Consumption goods / consumer goods:

Goods like food and clothing, and services like recreation that are consumed when purchased by their ultimate
consumers are called consumption goods or consumer goods. Consumption goods satisfy the wants of the consumers
directly. For example, cars, television sets, bread, furniture, air-conditioners, etc. Consumer goods are classified into
four categories namely durable goods(T.v, radio, car etc), semi durable consumer goods(clothes, furniture etc.), Non
durable consumer goods ( Bread) & Services ( Doctor, Teacher etc.)

Capital Goods:

Capital goods are those goods which are used by the producer in the production process to produce consumer goods.
These goods are mostly fixed assets of the producers. Capital goods are the crucial backbone of any production
process. These goods aids and enables the production to take place& form a part of the capital stock. Examples
include buildings, machinery, equipments, and tools.These goods require repair or replacement over time as they
gradually undergo wear and tear(depreciation)over a period of time.

Final Goods:
those goods and services which are sold to the final users during the year. These goods and services are purchased
for final consumption by consumers and for investment by producers, and not for resale. All consumer goods and
services, i.e., goods which satisfy the wants of the consumers directly like food items, refrigerators, etc. are final
goods. Producer goods, i.e., goods which help in the production of other goods in future like machines, buildings, etc.
are also final goods. Producers buy these capital goods for their own use (as investment)and not for resale. Thus, final
goods are meant for final use by consumers and producers. They are finished goods for final consumption and
investment.In other words, final goods are those which doesn't pass through any more stages of production or
transformation and are available in an economy for consumption purpose or investment.

Intermediate goods: Intermediate goods are those goods and services which are used by the producers as inputs into
a further stage of production. These are also known as 'non-factor inputs. These goods move from one stage of
production to another in the production of a final product. These are the products which are purchased by producers
from other producers and are resold after converting them into final goods. For example, seeds, fertilisers, etc.
purchased by farmers are intermediate products. Farmers grow wheat, rice and other crops by using these
intermediate products. National income includes only the value of final goods and services, Intermediate products are
excluded from national income because their value is already included in the value of final products in which they are
used.

Depreciation:

During the process of production of commodities some amount of economy's existing stock of capital (i.e.plants and
equipments) suffers wear and tear and needs maintenance and replacement. This loss of value of fixed capital asset
during the production process due to normal wear and tear is called depreciation. Depreciation is thus an annual
allowance for wear and tear of a capital. In other words it is the cost of the good divided by number of years of its
useful life.

Double counting: It is the error which arises in national income estimation if we add up the total output of all the
sectors in the economy, instead of adding up the output of final goods and services only. Thus, while estimating
national income, the problem of double counting is solved by taking into account the value of final goods and
services only.

Net Factor Income From Abroad: The difference between the factor income received by normal residents of a country
from rest of the world for rendering factor services abroad, and the factor income accruing to rest of the world for the
services rendered by it in this country, is the net factor income from abroad.
Net factor income from abroad = Factor income earned by the domestic factors of production employed in the rest of
the world – Factor income earned by the factors of production of the rest of the world employed in the domestic
economy.

Stock Variable:

(a) Any economic variable which is calculated or expressed at a particular point of time is known as stock variable.
(b) It is static in nature, i.e., it do not change.
(c) stock variables have no time dimension.

For example, Distance, Amount of Money, Stock of capital, Bank deposits, Money Supply, Water in Tank, etc.

Flow Variable:

(a) Any economic variable which is calculated or expressed over a period of time is known as flow variable.
(b) It is dynamic in nature, i.e., it can be changed.
(c) There is time dimension in flow variables.

For example, production ,national income ,consumption, savings, investment , spending of Money, Water in River,
Exports, Imports, etc.

DIFFERENT CONCEPTS OF NATIONAL INCOME:

Gross Domestic Product at Market Prices (GDP): Gross domestic product at market prices is the market value of all
final goods and services at prices prevailing in the market produced in the domestic territory of a country during a
given year. Being gross, it is inclusive of depreciation, i.e., consumption of fixed capital in the process of production
has not been excluded. GDP simply shows what is produced within the domestic territory. of a country by normal
residents of a country, nationals as well as non-nationals. It measures contribution of both nationals and non-nationals
in total production. GDP at market prices measures the value of final goods and services at their market price, Market
value of the final goods and services is calculated by multiplying the physical quantities of these goods and services
with their market prices.

