National Income and Its Related Aggregates Flashcards
What are the two main branches of macroeconomics?
Long-term economic growth and Short-term business cycles
“Science which studies human behaviour as a relationship between ends and scarce means which have alternative uses”
Who said this?
Lionel Robbins
Why are goods and services measured at market price in GDP accounting?
So that different goods and services can be added together
___________ was coined by Adam Smith in 1776
Invisible Hand
In his book ______________, Adam Smith explained how self interest of individuals benefits rest of society.
Wealth of Nations
Invisible Hand was coined by _____ in 1776
Adam Smith
What does Adam Smith mean by “Invisible Hand”?
Metaphor for constant fluctuations between market forces (demand and supply) in order to reach an equilibrium.
Who is the founder of modern economics?
Adam Smith
Adam Smith’s work talks about the concepts of morality, markets and capitalism in an ________ society.
industrialised
Who is the father of economics?
Adam Smith
Who is the founding father of macroeconomics?
J M Keynes ( John Maynard Keynes)
What was Keynes’ contribution to macroeconomics?
He overturned the prevailing idea that free markets would automatically provide full employment.
Demand for intermediate consumption arises in ____________ sectors of an economy.
All producing sectors of an economy
Intermediate consumption is a _____________ concept.
National Accounts Concept
Intermediate consumption measures value of goods and services consumed as inputs in production that may be either _________ or _____ in production.
transformed or used up
Intermediate consumption excludes _________ assets.
Fixed assets
How is the consumption of fixed assets recorded?
Consumption of Fixed Captial
Define National Income.
It is the value of all final goods and services produced within the domestic territory of a country by a normal resident during one accounting year.
Define Transfer Payments.
Transfer payments are unilateral and have no corresponding flow of goods and services
Pension is an example of ________.
Transfer Payment
Unemployment Allowance is an example of __________.
Transfer Payments
Stock concept is not ____ dimensional.
Time
Wealth and Capital are ______ concepts (stock/flow)
stock
Who is a normal resident?
Someone who’s economics interest lies within the country
______ is the largest source of income for most people (hint: it is a factor payment)
wages
Durable goods ate also called ______ and _______.
Consumer durables and Hard goods
what ate durable goods?
Goods that yield utility over time and do not get used up in a single use.
Who takes the decisions in a Centrally Planned Economy?
Central Government
Invisible Hand was coined by Adam Smith in ______.
1776
Sum of factor payments us equal to ____________.
National Income
Define Private income.
Income accruing to the private sector by way of factor income and transfer income is called private income.
What is disposable income?
The part of personal income which is either spent on consumption by the household or saved is called disposable income.
It is net income because:
Disposable Income = Personal Income - Taxes
What are the basic economic activities?
• Production
• Consumption
• Capital Formation
What is mixed income?
Factor payments that are not distinguishable
What is net value added?
Net value added is equal to payments accruing to factors of production
OR IN OTHER WORDS
Value of output - Value of intermediate consumption- Consumption of fixed capital
The Value added method of measuring national income is also known as _________ method.
Production Method.
National income is also known as
NNP at FC means it is the cost at factory level. NNP at MP includes taxes prevailing in that country on that product.
Collective wants are wants that can be satisfied by _____ goods.
Public goods.
Value of output is
a) Sales + Change in Stock
b) Sales - Change in Stock
c) Sales
Sales + Change in Stock
Because output is either sold or accumulated as unsold stock
Difference between Gross Capital Formation and Net Capital Formation is …?
DEPRECIATION!!!!
Depreciation is also called ______________.
Consumption of Fixed Capital
Define depreciation.
It is defined as the fall in value of fixed capital goods due to normal wear and tear and foreseen obsolescence over time.
If factor cost is greater than market price, it means that
a) Indirect Taxes < Subsidies
b) Indirect Taxes > Subsidies
c) Indirect Taxes = Subsidies
Answer: a)
MP- Indirect Tax + Subsidies = Factor Cost
Why is broker’s commission on sale/purchase of second hand goods included in national income?
Because it is earned from rendering productive services during the current year.
Factor cost does not reflect the effects of _____ and _____ unlike market price.
Taxes and subsidies
Difference between market price and factor cost is _____ and _________
taxes and subsidies.
What is leakage in an economy?
Outflow of money
National Income includes
a) Factor Income
b) Transfer Income
c) Both
d) Neither
Answer: a)
Factor Income of all normal residents of a country is referred to as national income.
Factor income and Current transfers together are referred to as private income.
Difference between private income and personal income is:
a) Corporate Tax
b) Corporate Savings
c) Dividend
d) Corporate Tax and Corporate Savings
Answer: d)
Personal income is the sum of earned incomes and current transfer incomes.
Private income also included Corporate Tax and Corporate Savings or undistributed profit of Corporate enterprise which is not included in personal income.
What do you mean by value added? (keyword: additional value)
It is the additional value that is created above the original cost of a good or service.
What are three phases of national income?
●NATIONAL OUTPUT
1st phase - Generation Phase - National output is generated by taking services of FoP
●NATIONAL INCOME
2nd phase - Distribution Phase - National output or national income is distributed among FoP for rendering services.
● NATIONALEXPENDITURE
3rd phase - Disposition Phase - National income is spent or disposed and again reaches producers.
Continuous sectoral flow of goods and services is known as ________.
REAL Flow
In a 2 sector economy, the condition of equilibrium is:
a) I = S
b) I + G = S + T
c) I + G + X = S + T + M
d) C + I = 1 + S
Answer: a)
In a 2 sector economy, saving is the only source of withdrawal and investment is the only source of injection.
Economy is in equilibrium when Investment (injection) = Savings (withdrawal)
Subsidy implies:
a) Selling the product to the government at higher prices
b) Selling the product below the cost of production
c) Selling the product at a loss
d) Selling the product at cost + Indirect taxes
Answer: b)
Subsidies are given by the government to reduce the cost of production of goods and services.
Which of the following affects national income:
a) GST
b) Corporate Tax
c) Subsidies
d) None of the above
Answer: c)
What are capital goods?
Durable goods used in the production process
Any activity which contributes to the GNP of a country is called a _______ activity.
Economic activity
Output means ____ output at ____ unless stated otherwise.
gross output at MP
Sum total of final goods and services produced in domestic territory of an economy during a year is called _____.
a) GDP
b) NNP
c) NDP
d) GNP
Answer: a)
Growing country is one whose ____ is rising at ______ prices.
GNP, constant
The sum of net value at FC of all the producing units in domestic territory gives?
NDP at FC
Net national disposable income is equal to:
a) National Income + NIT + Net current transfers from abroad
b) NNP at MP + Depreciation (GNP at MP)
c) GNP at FC + Net current transfers from ROW
d) Personal disposable income + NFIA
Answer: a)
NNP at FC
Personal income (PI)
NDP at FC + NFIA + Transfer Income - Undistributed Profit - Corporate Tax - (Interest Paid by Households - Interests received by Households)
Personal Disposable Income (PDI) Formula
Personal Income (PI) - Personal Taxes
