FOR UNDER ACHIEVERS
Part – B
MACRO ECONOMICS
UNIT VI: NATIONAL INCOEM AND RELATED AGGREGATES ( 15 MARKS)
1 MARKS QUESTIONS
01.
Define macro Economics.
Ans: The branch of economics deals with the the economic parameters at the level of
the economy as a whole.
02.
Give two examples of Macro economic variables.
Ans: National income, government budgeting, FOREX
03.
What is domestic territory?
Ans. All those areas from where an economy gets its domestic income. It includes
political boundaries, embassies, Fleets, aircrafts , shipping vassals of a concerned
country functioning in other countries.
04.
To whom you called the resident of a country?
Ans. A person or the firm working in a country for more than a year and his/its
economic interests lie in that country.
05.
What are finished goods?
Ans : Goods which are directly consumed by the household or the firms and are not
resold.
06.
What are intermediate goods?
Ans: The non durable goods which are used to produce other goods.
07.
Define capital goods.
Ans. The durable goods which are used to produce other goods.
08.
Define circular flow of Income.
Ans. The flow of income from one sector to another sector of the economy.
09.
What are three phases in which the income flow in an economy?
Ans. Income, disposition and production.
10.
What is the difference between national product and domestic product.
Ans. Domestic product is the value of final goods and services produced by residents
and the nonresidents with in the domestic territory of a country in a year where as
national income is product is the value of final goods and services produced by
residents of a country in a year.
11.
Define National income
Ans It is the sum total of factor income generated by the normal residents of a
country in a year.
12.
Define personal income.
Ans It is the total income received by the households of a country from all the
sources.( Earned as well as Transfers)
13.
Define private income.
Ans. It is the total income received by the private sector of a country from all the
sources.( Earned as well as Transfers)
14.
What is personal disposable income?
Ans. It is the total income received by the households that they can use for
consumption expenditure and savings.
15.
What are transfer payments?
Ans. They are the unilateral payments. No good or the service is exchanged for them.
(3 / 4 marks questions)
1. Distinguish between real flow and money flow.
Ans. Real flow is the flow of goods and services from one sector to another sector of
the economy. The monetary flow is the flow of money from one sector to another
sector of the economy.
2. Distinguish between domestic income and national income.
Ans. Domestic income is the income generated by residents and the nonresidents
with in the domestic territory of a country in a year where as national income is the
income generated by the residents of a country in a year.
3. When will be domestic factor income greater than national income?
Ans. When the net factor income from abroad is negative.
4. Differentiate between nominal national income and real national income.
Ans. When national income is calculated on the basis of current year prices it is
nominal national income and when it is estimated on base year prices it is real
national income.
5. What are the components of private income?
Ans It is sum total of Factor income received by private sector from NDP at FC, net
domestic product at factor cost, Current transfers from govt. and abroad and interest
on public debt.
6. What is difference between personal disposable income and national disposable
income?
Ans. Personal disposable income is the income from all sources at the disposal of
house holds which they use for consumption expenditure or savings. National
disposable income is the income from all sources at the disposal of an economy.
7. Show how the sum of value added is equal to sum of factor incomes.
Ans. Net value added at factor cost is always equal to sum total of factor income i.e.
compensation of employee, rent, interest and profit.
8. What are the components of aggregate expenditure?
Ans. Private final consumption expenditure, Government’s final consumption
expenditure, Gross domestic capital formation and net exports.
9. From following data, calculate :-
a)NNPFC
and
b)
NDP at FC
Rs. in crores
I)
II)
III)
IV)
V)
Depreciation
Indirect taxes
Subsides
GNP at MP
Net factor income from abroad
2400
3600
300
17450
1600
Ans. a) NNP @ fc= IV-I -II+III
B) NDP @ fc= IV-I-V-II+III
10.
