Learn CBSE Economics Index Terms for Class 12, Part 2, Chapter 2 National Income Accounting
1. Final Goods – Final goods are the final product of an entire production cycle. The final good is created by the combination of all inputs used in production and includes capital, labour and intermediate products.
Final goods are those produced by an economy at its maximum level of production, typically considered to be when labour and capital meet their physical limits. Final goods are goods for which there are diminishing returns after a certain level of production. They include luxury goods and necessities, goods with short-run supply elasticities, goods that can be shifted along the production chain to an increasing cost, or where demand is inelastic.
Exports are the products that one country buys from other countries. These exports are made by companies that are based in other countries. Exporting is done in order to make money, but it is also done to make sure that a country has resources that people can use. Without exporting, a country wouldn’t be able to support its citizens because they would all end up relying on domestic production.
2. Consumption Goods – Consumption goods are those goods and services that are used for the satisfaction of current needs, and not for investment purposes. They include food and drink, household services and products like clothes and footwear.
Consumption goods are goods that are consumed by the consumer. They are almost always items of personal consumption, such as food, clothing, and shelter. Consumption goods are those that are traded for money. They typically include food, clothing, and some household items, especially durable goods (that is, things that last a long time). Consumption goods can be used as a temporary store of value, like gold, or they can be used to purchase another consumption good.
Consumption goods are usually products that people use in their daily lives: food, clothing, housing and furniture, transportation and health care. Consumption goods fall into two categories: durable goods (originally made of materials like wood or metal and still used as such today) and nondurable goods (particularly worn-out products like clothing or old cars).
3. Consumer Durables – Consumer durables are products that arise from the consumer demand for durable goods, though they can also be used by businesses. The term is used to contrast consumer services. Consumer durables include household appliances, such as dishwashers and washing machines, computers and storage devices like desktop personal computers and laptops, motorcycles, automotive components, and professional equipment such as office furniture and televisions.
Consumer durables are goods that are commonly bought by consumers. These include automobiles and appliances, as well as clothing and electronics. Consumer durables are durable goods. These include items such as furniture, clothing, car and motorbikes, washing machines and televisions. Consumer durables can also be regarded as discretionary goods because they provide a wide range of possible uses for households.
Consumer durables are items that last three years or more with all ordinary maintenance and are still in use, as well as any item used for health.
4. Flows – The concept of flows is central to the concepts of macroeconomic theory, particularly in macroeconomics. The meaning of the flow is the rate at which something changes from one point to another in time and can be considered a homogeneous flow or composite flow.
Flows in economics are the movements of goods, services and money within an economy. Flows are generally measured in monetary terms. Flows are the most important concept in economics because it represents people’s decisions about increasing or decreasing the total money they spend. Flows measure changes in money income and outflows. As people’s incomes rise, they are more likely to increase their spending on goods or services. They may save more by reducing borrowing and increasing homeownership.
A key feature of economic theory is that consumers act as they are assumed to act in a knowledge-based economy. As technology develops, producers benefit from increased competition and better product design. This causes the price of services and products to fall, which creates the opportunity for further technological advancements
5. Gross Investment – The meaning of gross investment is the sum from all levels of production and purchases or purchased goods. Increases in gross investment during the business cycle increase future profits and create new jobs by improving productivity.
The gross investment is the total sum of all investments in products, structures, and intellectual property. It accounts for all spending on new capital goods and fixed assets as well as on current consumption or incomes.
Gross investment is an increase in the stock of capital resources for future production. The timing of gross investment decisions can be very important for an economy’s long-term growth because, often, a large increase in investment can temporarily enhance output through increased capacity utilisation or greater output per worker.
The Central Bank of Canada has announced that the gross investment is the total amount of money that businesses and individuals have spent on new fixed assets such as buildings, machinery and equipment throughout the financial year. It is usually measured by deducting depreciation from the total value at the end of the year.
6. Net Investment – Net investment has several meanings. In economics, it is the difference between income and expenditure on fixed capital, such as machinery and buildings. This figure can be used for national income accounting, for example, when comparing national performance. It may also be the residual when a firm takes out benefits from others in their business environment.
