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B.COM.HONS. SEMESTER 4

FUNDAMENTALS OF
BUSINESS
ECONOMICS -2

UNIT : 1 The Level of

Overall Economic Activity

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 CHAPTER 1 : THE LEVEL OF OVERALL ECONOMIC
ACTIVITY
Sr.No. UNIT 1 Page
No
1 NATIONAL INCOME 2
2 CONCEPTS OF NATIONAL INCOME 3
3 PERSONAL AND DISPOSABLE INCOME 3
4 CIRCULAR FLOW OF INCOME 4
5 MEASUREMENT OF NATIONAL 5
INCOME
6 PROBLEMS AND DIFFICULTIES IN 6
CALCULATING NATIONAL INCOME
7 BUSINESS CYCLE 7
Section A : Long Question 14
Section B : Short Question 14
Section C : Multiple Choice Questions 14
Reference Books 23

1
 Chapter 1 : THE LEVEL OF OVERALL ECONOMIC ACTIVITY

1. NATIONAL INCOME
National income is defined as the value of all final goods and services produced by
the normal residents of a country, whether operating within the domestic territory of
the country or outside, in a year.
NATIONAL INCOME AGGREGATES
• National Income at Current Price: Current Prices refer to the prices prevailing in the
market during the year for which estimates are made.
• National Income at Constant Price: Constant Prices refer to the prices prevailing in
the market in the base year. National income is measured at both the levels in order to
enable a comparison
PER CAPITA INCOME
This refers to an individual's share of the national income. It is calculated to
understand the economic growth and development of a country.
• India has one of the largest economies in the world in terms of its gross domestic
product (GDP).
• However, India has such a large population that we have has an extremely low per
capita GDP.
• This figure is determined by dividing a nation's GDP by its population.
• As a result of its low per capita GDP, India is considered a developing country
MARKET PRICE V/S FACTOR COST
A commodity when goes to the market, indirect taxes are imposed on it. This is the
market price. When we deduct the net indirect taxes we get factor cost.
DOMESTIC V/S NATIONAL
• A concept which includes the contribution of the domestic sector alone and not of the
foreign sector is the domestic concept
• When we add the contribution of the foreign sector we get national concept.

2
 2. CONCEPTS OF NATIONAL INCOME
I. DOMESTIC PRODUCT:
1. Gross Domestic Product:
a. GDP at market price: it is the market value of total value of goods and services
produced within the country during a year.
b. GDP at factor cost: Net value added + Depreciation.
GDP at factor cost= GDP at market price – Indirect taxes + Subsidies.
2. Net Domestic Product: it is the value of net output of the economy during a year.
(GDP at factor cost – Depreciation.)
3. Nominal and Real GDP: When GDP is measured on the basis of current prices, it
is called GDP at current prices or nominal GDP. On the other hand, When GDP is
calculated on the basis of the fixed prices in some year, it is called GDP at constant
prices or Real GDP.
II. NATIONAL PRODUCT:
a. Gross National Product (GNP): it is the total measure of the flow of goods and
services at market value resulting from current production during a year in a country,
including net income from abroad.
1. GNP at market Prices: GDP at Market Prices + Net income from abroad.
2. GNP at Factor cost: GNP at market prices – Indirect taxes + Subsidies.
b. Net National Product (NNP): Gross National Product – Depreciation.
1. NNP at market Prices: GNP at market prices – Depreciation.
2. NNP at factor cost: NNP at market prices – Indirect Taxes – Subsidies.
3. PERSONAL AND DISPOSABLE INCOME
Disposable income (DI) is the total income that can be used by the household sector
for either consumption or saving during a given period of time, usually one year.
Personal income (PI) is the total income received by the members of the domestic
household sector, which may or may not be earned from productive activities during
a given period of time, usually one year.

