National Income Flashcards
Q: What is national income?
A: National income is the value of all goods and services produced by an economy in a year and measures economic performance.
Q: Why is measuring national income important?
A: Measuring national income helps assess economic growth, living standards, and income distribution within a population.
Q: What are the three components measured in national income accounts?
A: 1) Output: Total value of goods and services produced, 2) Spending: Total expenditure, 3) Incomes: Total income from production.
Q: What are the three common measures of national income?
A: 1) Gross Domestic Product (GDP), 2) Gross National Product (GNP), 3) Net National Product (NNP).
Q: What is Gross Domestic Product (GDP)?
A: GDP is the output of goods and services produced within a country in a year.
Q: What is Gross National Product (GNP)?
A: GNP is GDP plus output produced by domestic-owned resources abroad minus output by foreign-owned resources within the country.
Q: What is Net National Product (NNP)?
A: NNP is GNP minus depreciation, reflecting the true measure of national income.
Q: What is the difference between nominal income and real income?
A: Nominal income is measured using current prices, while real income adjusts for inflation to reflect constant prices.
Q: Why is real income a better measure of economic growth?
A: Real income removes the effects of inflation, showing changes in the actual quantity of goods and services produced.
Q: What are common difficulties in collecting national income data?
A: Errors and omissions, cash economy transactions, non-recorded activities like DIY or housework, transfer payments, and double counting.
Q: Why is double counting an issue in national income calculations?
A: Double counting includes the same value multiple times, such as flour counted when it leaves the mill and again when it is sold as bread.
Q: What are challenges in comparing national income between countries?
A: Differences in data collection methods, accuracy, currency fluctuations, population size, income distribution, and quality of life.
Q: Why is per capita national income important for comparisons?
A: Per capita figures help assess wealth per person but may not account for income inequality or quality of life differences.
Q: What does national income not measure?
A: National income does not account for quality of life or non-market activities like housework or voluntary work.
Q: What are transfer payments, and why are they excluded from national income?
A: Transfer payments, such as pensions or lottery winnings, are not linked to production and are excluded to avoid inflating income figures.
