All questions of Determination of National Income for CA Foundation Exam

True, because it is measured over a period of time.

Because it is used for immediate consumption .
it does not required any further processing

True: It can happen when NFIA is negative i.e., factor income paid to abroad is more than factor income received from abroad. 

Question hi answer hai iska.....'Final goods' -Means No Further production is required....it is ready for Consumption like-,Milk is a final good if it is purchased to drink,Bicycle that is sold to consumer is a final good or consumer goods.

Because we convert it into final goods for sale

Yes, it is possible for GDP to be higher than GNP and it is also possible for GNP to be higher than GDP. GNP greater than GDP is best for a country because it means that the population of that country will have a greater total income (i.e. total output) than if GDP was greater than GNP.

Policies and their impact on the economyc)Microeconomics focuses on individual and small group behavior and decision-making related to the allocation of resourcesd)Microeconomics focuses on overall economic indicators such as GDP and inflation rates.

Answer: c) Microeconomics focuses on individual and small group behavior and decision-making related to the allocation of resources.

Explanation: Microeconomics is a branch of economics that examines the behavior of individuals and firms in making decisions regarding the allocation of scarce resources. It focuses on the study of small economic units such as individuals, households, and firms. In contrast, macroeconomics deals with the overall performance of the economy and its key indicators such as GDP, inflation, and unemployment.

Explanation:



Factor income is the income that is earned through factors of production such as land, labor, capital, and enterprise. Here, we need to identify the factor income among the given options.



a) Royalty: Royalty is the amount paid to the owner of an asset for its use. It is not a factor income as it is not earned through any factor of production.



b) Rent: Rent is the payment made to the owner of land or any other asset for its use. It is a factor income as it is earned through land, which is a factor of production.



c) Subsidies: Subsidies are the financial assistance provided by the government to promote an industry or a product. It is not a factor payment as it is not earned through any factor of production.



d) Tax: Tax is a financial charge imposed by the government on individuals or businesses for the income earned or goods and services consumed. It is not a factor income as it is not earned through any factor of production.



Therefore, the correct answer is option B, Rent is a factor income.

Former flow happens in factor market while latter flow happens in goods market. Money flow refers to the flow of factor payments from firms to households and payment for goods and services by households to firms.

Real Flow

The term "real flow" refers to the flow of goods and services in an economy. It is an essential component of the circular flow of income model, which illustrates how money, goods, and services move between households and businesses. Real flow represents the physical exchange of goods and services between producers and consumers.

Explanation:

1. Definition of Real Flow
Real flow refers to the movement of tangible goods and intangible services from producers to consumers. It involves the production, distribution, and consumption of goods and services in an economy. Real flow is a crucial aspect of economic activity as it generates income for producers and satisfies the needs and wants of consumers.

2. Components of Real Flow
Real flow consists of two main components:

a) Goods
Goods are physical products that are produced and exchanged in the economy. They can be classified into two categories: consumer goods and capital goods. Consumer goods are items that are directly consumed by individuals, such as food, clothing, and electronics. Capital goods, on the other hand, are used to produce other goods and services, such as machinery and equipment.

b) Services
Services are intangible products that are provided to consumers. They include activities such as healthcare, education, transportation, banking, and entertainment. Unlike goods, services cannot be stored or transported physically, but they still contribute to economic growth and development.

3. Importance of Real Flow
Real flow is essential for the functioning of an economy. It enables the production and consumption of goods and services, which drives economic growth and development. The flow of goods and services creates employment opportunities, generates income for individuals and businesses, and satisfies the needs and wants of consumers.

4. Relationship with Money Flow
Real flow is closely linked to the flow of money in an economy. Money flow represents the exchange of money between households and businesses in return for goods and services. It facilitates the real flow by providing a medium of exchange and a measure of value. Money flow allows producers to receive income for their goods and services, which they can then use to purchase other goods and services in the economy.

Conclusion:
In summary, real flow represents the physical exchange of goods and services in an economy. It is a crucial aspect of economic activity as it generates income, creates employment, and satisfies the needs of consumers. Real flow is closely related to the flow of money, which facilitates the exchange of goods and services.

Intermediate goods or producer goods or semi-finished products are goods , such as partly finished goods, used as inputs in the production of other goods including final goods. A firm may make and then use intermediate goods, or make and then sell, or buy then use them.

Real GDP is the value of final goods and services produced in a given year expressed in terms of the prices in a base year. To calculate Real GDP, we use base year prices and multiply them by current year quantities for all the goods and services produced in an economy.

D

B)Households and firms
c)International sector or rest of the world

Consumer goods are ultimately consumed, rather than used in the production of another good. For example, a microwave oven or a bicycle that is sold to a consumer is a final good or consumer good, but the components that are sold to be used in those goods are intermediate goods.