3
Disposable income is after-tax income that is officially calculated as the difference
between personal income and personal tax and nontax payments. In the numbers
game, personal tax and nontax payments are about 15 percent of personal income,
which makes disposable personal income about 85 percent of personal income. The
derivation of disposable income (DI) from personal income (PI) by subtracting
personal taxes (PT) is illustrated in this equation:
DI=PI – PT
A reasonable question might arise: "Of what use is disposable income in the study of
the macro economy?" After all, national income measures the total income EARNED
by factors of production and personal income measures the total income RECEIVED
by the household sector. Disposable income provides useful information about the
amount of income received by the household sector that is actually available for
spending. The key is that a portion of personal income is gobbled up by income taxes.
While the household sector officially receives personal income, the government
sector is primed and ready to extract a portion of this personal income in income
taxes.
4. CIRCULAR FLOW OF INCOME

4
5. MEASUREMENT OF NATIONAL INCOME
1. Production method
In this method
• The total products produced in the economy are calculated for the year and the
value is added without double counting. The economy is classified into sectors like
Agricultural, industrial, fisheries, forest, direct services and foreign transactions etc.
• In each sector, we can find the value of final goods and services.
• In the international transactions, net foreign income is calculated by
subtracting the total imports from the total exports and added to the national income
• The results of these sectors, when combined, gives the national income or
national product
• The census or product method can be expressed through the formula: O = C + I
Where, O stands for output, C stands for consumption of goods, I stands for
investment goods
2. Income Method
• According to this method, Net incomes of individuals and business houses
during a year are added to know the national income.
• Only those incomes earned and received for producing goods and for rendering
services are to be counted
• Transfer payments such as old age pensions , widow pensions and
unemployment benefits etc should not be counted as these are the incomes received
without contributing to the production.
• People get incomes in the form of Rents, wages or salaries, interest and profit
• The formula is Y = C + S
Here, Y stands for Total Income, C stands for consumption and S stands for Savings
3. Expenditure Method
 One man‟s income is another man‟s expenditure

5
Therefore national income can be arrived at by adding the total expenditure of
individual and business firms during a year
Expenditure or outlay on final products takes place in three ways:
 Expenditure by consumers on goods and services
 Expenditure by entrepreneurs on capital or investment goods
 Expenditure by government on consumption and capital goods
The formula for this method is Y = C + I (Here Y stands for total expenditure, C
stands for consumption expenditure, I stands for investment expenditure.
COMPARISON OF THE THREE METHODS
 The Product method is very suitable for primary sector such as agriculture
industries etc.
 The income method is suitable for service sectors.
 The Expenditure method is only for the calculation of identical relationship
between three methods. It is because we may not get the details of all the expenditure
correctly.
6. PROBLEMS AND DIFFICULTIES IN CALCULATING NATIONAL
INCOME
PROBLEMS:
 Black Money : It has created a parallel economy - unreported economy which
is equivalent to the size of officially estimated size of the economy
 Non-Monetization : In most of the rural economy, considerable portion of
transactions occurs informally
 Growing Service Sector : growing faster than Agricultural and Industrial
sectors… value addition in legal consultancy, health service ,financial and business
services is not based on accurate reporting.
 House Hold Services : It ignores domestic work and house keeping services
 Social Services : It ignores volunteer and unpaid social services. (Mother
Teresa‟s social service)
 Environment Cost : It does not distinguish between environmental-friendly and
environmental-hazardous industries … cost of polluting industries is not included in
the estimate.

6
 DIFFICULTIES:
Conceptual
• Inclusion of Services
• Indentifying intermediate goods
• Identifying factor incomes
• Valuation of inventory changes
• Income of foreign companies
Practical
• Lack of occupational specialization
• Non-monetized sector
• Unreported illegal income
• Non-availability of reliable statistical data

7. BUSINESS CYCLE:

Meaning of Business Cycle:

The period of high income, output and employment has been called the period of expansion,
upswing or prosperity, and the period of low income, output and employment has been
described as contraction, recession, downswing or depression. The economic history of the free
market capitalist countries has shown that the period of economic prosperity or expansion
alternates with the period of contraction or recession.

These alternating periods of expansion and contraction in economic activity has been called
business cycles. They are also known as trade cycles. J.M. Keynes writes, “A trade cycle is
composed of periods of good trade characterized by rising prices and low unemployment
percentages with periods of bad trade characterized by falling prices and high unemployment
percentages.”

A noteworthy feature about these fluctuations in economic activity is that they are recurrent and
have been occurring periodically in a more or less regular fashion. Therefore, these fluctuations

7
have been called business cycles. It may be noted that calling these fluctuations as „cycles‟
means they are periodic and occur regularly, though perfect regularity has not been observed.