1.GDP at FC
2.Net indirect taxes
3.Depreciation
4.Net factor income from abroad
Calculate i)GDPMP ii) GNPMP
iii) NNPMP
v) NDPMP
vi) NDPFC
Ans.
i) 1 + 2
ii) 1 + 4 - 2
iii) 1 – 3 + 4 + 2
iv) 1 – 3 + 4
v) 1 – 3 + 2
vi) 1 – 3
25,215
1,575
1,000
40
iv) NNPFC
11. Calculate (i)Private income, (ii) Personal income, and (iii)Personal disposable
income.
rs. in crores
i) National income
ii) Corporate profit tax
iii) National debt interest
iv) Direct personal tax
v) Saving of private corporate sector
vi) Current transfer from rest of world.
vii) Saving of non departmental public enterprises
viii) Current transfer form Govt. administrative departments
ix) Income from property and entrepreneurship accruing to govt.
administrative departments.
Ans: (i) i – vii – ix + vi +viii + iii
(ii) Private income – ii – v
(iii) Personal income – iv
14.
Calculate net national disposable income.
i)
Gross factor product at MP
ii)
Net factor income from abroad
iii)
Net indirect taxes,
iv)
Consumption of fixed capital
v)
Net current transfer form rest of world.
Ans. i – iv + ii + v
2500
25
30
75
50
30
10
70
75
1000
-20
120
100
50
15.
Explain the main steps in income method of estimating national income.
Ans. a) Classification of the Economy (Primary, Secondary and tertiary sector)
b) Classification of factor income
c) Estimating factor income in three sectors
d) Estimation of national income from NDP @ fc
16.
Categories the following into intermediate goods and final goods. Give reasons
for your answer.
i)
A new car purchased by Taxi-Driver
ii)
Stationery purchased by Govt.
iii)
Wheat purchased by household.
i) Final good because it is capital.
ii) Intermediate good
iii) Final good
Ans.
(06 Marks questions)
1)
Explain the circular flow of income in a three sector economy.
Ans: Take house hold sector, Producing sector and the Government Sector and show the
flow of income between them.
2)
Explain the income method of estimating national income.
Ans.
a) Classification of the Economy (Primary, Secondary and tertiary sector)
b) Classification of factor income
c) Estimating factor income in three sectors
d) Estimation of national income from NDP @ fc
3.
Explain the expenditure method of estimating national income.
i) Classification of expenditure
ii) Calculation of GDP
iii) Estimation of national income.
4.
Differentiate between factor payment and transfer income. Explain briefly the
concept of mixed income of self employed.
Ans. Factor payment is the bilateral income received by the factors of production
for their services in the production where as transfer income is the unilateral payment.
No good or the service is exchanged for it.
Mixed income is the income of self employed persons which can not be separated in
different factor incomes.
5.
State the precautions that must be taken in income method.
a) Transfer income should not be included.
b) Income received after selling second hand goods should not be included.
c) Imputed rent of self occupied houses should be included.
6.
State the precautions that must be taken in expenditure method.
a) Transfer payments should not be included.
b) Expenditure made on second hand goods should not be included.
c) Imputed rent of self occupied houses should be included.
7.
State the precautions that must be taken in value added method.
a) Value of second hand goods should not be included
b) Value of services for self consumption should not be included.
c) Imputed rent of self occupied houses should be included.
8.
Calculate National Income by i) Income Method
i) Govt. final consumption expenditure
ii) Profits
iii) Net Indirect tax
iv) Private final consumption expenditure
v) Net exports
vi) Compensation of employees
vii) Rent
viii) Interest
ix) Net factor income from abroad.
ii) Expenditure Method.
Rs. In crores
1000
700
110
1500
-20
1200
200
270
30
x) Mixed income
xi) Gross domestic capital formation
xii) Net domestic capital formation
600
700
600
Ans. a) National income by income method:
vi + vii +viii + ii + x + ix
b) National income by expenditure method:
i + iv + xii + v + ix – iii
Basic formulae of National Income Accounting
1. GROSS – Depreciation = NET
2. NET + Depreciation = GROSS
3. DOMESTIC PRODUCT + net factor income from abroad = NATIONAL
PRODUCT.
