National Income

Question 1

Describe meaning of national income. Explain various concepts of national income:

Question 2

LONG. Describe methods of measuring national income. Also describe precautions of every method.

Question 3

LONG. Define national income and explain circular flow of national income by diagram.

Question 4

LONG. Describe the factors of national income.

Question 5

LONG. Describe importance of study of national income.

Question 6

Define National income in the words of Prof Marshall?

Answer 6

Individuals of a country produce a certain quantity of goods and services using the resources of the country with the help of their capital. It is called national income

Question 7

Define National income in the words of Prof Pigou?

Answer 7

National income is that Part of material wealth of a nation which can be measured by the scale of money.

Question 8

Define National income in the words of Prof Paul A Samulison?

Answer 8

It is the loose name we give for the money measure of the over all annual flow of goods and services in an economy.

Question 9

Define National income in the words of Prof Ackley Gardener?

Answer 9

Individual income is the amount of his earning from the productive services currently rendered by him or by his property National income is nothing more than the sum of all the individual incomes.

Question 10

Define National income in the words of Prof Fisher?

Answer 10

Quantity of goods and services which is consumed during a year is called national income.

Question 11

What are various concepts of notional income?
Following are the various concepts of national income.

Answer 11

(1)
Goss National Product (G.N.P).
(2).
(3).
Net National Product (N.N.P):
Goss Domestic Product (G.D.P).
(4)
National Income (N.I).
(5)
Personal Income (P.).
(6)
Disposable Personal income (D.P.I).
(7)
Per Capital Income (P.C.I).

Question 12

Define Goss National product?

Answer 12

Definition of Gross National Product: Goss National induct of a country is the total market value of all final goods and services produced during a period of one year. Al! agricultural goods, industrial goods, mineral goods and services of individuals, government and semi government institutions are included in it.
It includes the following
1. Personal consumption expenditure
2. Gross domestic private investment
3. Government expenditure on goods and services
4. Gross domestic public investment
5. Export surplus
6. Net foreign investment

Question 13

Explain meanings of Net National product?

Answer 13

Net National Product: If we subtract depreciation allowance or replacement cost of machines from gross national product (G.N.P), we get Net National Product Net national Product-Goss National Products-Depreciation allowance.

Question 14

What is meant by Depreciation allowance?

Answer 14

Meaning of Depreciation allowance: We use machines and tools to manufacture goods.
These machines often break down during the year owing to wear and tear. We have to repair these machines. The expenditures made on their repair are called depreciation allowance.

Question 15

Explain the meanings of Goss Domestic Product?

Answer 15

Meaning of Gross Domestic Product: Total market value of all final goods and services Produced within a country during a year is called gross domestic product. Thus when we subtract net foreign income from gross national product, we get gross domestic product.
G.D.P = G.N.P - F.I

Question 16

Concept of National Income: Explain the concept of National income?

Answer 16

If indirect taxes are subtracted from Net National Product (N.N:P) and subsidies are added in N.N.P, We get National income (N.l). It is the income which is the aggregate of net rewards of four factors of Production e.g, rents + wages + interest + Profits.
National Income = Net National Product - indirect taxes + Subsidies.

+ Government Subsidies
- Indirect taxes
- transfer payments
- Statistical discrepancy

Question 17

What is Subsidy?

Answer 17

Subsidy: Sometimes government.wants to provide some goods to the public at a lower Price than market Price. The govemment purchases them at higher price and sells at a low price to the public at utility stores and Cooperative stores. It means some part of the price. of these goods is paid by the government, it is called Subsidy. For example, if government purchases flour at Rs 10/-per kg and sells it at Rs 8/- per kg, then subsidy will be Rs 2/-per kg.

Question 18

Explain the concept of Personal income?

Answer 18

Concept of Personal Income: It is the income which a person individually earns in a year.
For example, a lawyer ears 10 lace in a year, it is his personal income. Transfer payments and indirect taxes are included in personal income.

Question 19

Explain the concept of Disposable Personal income?

Answer 19

Concept of Disposable personal income: The income in the possession of an individual after the payment of direct taxes is called disposable personal income. It is at the disposal of the person and he can spend it according to his own free will.
Disposable Personal Income = Personal Income - Direct taxes.

Question 20

Write methods to measure national Income?

Answer 20

Methods to Measure National Income: There are three methods to measure the national income.
(1)
Product Method.
(2)
Income Method.
(3)
Expenditure Method.

Question 21

Differentiate between Personal Income and disposable Personal Income?

Answer 21

Difference Between Personal Income and Disposable Income:
Personal income is the income which a person individually earns in a years: After subtracting direct taxes from personal income, disposable personal income is obtained.

