`Page 1 of 88
Macroeconomics
Unit 1: National Income And Related Aggregates – 10 marks
• Some basic concepts: consumption goods, capital goods, final goods, intermediate goods; stocks and
flows; gross investment and depreciation.
• Circular flow of income; Methods of calculating National Income - Value Added or Product method,
• Expenditure method, Income method.
• Real and Nominal GDP. GDP and Welfare
.
Unit 2: Money and Banking – 6 marks
• Money - its meaning and Supply of money - Currency held by the public and net demand deposits
held by commercial banks.
• Money creation by the commercial banking system.
• Central bank and its functions (example of the Reserve Bank of India): Bank of issue, Govt. Bank,
Banker's Bank, Controller of Credit through CRR, SLR, Reverse Repo, Open Market Operations,
Margin requirement.
Unit 3: Determination of Income and Employment – 12 Marks
• Aggregate demand and its components.
• Propensity to consume and propensity to save (average and marginal).
• Short-run equilibrium output; investment multiplier and its mechanism. Meaning of full employment
and involuntary unemployment. Problems of excess demand and deficient demand; measures to
correct them - change in government spending, availability of credit.
Unit 4: Government Budget:- 6 Marks
• Government budget - meaning, objectives and components.
• Classification of receipts - revenue receipts and capital receipts; classification of expenditure -
revenue expenditure and capital expenditure.
• Measures of government deficit - revenue deficit, fiscal deficit, primary deficit their meaning.
Unit 5: Foreign Exchange And Balance Of Payments: 6 Marks
• Balance of payments account - meaning and components; balance of payments deficit-meaning.
• Foreign exchange rate - meaning of fixed and flexible rates and managed floating. Determination of
exchange rate in a free market.
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, `Page 2 of 88
NATIONAL INCOME
What is macro-economic?
• Branch of economics which studies economic activities at the level of economy as a whole
• Aggregate saving, aggregate demand, Theory of employment
Difference between Micro and Macro Economics
Basis Micro Economics Macro Economics
Purpose Study of individual economic units of Study of economy as a whole and its aggregates.
an economy
Basis The central problem of micro The central problem of macro economics is
Objective economics is price determination and determination of level of income and employment.
allocation of resources.
Tools Its main tools are demand and supply of Its main tools are aggregate demand and aggregate
the particular commodity supply of the whole economy.
Example Examples are individual demand, per Examples are aggregate demand, national income,
capital income, etc. unemployment etc
GDP: - The total market value of all final goods and services produced by all productive enterprises in the
domestic territory of a country in a year.
Types of goods
Types Of
Goods
Final
Intermediat Goods
e Goods
Capital Consumer
Goods Goods
Intermediate Goods
• Refer to those goods which are used either for resale or for further production in the same year.
Intermediate Goods include:
a. Goods purchased for resale (like milk purchased by a Dairy Shop).
b. Goods used for further production (like milk used for making sweets).
• Intermediate goods are used up in the same year. If they remain for more than one year, then they are
treated as final goods.
Final Goods: - Final goods refer to those goods which are used either for consumption or for investment
1. Goods purchased by consumer households as they are meant for final consumption (like milk
purchased by households).
2. Goods purchased by firms for capital formation or investment (like machinery purchased by a firm).
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, `Page 3 of 88
Note: - Final goods are neither resold nor used for any further transformation in the process of production
Final goods Intermediate goods
These are ready for final use they are for resale or used for further
by consumer for consumption or production.
By producer for investment.
These are:- These are purchased by one firm from
(a)Consumer goods used for satisfaction of another for following purpose:-
wants. They may change during use. (a) Resale during the year
(b) Capital goods which help in production (b) Use as raw material in production
process. They do not transform during use. process. So they may change during
production process
These are included in national income These are not included in national income.
Consumer goods or consumption goods
These are final goods (Durable goods, Semi durable goods, Non-durable or perishable goods, Services)
directly used by ultimate consumer household for satisfaction of wants. For example: - sugar if used by
consumer to make biscuits is consumer good.
Consumption goods
1. Non-durable goods: Goods use in a single act of consumption Example:- coke, ice-cream
2. Semi-durable goods Use for some longer period of time Example:- tooth-paste
3. Durable goods Can be used for several years Example:- furniture, television
4. Services: - an Intangible thing which directly satisfies human wants Example: - doctor service,
mobile service.
Capital goods these are durable final goods used by the producers in the production process. They do
not change during production process. For example fixed assets like machines, plants and equipment used in
production process.
