Measuring National Income

Question 1

define wealth.

Answer 1

the total value of all assets owned by an individual

Question 2

define national income.

Answer 2

the income accruing to the permanent residents of a country from a current economic activity from supplying the factors of production during a specific period, which is usually one year.

Question 3

how can national income be measured?

Answer 3

1. income method
2. output method
3. expenditure method

-these are a cross-check on each other

Question 4

define GROSS .

Answer 4

before deduction

Question 5

define DOMESTIC .

Answer 5

home produced

Question 6

define a PRODUCT .

Answer 6

the amount produced

Question 7

define NATIONAL .

Answer 7

what Irish nationals produce

Question 8

what are Market Prices ?

Answer 8

the prices consumers pay for goods and services.

Question 9

define FACTOR COST ?

Answer 9

the cost of the 4 factors of production. (land, labour, capital & enterprise )

Question 10

what is the net factor income from the rest of the world?

Answer 10

income earned by Irish FoP abroad and sent home (repatriated) minus income earned by foreign FoP in Ireland and sent back (repatriated) to their own country.

Question 11

what is the income method?

Answer 11

refers to the sum of income earned by the 4 FoP : land, labour, capital, enterprise.

Question 12

what are the precautions when calculating national income using the income method?

Answer 12

transfer payments (not included),
benefits-in-kind (included),
contributory workers`pension (included)

Question 13

what is the expenditure method?

Answer 13

the sum of all expenditure made by citizens

Question 14

what are the precautions when calculating national income using the expenditure method?

Answer 14

second-hand-goods are not included

Question 15

what is the production/output method?

Answer 15

values the output produced in the agricultural, industrial and services sectors

Question 16

what are the precautions or difficulties when calculating the national income using the production/output method?

Answer 16

double counting!

only goods/services in the marketplace are included .

Question 17

explain “ gross domestic product at factor cost “ !

Answer 17

the total value of input or expenditure within the country as a result of engaging in current economic activity in one year, valued at payments to factors of production.

or

the output produced by the factors of production in the domestic economy irrespective whether the factors are owned by Irish nationals or non-nationals, valued at payments to factors of production.

Question 18

explain “ gross domestic product at market prices” !

Answer 18

the total value of input or expenditure within the country as a result of engaging in current economic activity in one year, valued at current market prices.

or

the output produced by the factors of production in the domestic economy irrespective of whether the factors are owned by Irish nationals or non-nationals, valued at current market prices.

Question 19

explain “gross national product at factor cost “ !

Answer 19

the total value of output or expenditure valued at payments to factors of production, produced by Irish-owned factors of production.

or

the value of the total goods and services produced in an economy over a specified period of time (e.g. a year), valued at payments to factors of production, produced by Irish-owned factors of production.

Question 20

explain “gross national product at market prices” !

Answer 20

the total value of output or expenditure valued at todays market prices, produced by Irish-owned factors of production, before any adjustments are made for taxation, subsidies or depreciation.

or

the value of the total goods and services produced in an economy over a specified period of time (e.g. a year), valued at current/ todays market prices, produced by Irish-owned factors of production.

Question 21

what is the “net factor income from abroad?”

Answer 21

the difference between GNP (gross national income) and GDP (gross domestic income).

Question 22

what is gross national income?

Answer 22

comprised of domestic and foreign income earned by the resident population of a country.

Question 23

would you expect the GDP to be higher then the GNP ?

Answer 23

in irelands case the GDP is higher then the GNP.
because the net factor Y from abroad is usually negative due to the following reasons:

repatriation of profits by companies resident in Ireland, repayment of the foreign elements of our national dept, remittances (money) of immigrants in Ireland sent abroad.

Question 24

for what is the GDP better and for what the GNP ?

Answer 24

GDP is a better indicator of the level of economic activity in the country.

GNP is a better indicator of the standard of living in the country.

Question 25

what is the difference between GNP and GNI ?

Answer 25

gross national product at factor cost minus gross national income at factor cost =

interest and dividends

Question 26

what does “net national Product” mean?

Answer 26

the total joint of the resources of land, labour, capital and enterprise for a period of time (usually one year). It is the same as national income.

Question 27

what are the uses of national income?

Answer 27

°indication of alterations to our standard of living
°comparison mechanism
°formulating economic policy
°effective research
°evaluating economic policies
°EU budget contributions/benefits

Question 28

limitations of national income statistics:

Answer 28

population distortions,
inflation/deflation is not taken into account,
welfare is not taken into account,
employment/unemployment,
levels of taxation,
exklusion of various activities,
hidden social cost,
distribution of GNP,
Government Services at Cost Price

Question 29

international comparison using national income.

Answer 29

foreign exchange translation,
market-oriented economies,
lenkt of the working week,
the nature of government spending,
different countries have different needs,

Question 30

what economic effect would a reduction in the general level of VAT have on the level of GNP at market prices?

Answer 30

will decrease

the reduction in VAT will decrease the prices for goods and services that consumers must pay in the marketplace

or in the long run:
will increase

lower prices, consumers will buy more, aggregate demand increases and so GNP increases

Question 31

what economic effect would a reduction in the subsidies paid to farmers have on the level of GNP at market prices?

Answer 31

will increase

the reduction in subsidies paid to farmers will increase GNP at market prices, as prices for agricultural products will rise in the marketplace

or in the long run:
will decrease

prices rise and demand for their commodities will decrease, reduction in consumption and DDP decreases