Tag: basic concepts of national income

Depreciation is a flow since it is measured over a specified period of time. It is time dimensional as it is generally measured over a year.

Foreign embassies in India are a part of India's geographical territory and not economic territory. For example: Embassy of USA in India is a  part of domestic territory of USA and a part of geographical territory of India.

Capital is a stock since it is measured at a point of time. Capital is not time dimensional. It is not measured over a specified period of time like flow. Therefore, capital is a stock concept.

Capital formation is measured over a period of time hence it is a flow concept.

The goods which are consumed by a consumer to satisfy his want is known as consumer goods, while goods used in a production process are intermediate goods. Hence, bread can either be a consumer good or an intermediate good based on its use.

Intermediate goods have a derived demand as their demand depends on demand for final goods.
On the other hand, final goods have a direct demand as they satisfy the wants directly.

A good can be an intermediate good as well as a final good, depending upon its nature of use.
For example, a car purchased by a household is a final good, whereas, It will be an intermediate good if it is purchased by a car dealer. 

Households and firms depend on each other in the circular flow of income in case of a two-sector model. Participants of the two-sector economy are households and producers.  Flow of money from producers to households as payments for the purchase of factor services has been a continuous process. So, there has been the flow of money from households to producers as payments for the purchase of consumer goods and services, This non-stop continuity of inter-sectoral flows is called 'circularity of flows'. Hence, total consumption by households is always equal to total production by the producers.

Both 'Expected Obsolescence' and 'Unexpected Obsolescence' are considered for determining the amount of depreciation- this is a false statement since only expected obsolescence is considered for determining the amount of depreciation. It has two components: loss of value of fixed assets due to change in technology and change in demand.

National wealth is not an example of flow variable. It is a stock since it is measured at a point of time. National wealth is not time dimensional. It is not measured over a specified period of time like flow. Therefore, national wealth is a stock concept.