The duration of a business cycle has not been of the same length; it has varied from a minimum
of two years to a maximum of ten to twelve years, though in the past it was often assumed that
fluctuations of output and other economic indicators around the trend showed repetitive and
regular pattern of alternating periods of expansion and contraction.

However, actually there has been no clear evidence of very regular cycles of the same definite
duration. Some business cycles have been very short lasting for only two to three years, while
others have lasted for several years. Further, in some cycles there have been large swings away
from trend and in others these swings have been of moderate nature.

A significant point worth noting about business cycles is that they have been very costly in the
economic sense of the word. During a period of recession or depression many workers lose
their jobs and as a result large-scale unemployment, which causes loss of output that could have
been produced with full employment of resources, come to prevail in the economy.

Besides, during depression many businessmen go bankrupt and suffer huge losses. Depression
causes a lot of human sufferings and lowers the levels of living of the people. Fluctuations in
economic activity creates a lot of uncertainty in the economy which causes anxiety to the
individuals about their future income and employment opportunities and involve a great risk for
long-run investment in projects.

Even boom when it is accompanied by inflation has its social costs. Inflation erodes the real
incomes of the people and makes life miserable for the poor people. Inflation distorts allocation
of resources by drawing away scarce resources from productive uses to unproductive ones.
Inflation redistributes income in favour of the richer sections and also when inflation rate is
high, it impedes economic growth.

About the harmful effects of the business cycles Crowther writes, “On the one hand, there is the
misery and shame of unemployment with all the individual poverty and social disturbances that
it may create. On the other hand, there is the loss of wealth represented by so much wasted and
idle labour and capital.”

Phases of Business Cycles:

8
Business cycles have shown distinct phases the study of which is useful to understand their
underlying causes. These phases have been called by different names by different economists.
Generally, the following phases of business cycles have been distinguished:

1. Expansion (Boom, Upswing or Prosperity)

2. Peak (upper turning point)

3. Contraction (Downswing, Recession or Depression)

4. Trough (lower turning point)

The four phases of business cycles have been shown in the following figures, where we start
from trough or depression when the level of economic activity i.e., level of production and
employment is at the lowest level.

With the revival of economic activity the economy moves into the expansion phase, but due to
the causes explained below, the expansion cannot continue indefinitely, and after reaching
peak, contraction or downswing starts. When the contraction gathers momentum, we have a
depression. The downswing continues till the lowest turning point which is also called trough is
reached.

Four Phase of Business Cycles without Growth Trend

In this way cycle is complete. However, after remaining at the trough for some time the
economy revives and again the new cycle starts.

Haberler in his important work on business cycles has named the four phases of business cycles
as:

9
(1) Upswing,

(2) Upper turning point,

(3) Downswing, and

(4) Lower turning point.

There are two types of patterns of cyclic changes. One pattern is shown in above first figure,
where fluctuations occur around a stable equilibrium position as shown by the horizontal line. It
is a case of dynamic stability which depicts change but without growth or trend.

The second pattern of cyclical fluctuations is shown in second figure, where cyclical changes in
economic activity take place around a growth path (i.e., rising trend). J.R. Hicks in his model of
business cycles explains such a pattern of fluctuations with long-run rising trend in economic
activity by imposing factors such as autonomous investment due to population growth and
technological progress causing economic growth on the otherwise stationary state. We briefly
explain below various phases of business cycles.

Cycles with Trend (i. e Growth)

Expansion and Prosperity:

In its expansion phase, both output and employment increase till we have full employment of
resources and production is at the highest possible level with the given productive resources.
There is no involuntary unemployment and whatever unemployment prevails is only of
frictional and structural types.
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Thus, when expansion gathers momentum and we have prosperity, the gap between potential
GNP and actual GNP is zero, that is, the level of production is at the maximum production
level. A good amount of net investment is occurring and demand for durable consumer goods is
also high. Prices also generally rise during the expansion phase but due to high level of
economic activity people enjoy a high standard of living.

Then something may occur, whether banks start reducing credit or profit expectations change
adversely and businessmen become pessimistic about future state of the economy that brings an
end to the expansion or prosperity phase. Economists differ regarding the possible causes of the
end of prosperity and start of downswing in economic activity.

