Important Macroeconomics concepts

(i) Macroeconomic Model

It is an analytical tool designed to describe the operation of the economy of a country or a region. These
models are usually designed to examine the dynamics of aggregate quantities such as the total amount
of goods and services produced, total income earned, the level of employment of productive resources
and the level of prices.

(ii) Non-market Activities

These refer to the activities which are not performed through exchange or which do not involve sale of
goods and services, i.e. a teacher teaching his own son.

(iii) Value Added

A term which is used to denote the net contribution made by a firm, is called its value added.

(iv) Gross Value Added

If we include depreciation in value added, then the measure of value added that we obtain, is called
gross value added.

(V) Net Value Added

If we deduct the value of depreciation from gross value added, we obtain net value added.

(vi) Inventory

The stock of unsold finished goods or semi-finished goods or raw materials which a firm carries from one
year to the next, is called inventory.

(vii) Planned Inventory Accumulation

In case of an expected fall in sales, the firm will have unsold stock of goods which it had not anticipated.
Hence, there will be planned accumulation of inventories.

(viii) Unplanned Inventory Accumulation

In case of an unexpected fall in sales, the firm have unsold goods which it had not anticipated. Hence,
there will be unplanned accumulation of inventories.

(ix) Consumer Price Index (CPI)

It measures changes in the price level of a market basket of consumer goods and services purchased by
households.

(x) Wholesale Price Index (WPI)

In countries like USA, it is referred to as Producer Price Index (PPI). In India, it is considered as the price
of a representative basket of wholesale goods. However, PPI will soon be introduced in India too.

(xi) Nominal Income

It refers to monetary income measured at current prices.

(xii) Real Income

It refers to monetary income measured at constant prices.

(xiii) Domestic Product

The sum total of all factor incomes generated during an accounting year within the domestic territory of
a country is termed as domestic product or domestic income of a country.