Gross National Product at Market Prices (GNP): Gross national product at market prices is the most important and
commonly used measure of national income. GNP is defined as the market value of all final goods and services
produced by normal residents of a country during a year, inclusive of depreciation. It differs from GDP to the extent of
net factor incomes earned from abroad. To get GNPmp from GDPmp, the factor income earned from abroad by the
normal residents of a country in the form of wages, dividends, interests, profits should be added to GDPmp. Clearly,
this is a part of factor income earned by nationals of a country, but it is not part of the domestic production. By the
same token, some part of the domestic product may have been generated by non-nationals operating in this country.
Income earned by non nationals must be deducted from GDPmp. GNPmp therefore, is the total value of final goods
and services produced in the domestic territory of a country plus net factor income from abroad. Thus,

GNPmp = GDPmp + Net Factor Income from Abroad.

Net factor income from abroad may be positive or negative. If net factor income from abroad is positive, GNP would
be greater than GDP On the other hand, if net factor income from abroad is negative, GNP would be less than the
GDP.

Net Domestic Product at Market Prices (NDP) : Net domestic product at market prices is the market value of all final
goods and services at prices prevailing in the market produced in the domestic territory of a country during a given
year after making allowance for depreciation. In view of the wear and tear of capital goods in the process of
production, there is the need for deducting depreciation from the gross product to get the net increase in availability
of goods and services in the economy. Net domestic product at market prices is the difference between gross
domestic product at market prices and depreciation. Thus,
 NDPmp = GDPmp - Depreciation

NDPmp is the measure of net availability of final products. It is the measure of domestic income which is available for
consumption and investment in the economy.

Net National Product at Market Prices (NNP): Net national product at market prices is similar to NDP . It shows the
market value of all final goods and services produced by normal residents of a country during a year after making
allowance for depreciation. It differs from GNP in that the depreciation of capital is subtracted.

Thus, NNPmp = GNPmp - Depreciation

NNP is considered to be a more accurate measure of the true output of the economy than GNP It reflects much is
produced over and above amount which is required to keep nation's stock of capital intact. It gives a better indication
of economic growth than GNPmp does.

Nominal Gross Domestic Product (Nominal GDP): Nominal GDP, or nominal gross domestic product, is the measure of
the market value of all final goods and services produced in a country’s economy over a given period, at current
market prices. Also known as a “ GDP at current year prices " , nominal GDP takes price changes, money supply,
inflation, and changing interest rates into account when calculating a country’s gross domestic product. Thus, Nominal
GDP measures a country’s gross domestic product using current year prices, without adjusting for inflation. It is
derived by multiplying the current year output by the current market price.

Real Gross Domestic Product: Real GDP, also know as, GDP at constant prices, mensures the value of final goods and
services produced by all the enterprises located within the domestic territory of a country during a particular year
expressed at the market prices prevailing in a particular year, which becomes the base year.Real GDP measures actual
increases in output — it accounts for inflation or deflation, stripping away any price changes. For instance, if we take
2005-06 as the base year prices and express GDP of 2012-13 at 2005-06 prices, the GDP so estimated is known as GDP
at constant prices.GDP at constant prices( Real GDP) is affected by changes in physical quantities of final goods and
services only. Consequently, an increase in GDP at constant prices indicates a real increase in the physical quantities of
goods and services. Thus, GDP at constant prices reflects real growth of an economy. Real GDP is calculated by the
following formula:
Real GDP = Nominal GDP / GDP Deflator x 100.

Per capita gross domestic product (GDP) measures a country's economic output per person and is derived from a
straightforward division of GDP of a country by its population. Per capita GDP considers both a country's GDP and its
population. GDP per capita, is a measure of a country's economic output that accounts for its number of people. GDP
per capita is an important indicator of economic performance and a useful unit to make cross-country comparisons of
average living standards and economic wellbeing.

The formula for calculating GDP Per Capita is represented as follows:

GDP Per Capita = GDP of the Country / Population of that Country.
GDP per capita can be measured in real & nominal terms.

Nominal GDP Per Capita = Nominal GDP of the Country / Total Population of the Country.

Real GDP Per Capita = Real GDP of the Country / Total Population of the Country.

