a) Inventory goods: A special mention needs to be made of the inventory goods which find an important place in the present national income accounts. This has not been mentioned earlier because it forms part of the current investment expenditure, other than consumption expenditure. It has three distinct elements. These are depreciation charges (D), expenditure on new capital equipment and goods produced or purchased, and inventories. We have already seen that depreciation charges enable replacement of the existing stock of capital. Therefore after excluding depreciation what remains is the net or current investment. But all of which is not the expenditure on the fresh purchase of the capital goods. Very often producers or sellers maintain large stocks of the goods in warehouses. These are not yet marketed but are available for marketing. Such stocks both of finished goods and of raw materials together constitute inventories of the producers. Normally producers have some quantity of inventories which are intended to be so, however sometimes there may also be unintended inventories, when part of the goods remain unsold. In either case these inventory goods form part of the business expenditure and act as a future asset. Therefore these are included in the context of net investment expenditure. At the end of the year each business firm shows its investment account which includes a value of such inventories.

b) Real and Nominal Income (Y): An important analytical distinction is to be made between real and nominal values of the national income. By definition national income is the total value of all goods and services at market price. Thus every year all productive activities are evaluated at current market prices for this purpose. This is however the nominal value of the national income. It is not ordinarily comparable with the national income value of the last or earlier years. This is because of the fact that market prices contain an element of inflation and to that extent actual or real changes in the national income are not accurately recorded by the nominal value. Therefore before any comparison is attempted between the national income estimates of two or more years it is necessary to make the prices uniform and price index applicable to adjust all such values.

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Index

3. 1 Macro Aggregates
3.2 Unemployment
3.3 Inflation

Chapter 4