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Questions and Answers
What is the main difference between national income at current prices and constant prices?
What is the main difference between national income at current prices and constant prices?
National income at current prices uses prevailing prices, while national income at constant prices uses fixed prices from a base year.
Explain the production method of computing national income.
Explain the production method of computing national income.
The production method calculates national income by summing the market values of all final goods and services produced by firms in a year.
What does the income method of estimating national income focus on?
What does the income method of estimating national income focus on?
The income method focuses on summing up all incomes accruing to the factors of production: land, labor, capital, and enterprise.
What are the three main sectors classified in national income estimation?
What are the three main sectors classified in national income estimation?
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How does the production method avoid the issue of double counting?
How does the production method avoid the issue of double counting?
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Why is it important to include imputed rent values in the production method?
Why is it important to include imputed rent values in the production method?
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Briefly describe one limitation of the income method in estimating national income.
Briefly describe one limitation of the income method in estimating national income.
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What effect does deducting depreciation have when calculating national income?
What effect does deducting depreciation have when calculating national income?
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Study Notes
National Income
- National income is a measurement of economic output
- Per capita income is a useful tool illustrating living standards
- It's calculated by dividing national income by population
- Population growth impacts per capita income
National Income Calculation Methods
- National income can be calculated at current prices or constant prices
- At current prices, it reflects current market values
- At constant prices, it uses a fixed price base (often a base year) and adjusts for inflation
Production Method
- This method directly measures production.
- It calculates the value added by each firm
- Adds the market value of all final goods & services to determine national income.
- Includes the output of all firms (agriculture, manufacturing, services), for a particular accounting period
- It’s suitable when production data is readily available.
- Precautions need to be taken:
- Include imputed rent from owner-occupied homes
- Avoid double counting intermediary goods and services
- Include government services
- Exclude services of unpaid homemakers
Income Method
- This method measures national income by summing factor incomes
- This approach considers the distribution of income among factors of production
- Income to the factors (land, labor, capital, and entrepreneurship) is the national income and represents the remuneration for these factors
- Accounts for foreign sector income
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Description
This quiz explores the concepts of national income, per capita income, and various methods of calculating national income. It delves into the production method and its significance in measuring economic output. Understand how population growth and inflation impact national income measurements.