Monetarists have argued that contraction in bank credit may cause downswing. Keynes has
argued that sudden collapse of expected rate of profit (which he calls marginal efficiency of
capital, MEC) caused by adverse changes in expectations of entrepreneurs lowers investment in
the economy. This fall in investment, according to him, causes downswing in economic
activity.

Contraction and Depression:

As stated above, expansion or prosperity is followed by contraction or depression. During

contraction, not only there is a fall in GNP but also level of employment is reduced. As a result,
involuntary unemployment appears on a large scale. Investment also decreases causing further
fall in consumption of goods and services.

At times of contraction or depression prices also generally fall due to fall in aggregate demand.
A significant feature of depression phase is the fall in rate of interest. With lower rate of interest
people‟s demand for money holdings increases. There is a lot of excess capacity as industries
producing capital goods and consumer goods work much below their capacity due to lack of
demand.

Capital goods and durable consumer goods industries are especially hit hard during depression.
Depression, it may be noted, occurs when there is a severe contraction or recession of economic
activities. The depression of 1929-33 is still remembered because of its great intensity which
caused a lot of human suffering.

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Trough and Revival:

There is a limit to which level of economic activity can fall. The lowest level of economic
activity, generally called trough, lasts for some time. Capital stock is allowed to depreciate
without replacement. The progress in technology makes the existing capital stock obsolete. If
the banking system starts expanding credit or there is a spurt in investment activity due to the
emergence of scarcity of capital as a result of non-replacement of depreciated capital and also
because of new technology coming into existence requiring new types of machines and other
capital goods.

The stimulation of investment brings about the revival or recovery of the economy. The
recovery is the turning point from depression into expansion. As investment rises, this causes
induced increase in consumption. As a result industries start producing more and excess
capacity is now put into full use due to the revival of aggregate demand. Employment of labour
increases and rate of unemployment falls. With this the cycle is complete.

Features of Business Cycles:

Though different business cycles differ in duration and intensity, they have some common
features which we explain below:

1. Business cycles occur periodically. Though they do not show same regularity, they have
some distinct phases such as expansion, peak, contraction or depression and trough. Further the
duration of cycles varies a good deal from minimum of two years to a maximum of ten to
twelve years.

2. Secondly, business cycles are synchronic. That is, they do not cause changes in any single
industry or sector but are of all-embracing character. For example, depression or contraction
occur simultaneously in all industries or sectors of the economy.

Recession passes from one industry to another and chain reaction continues till the whole
economy is in the grip of recession. Similar process is at work in the expansion phase,
prosperity spreads through various linkages of input-output relations or demand relations
between various industries, and sectors.

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3. Thirdly, it has been observed that fluctuations occur not only in level of production but also
simultaneously in other variables such as employment, investment, consumption, rate of
interest and price level.

4. Another important feature of business cycles is that investment and consumption of durable
consumer goods such as cars, houses, refrigerators are affected most by the cyclical
fluctuations. As stressed by J.M. Keynes, investment is greatly volatile and unstable as it
depends on profit expectations of private entrepreneurs.

These expectations of entrepreneurs change quite often making investment quite unstable.
Since consumption of durable consumer goods can be deferred, it also fluctuates greatly during
the course of business cycles.

5. An important feature of business cycles is that consumption of non-durable goods and

services does not vary much during different phases of business cycles. Past data of business
cycles reveal that households maintain a great stability in consumption of non-durable goods.

6. The immediate impact of depression and expansion is on the inventories of goods. When
depression sets in, the inventories start accumulating beyond the desired level. This leads to cut
in production of goods. On the contrary, when recovery starts, the inventories go below the
desired level. This encourages businessmen to place more orders for goods whose production
picks up and stimulates investment in capital goods.

7. Another important feature of business cycles is that profits fluctuate more than any other type
of income. The occurrence of business cycles causes a lot of uncertainty for businessmen and
makes it difficult to forecast the economic conditions.

During the depression period profits may even become negative and many businesses go
bankrupt. In a free market economy profits are justified on the ground that they are necessary
payments if the entrepreneurs are to be induced to bear uncertainty.

