National Income 2

Question 1

main measures of national income

Answer 1

GDP and GNP

Question 2

Gross domestic product

Answer 2

the total output produced by the factors of production in the domestic economy, irrespective of whether the factors are owned by Irish nationals or foreigners, as measured by payments to factors of production/current market prices

Question 3

Gross national product

Answer 3

the total output produced by Irish owned factors of production in ireland and elsewhere. It is a measure of the income accruing to a country’s residents

Question 4

methods used to measure NI

Answer 4

expenditure method
income method
production method
All three should be equal to one another as all money spent is spent on goods/services that are produced and all incomes earned from the production

Question 5

National income statistics are compiled by

Answer 5

CSO

Question 6

why are these statistics important

Answer 6

used to measure economic performance
indicate the standard of living 
compare irelands NI with other countries
formulating economic policy
effective research
EU budget contributions and benefits

Question 7

market prices

Answer 7

the prices consumers pay for goods/services including VAT, customs duty and excise

Question 8

factor costs

Answer 8

the cost of the 4 factors of production i.e. labour, rent, interest on bank loans, returns to entrepreneur

Question 9

net factor income from the rest of the world

Answer 9

income earned by Irish factors of production and sent home minus income earned by foreign factors of production in Ireland repatriated to their country

Question 10

expenditure method

Answer 10

1. calculate total expenditure (C+I+G)
   minus imports plus exports
2. GDP - plus or minus net factor income with rest of..
3. GNP - plus Eu subsidies minus EU taxes
4. GNI- minus NET current transfers to/from
5. GNDI

Question 11

second hand goods

Answer 11

not included in GNP as they were counted when they were new

Question 12

Production/output method

Answer 12

not used by CSO but used across Europe
difficulty- double counting
applies where any good/service is provided in the production of another good/service

Question 13

Gross national income

Answer 13

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

Question 14

Gross national disposable income

Answer 14

may be derived by adding NI to net current transfers

Question 15

GDP is a better indicator of

Answer 15

level of economic activity

Question 16

GNP IS A BETTER INDICATOR OF

Answer 16

standard of living

Question 17

Why is GDP bigger than GNP

Answer 17

net factor income from abroad:

1. repatriation of profits by multinational companies exceed profits made by Irish MNCs abroad returned home
2. interest payments on irish debt held by non irish residents exceed the interest payments residents recieve on non-irish debt
3. remittances of immigrants in ireland sent abroad

Question 18

GDP vs GNI

Answer 18

the profits of US MNC’s count toward irish GDP, but also toward US GNI as they are repatriated.
These repatriations are reflected in a decreased GNI for Ireland, as they are an amount paid OUT.
GDP will be unchanged, as the produce remains the same

Question 19

GNI vs GNDI

Answer 19

GNI does not record unilateral transfers, including foreign aid and remittances. These are called net secondary incomes for developing countries (net current transfers)
Thus, GNDI provides a better account of the income that is available to the people and is a much better indicator of standard of living of residents of a country

Question 20

What does GNI indicate

Answer 20

a populations income, as it captures the income related to the mobility of factors of production (net primary incomes)

Question 21

GNI * or modified

Answer 21

GNI less the affects of asset transfers, to exclude globalisation effects disproportionately impacting GNI

Question 22

convert Market Prices to Factor Costs

Answer 22

minus taxes

plus subsidies

Question 23

limitations of national income measures/statistics

Answer 23

1. population growth/decline
2. inflation/deflation
3. measures growth not welfare, so may not reflect standard of living
4. levels of taxation not included
5. changes to quality of goods not taken into account
6. non market economic activities not included

Question 24

the hidden/black/shadow economy

Answer 24

any economic activity which takes place, that is not recorded and therefore not included in national income accounts

Question 25

main causes of the hidden economy

Answer 25

unemployment: those who have lost jobs cant afford VAT inclusive prices and/or are prepared to take a cash only job to avoid income tax
disillusionment with gov policy: think tax system is unfair
reduced disposable income: cant afford legitimate prices of goods or services
Increased VAT rates: causing prices to increase, consumers want to avoid higher taxes

Question 26

economic consequences of the hidden economy

Answer 26

Loss of tax revenue to gov.- no VAT or income tax
Decline in legitimate business activity- more expensive/harder to compete with illegal activity
Increased Gov expenditure on enforcement
Pressure on gov services/finances- less tax revenue spent on essential public services or borrow or increase taxes
Standard of goods/services- risk of harmful/unsafe products to consumers if there is no regulation

Question 27

social effects of a rise in the hidden economy

Answer 27

Increased crime levels - fear in citizens and further reduce legitimate economic activity
Vicious cycle scenario- legitimate businesses cant compete and close, illegal activity thrives
Public outrage- unhappy with lack of supervision and action by the gov
Decrease in the provision of public goods/services- less capacity to provide high quality services eg health thus decreasing the standard of living

Question 28

government measures to tackle the hidden economy

Answer 28

reduce taxation rate
reduce indirect taxation - VAT, excise duties
better enforcement by revenue commissioners eg heavier fines, longer sentences
educate the public about the importance of taxation to the state
simplification of tax system/close all loopholes
encourage a culture of ethical business eg positive role models