,Personal Income (PI),
Disposable Personal Income (DPI)

Definition,

The total income received by individuals from all sources before paying taxes.
The income left after deducting personal taxes (income tax, social security tax, etc.) from personal income.

Formula,

PI = National Income – Undistributed Profits – Corporate Taxes – Social Security Contributions + Transfer Payments,
DPI = Personal Income – Personal Taxes

Includes
,Salaries, wages, rent, interest, dividends, and transfer payments (e.g., pensions, social security, unemployment benefits).
The actual money available for individuals to spend or save after tax deductions.

Usage,

Shows the total earning capacity of individuals in an economy.
,Indicates how much money individuals have for consumption and savings.

Example

,If a person earns $50,000 annually, this is their personal income before tax deductions.,
If they pay $10,000 in taxes, their disposable personal income is $40,000.

Question 22

What is meant by circular flow of national income?

Answer 22

Circular Flow of National Income

CIRCULAR FLOW OF NATIONAL INCOME:
In capitalistic system, economy is divided into two sectors. These sectors are household (consumption sector) and firms (production sector). Households as factors of production offer they services to firs and produce goods and services for them. Firms give them rewards for thei services. Households purchase goods and services from firms and they pay their obtained rewards to firms as the prices of these goods and services. In this way, national income moves from fir’ to houscholds and from households to firms. In other words, national income circulates in betwee firs and households. This flow of national income is called “circular flow of national income”.

The circular flow of national income is a model that shows how money, goods, and services move within an economy between different sectors. It explains how income is generated, distributed, and spent.

Key Sectors in the Circular Flow:
1. Households – Provide factors of production (labor, land, capital) and receive wages, rent, interest, and profits (income).
2. Firms – Produce goods and services, pay households for resources, and receive money from selling products.
3. Government – Collects taxes, provides public goods, and redistributes income.
4. Foreign Sector – Handles exports (inflow of money) and imports (outflow of money).

Types of Circular Flow:
1. Two-Sector Model – Simple flow between households and firms.
2. Three-Sector Model – Adds government (taxes and spending).
3. Four-Sector Model – Includes foreign trade (exports and imports).

Would you like a diagram explanation as well?

Question 23

What is meant by transfer Payments?

Answer 23

Meaning of Transfer Payments: Transfer payments are the amounts of money which a person gets without labour. These are donations, alms, pension, unemployment allowance, scholarship and gifts etc.

Question 24

When does national income increase?

Answer 24

National income increases when the quantity of goods and services is increasing in the country.

Question 25

Differentiate between real national income and nominal national income?

Answer 25

Difference Between Real National Income and Nominal National Income: Real national income means total quantity of goods and services produced in a country.
Therefore, real national income increases with the increase in the quantity of goods and services in the country while nominal national income means monetary value of goods and services at the market prices.

Here’s the difference between real national income and nominal national income in simple terms:
1. Nominal National Income:
• This is the total income of a country measured at current prices (the prices at that time).
• It doesn’t account for inflation, so it might look higher just because prices increased.
• Example: If you earned $1,000 last year and prices doubled, your income might increase to $2,000, but it doesn’t mean you’re richer because everything is more expensive.
2. Real National Income:
• This is the total income of a country adjusted for inflation.
• It shows the actual value of income by removing the effect of rising prices, so it gives a clearer picture of how much goods and services can really be bought.
• Example: If your income stays at $1,000 and prices double, your real income hasn’t increased—you can buy less than before.

Key Difference:
• Nominal looks at numbers as they are, including price changes.
• Real removes the effect of inflation to show the true value of income.

Would you like examples to explain this further?

Question 26

Write precautions of the product method to measure national income.

Answer 26

Following are precautions of the product method to measure national incomé:
(1)
Avoid double counting.
(2)
Subtract depreciation allowance.
(3)
Subtract indirect taxes.
(4)
Value of free services should not be counted.
(5)
Subsidies should be counted.

Question 27

Write precautions of income method to measure national income?

Answer 27

Following are precautions of income method to measure national income:
(1)
Earnings from unfair means should not be counted in national income.
(2)
Transfer payments should not be included.

Question 28

Make a diagram of circular of national income?

Question 29

Write factors of national income?

Answer 29

Human Resources
Artificial resources
Natural resources
Power resources
Political stability
Capital goods
Desire for development
Division of labour
Facilities of transportation
Technical know how
Efficient entrepreneurs
Encouragement of government
Equal distribution of wealth

Question 30

Write points of importance of study of national income?

Answer 30

Following are points of importance of national income: Study of national income.
(1)
Helps to analyse the económic conditions.
(2)
Helps to examine the economic growth rate of the country.
(3)
Helps to analyse the economic problems.
(+)
Helps in framing economic policies.