8. Lastly, business cycles are international in character. That is, once started in one country they
spread to other countries through trade relations between them. For example, if there is a
recession in the USA, which is a large importer of goods from other countries, it will cause a
fall in demand for imports from other countries whose exports would be adversely affected
causing recession in them too. Depression of 1930s in USA and Great Britain engulfed the
entire capital world.

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 Section A : Long Question

1. Examine the Methods to calculate national income.

2. Discuss Domestic and National concepts of Income.
3. What are the problems in calculating National Income? Explain.
4. Define Business Cycle and Explain Phases of Business Cycle.
5. Explain Business Cycle with diagram and explain its features also (short term and long
term fluctuations).

Section B : Short Question

1. Define National Income.

2. What is the formula of GDP at factor cost? Explain.
3. Give a meaning of NNP.
4. Write about Market Price and Factor cost.
5. How to calculate national income at current prices?
6. Define Trough.
7. Give characteristics of Recession.
8. Give difference between Recession and Depression.
9. Explain Business Cycle with diagram.
10. Give features of business cycle.

Section C : Multiple Choice Questions

1) Who is credited with bringing the term "the invisible hand"• in economics?
a) Adam Smith
b) John Maynard Keynes
c) F. Hayek
d) Samuelson

2) Who is called as the 'founding father of modern economics'?

a) Adam Smith
b) John Maynard Keynes
c) F. Hayek
d) Samuelson

3) Macroeconomics as a separate branch came to be studied after the contributions of which economist?
a) Adam Smith
b) John Maynard Keynes
c) F. Hayek
14
d) Samuelson

4) When did the Great Depression hit the United States?

a) 2007
b) 1929
c) 1936
d) 2001

5) Consider the following statements:

1. In a Capitalist economy there is private ownership of means of production
2. In a communist nation, the means of production are owned by the State
3. In a free-market economy there is minimum role of the Government
Which of the above 3 statement is/are true?
a) Only 1 and 3
b) Only 2 and 3
c) Only 3
d) All are true

6) Macroeconomics is a study of economics that deals with which 4 major factors:

a) households, firms, government, and demand-supply
b) households, firms, government and external sector
c) firms, government, free-market, and regulations
d) none of the above

7) What are consumption goods?

a) Goods used for consumption in the production process
b) Goods such as tools, machinery, etc which are used to create final consumption goods
c) Goods and services that are consumed fully when purchased by the consumers
d) None of the above

8) What are Capital goods?

a) Goods used for consumption in the production process
b) Goods such as tools, machinery, etc which are used to create final consumer goods
c) Goods and services that are consumed fully when purchased by the consumers
d) None of the above

9) Intermediate goods are not included to calculate the final output because:
a) they do not have value
b) they have unknown value
c) their value is included in final goods so they are not added to avoid the problem of double counting
d) none of the above

10) What does the term Gross investment mean while denoting a nation's economy?
a) Gross investment= Net investment + Depreciation
b) Gross investment= Net investment - Depreciation
c) Gross investment= Depreciation - Net investment

15
d) None of the above

11) What does the term free-market denote in terms of economy?

a) Minimal government intervention in trade and minimum regulations
b) Maximum government intervention in trade and maximum regulations
c) Means of production owned by the state
d) None of the above

12) What is the term in economics for the consumption of fixed capital?
a) Investment
b) Value added
c) Production flow
d) Depreciation

13) The difference between the Gross value added and Net value added is:
a) Investment
b) Value added
c) Production flow
d) Depreciation

14) What is the sum total of gross value added of all the firms in the country?
a) Gross Domestic Product
b) Gross National Product
c) Net Domestic Product
d) Net National product

15) What is the sum total of gross value added of all the firms in the country minus the depreciation?
a) Gross Domestic Product
b) Gross National Product
c) Net Domestic Product
d) Net National product

16) What is the sum total of gross value added of all the firms in the country added with the net factor income from
abroad?
a) Gross Domestic Product
b) Gross National Product
c) Net Domestic Product
d) Net National product

17) What is the Gross National Product minus the depreciation?

a) Gross Domestic Product
b) Gross National Product
c) Net Domestic Product
d) Net National product

