Economics Class Quiz on Income and Surplus

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Questions and Answers

What is not included in the cost of employment (COE)?

Contributions to provident fund

Gratuity from the employer

Payments made by employees

Insurance company contributions (correct)

Which of the following does NOT contribute to operating surplus?

Wages paid to employees (correct)

Profit earned by the entrepreneur

Rental income

Interest income from loans

What type of rent is associated with self-occupied properties?

Actual rent

Royalty income

Market rent

Imputed rent (correct)

Which of the following describes royalty income?

Income from leasing sub-soil assets Signup and view all the answers

How is profit defined in the context of entrepreneurship?

Residual income after paying all production costs Signup and view all the answers

Which of the following is true about interest income?

Includes actual and imputed interest for production units Signup and view all the answers

What is a purpose of profit earned by an enterprise?

Corporate tax Signup and view all the answers

Which term refers to the income received for lending funds?

Interest Signup and view all the answers

What is included in current transfers from the government?

Scholarships and unemployment allowances Signup and view all the answers

When are net current transfers from the rest of the world considered positive?

When transfers received from abroad exceed transfers paid abroad Signup and view all the answers

Which of the following is excluded from personal income?

Indirect business taxes Signup and view all the answers

What does disposable personal income represent?

Income available for consumption or savings Signup and view all the answers

What is the Gross Domestic Product at Factor Cost (GDPFC) calculated from the given data?

1,300 crores Signup and view all the answers

The calculation of private income includes deducting which of the following?

Undistributed profits Signup and view all the answers

Which component has a negative impact on the Gross Domestic Product calculation?

Net Exports Signup and view all the answers

How much does the consumption of fixed capital amount to in the National Income calculation?

10 crores Signup and view all the answers

Which of the following can potentially make personal income higher?

Higher unemployment benefits Signup and view all the answers

Which item does NOT contribute positively to private income?

Income taxes paid by individuals Signup and view all the answers

In calculating National Income, what is the total final consumption expenditure of both private and government sectors?

450 crores Signup and view all the answers

What is the value of imports included in the National Income calculation?

20 crores Signup and view all the answers

What effect do retained earnings have on personal income?

They are excluded from personal income calculations Signup and view all the answers

What is the total increase in stock when calculating National Income?

15 crores Signup and view all the answers

Which of the following is a component of the mixed income of self-employed in National Income?

35 crores Signup and view all the answers

How is the net factor income from abroad presented in the calculations?

-5 crores Signup and view all the answers

What is the value of net domestic product at market price (NDPMp) according to the provided data?

3900 crores Signup and view all the answers

Which of the following factors was not included in the calculation of NNP at factor cost (NNPFC)?

Net indirect taxes Signup and view all the answers

What is the value of gross domestic product at market price (GDPMp) in the example provided?

385 crores Signup and view all the answers

In the calculation of NDP using the expenditures method, which of the following is deducted to account for depreciation?

Consumption of fixed capital Signup and view all the answers

What is the net export (X-M) value given in the data?

30 Signup and view all the answers

Which of the following components was added to determine NNP at factor cost from NDPMp?

Net factor income from abroad Signup and view all the answers

In the provided calculations, what role does net indirect taxes play?

Decreases the amount of NNP Signup and view all the answers

How is 'mixed income of self-employed' treated in the calculation of national income?

Included in operating surplus Signup and view all the answers

Which of the following best defines non-economic activities?

Activities that are produced but not exchanged in a market, hence lack market value Signup and view all the answers

What is an example of a non-economic activity?

Housekeeping done out of love for family members Signup and view all the answers

Which statement accurately describes a normal resident?

An institution that has its economic activities centered in a specific country Signup and view all the answers

Which of the following is NOT included in the definition of normal residents?

Foreign tourists visiting for recreation Signup and view all the answers

The concept of 'Center of Economic Interest' implies which of the following?

Being engaged in earning, spending, and accumulation within a specific territory Signup and view all the answers

Why are goods produced for self-consumption not included in national income?

They cannot be classified as economic transactions due to lack of market exchange Signup and view all the answers

Which option represents activities that would justifiably be classified as economic activities?

Conducting a market research survey for profit Signup and view all the answers

Which group is correctly identified as normal residents of a country?

Local entrepreneurs running their businesses Signup and view all the answers

What is the relationship between basic price and market price?

