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Important Short Questions Chapter 1: National Income

Q.1:     Define National Income in words of Professor Alfred Marshall.

Ans:     According to Marshall “The labor and capital of a country acting on its natural resources produce annually a certain net aggregate of com­modities, material and immaterial including services of all kinds. This is the true net annual income or revenue of the country or national dividend.”

Q.2:     What are various concepts of national income?

Ans:     Following are the various concepts of national income

1)         Gross National Product G.N.P.

2)         Net National Product N.N.P.

3)         Gross Domestic Product G.D.P.

4)         National Income N.I.

5)         Personal Income P.I.

6)         Disposable Personal Income D.P.I.

7)         Per Capita Income P.C.I.

Q.3      Explain the meaning of gross domestic product.

Ans:    Market value of all final goods and services produced within a country geographical boundary during a year is called Gross Domestic Product. Or when we subtract foreign income from Gross National Product we get Gross Domestic Product,

GDP = GNP – FI.

Q.4:    Explain the meaning of Net National Product.

Ans:     If we subtract depreciation allowance or replacement cost of machines from Gross National Product we get the net national product

Net National Product = Gross National Product – Depreciation allowance

Q.5:     Explain the concept of disposable personal income.

Ans:     The income in the possession of an individual after the payment of direct taxes is called disposable personal income. It is at the disposal of the person and he can spend it according to his own free will,

Disposable personal income = personal income – direct taxes

Q.6:     write methods to measure national income.

Ans:     There are three methods to measure the national income

1)         Product method

2)         Income method

3)         Expenditure method

Q.7:     Write down the factors affecting national income.

Ans:   Factors affecting National income are:

1)         Natural resources

2)         Man-made resources

3)         Human resources

4)         Capital goods

5)         Technical know-how

Q.8:     Differentiate between real national income and nominal national income.

Ans:     Real national income means the total quantity of goods and services in a country. Therefore, real national income increases with the increase in the quantity of goods and services in the country. While nominal national income means monetary value of goods and services at the market price.

Q.9:     What is meant by the circular flow of national income?

Ans:     Circulation of national income between household and firms is called circular flow of national income.

Q.10:   What is consumption function?

Ans:   According to professor Keynes change in consumption depends upon income if income increases consumption also increases and if income falls consumption also falls. It means there exists a close relationship between income and consumption this relationship of income and consumption is called consumption function. Mathematically this relationship can be written as

C = f (Y)

Consumption is a function of income

Q.11:   What is meant by marginal propensity to consume?

Ans:     The ratio between the change in consumption and change in income is called marginal propensity to consume. To find marginal propensity to consume change in consumption is divided by the change in income,

marginal propensity to consume = change in consumption/change in income

                     MPC = (△C)/(△Y)

Q.12:   what is meant by the average propensity to consume

Ans:     The ratio between consumption and income is called average propensity to consume to find average propensity to consume consumption is divided by income,

average propensity to consume = Consumption/Income

APC = C/Y

Q.13:   What is Saving function?

Ans:     Saving is the part of income which is not spent on consumer goods. It is found by subtracting consumption expenditures from income,

Saving = Income – Consumption

     S = Y – C

Q.14:   What is meant by average propensity to save?

Ans:     The ratio between saving and income is called average propensity to save. To find average propensity to save saving is divided by income,

average propensity to save = saving/Income

APS = S/Y

Q.15:   What is meant by marginal propensity to save?

Ans:     The ratio between the change in Savings and change in income is called marginal propensity to save. To find marginal propensity to save change in saving is divided by the change in income,

marginal propensity to save = change in Saving/change in Income

or MPS = △S/△Y

Q.16:   Write Four Points of the importance of the study of national income.

Ans:     The Study of national income helps to:

1)         Analysis the economic conditions

2)         Examine the economic growth of the country

3)         Analysis of the economic problem

4)         Framing economic policies

Q.17:   Define investment.

Ans:     The expenditure done by individual firms or countries to increase capital stock is called investment for example construction of new buildings, making machinery in an industry, new sources of transport and communication, new public works program etc.

Q.18:   Define induced investment.

Ans:   Investment which depends upon the level of national income is called induced investment. Induced investment increases with the increase in national income and vice versa.

Q.19:   Define autonomous investment.

Ans:     Autonomous investment is that investment which is not influenced by the change in national income it means autonomous investment does not change with the changes in national income.

November 18, 2018

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