National Income and Related Aggregates Test - 14

Intermediate goods play a vital role in the production process by adding value and transforming raw materials into finished products. Their value is yet to be fully realized until they are processed and incorporated into the final goods.

Domestic Income of a country can be more than its National Income. it is a true statement. This situation occurs when net factor income from abroad is negative. Hence, NDP(at factor cost) or Domestic income becomes greater than the NNP(at factor cost) or National Income.

Following are the components of net factor income from abroad:

• Net compensation of employees.
• Net income from income and entrepreneurship.
• Net retained earnings.

GNPmp = GDPmp+net income from abroad. It includes all nationals and excludes non nationals.

Nominal GNP refers to the Gross National Product measured at current prices. It is an economic indicator that measures the total value of all final goods and services produced by the residents of a country in a given period, usually a year.

A two sector economy, consists of:

• Household sector, which possesses factors of production and earns factor incomes, which are used to purchase goods and services.
• Firms/Business sector produces goods and services with the use of factors provided by the households. The factor incomes paid are used to purchase the goods and services produced.

Number of machines used in a factory is NOT a flow concept because it is a stock concept that represents the quantity of a resource at a specific point in time, rather than the rate of change or flow of that resource. Other examples of stock concepts include inventory, capital, assets, liabilities, and equity.

In macroeconomics, investment "consists of the additions to the nation's capital stock of buildings, equipment, software, and inventories during a year" or, alternatively, investment spending "spending on productive physical capital such as machinery and construction of buildings, and on changes to inventories as part of total spending" on goods and services per year.

An example of consumption goods is fruits because fruits once eaten are over. They don't lead to further production.

Measurement of National Income - Production Method (Output Method)

Output Method: In this method, national income is measured as a flow of goods and services. We calculate the monetary value of all final goods and services produced in an economy during a year.