MBA Sem II Macroeconomics Quiz
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Questions and Answers

What is a primary role of the Household Sector in the economy?

  • To engage in international trade transactions
  • To regulate the functioning of the economy
  • To provide factors of production and consume goods and services (correct)
  • To produce goods and services for sale in the market

Which macroeconomic sector is primarily responsible for producing goods and services?

  • Government Sector
  • Foreign Sector
  • Firms Sector (correct)
  • Household Sector

What is the function of the Government Sector in the macroeconomic model?

  • To collect welfare benefits
  • To provide factors of production
  • To regulate the functioning of the economy (correct)
  • To consume goods and services

Which of the following is NOT one of the three ways to measure national income?

<p>By analyzing net exports (A)</p> Signup and view all the answers

Who compiles the National Accounts Statistics in India?

<p>The National Accounts Division in the Central Statistics Office (D)</p> Signup and view all the answers

Why are payments out of past savings excluded from National Income calculations?

<p>They are paid out of past savings or wealth. (C)</p> Signup and view all the answers

Which component is NOT included in the calculation of GDP using the expenditure method?

<p>Payments from past wealth (D)</p> Signup and view all the answers

What does the Investment (I) component of GDP include?

<p>Spending on residential and business capital (D)</p> Signup and view all the answers

Which of the following is categorized as nondurable goods in GDP consumption?

<p>Clothing (C)</p> Signup and view all the answers

What is the main focus of the Expenditure Method in measuring GDP?

<p>Total spending on final goods and services (D)</p> Signup and view all the answers

Which type of investment is considered business fixed investment?

<p>Purchasing equipment for a factory (A)</p> Signup and view all the answers

Which of the following best describes government purchases (G) in GDP calculations?

<p>Spending by the government on goods and services (C)</p> Signup and view all the answers

What is the significance of net exports (NX) in GDP calculations?

<p>It measures the balance of trade in goods and services (D)</p> Signup and view all the answers

What is the formula to calculate Gross National Income (GNI)?

<p>GDP at market prices + taxes less subsidies on production and imports (C)</p> Signup and view all the answers

Which of the following is true regarding Net Indirect Taxes?

<p>Net Indirect Taxes = Indirect Taxes - Subsidies (A)</p> Signup and view all the answers

How is Net National Income (NNI) calculated?

<p>GNI at market prices - Consumption of fixed capital (D)</p> Signup and view all the answers

What does Gross Domestic Product (GDP) at market prices include?

<p>Gross value added and indirect taxes - Subsidies (D)</p> Signup and view all the answers

What is the relationship between GNP and GDP?

<p>GNP = GDP + Net factor income from abroad (C)</p> Signup and view all the answers

What does the term 'depreciation' refer to in economic measurements?

<p>The reduction in the value of fixed assets (C)</p> Signup and view all the answers

Which of the following correctly represents the formula for Net Disposable Income?

<p>NNI + net taxes on income and wealth receivable from abroad (B)</p> Signup and view all the answers

What does the term 'final consumption expenditure' encompass in GDP calculations?

<p>Expenditures on goods and services by households and government (D)</p> Signup and view all the answers

What formula is used to calculate Gross Value Added (GVA)?

<p>Sales + Change in stocks - Value of intermediate goods (D)</p> Signup and view all the answers

What was the total Gross Domestic Product (GDP) calculated from the example given?

<p>Rs. 250 (B)</p> Signup and view all the answers

How is the Net Value Added at Market Price (MP) calculated?

<p>Sales - Purchases - Depreciation (A)</p> Signup and view all the answers

What is the value added by firm A in the example given?

<p>Rs. 3800 (D)</p> Signup and view all the answers

Which of the following is NOT included in the calculation of GDP?

<p>Sales of used goods (A)</p> Signup and view all the answers

Which intermediate costs are subtracted in calculating the GVA?

<p>Purchases (D)</p> Signup and view all the answers

What does the term 'Change in stocks' refer to in GDP calculations?

