sale of such goods, will be included as it is an
income received for rendering productive service.
 3. Income from sale of shares, bonds and debentures will not be included
as such transactions do not contribute to current flow of goods and
services. These financial assets are mere paper claims and involve a
change of title only.
 However, any commission or brokerage on such financial assets is
included as it is a productive service.
 4. Windfall gains (like income from lotteries, horse race, etc.) are not
included as there is no productive activity connected with them.
 5. Imputed value of services provided by owners of production units will
be included: Imputed value of owner-occupied houses, interest on own
capital, production for self-consumption, etc. will be included as these are
productive activities and add to the flow of goods and services.

36.  6. Payments out of past savings (like death duties, gift tax, wealth tax, etc.)
are not included in the National income because they are paid out of wealth
or past savings and do not add to current flow of goods and services.
 7. Indirect Taxes (like sales tax, excise duty, custom duty, etc.) are not
included in national income at factor cost. However, they are included in
national income at market price.

39.  Expenditure Method:-Factor income earned by factors of production is
spent in the form of expenditure on purchase of goods and services
produced by firms.
 1. This method measures national income as sum total of final expenditures
incurred by households, business firms, government and foreigners.
 2. This total final expenditure is equal to gross domestic product at market
price, i.e. ∑Final Expenditure = GDPMP.
 3. This method is also known as ‘Income Disposal Method’.
 Components of Final Expenditure:
 Expenditure is undertaken by all the sectors of an economy: Households,
Government, Firms and the Foreign Sector.
 The various components of final expenditure are:
 1. Private Final Consumption Expenditure (PFCE):
 It refers to expenditure incurred by households and private non-profit
institutions serving households on all types of consumer goods, i.e. durable
(except houses), semi-durable, non-durable goods and services.

40.  i. PFCE = Household Final Consumption Expenditure + Private Non-Profit
Institutions Serving Households Final Consumption Expenditure
 ii. PFCE includes expenditures incurred by normal residents, whether in the
domestic territory or abroad. So, any expenditure incurred by residents
during their foreign tour/travel will be added in PFCE. However, any
expenditure incurred by non-residents and foreign visitors in the domestic
market will be deducted from PFCE.
 2. Government Final Consumption Expenditure (GFCE):
 It refers to the expenditure incurred by general government on various
administrative services like defense, law and order, education etc.
Government produces goods and services with the aim of social welfare
without any intention of earning profits.
 3. Gross Domestic Capital Formation (GDCF) or Gross Investment:
 It refers to the addition to capital stock of the economy. It represents the
expenditure incurred on acquiring goods for investment by the production
units located within the domestic territory.

41.  There are two components of GDCF:
 (i) Gross Fixed Capital Formation:
 It refers to the expenditure incurred on purchase of fixed assets.
 This expenditure is generally divided into three sub-categories:
 (a) Gross Business Fixed Investment:
 It includes expenditure on the purchase of new plants, machinery,
equipment’s, etc.
 (b) Gross Residential Construction Investment:
 It includes expenditure on purchase or construction of new houses by the
households.
 (c) Gross Public Investment:
 It includes expenditure on construction of flyovers, roads, bridges etc. by
the government.

42.  (ii) Inventory Investment (Change in Stock):
 It refers to the physical change in the stock of raw material, semi-finished
goods and finished goods lying, with the producers. It is included as an
investment item because it represents the goods produced but not used for
current consumption. It is calculated as the difference between the closing
stock and the opening stock of the year.
 It means,
 GDCF = Gross Fixed Capital Formation + Inventory Investment; or
 GDCF = Gross Business Fixed Investment + Gross Residential
Construction Investment + Gross Public Investment + Inventory
Investment.
 It is important to understand that purchase of shares and debentures,
either old or new, is not included in investment. For example, if I have
purchased 500 shares of Reliance Industries, it may be an investment
from my point of view, but for economy, it is simply a transfer of
purchasing power and not an investment.

43.  4. Net Exports (X – M):
 It refers to the difference between exports and imports of a country during a
period of one year.
 1. Exports (X) refer to expenditure by foreigners on purchase of domestic
products. The exported goods have been produced within the country’s
domestic territory So; they are included in output of an economy.
 2. Imports (M) is the expenditure by residents on foreign products. Imports
are deducted to obtain domestic product as they are not produced within the
domestic territory.
 3. Instead of treating exports and imports separately, the difference between
the two is taken and is termed as Net Exports.

44.  Precautions of Expenditure Method:
 1. Expenditure on Intermediate Goods will not be included in the national
income as it is already included in the value of final expenditure. If it is
included again, it will lead to double counting of expenditures.
 2. Transfer Payments are not included as such payments are not connected
with any productive activity and there is no value addition.
 3. Purchase of second-hand goods will not be included as such expenditure has
already been included when they were originally purchased. Such goods do
not affect the current flow of goods and services. However, any commission or
brokerage on such goods is included as it is a payment made for productive
service.
 4. Purchase of financial assets (shares, debentures, bonds etc.) will not be
included as such transactions do not contribute to current flow of goods and
services. These financial assets are mere paper claims and involve a change of
title only. However, any commission or brokerage on such financial assets is
included as it is a productive service.
 5. Expenditure on own account production (like production for self-
consumption, imputed value of owner occupied houses, free services from
general government and private non-profit making institutions serving
households) will be included in the national income since these are productive
services.