Net investment is the total money taken in by a firm or household to acquire current and future economic output. The net investment includes asset purchases, business investments and liabilities such as bank loans.
Net investment is the excess of gross investment over depreciation. It includes changes in inventories, plant and machinery, land and dwellings, and unused equipment. Net investment is the total of all the non-saving financial inflows, less all outflows. These are the money that comes from savings, interest paid on bonds and deposits at the central bank, stock dividends and gains made on investments in financial assets (stocks and other securities).
7. Depreciation – Depreciation is a basic accounting term that refers to the decreased value of a fixed asset due to its use. Depreciation is an example of the accounting concept of “expense” because it reduces the value of an asset on the balance sheet and, therefore, a firm’s profit margin. The amount one can write off each year depends on the type and age of the asset, as well as its estimated useful life.
8. Wage – Wage is a monetary payment of money paid to a worker on either a fixed or variable date. A wage is distinguished from other forms of remuneration such as piecework, hourly rates and commission. Workers may be employed by an employer on a full-time, part-time or casual basis.
Wage is a person’s salary or hourly rate for work. The wage rate can be expressed as an hourly, daily, weekly, or monthly amount per unit of time. Wage is the amount of money that an employer pays an employee for work done, in exchange for which the employee, in turn, provides labour.
Wage is the amount of money paid to an employee as remuneration for a specific job. Wages are usually determined according to the skills and experience required for the job and other factors such as geographical location.
9. Interest – The meaning of interest is very complex in economic design. Interest is a fairly common economic word that means earning interest on an investment. The term typically refers to compound interest, and it most often refers to how much one will pay on borrowed money over time.
Interest is the fee paid to someone or some party on the money they lend out. Interest is the charge levied in return for the use of money from a lender on borrowed money. The amount paid as interest is called the interest rate.
Economists use the term interest to refer to the profit received on an investment. Interest is considered a key factor in economic growth, especially if it is accrued by businesses and individuals with high levels of debt.
Interest is a measure of the return that can be earned by placing funds in an investment, while the reverse is known as a discount rate. It involves different forms of return on investment, and it may refer to any form of profit derived by borrowing debt in order to invest.
10. Profit – In economics, profit is the difference between the cost of a product and its selling price. If a firm sells an item for less than the costs they make, it will still make a profit. Profit is the difference between a good’s cost and its monetary value. In other words, it’s what remains after covering all costs incurred in creating it, whether those costs are fixed or variable.
Profit is a financial measure of how much money an organisation has made through various sources, including sales, interest and income from other investments. A company’s profit is the difference between revenue and variable costs. Variable costs don’t change as production increases, but sales may fluctuate. The profit formula is (sales – variable costs) – (fixed costs).
11. Rent – Rent, in economics, refers to the right to use natural resources, capital, or property. It is an income received by a person, organisation or government from the ownership of land or real estate; it includes royalty as well as profit.
The rent is the money paid by a tenant to a landlord or property owner for the right to use the land at a certain price. In economics, rent is the money (or other commodities) charged in return for access to factors of production, that is, land, capital, labour and other resources. Rent also refers to profits from ownership or use of property rights over natural resources such as mineral deposits, oil fields and quarries.
Rent is the price paid by a tenant to a landowner or landlord or the benefit derived from such payment. The rent is a monetary payment received by the landlord for the use of a property. The word rent comes from the Middle French word ‘renter’, meaning to hold in return for rent, which derives from the Latin verb ‘recipiare’, meaning to take back (something one had been given).
12. Circular Flow of Income – Circular flow of income is a concept in microeconomics that refers to the process by which income flows through an economy. This process is based on the fact that richer people buy more things from the factories and shops, and these earnings are then used to buy more from other producers, and this continues until it reaches further down into the economy.
The circular flow of income is the system in which goods and services move from producers to consumers, and back again. The circular flow of income is the flow of income from one pocket to another. In simple terms, a circular flow of income is a statement that shows how an individual’s income gets used by them and how they get paid by others.
It is a flow of income and expenditure in an economy, beginning with the production by producers of goods and services through the distribution process in which consumers buy or rent these goods or services. It is a concept central to economics and an important component of macroeconomics.