Consumer goods or consumption goods Capital goods
These are directly used by ultimate consumer These are fixed assets used by the producers in
household for satisfaction of wants. the production process.
They are not used in production by producer. . They help in production of other goods.
They may be changed during use by consumer They do not change during production process.
like tea leaves are used to make tea.
.e.g.: Durable goods- car, washing machine e.g.: machines, plants and equipment used in
production process.
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, `Page 4 of 88
CONCEPT OF STOCK AND FLOW
Difference between stock and flow
Basis Stock Flow
Meaning Stock variables are measured at a Flow variables are measured over a period of
particular point in time time,
Time Stock has no time dimension Flow has time dimension like per hour, per day,
per month and per year
Concept Stock is a static concept Flow is a dynamic concept
Example Examples Wealth, Balance sheet Examples Investment, Profit and loss account.
GPD
Concept of investment
Investment:-Investment is defined as the additional to capital stock which raises the productive capacity of
the economy.
Two types
1. Gross capital formation
2. Net capital formation
Gross capital formation/investment:-The total capital formation in a given period in an economy is termed
as gross investment and before making allowance for depreciation.
1. Gross fixed capital formation
2. Stock investment
3. Residential construction
Depreciation or consumption of fixed capital.-It is the loss in the value of fixed assets during use due to
(a) Normal wear and tear and
(b) Expected obsolescence
It does not include capital loss due to unexpected obsolescence like natural calamities, theft or accident
Net capital formation/investment:-Gross capital formation – depreciation / consumption of fixed capital
Consumption of fixed capital Capital Loss
It is loss in the value of fixed assets due to It is loss in the value of fixed assets due to natural
normal wear and tear and expected calamities and unexpected obsolescence.
obsolescence
It is expected loss in the value of asset It is unexpected loss in the value of asset.
Provision for depreciation is by Provision for capital loss is by getting insurance
maintaining depreciation reserve fund. done.
DOWNLOAD RKG INSTITUTE APP (For Class 11 & Class 12) & RKG CA CLASSES APP (CA Foundation | Inter | Final)
Macroeconomics
Unit 1: National Income And Related Aggregates – 10 marks
• Some basic concepts: consumption goods, capital goods, final goods, intermediate goods; stocks and
flows; gross investment and depreciation.
• Circular flow of income; Methods of calculating National Income - Value Added or Product method,
• Expenditure method, Income method.
• Real and Nominal GDP. GDP and Welfare
.
Unit 2: Money and Banking – 6 marks
• Money - its meaning and Supply of money - Currency held by the public and net demand deposits
held by commercial banks.
• Money creation by the commercial banking system.
• Central bank and its functions (example of the Reserve Bank of India): Bank of issue, Govt. Bank,
Banker's Bank, Controller of Credit through CRR, SLR, Reverse Repo, Open Market Operations,
Margin requirement.
Unit 3: Determination of Income and Employment – 12 Marks
• Aggregate demand and its components.
• Propensity to consume and propensity to save (average and marginal).
• Short-run equilibrium output; investment multiplier and its mechanism. Meaning of full employment
and involuntary unemployment. Problems of excess demand and deficient demand; measures to
correct them - change in government spending, availability of credit.
Unit 4: Government Budget:- 6 Marks
• Government budget - meaning, objectives and components.
• Classification of receipts - revenue receipts and capital receipts; classification of expenditure -
revenue expenditure and capital expenditure.
• Measures of government deficit - revenue deficit, fiscal deficit, primary deficit their meaning.
Unit 5: Foreign Exchange And Balance Of Payments: 6 Marks
• Balance of payments account - meaning and components; balance of payments deficit-meaning.
• Foreign exchange rate - meaning of fixed and flexible rates and managed floating. Determination of
exchange rate in a free market.
DOWNLOAD RKG INSTITUTE APP (For Class 11 & Class 12) & RKG CA CLASSES APP (CA Foundation | Inter | Final)
, `Page 2 of 88
NATIONAL INCOME
What is macro-economic?
• Branch of economics which studies economic activities at the level of economy as a whole
• Aggregate saving, aggregate demand, Theory of employment
Difference between Micro and Macro Economics
Basis Micro Economics Macro Economics
Purpose Study of individual economic units of Study of economy as a whole and its aggregates.
an economy
Basis The central problem of micro The central problem of macro economics is
Objective economics is price determination and determination of level of income and employment.
allocation of resources.
Tools Its main tools are demand and supply of Its main tools are aggregate demand and aggregate
the particular commodity supply of the whole economy.
