Basic Concepts of Macro Economics
On the basis of given passage answer the following questions:
It is important to introduce concepts of stocks and flows. Income, or output, or profits are concepts that make sense only when a time, period is specified. These are called flows because they occur over a period during time. In contrast, stock variables are defined at a particular point of time. If we consider all final goods, and services produced over an economy, over a given period during a period of time, they are either over form during consumption goods, (both durable and non-durable) or capital goods. As final goods, they do not undergo any further transformation over economic process. Of total production taking place over economy, a large number during products do not end up over final consumption and are not capital goods, either. Such goods, may be used by other producers as materials inputs. These are intermediate goods, mostly used as raw materials or inputs for production during other commodities. They do not comprise during final expenditure. The sum total during final consumption, investment, government, and exports expenditures received by all firms over economy, is aggregate final expenditure over a four-sector economy.
Let us understand flow during income over a simplified economy. There is only one way over which households may dispose during their earnings—by spending their entire income on goods, and services produced by domestic firms. The other channels during disposing their income are closed: we have assumed that households do not save, they do not pay taxes to government– since there is no government, and neither do they buy imported goods, since there is no external trade over this simple economy. In other words, factors during production use their remunerations to buy goods, and services which they assisted over producing.