13. Product Method of Calculating National Income – The product method of calculating national income differs from the expenditure method in calculating national income. The product method is used to derive national income from physical production data as it relates to a country’s final products. It is based on the assumption that the underlying productive capacity can be made to produce any number of products, and these are all represented by physical quantities. If total sales are greater than total purchases, net exports must also be positive to generate Net Domestic Product (NDP) and Net Export Income (NXI). For example, after applying prices for all products sold, NXI equals total sales less imports plus other services.
A product method is a statistical approach to measuring economic output, which uses the total money value of all goods and services produced by an economy to calculate the gross domestic product. This is done by dividing the sum of all outputs by the number of people who produce them (the labour force). The concept of the product method is to determine the average rupee value of products produced by a country.
14. Income Method of Calculating National Income – The income method of calculating national income in economics is a method of calculating national income. It takes into account the cost and price of all goods and services produced in a country, as well as income earned from abroad.
The income method of calculating national income is a standard for calculating the production credit required for input tax to the national government. This method was recommended by the United Nations Conference on Trade and Development (UNCTAD) in 1983. The income method is applied as a starting point, with adjustments made at each stage of production. It includes indirect taxes such as sales tax, Value-Added Tax (VAT), excise duty and customs duty at five stages of production:
Income in economics is the amount of money that a person or a household earns. Income may be generated by working, investing and producing. Income is earned and received by providing services or selling goods on the market or as profits from production. It is measured using two main methods.
The income method can be used when government revenues or expenditures are regarded as only one factor of production. In this case, the calculation is based on the comparison of income with other inputs and outputs. Due to the fact that this method does not account for all inputs and outputs, it does not fully represent national income in real terms.
15. Expenditure Method of Calculating National Income – The expenditure method of calculating national income is a way of calculating the value of economic activities and transactions by means of their output and expenses.
In economics, the expenditure method of calculating national income is an economic measure of output and source data on which it is based. It gives an estimate of the value generated by entities or economic units in a country over a given period of time. Expenditure represents the production cost related to goods and services produced using factors of production.
In the expenditure method of calculating national income, expenditures by businesses, as opposed to Gross Domestic Product (GDP), are used to measure the value that a nation produces.
The expenditure method in economics is a theoretical technique by which the value of final goods and services is computed. The expenditure method treats all goods and services as commodities and assumes that consumers are infinitely elastic, that is, that they can afford to buy any amount of each good or service at a minimal price.
16. Planned Changes in Inventory – In economics, planned changes in inventory is also known as a change in the stock of inventories. Planned changes mean that you have enough time to purchase inventory at a fixed cost and still sell a firm’s product or service at normal prices. This ensures that a business does not go over budget from the start of production or sales.
Planned changes in inventory is a strategy where the agent plans their inventory according to predetermined requirements. This is a simple but powerful way of managing stocks, improving efficiency, reducing costs and heightening customer satisfaction.
Planned Changes in Inventory (PCI) are a special type of inventory that is made before specific items need to be ordered. For example, if a product is known to sell out of stock quickly and yearly sales figures indicate the need for more inventory to meet demand, the company may increase its planned changes in inventory. This helps prevent an unexpected shortage due to production shutting down or delivery delays.
Planned changes in inventory are being prepared by the company based on the estimation of several factors such as changes in sales, supply and demand so that it can take decisions to increase or decrease the inventory.
17. Gross Domestic Product – Gross Domestic Product (GDP) is a monetary measure of the market value of all final goods and services produced in a certain period.
Gross Domestic Product (GDP) refers to the total value of all final goods and services produced within a country in a year. The GDP is derived by adding up all household spending, private business gross fixed capital formation, government spending, and exports at market prices – and then adding up imports at market prices.
Gross Domestic Product (GDP) is the value of all goods and services produced within a country in a specific time period, usually one year. This can include all manufacturing, mining, farming and transportation within that country, plus government expenditures on goods and services such as health care, education or military spending.
Gross Domestic Product is the market value of all economic goods and services produced within a nation’s borders. It measures the total amount of output generated by money spent on goods and services in the domestic economy during a certain period of time. Items that can be included under this category include goods and services, such as homes, vehicles, food and drink, health care services, education and training services, financial investments, etc. Crime and punishment are also considered to be GDP, when they are associated with GDP calculations.
