Test: National Income Accounting - 1 - Economics MCQ

Non market Activities -
1) Non market activities are those activities primarily undertaken for the purpose of self-consumption. These activities don't give profit as they are for self consumption.
2) The output of the non market activities is neither for sale in the market nor for earning profit. These activities can be for consumption and processing of primary products for one's own use.
3) Example : A farmer cultivates primarily for himself and his family and not for earning profit.

GNP Deflator: It is clear that nominal GNP usually exceeds real GNP because of inflation. Greater the difference between nominal and real GNP, greater is the inflation. It may happen that GNP data at constant prices may not be available in the economy.

The correct answer is C: GNP at constant prices.

Real Gross National Product (GNP) is the value of the final goods and services produced within a country's borders in a given year, adjusted for changes in the prices of goods and services. It is calculated using constant prices, which means that the prices used to value the goods and services are from a base year, rather than the current year. This helps to eliminate the effect of inflation on the GNP calculation.

Nominal GNP, on the other hand, is the value of the final goods and services produced within a country's borders in a given year, valued at current market prices. It includes the effect of inflation.

GNP at current prices is the same as nominal GNP.

GNP less Net factor income from abroad is a measure of Gross National Income (GNI), which is similar to GNP but includes income earned by domestic residents from foreign sources, such as rent or dividends.

Real flow is the exchange of goods and services between household and firms whereas money flow is the monetary exchange between two sectors. In real flow household sector supplies raw material, land, labour, capital and enterprise to firms and in return firms sector provides finished goods and services to household sector. Whereas in money flow, firm sector gives remuneration in the form of money to household sector a wages and salaries, rent, interest etc.

The correct answer is A: Factor payments.

Explanation:

• Money flow refers to the flow of payments made in exchange for the services of factors of production, expenditures on goods and services, taxes, and transfers
• In the circular flow model of income, money flows from households to firms as factor payments (wages, rent, interest, and profit) and flows back to households as payment for goods and services
• Therefore, money flow is specifically related to the flow of factor payments, making option A the correct answer

The correct answer is C: Capital formation is a flow.

Capital formation is the process of creating or increasing the stock of capital goods in an economy. It can be either gross or net, depending on whether it includes depreciation of capital goods. Gross capital formation includes the entire value of new capital goods produced, while net capital formation subtracts the value of capital goods that are no longer in use or have been consumed through wear and tear.

Gross domestic capital formation refers to the total value of new capital goods produced within a country's borders, while gross fixed capital formation specifically refers to the value of new physical capital goods such as machinery, buildings, and infrastructure. Gross domestic capital formation can be greater or lesser than gross fixed capital formation, depending on the mix of capital goods being produced in a given year.

Nominal GDP is the value of all final goods and services produced within a country's borders in a given year, valued at current market prices. Real GDP is the value of all final goods and services produced within a country's borders in a given year, adjusted for changes in the prices of goods and services. Nominal GDP can be greater or lesser than real GDP, depending on whether the economy is experiencing inflation or deflation.

Bread is an example of a consumer good, which is a type of final good or service that is consumed by households rather than used in the production of other goods or services.

The correct answer is A: Inflation.Explanation:

• Macroeconomics is the branch of economics that deals with the performance, structure, and behavior of the entire economy, rather than individual markets or firms.
• Inflation is a macroeconomic concept that refers to a sustained increase in the general price level of goods and services in an economy over time.
• Inflation is an important macroeconomic indicator that affects the purchasing power of consumers, the profitability of firms, and the overall health of the economy.
• Consumer's equilibrium, price determination, and producer's equilibrium are microeconomic concepts that deal with individual markets or firms, rather than the entire economy
• Therefore, inflation is the only example of macroeconomics among the given options, making option A the correct answer.

The correct answer is D: Microeconomics deals with individual behavior.

Microeconomics is the study of how households and firms make decisions, and how they interact in markets. It focuses on the behavior of individual economic agents, such as consumers, firms, and industries. Microeconomics is concerned with the allocation of resources at the micro level, such as how households and firms decide what to produce, how much to produce, and at what price to sell their products.

Macroeconomics, on the other hand, is the study of the economy as a whole. It focuses on the behavior of aggregate variables, such as GDP, unemployment, and inflation, and how they are affected by economic policies. Macroeconomics is concerned with the overall performance of the economy and the interrelationships among the various sectors of the economy.

Microeconomics does not only deal with prices, and it is not only concerned with government decisions. While government policies can affect the behavior of individual economic agents, microeconomics also considers other factors that influence their decision-making, such as technology, tastes, and preferences.

The correct answer is C: Which are for resale.

Intermediate goods, also known as producer goods or semi-finished goods, are goods that are used as inputs in the production of other goods or services. They are typically not sold directly to households or final consumers, but rather are used as inputs in the production process by firms. Intermediate goods include raw materials, components, and partially finished goods that are used in the production of final goods.

Examples of intermediate goods include steel, cotton, and plastic, which are used to produce automobiles, clothing, and toys, respectively. Intermediate goods are typically not meant for long-term use, as they are consumed or incorporated into the production of final goods.

Capital goods, on the other hand, are goods that are used to produce other goods and services. They are durable goods, such as machinery, equipment, and buildings, that are used in the production process. Capital goods are typically meant for long-term use, as they are not consumed or used up in the production process but rather are used over a period of time to produce other goods and services.

The correct answer is D: Which are for final consumption.

Final goods, also known as consumer goods or finished goods, are goods that are produced for the purpose of being consumed by households or final users. They are the end products of the production process, and are not used as inputs in the production of other goods or services. Final goods include both durable goods, such as appliances and furniture, and nondurable goods, such as food and clothing.

Intermediate goods, on the other hand, are goods that are used as inputs in the production of other goods or services. They are typically not sold directly to households or final consumers, but rather are used as inputs in the production process by firms. Intermediate goods include raw materials, components, and partially finished goods that are used in the production of final goods.

Final goods are typically not meant for resale or for long-term use, as they are consumed or used up by households or final users. Capital goods, such as machinery and equipment, are typically meant for long-term use, as they are not consumed or used up in the production process but rather are used over a period of time to produce other goods and services.