2) Measuring National Income - MMT

Question 1

Macroeconomics studies the…

Answer 1

‘collective’ of an economy

Question 2

How do you measure total national income?

Answer 2

1) the expenditure method
2) the income method
3) the output method

Question 3

What is the expenditure method?

Answer 3

Arrives at national income by adding up all expenditure made on goods and services during a year.

Question 4

What can income be spent on (expenditure method)?

Answer 4

Income can be spent either on consumer goods or capital goods and can be made by private individuals and households or by government and business enterprises

Question 5

What is the Income method?

Answer 5

(it involves adding factor incomes)
GDP is the sum of the 4 different types of incomes earned through the production of goods and services
so national income is calculated by adding up the rent of land,wages and salaries of employees, interest on capital , profits of entrepreneurs (including undistributed corporate profits) and incomes of self-employed people

Question 6

What is the output method (also called the value-added method or production method)?

Answer 6

To avoid double counting, only the final product is used. Double counting means counting the components twice; once when they’re made and again as part of the final product.
So, in this method the value added by each enterprise in the production of goods and services is measured.
It is done by taking the final output of an industry and subtracting inputs or counting all the payments made to the factors of production by that industry

Question 7

What can’t be recorded i the output method?

Answer 7

Unpaid work and unpaid output

Question 8

What are the other names for the output method?

Answer 8

Value-added method or production method

Question 9

Which method is best? ( The expenditure method, the income method, the output method)?

Answer 9

It doesn’t matter, national income = national output = national expenditure

Question 10

Why is it that The expenditure method, the income method, the output method give the same result?

Answer 10

Due to the circular flow of income, all factor incomes arise from the production of all goods and services and since all incomes are spent on goods and services produced, three alternative methods of measuring national income are possible, all arriving at the same outcome ( its not that simple in the real world, but the principle remains - the 3 methods should produce roughly equal amounts)

Question 11

What is central to Macroeconomics?

Answer 11

Measuring the size of a country’s national income