18. Gross National Product – Gross National Product (GDP) is the monetary value of all finished goods and services produced throughout the economy. GDP, sometimes known as ‘National Income’, is a measure of how well an economy is performing.
Gross National Product (GNP) is the monetary value of all final goods produced within a country in a given period of time. This can help economists calculate the size of a nation’s economy by calculating how much goods and services are produced.
The Gross National Product (GNP) is the total market value of all goods and services produced within a country in a specific time period. The Gross National Product (GNP) is used by the Indian Government to measure the country’s overall economic activity. GNP measures how much is being spent on goods and services, including production as well as consumption.
19. Net Domestic Product – Net Domestic Product is the sum of value added by all the domestically resident, non-offshore (incorporated) firms producing goods and services within a country. It measures whether or not a nation’s economy is growing or shrinking.
The Net Domestic Product (NDP) measures the total output of goods and services produced in a country. It is calculated as the sum of all prices paid (for goods, services, or both) less all taxes paid on production and imports.
Net Domestic Product (NDP) is a measure of the economy’s income. It is the gross domestic product minus depreciation and depletion. GDP measures all final goods and services produced within a country, while NDP is identified with its primary producers – farmers and firms that extract natural resources from the earth’s crust.
The Net Domestic Product (NDP) is an index that reports the total value of all goods and services produced within a country. The term “net” refers to the fact that some things are subtracted from others in calculating a nation’s economic output.
20. Net National Product (at market price) – Net National Product (at market price) is the monetary value of all the final outputs (goods and services) produced within a country’s borders, minus the final inputs needed to produce these outputs. Unlike Gross Domestic Product (GDP), which shows a quantity of output divided by the number of potential buyers, net national product measures production as a percentage of potential buyers using market exchange rates for conversion.
Net National Product (NNP) is a measure of the overall economy. It is calculated as the sum of all goods and services produced by an economy plus any income generated by those goods and services. The NNP is expressed in today’s prices.
Net National Product is the total value of all goods and services produced in an economy. The measure represents the value of final goods and services produced minus intermediate goods consumed in their production. The measure depends on price and quantity of output, but not on time, as we consider it a momentary snapshot, the measure of how much output there is in the economy.
21. Undistributed Profit – In economics, undistributed profit is profit that has not been allocated to specific projects or areas of an enterprise. Profit after tax is the revenue minus the cost of goods sold and other expenses incurred in its production. It is the result of selling products at an optimal price. If there are no profits in an industry compared to all others, then it means that there exists a higher markup for some products than others. This happens due to there being more demand for them at a higher price.
Undistributed profit is a term used in economics to refer to the difference between net income and costs that cannot be fully reflected in the current book value. Undistributed profit refers to the difference between a firm’s actual and potential earnings. Essentially, this is the excess earning potential that has been “wasted” because a firm or country didn’t take a strategic approach to the value of gaining more income at costs lower than those of their competitors.
It’s a measure of the total minus the total cost. For example, a country makes $2,000 one month and $400 the next, but its expenses are the same. The country has $1,600 in profit in this case because they have not yet distributed it to make their own profit.
22. NNP at Factor Cost or National Income – National product at factor cost or national income is the value of output, usually measured as the sum of values added by each factor of production and controlled by its price.
The NNP at factor cost is defined as the value of production for a nation by all factors working in that country. A country’s NNP at factor cost will include the value of imports and exports but excludes gross domestic product. The NNP at factor cost is also known as national income.
In economics, National Product or National Income (NNP) is the sum of all final goods and services produced within a country. It is a measure of national welfare or prosperity. The term does not always refer to ‘national’ income; for example, NNP may also be the value of imports and exports, as well as of all services provided by foreign nationals. The concept was first used by Knut Wicksell in 1899, and it became an important concept within national income accounting in the late 1890s.
The National Product is the aggregate value of a country’s output from various areas of production, including agriculture, industry, government and services. It is calculated by taking the price level of a country and dividing it by its labour force (which includes employees but does not include those who work for themselves), area and the number of inhabitants. Factor costs are costs that can be attributed to producing an item (for example, wages). The National Product accounts for these factor costs or uses them as inputs into calculating other items such as gross domestic product and gross national product. These factors are combined with other data to determine national income and then divided by population to determine per capita income.
