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National Income PDF

This document discusses the classification of goods in macroeconomics. It outlines that goods can be classified as either final goods or intermediate goods, and as either consumption goods or capital goods. Final goods have crossed the production boundary and are ready for use, while intermediate goods still require further production and are not ready for final use. The document provides examples of final consumer goods, final producer goods, and intermediate goods. It also discusses the concepts of consumption expenditure, investment expenditure, and gross value addition.

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Alans Technical
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105 views130 pages

National Income PDF

This document discusses the classification of goods in macroeconomics. It outlines that goods can be classified as either final goods or intermediate goods, and as either consumption goods or capital goods. Final goods have crossed the production boundary and are ready for use, while intermediate goods still require further production and are not ready for final use. The document provides examples of final consumer goods, final producer goods, and intermediate goods. It also discusses the concepts of consumption expenditure, investment expenditure, and gross value addition.

Uploaded by

Alans Technical
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as PDF, TXT or read online on Scribd
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BASIC CONCEPTS OF MACROECONOMICS

Classification of goods
Countless number of goods are produced and consumed in
the economy. Different goods show different characteristics.
Broadly, goods are classified in two ways:
(i) Final Goods and Intermediate Goods, and
(ii) Consumption Goods and Capital Goods
Final Goods
These are those goods which have crossed the boundary line of
production and are ready for use by their final users. The final
users are : consumers and producers. Accordingly, final goods are
often classified as: (i) final consumer goods, and (ii) final producer
goods.
Final consumer goods are finally purchased by the consumers for
the satisfaction of their wants. Final producer goods are finally
purchased by the producers and are generally used as fixed assets
in the process of production.
Note: Only final goods are included in the estimation of national
product or national income.
Final consumer goods are the goods which are ready for use by
their final users, and consumers are their final users. Example:
Bread and Butter, as used by the consumers.
Final producer goods are the goods which are ready for use by
their final users, and producers are their final users. Example:
Tractors and harvesters, as used by the farmers.
Expenditure on final consumer goods by the households is called
consumption expenditure. Expenditure on final producer goods by
the producers is called investment expenditure. Accordingly,
Expenditure on Final Goods = Consumption expenditure +
Investment expenditure
Intermediate Goods
Intermediate goods are those goods (i) which have yet not crossed the
boundary line of production, (ii) value is still to be added to these goods,
and (iii) which are yet not ready for use by their final users.
In other words, intermediate goods are those goods which are
purchased by one firm from the other firm: (i) as raw material, or (ii) as
goods for resale.

Value of intermediate goods ultimately becomes a part of the value of


final goods. Intermediate goods are not included in the estimation of
national product or national income. Otherwise, there would be
duplication in the estimation of national product, called ‘Double
Counting’ (counting the value of a good more than once).
Expenditure on intermediate goods by the producers during an
accounting year is called intermediate consumption or
intermediate cost.
If intermediate consumption is deducted from the value of
output, we get ‘gross value addition’ (also called Gross Value
Added, or Gross Product of the producer).
Investment refers to capital formation or a process that increases the
stock of capital

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