16
18) In terms of economics, what is an "externality"?
a) Benefits or harm caused by a firm without payment/penalty
b) Net income from foreign countries
c) Total exports by a country in a given year
d) None of the above

19) What is the correct formula for GDP Deflator?

a) Nominal GDP - (minus) Real GDP
b) Nominal GDP + Real GDP
c) Nominal GDP/ Real GDP
d) Real GDP/ Nominal GDP

20) Friedrich Hayek was a proponent of :

a) Keynesian economics
b) Communism
c) Classical Liberalism
d) Socialism

21) Which Indian state has the highest GDP for 2012-13?
a) Gujarat
b) Uttar Pradesh
c) Madhya Pradesh
d) Maharashtra

22) What is the global rank of India in terms of its nominal GDP?
a) 3rd
b) 5th
c) 10th
d) 17th

23) What is the global rank of India in terms of its Purchasing Power Parity?
a) 3rd
b) 5th
c) 10th
d) 17th

24) Which Indian city is known as its trade and financial capital?
a) Mumbai
b) Delhi
c) Bangalore
d) Gurgaon

25) What is India's growth rate for the 2013 - 14 fiscal year?
a) 5.7%
b) 6.7 %
c) 2.6%
d) 4.7 %
17
26) A market in which there is only one seller of a good is known as:
a) monopoly
b) monopsony
c) duopoly
d) perfectly competitive

27) A market in which there are only 2 sellers of a good is known as:
a) monopoly
b) monopsony
c) duopoly
d) perfectly competitive

28) Das Kapital, published in German in 1867, was authored by:

a) Karl Marx
b) John Maynard Keynes
c) F. Hayek
d) Samuelson

29) Which economist is famous for his theory of comparative advantage?

a) Karl Marx
b) John Maynard Keynes
c) F. Hayek
d) David Ricardo

30) What is India's rank in ease of doing business index for 2014, as developed by the World Bank Group?
a) 3rd
b) 52nd
c) 134th
d) 178th

31) Laissez-faire economics refers to:

a) a term denoting economic transactions carried out by the State/government
b) economic transactions in private parties where there is no intervention by the State/government
c) a branch of socialism focusing on welfare economics
d) None of the above

31) The difference between value of output and value added is:
a) Depreciation
b) Intermediate Consumption
c) Net indirect taxes
d) NFIA

32) Production method of calculating national income is also known as:

a) Income method
b) Value added method
c) Expenditure method
18
 d) Distribution method

33) Transfer payments refers to payments, which are made:

a) Without any exchange of goods and services
b) To workers on transfer from one job to another
c) As compensation to employees
d) None

34) National Income differs from Net National Product at market price by the amount of:
a) Current transfers from rest of the world
b) Net Indirect Taxes
c) National debt interest
d) it does not differ

35) GDPMP = GDP +

a) Depreciation
b) Indirect taxes
c) NFIA
d) Subsidies

36) National Income doesn‟t include:

a) Interest on unproductive national debt
b) Income for government expenditure
c) The payments by the household to firm for the purchase of goods and services
d) Undistributed profit

37) National Income doesn‟t include:

a) Interest on unproductive national debt
b) Income for government expenditure
c) The payments by the household to firm for the purchase of goods and services
d) Undistributed profit

38) Which of the following is not correct ?

a) NNPMP = GNPMP. depreciation
b) NNPMP = NNPFC + net indirect taxes
c) GDPMP = GNPMP +.NFIA
d) NDPFC = GDPFC – depreciation

39) Net national product at factor cost is also known as:

a) Net Domestic product
b) Gross National product
c) National Income
d) Personal Income

40) In GNP calculation which of the following should be excluded?

a) Rental incomes
b) Interest payments
19
c) Dividends
d) Government transfer payment

41) Which statement is true?

a) National Expenditure = National income
b) National Expenditure = National income + National savings
c) National Expenditure = National income + Taxes
d) National Expenditure = National income – Taxes

42) Which statement is true?

a) National Income = National expenditure - indirect taxes
b) NI = GNP - NNP
c) NI = NNP - indirect taxes
d) NI = PI

43) There are methods of measuring national income:

a) 5
b) 2
c) 1
d) 3

44) If we compare GDP and GNP, then:

a) GNP = GDP - net income from abroad
b) GNP = GDP + net income from abroad
c) GNP = NNP - net income from abroad
d) GNP = NNP + net income from abroad

