Podcast
Questions and Answers
What is included in consumption expenditure?
What is included in consumption expenditure?
- Net exports of goods
- Expenditure on durable goods and services (correct)
- Government salaries
- Income from investments
Which type of investment is not typically classified under investment expenditure by business firms?
Which type of investment is not typically classified under investment expenditure by business firms?
- Business fixed investment
- Inventory investment
- Residential investment
- Personal savings (correct)
Government expenditure does NOT include which of the following?
Government expenditure does NOT include which of the following?
- Social security benefits
- Salaries to government employees
- Public infrastructure projects
- Investment in private firms (correct)
What defines net exports?
What defines net exports?
What does national income represent in the context of a country?
What does national income represent in the context of a country?
Which of the following factors is NOT compensated through the income method?
Which of the following factors is NOT compensated through the income method?
Compensation of Employees includes which aspect of employee remuneration?
Compensation of Employees includes which aspect of employee remuneration?
Which of the following is NOT included in the calculation of national income?
Which of the following is NOT included in the calculation of national income?
What method measures national income based on spending on final goods and services?
What method measures national income based on spending on final goods and services?
The formula for national income includes which components?
The formula for national income includes which components?
Which of the following components does NOT contribute to GDP according to the Expenditure Method?
Which of the following components does NOT contribute to GDP according to the Expenditure Method?
What does investment expenditure typically encompass?
What does investment expenditure typically encompass?
Which equation correctly represents the Income-Expenditure Identity for national income?
Which equation correctly represents the Income-Expenditure Identity for national income?
Which of the following is considered a factor of production in measuring national income?
Which of the following is considered a factor of production in measuring national income?
Which type of expenditures are summed to calculate the GDP at market prices?
Which type of expenditures are summed to calculate the GDP at market prices?
What does the term 'residents' refer to in the definition of national income?
What does the term 'residents' refer to in the definition of national income?
What does Gross Operating Surplus include?
What does Gross Operating Surplus include?
What is meant by 'mixed income' in the context of self-employed individuals?
What is meant by 'mixed income' in the context of self-employed individuals?
What type of payments do taxes on production and imports represent?
What type of payments do taxes on production and imports represent?
Which method measures economic activity by adding the market values of goods and services produced?
Which method measures economic activity by adding the market values of goods and services produced?
In the Value Added Method, how is a firm's value added calculated?
In the Value Added Method, how is a firm's value added calculated?
Which forms of income are included in the Gross Operating Surplus calculation?
Which forms of income are included in the Gross Operating Surplus calculation?
Which statement accurately describes employer contributions?
Which statement accurately describes employer contributions?
What is the significance of excluding intermediate goods in the Value Added Method?
What is the significance of excluding intermediate goods in the Value Added Method?
What does Gross Value Added represent in the Value Added Method?
What does Gross Value Added represent in the Value Added Method?
Which of the following is NOT included in the calculation of Net Value Added?
Which of the following is NOT included in the calculation of Net Value Added?
How is Net National Product calculated from National Income?
How is Net National Product calculated from National Income?
What is included in the calculation of Gross National Product?
What is included in the calculation of Gross National Product?
Which statement accurately describes how GNP is different from GDP?
Which statement accurately describes how GNP is different from GDP?
What is a key component excluded from GNP calculation?
What is a key component excluded from GNP calculation?
Which formula represents the calculation of GNP?
Which formula represents the calculation of GNP?
What does Net National Product reflect?
What does Net National Product reflect?
What does net national product (NNP) primarily measure?
What does net national product (NNP) primarily measure?
Which formula correctly represents net national income (NNI)?
Which formula correctly represents net national income (NNI)?
When net national product (NNP) declines, what action do businesses typically consider?
When net national product (NNP) declines, what action do businesses typically consider?
How is net national product (NNP) affected by depreciation?
How is net national product (NNP) affected by depreciation?
What typically happens to business focus during a rise in net national product (NNP)?
What typically happens to business focus during a rise in net national product (NNP)?
Which components are subtracted to calculate net national income (NNI)?
Which components are subtracted to calculate net national income (NNI)?
Which of the following statements about net national product (NNP) is incorrect?
Which of the following statements about net national product (NNP) is incorrect?
Net national income (NNI) includes which of the following components?
Net national income (NNI) includes which of the following components?
Flashcards are hidden until you start studying
Study Notes
Concept of National Income
- National income is the aggregate of incomes earned by residents from factor services both domestically and internationally.
- Residents’ economic interests are centered on production, consumption, and investment within their country.
- Four factors of production (land, labor, capital, entrepreneurship) generate factor incomes.
Methods of Measuring National Income
Expenditure Method
- Measures economic activity through spending on final goods and services, excluding intermediate goods.
- Components of GDP:
- Private consumption expenditure (C)
- Private investment expenditure (I)
- Government expenditure (G)
- Net exports (NX)
- Income-Expenditure Identity: Y = C + I + G + NX
Components of Expenditure
- Consumption: Expenditure on goods/services sold to final users including durable goods, non-durable goods, and services.
- Investment: Expenditure by businesses on production inputs, including fixed, residential, and inventory investments.
- Government Expenditure: Spending by government entities on salaries, social security benefits, etc.
- Net Exports: Calculated as exports minus imports; positive when exports exceed imports.
Income Method
- Measures national income based on payments to factors of production.
- National Income Formula: National Income = C + G + I + T
- Compensation of Employees (C): Wages and benefits paid to employees by employers.
- Gross Operating Surplus (G): Net business income, including rent, interest, royalty, and profit.
- Income of Self Employed (I): Mixed income earned by proprietors, incorporating labor, capital, and profits.
- Taxes (T): Compulsory payments related to production and imports, minus subsidies.
Value Added Method
- Also known as the Output or Product Method; measures contributions of producing enterprises.
- Gross Value Added = Gross Output - Intermediate Consumption
- Net Value Added = Gross Output - Intermediate Consumption - Depreciation
- National Income Calculation: NNPFc = Gross Output - Intermediate Consumption - Depreciation - Net Indirect Taxes + Net Factor Income from Abroad
Gross National Product (GNP)
- Total value of goods and services produced by residents and businesses, regardless of production location.
- Includes investments made by citizens abroad but excludes foreign earned income.
- GNP Calculation: Y = C + I + G + X + Z
Net National Product (NNP)
- Represents market value of goods/services produced by citizens, calculated as GNP minus depreciation.
- Measures a nation’s actual consumption capability over a given time frame.
Net National Income (NNI)
- Defined as net national product minus indirect taxes; captures income across households, businesses, and government.
- NNI Calculation: NNI = C + I + G + NX + Net Factor Income from Abroad - Indirect Taxes - Depreciation
Studying That Suits You
Use AI to generate personalized quizzes and flashcards to suit your learning preferences.
