Posted by Anjali Kaur on Jun 04, 2020

What is National Income?

One of the most scoring and my favorite topic in macroeconomics is ‘National Income’. In some schools, teachers have already started with macroeconomics. National income is the sum of the money value of final goods & services produced by normal residents of a country during an accounting year. Before starting basics related to national income, I will explain the meaning of macroeconomics first and then I will discuss types of goods produced in an economy.

What is Macroeconomics?

Macroeconomics is the study of aggregates related to the entire economy such as national income, aggregate demand, general price level, unemployment level, poverty level, etc. In short, macroeconomics studies the whole economy or the total economy.

Now, let’s understand the concepts related to different types of goods produced in an economy.

Types of Goods

The main classification of the types of goods produced in an economy involves:

  • Final Goods
  • Intermediate Goods

Final Goods

  • These are those goods which are used either for consumption or for investment.
  • They are included in both national and domestic income.
  • They are considered to have crossed the production boundary because they are ready for consumption.
  • Examples; Milk purchased by the household for consumption, a car purchased as an investment.
  • Final goods are further sub-divided into ‘Consumption Goods’ and ‘Capital Goods’.

Consumption Goods

  • These are those goods that satisfy the wants of the consumer directly.
  • Examples; Bread, butter, pen, Television, etc.
  • These are also known as consumer goods.
  • Consumption goods are further sub-divided into ‘Durable’, ‘Semi-durable’, ‘Non-durable’ and ‘Services’.

Durable Goods

  • Those goods which can be used again and again over a period of time.
  • Example: Television, Refrigerators, AC, etc.

Semi-durable Goods

  • These goods can be used for a limited period of time like for a year or so.
  • Example: clothes, Crockery, Shoes, etc.

Non-Durable Goods

  • Those goods which can be used up in a single act of consumption.
  • These goods can’t be used more than once.
  • Example; Eatables, Petrol, etc.

Services

  • These are non-material goods and are invisible.
  • Example; Banking, Education, Transportation, etc.

Capital Goods

  • These are those final goods which help in the production of other goods & services.
  • These goods are used in the future for production purposes.
  • These goods do not lose their identity in the production process.
  • They need repair or replacement over time as they depreciate over a period of time.
  • Example; Plant & Machinery, Equipment, etc.

Intermediate Goods

  • These are those goods which are used either for resale or for further production in the same year.
  • These goods are not durable in nature.
  • They are neither included in national income nor in domestic income.
  • They are still within the production boundary as they are not completed.
  • Example; Milk used in dairy shops for resale, coal used in the factory for further production, etc.

Time to Test Yourself

Identify the following into intermediate and final product:

  1. Paper purchased by a publisher_______________________
  2. Furniture purchased by a school______________________
  3. Milk purchased by household_________________________
  4. Purchase of rice by a grocery shop____________________
  5. Coal used by manufacturing firm_____________________
  6. Computer installed in an office________________________
  7. Mobile purchased by a mobile dealer_________________
  8. Fertilizers used by farmers____________________________
  9. Cotton used by cloth mill______________________________
  10. Unsold coal with a trader at the end of the year________

Want to see how you did? Just drop an email with your answers to see how many you got right- contact@LearnWithAnjali.com

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