International Trade and Net Foreign Investment

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Questions and Answers

What is net foreign investment in the context of international trade?

The export-import policy of the Government

The difference between the value of imports and exports

The income earned by a country through international trade (correct)

The total value of exports and imports

What is the formula for estimating national income?

Y=C+G+I+(x-m)

Y=C+I+G+(x-m) (correct)

Y=C+I+G+x-m

Y=C+I+G+(m-x)

What is included in the category of compensation for labour?

Salaries, wages, bonuses, and medical reimbursements (correct)

Rent, royalties, and interest on loans

Insurance, pension, and interest on capital

Compensation for labour does not include any of the above

What is mixed-income in the context of national income measurement?

The income of independent workers and sole proprietorships Signup and view all the answers

What is the difference between net income from abroad and net foreign investment?

Net income from abroad is the difference between receipts and payments of factor income, while net foreign investment is the income earned through international trade Signup and view all the answers

What is included in the category of rent?

Royalties offered for assets Signup and view all the answers

What is the expected rate of return of an investment?

The return that businesses expect to earn on their investments Signup and view all the answers

What is the primary consideration in estimating national income using the income method?

The contribution of factors of production Signup and view all the answers

What is profits in the context of national income measurement?

The remaining amount after the payment of taxes and dividends Signup and view all the answers

What determines the equilibrium level of national income?

The point at which aggregate demand equals aggregate supply Signup and view all the answers

What is aggregate supply in the short run?

The total amount of goods and services produced in the economy, which is assumed to be fixed Signup and view all the answers

What is the equation for the equilibrium level of national income?

Y = C + I Signup and view all the answers

How can the government stimulate economic growth according to the Keynesian theory?

By increasing government spending or cutting taxes Signup and view all the answers

What is the assumption behind the Keynesian AS curve?

That total income is equal to total expenditure Signup and view all the answers

What is the national output in the context of aggregate supply?

The total value of goods and services produced Signup and view all the answers

What is a benefit of a country's workforce being productive?

Its citizens are healthier Signup and view all the answers

Why is it essential to budget for healthcare?

Because healthcare costs are unexpected Signup and view all the answers

What does the intersection of the consumption function and the investment function represent?

The equilibrium level of national income Signup and view all the answers

What is a result of shifting to clean, locally produced renewable energy?

Preservation of people's health and the environment Signup and view all the answers

Why is adequate nutrition crucial for women?

Both to be productive members of society and for the health and development of their children Signup and view all the answers

What is a consequence of children not receiving adequate nourishment?

Permanent physical and cognitive deficits Signup and view all the answers

What is the condition for a businessman to invest and continue making investments?

When the MEI is greater than the rate of interest Signup and view all the answers

What is the purpose of the Indian Constitution's provisions for Scheduled Castes and Scheduled Tribes?

To protect and safeguard their rights Signup and view all the answers

What is the primary objective of research and development?

To increase the stock of knowledge and develop new applications Signup and view all the answers

What is the Keynesian Multiplier?

An economic theory that asserts that an increase in private consumption expenditure raises the total GDP by more than the amount of the increase Signup and view all the answers

What does the marginal propensity to save (MPS) measure?

The proportion of income saved rather than spent on goods and services Signup and view all the answers

What is an example of government budgeting for women's nutrition?

Anganwadis Signup and view all the answers

What is the formula to calculate the Keynesian Multiplier?

1 / (1 - MPC) Signup and view all the answers

What happens to the total GDP if private consumption expenditure increases by 10 units?

The total GDP will increase by more than 10 units Signup and view all the answers

What is the marginal propensity to consume (MPC)?

The change in total consumption as a result of a change in total income Signup and view all the answers

What is the result of an increase in production according to the Keynesian Theory?

An increase in the level of income Signup and view all the answers

If the MPC is 0.5, what is the value of the Keynesian Multiplier?

2 Signup and view all the answers

What is the term used to describe the goods and services sold by a country to other countries?

Exports Signup and view all the answers

Which of the following countries is a prominent importer of Indian commodities?

Japan Signup and view all the answers

What is included in invisible items of international trade?

Travel charges Signup and view all the answers

What is the term used to describe the difference in the value of visible transactions?

