plus two equations of II chapter

fiat money and Legal tender

Fiat money does not have any intrinsic value. What value it has depends on public confidence in the currency's issuer. 
Legal tender is any currency declared legal by a government. Many governments issue a fiat currency and then make it legal tender by setting it as the standard for repaying debt.

Ricardian Equivalence Theorem

The Government issues more debt today to finance an increase in the Government Deficit, and Private Saving increases by an equal amount, since the representative Consumer saves more to pay the higher taxes in the future.

          The Ricardian Equivalence Theorem. For example, holding the path of Government purchases constant, if the representative consumer receives a tax cut today, he/she knows that the government will have to make this up with higher future taxes.

how price of related goods influence the demand? see the answer below

Related good can be of two types-

1.      COMPLIMENT GOODS- These are those goods which are used together. E.g. Car and petrol.

2.     SUBSTITUTE GOODS- These are goods which are used in place of other goods. E.g. Tea coffee.

In case of compliment goods,

Price of good 1 is inversely proportional to Demand of good 2.

So if there is an increase in the price of petrol then quantity demanded for Car will automatically decrease applying Law of Demand.

Whereas In case of substitute goods,

Price of good 1 is directly proportional to Demand of good 2.

If there is an increase in the price of tea, quantity demanded for coffee will also increase.

INTERACTIVE ECONOMICS

PLUS 2 NATIOANAL INCOME ACCOUNTING

NATIOANAL INCOME ACCOUNTING

Good : In economics a good is defined as any physical object, man-made, that could command a price in the market. Consumption Goods : Those goods which satisfy human wants directly.

Capital Goods : Those final goods which help in production. These goodsare used for generating income.

Final Goods are those goods which are used either for final consumption or for investment.

Intermediate Goods refers to those goods and services which are used for further production or for resale. These goods do not fulfil needs of mankind directly.

Investment : Addition made to the physical stock of capital during a period is called investment. It is also called capital formation.

Depreciation : means fall in value of fixed capital goods due to normal wear and tear and expected obsolescence.

Gross Investment : Total addition made to physical stock of capital during a period of time. It includes depreciation.

Net Investment : Net addition mate to the real stock of capital during a period of time. It excludes depreciation.

Net Investment = Gross investment – Depreciation.

Stocks : Variables whose magnitude is measured at a particular point of time are called stock variables. Eg. National Wealth, Inventory etc.

Flows : Variables whose magnitude is measured over a period of time are called flow variable. Eg. National income, change in stock etc

Circular flow of income : It refers to continuous flow of goods and services and money income among different sectors in the economy. It is circular in nature. It has neither any end and nor any beginning point.

Leakage : It is the amount of money which is withdrawn from circular flow of income. For eg. Taxes, Savings and Import.

Injection : It is the amount of money which is added to the circular flow of income. For e.g. Govt. Exp., investment and exports.

Economic Territory : Economic (or domestic) Territory is the geographicalterritory administrated by a Government within which persons, goods, and capital circulate freely.

Scope of Economic Territory :

(a) Political frontiers including territorial waters and airspace.

(b) Embassies, consulates, military bases etc. located abroad.

(c) Ships and aircraft operated by the residents between two or more countries.

(d) Fishing vessels, oil and natural gas rigs operated by residents in the international waters.

• Normal Resident of a country : is a person or an institution who ordinarily resides in a country and whose centre of economic interest lies in that country.

Domestic Aggregates

• Gross domestic Product at Market Price (GDPMP) is the market value of all the final goods and services produced by all producing units located in the domestic territory of a country during an Accounting year.

• Net Domestic Product at Market Price (NDPMP) : NDPMP = GDPMP –Depreciation (consumption of Fixed capital)

• Domestic Income : (NDPFC) : It is the factor income accruing to owners of factors of production for suppling factor services with in domestic territory during an accounting year.