Aggregate expenditure: In economics, aggregate expenditure is the current value of all the finished goods and
services in the economy. It is the sum of all the expenditures undertaken in the economy by the factors during a
specific time period. It refers to the desired, intended or planned (ex ante) spending by the people, i.e., the total
amount of goods and services they would like to purchase. We can consider four main groups of buyers in an
economy: individual consumers or households, firms, governments, and foreign purchasers of domestic output.
Therefore, the aggregate expenditure (spending) is the amount that households, firms, the governments and the
foreign purchasers would like to spend on domestic output. In other words, aggregate expenditure in the economy is
the sum total of desired private consumption expenditure, desired investment expenditure, desired government
spending and desired net exports (difference between exports and imports). Thus, the desired spending on
domestically produced goods and services is called aggregate expenditure and can be expressed as:

AE=C+I+G+ (X-M)

where,
AE stands for aggregate expenditure (spending) or aggregate demand, C is the desired consumption expenditure by
households,
I stands for desired investment expenditure,
G is the desired government spending.
(X-M) is the net exports, i.e. difference between exports (X) and imports (M).

Net Exports:
Net exports are the difference between the value of goods and services exported to other countries and the value of
goods and services imported from other countries. In an open economy, a country has transactions with rest of the
world through, among other things, international trade, i.e., exports and imports of goods and services.
Net Exports = Value of Exports – Value of Imports
Where,

Value of Exports = Total value of foreign countries spending on the goods and services of the home country.
Value of Imports = Total value of spending of the home country on the goods and services imported from foreign
countries.

Unemployment:
Unemployment problem is one of the most serious and menacing problems facing the developed as well as the
developing countries of the world, though with different degrees of intensity.Unemployment is a complex
phenomenon..In ordinary or common sense the term unemployment denotes a situation when a person is not
gainfully employed productive activity and thereby does not work or earn. But unemployment in the real sense of the
term is not as comprehensive as conveyed by ordinary sense.

Unemployment may be either voluntary or involuntary.

Voluntary unemployment refers to those persons who are voluntarily unemployed, i.e interested in any gainful job.
They are unemployed not out of compulsion but due to their choice. In this category, we may include both the 'idle
rich' as well as the idle poor. Voluntary unemployment refers to a situation when persons who are able to work but
are not willing to work although suitable work is available for them. In other words, they are voluntarily unemployed,
i.e., unemployed of their own will.Such persons are not included in labour force of the country. Under this situation,
the person remains unemployed despite jobs being available in the market.

Involuntary unemployment refers to a situation when people are willing and able to work at the prevailing wage rate
but are unable to get employment opportunities. Involuntary unemployment is a 'situation when there are some able-
bodied persons who hav the ability to work and are willing to work a the prevailing wage rate, but are not able find
work which may yield them some regular income'. Hence, they are unemployed against their wishes. Under this
situation, the person remains is unemployed due to non-availability of jobs in the market.

Unemployment, therefore, is a situation when the person is without work involuntary. The main types of
unemployment which prevail in developed economies are cyclical unemployment and frictional unemployment.
Seasonal unemployment: Seasonal unemployment refers to a situation when people get work during some days or
months of the year, but not regularly throughout the year and, therefore, they are unemployed during some part of
the year. It is called seasonal because it occurs during certain seasons of the year. Seasonal unemployment arises in
particular occupations through seasonal variations in their activity brought about by climatic changes. Seasonal
unemployment takes place mainly due to lack of suitable alternative employment opportunities in the slack season.

Frictional Unemployment: Not all unemployment in the developed countries can, however, be traced to shortage of
demand. Even when the level of aggregate 1mm demand is high, a country may experience unemployment because of
the presence of certain economic frictions or lack of adjustment between demands for and supply of labour. Frictional
unemployment between demand for and supply of labour force. In a modern dynamic economy, constant changes
keep taking place. People leave jobs for many reasons, and it takes time to find new jobs because of lack of knowledge
and mobility on the part of the labour. This gives rise to temporary unemployment of those workers who are moving
between jobs. Frictional unemployment, therefore, arises when the existing workers change jobs. Frictional
unemployment may take place due to several reasons. For example, it may occur due to a change in demand. It may
also occur due to economic progress when old industries contract and new industries come up.