Basic Price + Production Tax - Production Subsidy = Market Price Signup and view all the answers

Which of the following accurately describes Gross National Product at Market Price (GNPMP)?

GNPMP equals Gross Domestic Product at Market Price plus net factor income from abroad. Signup and view all the answers

What differentiates market price from factor cost?

Net indirect taxes, i.e., Indirect taxes minus subsidies Signup and view all the answers

If net factor income from abroad is positive, which statement is true?

National income will be greater than domestic factor incomes. Signup and view all the answers

What does Net National Product at Market Price (NNPMP) represent?

Net market value produced by residents after accounting for depreciation and foreign income. Signup and view all the answers

Which formula accurately describes Gross Domestic Product at Factor Cost (GDPFC)?

GDPFC = GDPMP - Net Indirect Taxes Signup and view all the answers

What does Net Domestic Product at Market Price (NDPMP) account for?

Market value of domestic productions adjusted for depreciation. Signup and view all the answers

What is the primary component of Gross Domestic Product at Market Price (GDPMP)?

The gross market value of all final goods and services produced in the domestic territory. Signup and view all the answers

Study Notes

Chapter 6: Determination of National Income

This unit covers national income accounting and Keynesian theory.
National income is the net value of all economic goods and services produced within a country in one year, plus net factor income from abroad.

Unit 1: National Income Accounting

National income accounting is a system of macroeconomic accounts that tracks the production of goods and services, from their initial stage to final disposal.
Simon Kuznets and Richard Stone pioneered national income accounting.
The Central Statistical Organisation (CSO) within the Ministry of Statistics and Programme Implementation (MoSP & I) compiles national account statistics at the national level.
State Directorates of Economics and Statistics (DESs) handle the compilation at the state level.

Unit 2: Keynesian Theory

Keynesian theory is a macroeconomic theory developed by John Maynard Keynes explaining how income is determined.
This unit looks at income determination in single-sector and multi-sector models.

The Two-Sector Model

This model involves two sectors: households and firms.
Households own factors of production and consume goods/services produced by firms.
Firms produce goods/services and sell to households.

Circular Flow

Circular flow depicts a continuous flow of goods and money between the sectors in an economy.
The outer loop represents the flow of goods and services (factors of production to firms, production to households).
The inner loop represents the flow of money payments (factor payments from firms to households, consumption expenditure from households to firms).

Aggregate Demand (AD)

Aggregate demand (AD) in a simple economy is the total value of goods and services demanded by households and firms in an economy.
AD = C + I (where C is consumption expenditure and I is investment expenditure)

Aggregate Supply (AS)

Aggregate supply is the total production of goods and services that all producers in an economy supply in a given period (equal to national income).
AS = National Income

Consumption Function (C)

This function shows the relationship between aggregate consumption and disposable income.
Consumption (C) = Autonomous consumption (c̄) + Marginal Propensity to Consume (MPC) x Income (Y).

Saving Function (S)

This function shows the relationship between saving and income
Saving (S) = -Autonomous saving + Marginal Propensity to Save (MPS) x Income (Y).

Equilibrium Level of National Income

The equilibrium level of income (Y) in a two-sector model is where AD = AS (consumption plus investment equals national income).

Other Factors Influencing National Income

Government expenditure - Government spending on goods and services
Net exports - Exports minus imports

Multiplier Effect

The multiplier shows how an initial change in investment expenditure can create a larger change in national income.
Higher the MPC (marginal propensity to consume), the higher the investment multiplier.

Equilibrium with factors other than investment (three-sector model)

This model includes a third sector—the government—and analyzes the effect of governmental functions on national income and how equilibrium is reached.

Equilibrium in a four-sector model

Equilibrium involves the four sectors (household, firms, government and foreign) interaction in the flow of goods and national income, as exports & imports are considered as part of the aggregate expenditure (AD) and leakages from the country's economy.

Limitations of National Income Computation

Lack of agreed-upon definition
Distinguishing final goods from intermediate goods
Difficulty of incorporating transfer payments
Difficulty of valuing newly produced goods

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Description

Test your understanding of key concepts in economics, including cost of employment, operating surplus, and various types of income such as profit and interest. This quiz covers fundamental topics related to GDP and personal income within the context of economic analysis.