23. Net Interest Payments Made by Households – Net interest payments made by households indicate all interest paid on debts, including housing mortgages and owners’ expenditures for home repairs and items such as furniture, appliances and electronics. It does not include any income received from interest received on savings in a bank deposit account.
Net interest payments made by households are the sum of all interest received by households, less the sum of all interest paid by households. Net interest payments made are a measure of profitability. It measures changes in net worth over a period of time.
Net interest payments made by households are the total of all interest paid to (and received from) any person or business, less taxes paid and earned interest. Net interest payments made by households are the sum of all interest payments (rental, mortgage, and consumer) and a positive amount for net transfers to other sectors. The household net interest is equal to or less than net income.
24. Personal Tax Payments – Personal tax payments are the sum of the personal income tax payments, which are used to finance public goods and services, such as health care, schools and roads. In addition, these payments may be used by the government to meet its fiscal responsibility requirements (both debt service and current expenditure). Personal tax payments also refer to the total amount of personal income taxes paid by individuals.
Personal tax payments represent the portion of taxes that people pay on their personal income. From a tax policy perspective, this makes sense: Citizens want the government to collect as much money as possible from individuals to fund its operations.
Personal tax payments are payments made by individuals to the government. The main source of income tax revenue is personal taxes, and they are considered the biggest contributors to this source.
One can send their taxes to a single tax table for personal income taxes or to six different tables: the state, local, foreign, and other taxes. One can also include information that wasn’t previously available, such as credits and deductions. When one includes both of these options in the same payment, it means that they are sending five payments instead of just one.
25. Personal Disposable Income – Personal Disposable Income is a person’s income without deduction for taxes and all other relevant expenses (other than those relating to saving, healing, education, insurance, clothing and daily living) such as personal transportation.
In economics, Personal Disposable Income (PDI) is the amount of money available to a person or family after all necessary costs have been paid. It is often used in reference to the notion that an individual has insufficient resources to meet their basic needs and expenses.
Personal Disposable Income is the part of disposable income (the total amount of money a household can spend, minus taxes and other expenses) that remains available after tax is deducted.
Personal Disposable Income is a term that refers to the extra money one earns after taxes and other payments (wages, insurance premiums, etc.) are taken out of their paycheck. This is the amount that one can spend on anything other than a mortgage, rent, food, and household expenses. The amount of wealth one has to spend on non-essentials will vary based on income level, credit score, and spending habits.
26. Corporate Tax – Corporate tax is a tax which is levied on a company’s income or profits. Corporate tax helps to generate revenue for governments from companies and business entities registered under the Companies Act, of 1956.
Corporate tax is the tax imposed on corporations which are companies that have received their business licences, registered to do business, and established legally in a country. It is done to assess how much an organisation needs to pay each year for their business operations. The rate of corporate tax varies from country to country and is dependent on the income source or turnover (or sales) of the company.
Corporate tax refers to the tax imposed on corporations or business firms for the payment of tax; it is calculated as a percentage of gross receipts and is typically imposed at a rate of around 30%. Typical corporate taxes include property taxes, sales and use tax, retail business and highway use tax, franchise tax and income tax.
Capital gains tax is a special tax levied on the profits of certain businesses, usually those involving finance, heavy industry or manufacturing. The rate is often lower than those applying ordinary income tax rates.
27. Personal Income – Personal income is the measure of an individual’s income from wages and salaries, plus interest, royalties, proprietors’ income (for example, rental, royalty), social security, as well as, other sources that are subject to tax. In economics, personal income includes money receipts from all sources minus payments for taxes.
Personal income is the combined earnings of all the members of a household or family unit before taxes, and any government benefits are deducted. It includes wage income, interest, rent, dividends and miscellaneous receipts.
Personal income is a situation in economics where people have a certain amount of money at their disposal and can, therefore, choose how to spend it. For example, if one has ₹ 10,000 in the bank account, they have the option to put ₹ 10,000 towards going out to dinner with friends, or they could purchase a new piece of furniture for their house.