45) It is deducted from GNP to get NNP:

a) Indirect taxes
b) Depreciation
c) Direct taxes
d) Transfer payment

46) It is added to GDP to get GNP

a) Depreciation allowance
b) Direct taxes
c) Subsidies
d) Net income from abroad

47)Select the correct statement:

a) Transfer payment are included in national income
b) Depreciation allowance is a part of GNP
c) Taxes are not included in NNP
d) GDP means Gross Direct Production

48) Which is the largest figure:

a) NNP
20
b) GNP
c) DPI
d) PI

49) Which is a flow concept:

a) Number of my shirts
b) My total wealth
c) My monthly income
d) Money supply

50) To avoid double counting when GDP is estimated, economists:

a) Use GDP deflator
b) Calculate value added at each stage of production
c) Use retail prices
d) Use price of only intermediate goods

51) A TV set purchased from a retail store is an example of:

a) Intermediate good
b) Capital good
c) Surplus good
d) Final good

52) Undistributed profits are considered:

a) Income earned but not received
b) Income received but not earned
c) Income earned and received
d) None of the above

53) Total value of all final goods and services produced in a country during one year is:
a) NNP
b) GNP
c) GDP
d) NI

54) Which measure has the larger value :

a) NNP
b) GNP
c) GDP
d) NI

55) In equilibrium position of national income:

a) S>1
b) S<1
c) S=1
d) All are true

56) Personal income includes:

21
a) Direct taxes
b) Indirect taxes
c) Depreciation
d) None of these
57) Personal income includes:
a) Transfer payments
b) Indirect taxes
c) Depreciation
d) All of the above

58) If savings exceed investment then:

a) National income rises
b) National income falls
c) National income is not affected
d) None of the above

59) If we include it, national income will be over-estimated:

a) Transfer payment
b) Income from abroad
c) Illegal income
d) Exports

60) It is avoided to make correct estimate of national income:

a) Free services
b) Double counting
c) Export earnings
d) All of the above

61) It is not included in estimation of national income:

a) Illegal income
b) Services of house wife
c) Imports
d) All are not included

62) The goods which are used directly by the people are called:
a) Consumer goods
b) Capital good
c) Direct good
d) None of these

63) Circular flow of income links:

a) Income, expenditure
b) Exports, Imports
c) Govt. taxes, Govt. expenditure
d) Saving and investment

64) Transfer payments include:

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 a) Daily wages, pensions
b) Pensions, Zakat
c) Zakat, taxes
d) Taxes, pocket money

65) This statement is true

a) NI = rent + interest + wages + profit
b) NI = rent + interest + wages + taxes
c) NI = Govt. expenditure + interest + wages + profit
d) NI = rent + interest + wages + pensions

66) Determinants of national income are:

a) Natural resources, human resources, monetary resources
b) Natural resources, capital resources, monetary resources
c) Natural resources, capital resources, human resources
d) Natural resources, capital resources, foreign resources

67) National income is estimated by:

a) Product, import and export methods.
b) Product, income and consumption methods
c) Product, income and market methods
d) Product, income and expenditure methods

68) National income of a country does not include:

a) Self services, low wages
b) Donations and high salaries
c) Corporate taxes and gifts
d) Illegal incomes and unreported incomes
69) This statement is true
a) Inflation does not play any role in distribution of national income
b) Inflation plays unfavourable role in distribution of national income
c) Inflation plays favourable role in distribution of national income
d) Inflation brings equality in aggregate demand and aggregate demand and aggregate supply

70) GDP stands for:

a) Great domestic progress
b) Grand development plan
c) Gross domestic product
d) Gross domestic plan

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 Reference Books

Sr. Author/s Name of the Publisher Edition

No. Book
1 David Romer Advanced Latest
Macro
Economics
2 H. L. Ahuja Macro S. Chand Latest
Economic
Theory and
Policy
3 H.L. Ahuja Macro S. Chand Latest
Economic
Theory- LPU
Distance
Education
4 Richard Froyen Macro Latest
Economics,
Theories, and
Policies
5 N. Gregory Mankiw Principles of Latest
macro
Economics

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