<p>Inventory rises or falls (D)</p> Signup and view all the answers

Which component contributes to the calculation of Gross Value Added (GVA)?

<p>Sales and change in inventories (A)</p> Signup and view all the answers

What distinguishes final goods from intermediate goods?

<p>Final goods are intended for final use, while intermediate goods are used as inputs in production. (C)</p> Signup and view all the answers

Which of the following reflects a key difference between nominal GDP and real GDP?

<p>Nominal GDP measures economic output at current prices, while real GDP accounts for inflation. (A)</p> Signup and view all the answers

How is gross investment defined?

<p>The addition to the capital stock of an economy during a specific period. (B)</p> Signup and view all the answers

What is the primary focus of the circular flow of income model?

<p>It shows how money moves between producers and consumers in an economy. (D)</p> Signup and view all the answers

Which of the following is NOT considered a component of national income?

<p>Transfer payments (B)</p> Signup and view all the answers

What is meant by 'value added' in economic terms?

<p>The increase in market value created at each stage of production. (D)</p> Signup and view all the answers

What is the significance of the GDP deflator?

<p>It adjusts nominal GDP for changes in price levels over time. (B)</p> Signup and view all the answers

What is the primary difference between stocks and flows in economics?

<p>Stocks refer to accumulated assets, while flows refer to rates of change over time. (B)</p> Signup and view all the answers

What does the circular flow of income illustrate?

<p>The movement of goods, services, and income among sectors (C)</p> Signup and view all the answers

In a three-sector circular flow model, what is included in the equilibrium condition Y = C + I + G?

<p>Consumption, investment, and government spending (C)</p> Signup and view all the answers

What is an example of leakages in the circular flow of income?

<p>Household savings (B)</p> Signup and view all the answers

Which market involves the trading of factors of production?

<p>Factor market (A)</p> Signup and view all the answers

In the two-sector model of circular flow of income, how is the relationship expressed?

<p>Y=C (C)</p> Signup and view all the answers

What distinguishes the household sector from the producers' sector?

<p>Households provide factors of production while producers use them (D)</p> Signup and view all the answers

In an open economy model, what additional components are factored into the equilibrium condition Y = C + I + G + NX?

<p>Net exports (A)</p> Signup and view all the answers

What do injections in the circular flow of income typically include?

<p>Investment and government purchases (C)</p> Signup and view all the answers

Flashcards

Final goods

Goods intended for final use, not for further production.

Intermediate goods

Goods used as inputs by producers to make final goods.

Gross investment

Increase in a country's capital stock (machines, buildings).

Net investment

Gross investment minus depreciation.

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Circular flow of income

Model showing the continuous flow of goods, services, and money in an economy.

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National Income

Total income earned by a country's factors of production in a given period.

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GDP

The total market value of all final goods and services produced within a country in a given period.

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Nominal GDP vs Real GDP

Nominal GDP is measured in current prices, while Real GDP accounts for inflation.

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National Income Measurement

National income can be measured by production, income generation, and final spending.

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Undistributed Profits

Part of profit not paid to factors of production.

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Household Sector

Provides factors of production (labor, land, capital) and consumes goods and services.

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Firms Sector

Produces goods and services for sale in the market.

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Government Sector

Regulates the economy (e.g., laws, taxes).

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What are the three markets in macroeconomics?

The three key markets in macroeconomics are the Goods Market, the Factor Market, and the Financial Market (or Money Market).

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What does the Goods Market represent?

The Goods Market is where exchange occurs among the four macroeconomic sectors: households, firms, government, and the foreign sector. It deals with the exchange of goods and services.

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What is the purpose of the Factor Market?

The Factor Market is where factors of production like land, labor, capital, and entrepreneurship (skills) are traded.

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What is the role of the Financial Market?

The Financial Market is where financial institutions like banks, stock exchanges, and bond markets facilitate borrowing and lending of money.