Balance of Trade Signup and view all the answers

When the value of exports is more than the value of imports, it is called:

Favourable balance of trade Signup and view all the answers

What is the Balance of Payments?

The difference between the value of visible and invisible exports and the value of the invisible imports Signup and view all the answers

Which of the following is NOT an example of an Indian export?

Petroleum Signup and view all the answers

Why is an unfavourable balance of trade not desirable?

It decreases the country's revenue Signup and view all the answers

Study Notes

National Income

National income is the income earned by a country through international trade, exports, and imports.
It is estimated by taking into account the difference between the value of exports and imports (either positive or negative).

Net Foreign Investment

Net foreign investment depends on the export-import policy of the Government and the comparative price level of goods in domestic and International markets.
It is calculated by the formula: Y=C+I+G+(x-m), where Y is national income, C is consumption, I is investment, G is government spending, and x-m is net foreign investment.

Measurement of National Income

The income method of measurement of national income consists of the contribution of factors of production.
Factors of production include:
- Rent: money paid for use of land or place where production facilities are created.
- Compensation for labour: salaries, wages, bonuses, allowances, and medical reimbursements.
- Interest in the capital: interest on loans taken by organizations.
- Profits: remaining amount after payment of taxes and dividends.
- Mixed-Income: income of independent workers and sole proprietorships.

Equilibrium Level of National Income

The equilibrium level of national income is determined by the point at which aggregate demand equals aggregate supply.
Aggregate supply is the total amount of goods and services produced in the economy, assumed to be fixed in the short run.
The equilibrium level of national income can be expressed as: Y = C + I, where Y is national income, C is consumption, and I is investment.

Keynesian Theory

The Keynesian theory states that an increase in production leads to an increase in the level of income and therefore, an increase in spending.
The government can stimulate economic growth by increasing government spending or by cutting taxes, which increases disposable income and consumption.
The government can use monetary policy to lower interest rates, which increases investment and stimulates economic growth.

Aggregate Supply

Aggregate supply is the total value of goods and services produced and supplied at a particular point of time.
It comprises consumer goods as well as producer goods.
The Keynesian AS curve is drawn based on an assumption that total income is equal to total expenditure.

Keynesian Multiplier

The Keynesian Multiplier is an economic theory that asserts that an increase in private consumption expenditure, investment expenditure, or net government spending raises the total Gross Domestic Product (GDP) by more than the amount of the increase.
The value of the multiplier depends on the marginal propensity to consume and the marginal propensity to save.

Marginal Propensity to Consume (MPC) and Save (MPS)

Marginal Propensity to Consume: the change in total consumption as a result of a change in total income.
Marginal Propensity to Save: the change in total savings as a result of a change in total income.
The value of MPC allows us to calculate the size of the multiplier using the formula: 1 / (1 – MPC).

Importance of Healthcare

Healthcare can help to enhance human capital and increase productivity, boosting economic performance.
Analyzing a country’s healthcare spending phenomenon is essential.

Renewable Energy

Shifting from polluting energy sources to clean, locally produced renewable energy preserves people’s health, keeps our air and water cleaner, and increases our economy.
Promoting the use of renewable energy sources like wind, biomass, water, nuclear, and solar can provide excellent employment and new opportunities for workers.

Women and Nutrition

Women require adequate nutrition not only to be productive members of society but also because maternal nutrition has a direct impact on the health and development of the future generation.
Expenditure on nutrition for women is mandatory.

Exports and Imports

Exports are goods and services sold by a country to other countries.
Imports are goods and services purchased by a country from other countries.
India exports commodities like handicrafts, readymade garments, engineering goods, coffee, tea, tobacco, cashew kernel, fruits and vegetables, rice, fish, cotton yarn, and manufactures, iron ore, and chemicals.
India imports commodities like petroleum, oil, lubricants, metals, pearls, and precious stones.

Balance of Trade and Balance of Payments

Balance of trade is a statement showing the receipts and payments relating to the exports and imports of visible items only.
Balance of payments is the difference between the value of visible and invisible exports and the value of invisible imports.curs when the value of imports exceeds the value of exports.
A favourable balance of trade occurs when the value of exports is more than the value of imports.
An unfavourable balance of trade oc

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Description

This quiz covers the concept of net foreign investment, which is the difference between a country's exports and imports, and its impact on national income.