Personal income is the earnings that people get from working for the initiative in all walks of life. Personal income may also refer to the profits derived from employment, as opposed to capital gains, which are profits from investment in equities, bonds and similar financial instruments
28. Non-tax Payments – The term non-tax payments refers to the sum of payments that do not include expenses for interest. Interest is basic in banking and finance; it helps to facilitate advance payments. In the economic system, it is related to credit and debt. Non-tax payments are the total of all goods and services that consumers choose to provide without incurring any tax liability.
There are several accounts which support the provision of non-tax payments in the economy. One is consumption expenditure which accounts for 91% of total non-tax payments, while other leading categories are net exports, government purchases and services provided by households which are nearly 20%. Other than these three, private transfer accounts for 5% and public transfer accounts for 8%.
Non-tax payments are defined as the value of all-money income that is not taxed. This includes payments from individual and corporate sources such as wages, interest charges and dividends.
29. National Disposable Income – In economics, the term national disposable income is a measure of consumer income based on aggregate household spending. The national disposable income will be equal to the total value of goods and services that households spend on consumption goods and services.
National disposable income is an alternate term for the national income, which includes all income, wages, profits and payments from social security, interest, dividends and other forms of non-wage income received by individuals.
National disposable income is a measure of the amount of money available to spend by consumers. It represents the maximum amount of income available for consumption over a period of time after taxes and government spending has been paid.
National disposable income is the sum of all receipts to individual households from all economic activities. This includes items received as wages and salaries, profits from work, interest, dividends and rent plus indirect taxes paid. It does not include imputed rental income (which is an estimate of disposable household income for a given family).
30. Private Income – In economics, private income is the income available to individuals or households. It is an important concept in microeconomics, which studies how factors like supply and demand affect prices and incomes.
Private income is a concept used to analyse the meaning of private goods and services. Private goods in economics are those that cannot be shared or transferred from one person to another without the consent of both parties. Other economists argue that this definition unfairly limits the range of goods covered by their analysis, besides excluding public goods such as national defence and law enforcement.
The term ‘private income’ refers to the income of an individual, or household, which is generated from their own efforts and does not rely on any transfer payment such as welfare and government subsidies. Generally, the idea behind private income includes that individuals are motivated to engage in activities that benefit themselves only.
Private sector income is income from the active participation of households, firms and other organisations in the production, trading and consumption of goods and services. The private sector can be used as a synonym for the market sector as well, but it has also been used to mean to distinguish it from the government; for example, private means natural resources that are not belonging or belong to public ownership. The private sector is made up of all those involved in supplying goods and services directly, including trade, transportation operators, and business owners who sell their goods and services on a competitive basis with no help from a government or any other regulated third party.
31. Real Gross Domestic Product – The meaning of real gross domestic product in economics is a measure of internal economic well-being. The numbers are used to compare different countries and years, showing how their economies fared against their own real growth benchmark. In other words, real gross domestic product measures something that one would like to have a higher standard of living.
Real gross domestic product is the total output of an economy and is measured in constant prices. Real gross domestic product is not an inflation-adjusted value, and it’s not necessarily a true measure of economic growth either. One needs an adjustment to get a true measure of the state of our economy.
Real gross domestic product is the real value of a country’s output of goods and services minus its expenditures on imports, which are not included in the calculation. This measure of national income makes it possible to see the size of a country’s output relative to other countries, based on their own currencies.
The growth rate of the real gross domestic product is the product of the real gross domestic product and the growth rate of the components that make up the real gross domestic product. The growth rate of real gross domestic product is always going to be higher than or equal to zero.
32. GDP Deflator – GDP deflator is a measure of the general level of prices in an economy. A deflationary situation occurs when year-on-year deflation increases. A hyperinflationary situation occurs where price inflation significantly outpaces the GDP growth rate.
GDP deflator measures the price of all goods and services produced within a country during a given period of time. It is the most important measure of the overall inflation rate in a country. The index shows changes in prices (costs) over different periods of time.
The GDP deflator is an indicator to measure price changes in the economy over time. It’s an index that relates changes in the average cost of manufacturing, services and government spending to output. Government spending is composed of purchases made by the Central Government.
The GDP deflator is an index for the consumer price index that expresses price changes using a base year and a price change formula. It is used to convert GDP deflator inflation rates into a percentage change from the base year to the current quarter.