4. NATIONAL PRODUCT - net factor income from abroad = DOMESTIC
PRODUCT
5. MARKET PRICE – net indirect taxes = FACTOR COST
6. FACTOR COST + net indirect taxes = MARKET PRICE
7. COMPENSATION OF EMPLOYEE = wages and salaries in cash and in kind +
employer’s contribution to social security + retirement pension
8. OPERATING SURPLUS = rent + interest + profit
9. PROFIT = dividends + corporate tax + undistributed profit
10. VALUE OF OUT PUT = sales + change in stock
11. CHANGE IN STOCK = closing stock – opening stock
12. GROSS VALUE ADDED = value of output – intermediate consumption
13. NET INDIRECT TAXES = indirect taxes – subsidies
14. NET FACTOR INCOME FROM ABROAD = factor income received from
abroad – factor income paid to abroad.
15. NET EXPORTS = exports – imports
16. GROSS DOMESTIC CAPITAL FORMATION = gross domestic fixed capital
formation + change in stock
CALCULATION OF NATIONAL INCOME BY INCOME METHOD
COMPENSATION OF EMPLOYEES
+ RENT
+ INTEREST
+ PROFIT
+ MIXED INCOME (IF GIVEN)
_________________________________________
= NDP @ fc
+ NET FACTOR INCOME FROM ABROAD
_________________________________________
= NNP @ fc
CALCULATION OF NATIONAL INCOME BY VALUE ADDED
METHOD
VALUE OF OUTPUT
- INTERMEDIATE CONSUMPTION
_____________________________________
= GDP @ mp
- CONSUMPTION OF FIXED CAPITAL
_____________________________________
= NDP @ mp
+ NET FACOR INCOME FROM ABROAD
______________________________________
= NNP @ mp
- NET INDIRECT TAXES
_______________________________
= NNP @ fc
CALCULATION OF NATIONAL INCOME BY VALUE ADDED
METHOD
PRIVATE FINAL CONSUMPTION EXPENDITURE
+ GOVT. FINAL CONSUMPTION EXPENDITURE
+ GROSS DOMESTIC CAPITAL FORMATION
+ NET EXPORTS
= GDP @ mp (If Domestic capital formation is NET the it comes NDP @ mp)
- CONSUMPTION OF FIXED CAPITAL
_____________________________________
= NDP @ mp
+ NET FACOR INCOME FROM ABROAD
______________________________________
= NNP @ mp
- NET INDIRECT TAXES
_______________________________
= NNP @ fc
CALCULATION OF NET NATIONAL DISPOSABLE INCOME AND
GROSS NATIONAL DISPOSABLE INCOME
NNP @ mp
+ NET CURRENT TRANSFERS FROM ABROAD
= NET NATIONAL DISPOSABLE INCOME
+ DEPRECIATION
= GROSS NATIONAL DISPOSABLE INCOME
CALCULATION OF PRIVATE INCOME, PERSONAL INCOME NAD
PERSONAL DISPOSABLE INCOME
NATIONAL INCOME ( NNP @ fc)
- INCOME FROM PROPERTY AND ENTERPRENEURSHIP OF GOVT
DEPARTMENTAL ENTERPRISES
- SAVINGS OF NON DEPARTMENT ENTERPRISES
= FACTOR INCOME FROM NATIONAL PRODUCT ACCRUING TO
PRIVATE SECTOR
+ NET CURRENT TRANSFERS FROM GOVT.
+ NET CURRENT TRANSFERS FROM ABROAD.
+ PUBLIC DEBT INTEREST
= PRIVATE INCOME
- CORPORATE TAX/ PROFIT TAX
- CORPORATE SAVINGS/ UNDISTRIBUTED PROFIT/RETAINED
EARNINGS
= PERSONAL INCOME
- DIRECT TAXES
- MISCELLANEOUS RECEIPTS OF GOVT ADMINISTRATIVE
DEPARTMENTS ( If given)
PERSONAL DISPOSABLE INCOME
PERSONAL DISPOSABLE INCOME = CONSUMPTION EXPENDITURE
BY HOUSEHOLDS + HOUSEHOLD SAVINGS
FOR UNDER ACHIEVERS
Part – B
MACRO ECONOMICS
UNIT – 08
DETERMINATION OF INCOME AND EMPLOPMENT ( 12 Marks)
01 MARKS QUESTIONS
01.
