Skip to page content

National Income and Related Aggregates — Part 1: Concepts, Circular Flow and Methods

Beta

Lesson

National Income and Related Aggregates

Part 1 — basic concepts, the circular flow of income, and the three methods of measuring national income.

In this lesson you will

Distinguish consumption and capital goods, final and intermediate goods, stocks and flows, gross and net investment
Explain the circular flow of income in a two-sector economy
Calculate national income by the value added, income and expenditure methods, with their precautions

Part 1 at a glance

Concept

Kinds of goods

The same good can be final or intermediate: what matters is its end use.
Basis	Kind of good	Example (imagined)
Satisfies wants directly	Consumption good	Rice, a shirt, a haircut bought by a family
Used to produce other goods for years	Capital good	A loom in a Varanasi weaving shed
Bought for final use (consumption or investment)	Final good	Paint bought by a family to paint its home
Used up or resold in production within the year	Intermediate good	Paint bought by a builder for flats he will sell