ECONOMICS 15.04.2020 Class No

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ECONOMICS 15.04.2020 Class No. 2: Unit 1 (National Income and related aggregates) Objective: After the class/ content you will become familiar with Difference between Stock and flow , Circular flow of income (two sector model); Difference between Stock and flow : Stock Flow Quantity that is measured at a particular point of time Quantity that is measured at a period of time Static in nature. It is dynamic in nature No time dimension Time dimension Ex Capital, foreign debts, wealth, loan, inventories, Ex National Income, Expenditure, savings, opening stock , money supply depreciation, interest, exports, imports, change in money supply, borrowing, profit, rent Factors of production: Factors of production are the inputs needed for the creation of a good or service. The factors of production include land, labor, entrepreneurship, and capital. Factor Income (Factor Payment/Factor cost) Income generated by factor of production is called factor Income (or Factor Payment) that is Rent, Interest, profit and wages and salaries. Sectors in an economy : The Income generated normally flows in different sectors mentioned below: (i) Two sector Economy (Household and Firm) (ii) Three Sector Economy (Household, Firm and government) (iii) Four Sector Economy (Household, Firm, Government and abroad) Not in CBSE Syllabus Circular flow of income (in two sector Economy ): Real flow (Product/ Physical flow) Money Flow (Nominal Flow) Also called a circular flow of income in factor Also called a circular flow of income in money market market It refers to the flow of factor services from It refers to the flow of factor income (or payments) household sector to producing sector (Firm) and from producing sector (Firm) to household sector flow of goods and services from producing sector and flow of consumption expenditure from (Firm) to household sector. producing sector (Firm) to household sector. Circular flow of income with saving and Investment : (in two sector economy) How closed economy is different from open economy? Phases of Circular flow of Income Factor Income (or Payment) and Transfer Income (Transfer Payment) Factor Income (or Payment) Transfer Income (Transfer Payment) Income earned by factor of production by rendering Income received without rendering any productive their productive services in the production process services It’s a bilateral concept (Two side concept) It is a unilateral concept(one side concept) It is included in national income It is NOT included in national Income Ex- Rent, Interest etc. Ex Scholarship etc. Transfer income Capital Current transfer transfer Transfer made to the recipient (who receives) for consumption Transfer made to the recipient (who expenditure. receives) for investment purpose . Ex Gifts, old age pension Ex. Capital gain tax, investment grants Categorise the following into Stock and flow (Give reason of your answer) (i) Losses (ii) Capital (iii) Production (iv) Wealth (v) saving (vi) GDP State true or false: (i) Macroeconomics deals with the problems of consumer (ii) Money flow is also known as physical flow (iii) In two sector economy, total production is always equal to toal consumption (iv) Capital formation is a flow. ***** .

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Mapping the Stock and Flow Structure of Systems Assigned: 16 September 2003; Due: 23 September 2003 This Is an Individual Assignment
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