“Measurement of National Income” is a Significant Part of the Economics Syllabus for Board Exams.
FAQs on Class 12 Macroeconomics Sandeep Garg Solutions Chapter 4 - Measurement of National Income
1. Compare the national income at current prices with the national income at constant prices and describe the differences.
Input parameters | Current values of the national income | At constant prices, national income |
patterns at constant prices | will change both according to price changes and according to quantity changes. | Prices are only affected by quantity change. |
Comparatively. | National income cannot be compared between different years with this tool. | This is used more as a means to compare national incomes over time. |
Growth of economic output index | It cannot be used to measure the growth of a country's economy. | A country's economic growth can be better measured with this tool. |
2. What are Nominal gross Domestic Product and real gross domestic Product?
The nominal Gross Domestic Product is an estimate of market value of the final goods and services produced in a country during a financial year at current prices. It is also referred to as GDP at current prices.
A country's real Gross Domestic Product is defined as the market value of the final goods and services produced within its domestic territory during a financial year, as determined by using the base year prices. It is also known as GDP at constant prices.
3. What are the components of national income accounting?
National income is measured using the following methods:
Method for producing the product: Product method is also known as value addition method and is based on how much value is added to a product at each stage of production. According to the product method, the economy is typically divided into different sectors, such as fishing, agriculture, and transportation. In order to calculate national income, the total output of the companies in the economy must be added. This method provides an estimate of the contribution of each sector to the national income, which shows how the contributions of different sectors vary depending on the sector.
Methods of determining income: The national income is derived by adding up the pre-tax incomes earned by individuals and businesses in the country. It includes wages and salaries, rents from buildings and land, interest on capital, profits, etc. This method of income distribution shows how the national income is distributed among the various earning groups within the economy.
The method of expenditure: Under this method, the national income is calculated by adding up the expenditures made by individuals, businesses, and the government. Therefore, national income combines consumer spending, investments made by businesses, net exports, and government spending.
4. What is the significance of national income accounting?
Inputs and outputs of an economy can be measured using the statistics provided by national income accounting.
Government economic policy is formulated based on the data provided, and systemic changes in the economy are also recognized through the data.
The trend of economic activity level is identified through national income accounting. Data can provide explanations for a wide range of socio economic phenomena, which aid policymakers in structuring better economic policies.
In order to determine the rate of interest and to set or revise monetary policy, central banks can use national income accounting statistics.
In addition, the government uses data on GDP, investments, and expenditures to assist in deciding whether to make changes to infrastructure spending and tax rates.
Additionally, national income accounting data provides an overview of how different sectors, compared to one another, contribute to economic growth.
5. How do you explain the National Income Accounting Equation?
As illustrated in the following equation, the national income equation represents the relationship between national income and the economy's expenses, among other characteristics.
Y=C + I + G + (X-M)
Where:
Y-Income at the national level (Y)
The income or output of Y is represented. ... Output or income is represented here. In view of the fact that Y is the total value of all goods and services purchased by consumers, businesses, and governments, this is necessary for economic output. The gross domestic product is also affected by Y.
C-Consumption expenditures - Personal
Personal consumption expenditures (PCEs) are defined as imputed household expenditures defined over a specified period of time. ... The PCE Price Index measures changes in the price of consumer goods and services based on personal consumption expenditures.
I – Private investment
An investment fund that solicits public investment is considered private. Investment company exemptions in the Investment Company Act of 1940 classify private funds as such. Private investment funds include hedge funds and private equity funds, which are among the most commonly encountered.
G – Government spending
Spending on final goods and services by the government is referred to as government spending (G). Generally, this includes salaries of public servants, the purchase of military weapons, and any investment expenditures on behalf of the government. The amount does not include any transfer payments, such as social security or unemployment compensation.
X – Exports & M – Imports
(X-M) is the net export quantity in the above equation. The net export value is the difference between a country's total export value and its total import value minus the total value of its exports. The figure is positive if a country has an export surplus.
A negative net exports figure on the other hand signifies a trade deficit. In economics, trade surpluses or deficits indicate a country's balance of trade (which, in essence, is whether the country is a net exporter or importer, and how large that deficit is).