What is aggregate demand ?
Ans: Sum total of consumption expenditure and investment
expenditure
02.
What is aggregate supply?
Ans. Sum total of consumption expenditure and savings
03.
What is consumption function?
Ans. Functional relationship between consumption and the income.
04.
What is meant by average propensity to consume ?
Ans. Ratio of Consumption and income
05.
What is the relation between MPS and MPC?
Ans. MPS + MPC = 1
06.
What is the value of MPC when MPS is zero?
Ans. 1
07.
What can be maximum value of MPS?
Ans. 1
08.
What is meant by full employment?
A situation where all those who want to work at the prevailing
wage rate are working except those who are frictionally and
structurally unemployed.
09.
What is investment multiplier?
Ans. It is the ratio of change in income and change in investment.
10.
Name the components of AD.
Ans. Private Consumption, govt. consumption, investment
expenditure and net exports
11.
What is relationship between APC and APS?
Ans. APC + APS = 1
12.
If APS is 0.6, how much will be APC ?
Ans. APC = 1 – APS
13.
If APC is 0.7, how munch will be APS?
Ans 0.3
14.
If MPC is 0.75, what will be MPS?
Ans. 0.25
15.
The disposable income is Rs. 1200 crores and the level of
consumption is Rs. 800 crores. Calculate APC.
Ans. APC = C / Y
16.
What is meant by investment?
Ans. Expenditure made on capital goods
17.
Give the formula of investment multiplier in term of MPC.
Ans. K = 1 / 1 – MPC
18.
Give the formula of investment multiplier in the term of MPS.
Ans. K = 1/ MPS
If the value of multiplier is 4, what will be MPC, MPS ?
MPC = 0.75 and MPS = 0.25
What is deficient demand?
Ans. AD less than its level of full employment.
19.
20.
21.
What is excess demand?
Ans. When AD is more than its level of full employment.
22.
What is fiscal policy?
Ans. The policy regarding the govt. estimates regarding its income
and expenditure.
23.
What is monetary policy?
Ans. The policy regarding the controlling of credit and money
supply.
24.
Name two measures to reduce inflationary gap?
Ans. Raising the reserve ratios, bank rate, increasing the taxes or
reduction in govt. expenditure.
25.
26.
Name two measures to reduce deflationary gap.
Ans. Reducing reserve ratios, Decreasing taxes , increasing public
expenditure.
Why is inflationary gap arising?
Increase in household consumption expenditure, Increase in govt.
expenditure, increase in investment, increase in exports and
decrease in imports.
( 3 / 4 marks questions)
01.
What are the components of demand?
Ans. Private Consumption, govt. consumption, investment expenditure and
net
exports
02.
What is equilibrium income ?
Ans. Income where AD = AS
03.
Distinguish between APC and MPC. The value of which of these two can be
greater than one and when ?
Ans. APC = C / Y where as MPC = C / Y
The value of APC can be greater than one if consumption is more than income
04.
Explain voluntary and involuntary employment.
Ans. Voluntary unemployment means people are unemployed as they are not
ready to work on prevailing wage rate. Involuntary unemployment means
people are ready to work at prevailing wage rate but do not find gainful
employment for themselves.
05.
What is meant by investment multiplier? Explain the relationship between
MPC and multiplier.
K = change in income / change in investment. K is positively related with
MPC.
06.
Explain briefly the effect of excess demand on output, employment and price.
Ans. Only the price level will increase and the rest two remain same as there
is full employment situation.
Explain briefly the effect of deficient demand on output, employment and
price.
Ans. All the three will fall.
07.
08.
With the help of diagram, explain the concept of inflationary gap.
Ans. The gap between excess demand and the full employment level AD.
09.
Differentiate between inflationary gap and deflationary gap.
Ans. The gap between deficient demand and the full employment level AD.