topic 2-NI Flashcards
(23 cards)
What is income defined as?
The total payment to the factors of production due to only productive economic activities.
Income consists of rent, wages and salaries, interest, and profit.
What are the main components of wealth?
- Personal wealth: houses, cars, land
- Business wealth: machinery, factory, building
- Social wealth: highways, schools, hospitals
Wealth is a stock measured at a point of time.
How is National Income measured?
It is measured in monetary value using three different approaches:
* Product approach
* Expenditure approach
* Income approach
All approaches result in the same total amount known as Gross Domestic Product (GDP).
What sectors are included in the economy?
- Household (private sector)
- Business/Firm (private sector)
- Government (public sector)
- Foreign (international sector)
What role does the household sector play in the economy?
It is the main sector that owns factors of production and buys goods and services, affecting the level of output.
What is the function of the firms sector?
It is the production and productive sector that utilizes factors of production and offers goods and services.
How does the government sector influence the economy?
It consumes and produces goods and services, stabilizes the economy through policies, and collects taxes.
What does the foreign sector encompass?
It involves other countries and includes exports and imports of goods and services.
What does the circular flow of income illustrate?
It describes how a country’s income flows backward and forward between the sectors in the economy.
What are the three approaches to measure National Income?
- Income approach
- Expenditure approach
- Output approach
Each approach gives the same estimates of total economic activity.
What is Gross Domestic Product (GDP)?
The market value of all the final goods and services produced by factors of production located within a country.
What is Gross National Product (GNP)?
The market value of all the final goods and services produced by residents of a country, regardless of their location.
Define market prices.
Prices actually paid by purchasers, which include indirect taxes and exclude subsidies given to producers.
What are factor costs?
The real prices earned by sellers, excluding indirect taxes and including subsidies received from the government.
What is depreciation?
Capital wears out or capital consumption.
How is Personal Income (PI) calculated?
PI = NI + Transfer Payment - SOCSO - EPF - Insurance - Retained Earnings - Corporate Tax - Undistributed Profit.
What is Disposable Income (DI)?
Actual income spent after paying personal income tax.
Calculation: DI = PI - Personal Income Tax.
What is nominal income?
Measures the value of output in a given period at current prices, not adjusted for inflation.
Define real income.
Measures changes in physical output between different time periods at constant prices, adjusted for inflation.
What is the formula for Real Income?
Real Income = (CPI base year / CPI current year) x Nominal Income
What is the formula for calculating economic growth?
Real Growth = (Real GDP current year - Real GDP base year) / Real GDP base year x 100%
List some uses of National Income.
- Standard of living comparison
- Measure economic performance
- National income planning
- Sectoral contributions
- Economic policy
- National expenditure
- Distribution
What are some problems in calculating national income?
- Illiteracy
- Lack of expertise
- Sophisticated machinery
- Double counting
- False information
- Inaccessibility
- Arbitrary definition
- Measuring quality
