National Income and Its Related Aggregates

Question 1

What are the two main branches of macroeconomics?

Answer 1

Long-term economic growth and Short-term business cycles

Question 2

“Science which studies human behaviour as a relationship between ends and scarce means which have alternative uses”

Who said this?

Answer 2

Lionel Robbins

Question 3

Why are goods and services measured at market price in GDP accounting?

Answer 3

So that different goods and services can be added together

Question 4

___________ was coined by Adam Smith in 1776

Answer 4

Invisible Hand

Question 5

In his book ______________, Adam Smith explained how self interest of individuals benefits rest of society.

Answer 5

Wealth of Nations

Question 6

Invisible Hand was coined by _____ in 1776

Answer 6

Adam Smith

Question 7

What does Adam Smith mean by “Invisible Hand”?

Answer 7

Metaphor for constant fluctuations between market forces (demand and supply) in order to reach an equilibrium.

Question 8

Who is the founder of modern economics?

Answer 8

Adam Smith

Question 9

Adam Smith’s work talks about the concepts of morality, markets and capitalism in an ________ society.

Answer 9

industrialised

Question 10

Who is the father of economics?

Answer 10

Adam Smith

Question 11

Who is the founding father of macroeconomics?

Answer 11

J M Keynes ( John Maynard Keynes)

Question 12

What was Keynes’ contribution to macroeconomics?

Answer 12

He overturned the prevailing idea that free markets would automatically provide full employment.

Question 13

Demand for intermediate consumption arises in ____________ sectors of an economy.

Answer 13

All producing sectors of an economy

Question 14

Intermediate consumption is a _____________ concept.

Answer 14

National Accounts Concept

Question 15

Intermediate consumption measures value of goods and services consumed as inputs in production that may be either _________ or _____ in production.

Answer 15

transformed or used up

Question 16

Intermediate consumption excludes _________ assets.

Answer 16

Fixed assets

Question 17

How is the consumption of fixed assets recorded?

Answer 17

Consumption of Fixed Captial

Question 18

Define National Income.

Answer 18

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.

Question 19

Define Transfer Payments.

Answer 19

Transfer payments are unilateral and have no corresponding flow of goods and services

Question 20

Pension is an example of ________.

Answer 20

Transfer Payment

Question 21

Unemployment Allowance is an example of __________.

Answer 21

Transfer Payments

Question 22

Stock concept is not ____ dimensional.

Answer 22

Time

Question 23

Wealth and Capital are ______ concepts (stock/flow)

Answer 23

stock

Question 24

Who is a normal resident?

Answer 24

Someone who’s economics interest lies within the country

Question 25

______ is the largest source of income for most people (hint: it is a factor payment)

Answer 25

wages

Question 26

Durable goods ate also called ______ and _______.

Answer 26

Consumer durables and Hard goods

Question 27

what ate durable goods?

Answer 27

Goods that yield utility over time and do not get used up in a single use.

Question 28

Who takes the decisions in a Centrally Planned Economy?

Answer 28

Central Government

Question 29

Invisible Hand was coined by Adam Smith in ______.

Answer 29

1776

Question 30

Sum of factor payments us equal to ____________.

Answer 30

National Income

Question 31

Define Private income.

Answer 31

Income accruing to the private sector by way of factor income and transfer income is called private income.

Question 32

What is disposable income?

Answer 32

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

Question 33

What are the basic economic activities?

Answer 33

• Production • Consumption • Capital Formation

Question 34

What is mixed income?

Answer 34

Factor payments that are not distinguishable

Question 35

What is net value added?

Answer 35

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

Question 36

The Value added method of measuring national income is also known as _________ method.

Answer 36

Production Method.

Question 37

National income is also known as

Answer 37

NNP at FC means it is the cost at factory level. NNP at MP includes taxes prevailing in that country on that product.

Question 38

Collective wants are wants that can be satisfied by _____ goods.

Answer 38

Public goods.

Question 39

Value of output is a) Sales + Change in Stock b) Sales - Change in Stock c) Sales

Answer 39

Sales + Change in Stock Because output is either sold or accumulated as unsold stock

Question 40

Difference between Gross Capital Formation and Net Capital Formation is ...?

Answer 40

DEPRECIATION!!!!

Question 41

Depreciation is also called ______________.

Answer 41

Consumption of Fixed Capital

Question 42

Define depreciation.

Answer 42

It is defined as the fall in value of fixed capital goods due to normal wear and tear and foreseen obsolescence over time.

Question 43

If factor cost is greater than market price, it means that a) Indirect Taxes < Subsidies b) Indirect Taxes > Subsidies c) Indirect Taxes = Subsidies

Answer 43

Answer: a) MP- Indirect Tax + Subsidies = Factor Cost

Question 44

Why is broker's commission on sale/purchase of second hand goods included in national income?

Answer 44

Because it is earned from rendering productive services during the current year.

Question 45

Factor cost does not reflect the effects of _____ and _____ unlike market price.

Answer 45

Taxes and subsidies

Question 46

Difference between market price and factor cost is _____ and _________

Answer 46

taxes and subsidies.

Question 47

What is leakage in an economy?

Answer 47

Outflow of money

Question 48

National Income includes a) Factor Income b) Transfer Income c) Both d) Neither

Answer 48

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.

Question 49

Difference between private income and personal income is: a) Corporate Tax b) Corporate Savings c) Dividend d) Corporate Tax and Corporate Savings

Answer 49

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.

Question 50

What do you mean by value added? (keyword: additional value)

Answer 50

It is the additional value that is created above the original cost of a good or service.

Question 51

What are three phases of national income?

Answer 51

●**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.

Question 52

Continuous sectoral flow of goods and services is known as ________.

Answer 52

REAL Flow

Question 53

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 53

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)

Question 54

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 54

Answer: b) Subsidies are given by the government to reduce the cost of production of goods and services.

Question 55

Which of the following affects national income: a) GST b) Corporate Tax c) Subsidies d) None of the above

Answer 55

Answer: c)

Question 56

What are capital goods?

Answer 56

Durable goods used in the production process

Question 57

Any activity which contributes to the GNP of a country is called a _______ activity.

Answer 57

Economic activity

Question 58

Output means ____ output at ____ unless stated otherwise.

Answer 58

gross output at MP

Question 59

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 59

Answer: a)

Question 60

Growing country is one whose ____ is rising at ______ prices.

Answer 60

GNP, constant

Question 61

The sum of net value at FC of all the producing units in domestic territory gives?

Answer 61

NDP at FC

Question 62

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 62

Answer: a) NNP at FC

Question 63

Personal income (PI)

Answer 63

NDP at FC + NFIA + Transfer Income - Undistributed Profit - Corporate Tax - (Interest Paid by Households - Interests received by Households)

Question 64

Personal Disposable Income (PDI) Formula

Answer 64

Personal Income (PI) - Personal Taxes