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What is the circular flow of income?

The circular flow of income is a model that represents the ongoing exchange of goods, services, and money between different sectors in an economy.

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What is the difference between a closed and open economy?

A closed economy only includes internal transactions within the country, while an open economy interacts with the global market, involving imports and exports.

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What are leakages and injections in the circular flow?

Leakages are outflows of income from the circular flow (e.g., savings, taxes, imports). Injections are inflows of income into the circular flow (e.g., investment, government spending, exports).

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What are the equilibrium conditions for different circular flow models?

In a two-sector model (households and firms), the equilibrium condition is Y=C, meaning total income equals total consumption. In a three-sector model (households, firms, government), Y=C+I+G. In a four-sector model (households, firms, government, foreign sector), Y=C+I+G+NX.

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Net Indirect Taxes

The difference between total indirect taxes (like VAT or sales taxes) and subsidies provided by the government.

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NNP at Factor Cost

The total value of all goods and services produced within a country in a year, measured at factor cost (the cost of production without the cost of indirect taxes).

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GNP vs. GDP

GNP measures the total value of all goods and services produced by a country's residents, regardless of where they are produced, while GDP measures only the production within the country's borders.

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Net Factor Income from Abroad

The difference between the income earned by a country's residents from abroad (e.g., investments) and the income earned by foreign residents within the country.

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Depreciation

The decrease in the value of capital goods (like machines and buildings) over time due to wear and tear or obsolescence.

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Gross Value Added

The value added by a firm to its production process (the difference between the value of its output and the cost of inputs).

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GDP at Market Prices

Total market value of all final goods and services produced within a country in a given period, including indirect taxes and subsidies.

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Double Counting

Error in measuring national income by including the value of intermediate goods in GDP, leading to an overestimation.

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Consumption (C)

Spending by households on goods and services for personal use.

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Investment (I)

Spending on capital goods, such as factories, machines, and new houses, that increase future production.

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Government Purchases (G)

Spending by the government on goods and services, including salaries for public sector workers.

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Net Exports (NX)

The difference between the value of exports (goods and services sold to other countries) and imports (goods and services bought from other countries).

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Durable goods

Items that last for a relatively long time, such as cars, appliances, and furniture.

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Nondurable goods

Items that are used up relatively quickly, such as food, clothing, and fuel.

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Business fixed investment

Spending by businesses on factories, equipment, and other assets used for production.

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Residential investment

Spending on new housing construction, including houses and apartments.

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Product Method

Calculates GDP by summing the value added by all firms in an economy. Value added is the difference between a firm's output value and the value of intermediate inputs used.

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Value added

The difference between the value of a firm's output and the value of the intermediate goods used in production. It represents the contribution of the firm to the production process.

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Gross Domestic Product (GDP)

The total market value of all final goods and services produced within a country's borders in a given period, typically a year or quarter.

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Changes in Stocks

The difference between a firm's opening and closing stock of goods. A positive change means more goods were produced than sold.

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Net Value Added

Value added minus depreciation. It represents the value added at market prices.

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Gross Value Added at Factor Cost

Value added at market price minus indirect taxes, plus subsidies.

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Study Notes

Macroeconomics & Business Environment

  • The course is MBA Sem II
  • The instructor is Dr. Subhendu Dutta, Department of Economics, IBS, Hyderabad

National Income & Related Aggregates

  • This section focuses on national income and related economic aggregates.

Economic Indicators

  • GDP is used to measure the state of an economy.
  • The circular flow of income shows the flow of production, income, and expenditure in an economy.
  • Key terms include:
    • Final goods and intermediate goods
    • Consumer and capital goods
    • Stocks and flows
    • Gross investment and net investment
    • Depreciation, inventories, wages, interest, profit, and rent
    • Circular flow of income
    • National Income, GDP, GNP, NDP, NNP
    • Value added
    • Market price and factor cost
    • Transfer payments
    • Personal Disposable Income
    • Nominal GDP vs. Real GDP
    • GDP deflator
    • Green Economy

Economic Wealth

  • Economic wealth depends on how resources are used to generate a flow of production.