Example Examples are individual demand, per Examples are aggregate demand, national income,
capital income, etc. unemployment etc
GDP: - The total market value of all final goods and services produced by all productive enterprises in the
domestic territory of a country in a year.
Types of goods
Types Of
Goods
Final
Intermediat Goods
e Goods
Capital Consumer
Goods Goods
Intermediate Goods
• Refer to those goods which are used either for resale or for further production in the same year.
Intermediate Goods include:
a. Goods purchased for resale (like milk purchased by a Dairy Shop).
b. Goods used for further production (like milk used for making sweets).
• Intermediate goods are used up in the same year. If they remain for more than one year, then they are
treated as final goods.
Final Goods: - Final goods refer to those goods which are used either for consumption or for investment
1. Goods purchased by consumer households as they are meant for final consumption (like milk
purchased by households).
2. Goods purchased by firms for capital formation or investment (like machinery purchased by a firm).
DOWNLOAD RKG INSTITUTE APP (For Class 11 & Class 12) & RKG CA CLASSES APP (CA Foundation | Inter | Final)
, `Page 3 of 88
Note: - Final goods are neither resold nor used for any further transformation in the process of production
Final goods Intermediate goods
These are ready for final use they are for resale or used for further
by consumer for consumption or production.
By producer for investment.
These are:- These are purchased by one firm from
(a)Consumer goods used for satisfaction of another for following purpose:-
wants. They may change during use. (a) Resale during the year
(b) Capital goods which help in production (b) Use as raw material in production
process. They do not transform during use. process. So they may change during
production process
These are included in national income These are not included in national income.
Consumer goods or consumption goods
These are final goods (Durable goods, Semi durable goods, Non-durable or perishable goods, Services)
directly used by ultimate consumer household for satisfaction of wants. For example: - sugar if used by
consumer to make biscuits is consumer good.
Consumption goods
1. Non-durable goods: Goods use in a single act of consumption Example:- coke, ice-cream
2. Semi-durable goods Use for some longer period of time Example:- tooth-paste
3. Durable goods Can be used for several years Example:- furniture, television
4. Services: - an Intangible thing which directly satisfies human wants Example: - doctor service,
mobile service.
Capital goods these are durable final goods used by the producers in the production process. They do
not change during production process. For example fixed assets like machines, plants and equipment used in
production process.
Consumer goods or consumption goods Capital goods
These are directly used by ultimate consumer These are fixed assets used by the producers in
household for satisfaction of wants. the production process.
They are not used in production by producer. . They help in production of other goods.
They may be changed during use by consumer They do not change during production process.
like tea leaves are used to make tea.
.e.g.: Durable goods- car, washing machine e.g.: machines, plants and equipment used in
production process.
DOWNLOAD RKG INSTITUTE APP (For Class 11 & Class 12) & RKG CA CLASSES APP (CA Foundation | Inter | Final)
, `Page 4 of 88
CONCEPT OF STOCK AND FLOW
Difference between stock and flow
Basis Stock Flow
Meaning Stock variables are measured at a Flow variables are measured over a period of
particular point in time time,
Time Stock has no time dimension Flow has time dimension like per hour, per day,
per month and per year
Concept Stock is a static concept Flow is a dynamic concept
Example Examples Wealth, Balance sheet Examples Investment, Profit and loss account.
GPD
Concept of investment
Investment:-Investment is defined as the additional to capital stock which raises the productive capacity of
the economy.
Two types
1. Gross capital formation
2. Net capital formation
Gross capital formation/investment:-The total capital formation in a given period in an economy is termed
as gross investment and before making allowance for depreciation.
1. Gross fixed capital formation
2. Stock investment
3. Residential construction
Depreciation or consumption of fixed capital.-It is the loss in the value of fixed assets during use due to
(a) Normal wear and tear and
(b) Expected obsolescence
It does not include capital loss due to unexpected obsolescence like natural calamities, theft or accident
Net capital formation/investment:-Gross capital formation – depreciation / consumption of fixed capital
Consumption of fixed capital Capital Loss
It is loss in the value of fixed assets due to It is loss in the value of fixed assets due to natural
normal wear and tear and expected calamities and unexpected obsolescence.
obsolescence
It is expected loss in the value of asset It is unexpected loss in the value of asset.
Provision for depreciation is by Provision for capital loss is by getting insurance
maintaining depreciation reserve fund. done.
DOWNLOAD RKG INSTITUTE APP (For Class 11 & Class 12) & RKG CA CLASSES APP (CA Foundation | Inter | Final)