33. Wholesale Price Index – The Wholesale Price Index (WPI) is one among a number of measures used to measure price changes in the economy. It reflects changes in the general level of prices of goods and services that are bought and sold by businesses, along with any variation in prices between different commodities.
The Wholesale Price Index (WPI) is an indicator of the change in prices of goods sold to wholesale customers. As a component of the consumer price index, it measures price changes at the producer level and not at the retail level.
The Wholesale Price Index measures the price paid by producers for various inputs. These inputs can include materials like grain, oil, steel and iron ore that are used industrially and are supplied to businesses in the form of a wholesale commodity.
34. Base Year – A base year is a reference year used to determine the value of financial and real assets. In economics, a base year is a statistical tool used to convert an economic variable into levels in a specific base period. Such levels may then be compared over time with levels using other bases or conversion scales.
The base year is a starting point to determine the value of an asset and its price movement. An economist will use a base year as the starting point of their analysis to identify the trend in asset price and perform a time series analysis.
The base year represents the starting point for measuring inflation rates. This is because the base year is used to adjust for changes in money supply and prices that occur in future years.
35. Consumer Price Index – In economics, the Consumer Price Index (CPI) is a measure of the average change in prices paid by all urban consumers for a representative basket of goods and services. In other words, it is an indication of the change in the cost of living.
Consumer Price Index (CPI) is a measure of the average change over time in prices paid by consumers for all retail goods and services in a defined market basket. The index helps to measure changes in inflation, and many governments use CPI as a key indicator of inflation.
The Consumer Price Index (CPI) is a statistical tool that provides information on how inflation has affected the cost of living for consumers. It is used to calculate changes in government benefits, taxes and fees.
In the U.S. Bureau of Labor Statistics consumer price index, items that are not food and energy cost less when compared to one year prior. This makes it possible for one to see how inflation is affecting their finances. Also, if an item increases in price over a short period of time or decreases in price over a long period of time, this will impact its index value negatively.
36. Externalities – Externalities are the negative external effects of economic activities that may not reflect in the profits of any particular company. The perpetrators generally benefit from the act and are not aware of how it affects others.
In economics, externalities are the costs and benefits an agent imposes without receiving any compensation from another. The term is used to describe a situation in which an individual does not bear the full cost of their actions. For example, if an individual has a negative impact on the health of others (for example, getting affected by pollution), that individual may not pay that cost directly but should also be held accountable for it through taxes and other means. Externalities occur when there is no price system to determine the true economic costs and benefits of an action; therefore, greater scrutiny is needed.
Externalities are the idea that a party to an economic transaction has zero or negative market value as a result of the transaction. For example, in an industry where firms have perfect foresight, consider the case in which one person decides to make an investment that leads to more productivity. By doing this, this person has reduced the cost of production for other companies will have fewer expenses due to the increased efficiency, and by doing so, they would have higher profits than they would have if they did not invest in order to reduce their costs.
Externalities are costs that are borne by others or nature as a result of economic activity. They can occur if an individual or business does something, which affects the cost or benefit of others.
We hope that you found these Economics Index Terms for Class 12 with respect to Part II, Chapter 2: National Income Accounting useful.
Related Links:
- Class 12 Economics Index Terms Part I Chapter1: Introduction
- Class 12 Economics Index Terms Part I Chapter 2: Theory of Consumer Behaviour
- Class 12 Economics Index Terms Part I Chapter 3: Production and Costs
- Class 12 Economics Index Terms Part I Chapter 4: The Theory of the Firm Under Perfect Competition
- Class 12 Economics Index Terms Part I Chapter 5: Market Equilibrium
- Class 12 Economics Index Terms Part II Chapter 1: Introduction
- Class 12 Economics Index Terms Part II Chapter 2: National Income Accounting
- Class 12 Economics Index Terms Part II Chapter 3: Money and Banking
- Class 12 Economics Index Terms Part II Chapter 4: Determination of Income and Employment
- Class 12 Economics Index Terms Part II Chapter 5: Government Budget and the Economy
- Class 12 Economics Index Terms Part II Chapter 6: Open Economy Macroeconomics