Important Terms

  • Final and intermediate goods: An item for final use, not undergoing further production steps, is a final good. Intermediate goods are used by producers in the making of final goods.
  • Consumption and capital goods: Consumer goods (food and clothing) are for direct consumption. Capital goods (tools, machines) are used in the production process.
  • Stocks and flows: Stocks are measured at a point in time (wealth). Flows are measured over a period of time.
  • Gross investment and net investment: Gross investment is the addition to the capital stock. Net investment = Gross investment – Depreciation
  • Inventory: The stock of unsold finished goods, semi-finished goods, or raw materials.
  • Domestic Product: Measures the monetary value of goods and services produced within a country in a given time period.
  • Expenditure: The utilization or expenditure of income.
    • Household Expenditure (C): Consumption on non-durable and durable goods and services.
    • Government Expenditure (G): Payment to government employees and purchase of goods and services.
  • Gross Capital Formation: Increases to the capital stock of a nation, including buildings, equipment, and inventories.
  • Residential Investment: Spending on the construction of new houses and apartment buildings.
  • Change in Stocks: Difference between inventories at the beginning and end of a period.

National Income Identities

  • Gross Domestic Product (GDP): Market value of all final goods and services produced within a country in a given period of time.
  • Gross National Product (GNP): Total income earned by a nation's residents.
  • Net Factor Income from Abroad (NFIA): Income earned by domestic factors employed abroad, less income earned by foreign factors employed domestically.
  • Net National Product (NNP): GNP minus depreciation.
  • Market price: Includes indirect taxes.
  • Factor cost: Excludes indirect taxes.
  • Transfer payments: Transactions without commodity or factor service exchange.
    • NDP Domestic Income: Divided into income from the private sector and the public sector.
    • Components: Includes property and entrepreneurship income, savings of non-departmental enterprises.
  • Private Income: Income accruing to the private sector from domestic and international sources, including NFIA and transfer income.
    • Interest on National Debt: Income from government borrowing (bonds).
    • Current Transfers from the Government: Scholarships, unemployment benefits, etc.
  • Personal Income: Total income received by households from all sources (excluding corporate tax).
  • Personal Disposable Income (PDI): Personal income minus personal tax payments.

National Income Calculations

  • Formulae provided for calculating GDP, NDP, GNP, and NNP at market prices (MP) and factor cost (FC).

Nominal and Real GDP

  • Nominal GDP: Measured at current prices.
  • Real GDP: Measured at constant (base year) prices.
  • GDP Deflator: Measures the current level of prices relative to the base year prices and used to calculate inflation rates.

Measurement of National Income

  • GDP and GVA are used to measure economic performance.
  • National income is measured in three ways: production, income, and spending.
  • Expenditure method: Measures income as the sum of all expenditures made on final goods and services by households, firms, government, and foreigners. Components include consumption, investment, government purchases and net exports.

Product Method

  • Measures national income as the sum of net outputs/value added from all firms in a period. Steps include identifying and categorising production units and estimating gross and net value added.

Income Method

  • Measures income as the sum of factor incomes. Factors include compensation of employees, rent, royalty, interests, profit, and mixed income.

Expenditure Method

  • National income measured as the sum of all final expenditures made by households, firms, government, and foreigners, using consumption, investment, government purchases and net exports.

Questions

  • Various questions relating to domestic product, different forms of income, and various calculations exist. Multiple approaches for calculation and interpretation are given in relation to the subject matter.

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Description

Test your knowledge on national income and related economic aggregates in the context of Macroeconomics for MBA Semester II. This quiz covers essential economic indicators, the circular flow of income, and the measurement of economic wealth. Brush up on key terms and concepts to excel in your understanding of the business environment.

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