' wages
c)Corporate profits
d)Interest on loans

b)Employers' wages are an example of factor payments. Factor payments refer to payments made to the factors of production, which include labor, capital, land, and entrepreneurship. Employers' wages are payments made to the factor of production, labor, for their contribution to the production process.

Nominal GDP is the total value of all goods and services produced in a given time period, usually quarterly or annually. Real GDP is nominal GDP adjusted for inflation. Real GDP is used to measure the actual growth of production without any distorting effects from inflation.

It helps to identify how, when, and by whom implementation will be assessed. Monitoring of implementation keeps everyone involved aware of any possible barriers as well as any intended and unintended impacts of the work. After implementation, resources and other supports from stakeholders may decrease.

Milk and Bread are examples of Non-durable good. Non-durable gods are those goods which are used-up in a single act of consumption. Bread and milk are used-up in a single act of consumption. The same milk or bread cannot be used again.

The two sectors in a two-sector circular flow model are the firm sector and the household sector.
Explanation:
The circular flow model is a simplified representation of the flow of goods, services, and money in an economy. It shows the interdependence between different sectors of the economy. In a two-sector circular flow model, there are only two sectors involved: firms and households.
1. Firm Sector:
- Firms are the producers of goods and services in an economy.
- They hire factors of production such as labor, capital, and land.
- Firms produce goods and services, which are sold to the households.
2. Household Sector:
- Households are the consumers of goods and services in an economy.
- They own and supply factors of production to the firms.
- Households receive income from the firms in the form of wages, rent, interest, and profits.
- They use this income to purchase goods and services from the firms.
The Flow of Resources and Income:
- Factors of production (labor, capital, land) flow from households to firms.
- Firms use these resources to produce goods and services.
- Goods and services flow from firms to households.
- Households consume these goods and services.
- In return for the resources provided, households receive income from the firms.
- This income is used by households to purchase goods and services from the firms, completing the circular flow.
Conclusion:
In a two-sector circular flow model, the two sectors involved are the firm sector, which produces goods and services, and the household sector, which consumes these goods and services. The flow of resources and income between these two sectors forms the basis of the circular flow model.

The country's real gross domestic product is likely to expand due to a faster economic recovery following the relaxation of the lockdown.

Positive externalities refer to positive impact of an economic activity on the others without involving any price.

The NSO data estimated the economy to contract by -7.7% compared to an 11-year low growth of 4.2% in 2019-20. This will be the first contraction in over four decades since the 5.2% fall recorded in 1979-80.

Welfare means material wellbeing of the people as it is the state of having enough housing, clothing, food, and possessions, etc. to live comfortably.

The two sector economy has the following assumptions:

1. There are only two sectors in the economy; household sector and business sector.
2. No government interventions over the economic activities.
3. Business sectors do not carry out any import or export activities, creating a closed economy.

The Relationship Between Domestic Factor Income and National Income

To understand the relationship between domestic factor income and national income, we need to first define these terms.

Domestic Factor Income: Domestic factor income refers to the income earned by domestic factors of production, such as labor and capital, within a country's borders. It includes wages, salaries, rent, and profits earned by individuals and businesses within the domestic economy.

National Income: National income, on the other hand, is the total income earned by all factors of production, both domestic and foreign, within a country's borders. It includes domestic factor income as well as net factor income from abroad.

Net Factor Income from Abroad: Net factor income from abroad is the difference between the income earned by domestic factors of production in foreign countries and the income earned by foreign factors of production within the domestic economy. It includes wages, salaries, rent, and profits earned by domestic factors abroad, minus the income earned by foreign factors in the domestic economy.

The Role of Net Factor Income from Abroad in Calculating National Income:

Now, let's consider the question at hand - what must be added to domestic factor income to obtain national income? The correct answer is option 'A', which is net factor income earned from abroad.

Net factor income from abroad is an important component of national income as it represents the income earned by domestic factors of production in foreign countries. By including this income in the calculation of national income, we get a more comprehensive measure of the total income generated within a country's borders.

Including net factor income from abroad is necessary because factors of production, such as labor and capital, can also earn income outside of the domestic economy. For example, a domestic company may have subsidiaries or branches in foreign countries where it earns profits. Similarly, domestic workers may find employment opportunities abroad and earn wages there.

By adding net factor income from abroad to domestic factor income, we capture the income earned by domestic factors both within the domestic economy and abroad. This provides a more accurate measure of the total income generated by a country's factors of production.

Conclusion:

In conclusion, when calculating national income, we need to add net factor income from abroad to domestic factor income. This is because net factor income from abroad represents the income earned by domestic factors of production in foreign countries, which is an important component of a country's total income. Including this income provides a more comprehensive measure of national income and helps capture the income generated by a country's factors of production both domestically and abroad.

Firms: Households own all the factors of production: land, labor, capital. These factors of production are sold to the firms to produce goods and services through factor markets.

Two sectors of the economy

Real GDP and Welfare are related with each other as rise in the real GDP leads to rise in the welfare.