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Which of the following is not used to calculate national income?
- a)Expenditure method
- b)Product method
- c)Balance of Payment method
- d)Income method
Correct answer is option 'C'. Can you explain this answer?
Verified Answer
Which of the following is not used to calculate national income?a)Expe...
- GDP is the market value of all final goods and services produced within a domestic territory of a country measured in a year. There are three ways to calculate the national income; namely product method, expenditure method, and income method.
- The Product or Value-Added Method: In the product method, the aggregate annual value of goods and services produced (if a year is the unit of time) is calculated. If we sum the gross value added of all the firms of the economy in a year, we get a measure of the value of the aggregate amount of goods and services produced by the economy in a year (just as we had done in the wheat-bread example). Such an estimate is called Gross Domestic Product (GDP).
- Expenditure Method: An alternative way to calculate the GDP is by looking at the demand side of the products. This method is referred to as the expenditure method.
- The expenditure approach is the most commonly used GDP formula, which is based on the money spent by various groups that participate in the economy. GDP = C + G + I + NX;
- C = consumption or all private consumer spending within a country’s economy, including, durable goods (items with a lifespan greater than three years), nondurable goods (food & clothing), and services.
- G = total government expenditures, including salaries of government employees, road construction/repair, public schools, and military expenditures.
- I = sum of a country’s investments spent on capital equipment, inventories, and housing.
- NX = net exports or a country’s total exports less total imports.
- Income Method: As we mentioned in the beginning, the sum of final expenditures in the economy must be equal to the incomes received by all the factors of production taken together (final expenditure is the spending on final goods, it does not include spending on intermediate goods). Total National Income – the sum of all wages, rent, interest, and profits.
- Balance of Payment: In international economics, the balance of payments of a country is the difference between all money flowing into the country in a particular period of time and the outflow of money to the rest of the world. Balance of Payment is primarily an indicator of an economy's link with the outside world and is not used as a method to calculate the national income. Hence option (c) is the correct answer.
Most Upvoted Answer
Which of the following is not used to calculate national income?a)Expe...
Balance of Payment method
National income is calculated using various methods to provide a comprehensive understanding of a country's economic performance. The balance of payment method is not used to calculate national income. Here's why:
Expenditure method:
- The expenditure method calculates national income by summing up all expenditures made in an economy, including consumption, investment, government spending, and net exports.
- It provides a view of how income is used within an economy.
Product method:
- The product method, also known as the value-added method, calculates national income by summing up the value added at each stage of production in an economy.
- It helps in understanding the contribution of different sectors to the overall national income.
Income method:
- The income method calculates national income by summing up all incomes earned in an economy, including wages, profits, rents, and interests.
- It provides a view of how income is generated and distributed within an economy.
Balance of Payment method:
- The balance of payment method is used to track the economic transactions between a country and the rest of the world, including exports, imports, and financial flows.
- It helps in understanding the overall economic relationship of a country with other nations but is not directly used to calculate national income.
In conclusion, while the balance of payment method is crucial for understanding a country's external economic relations, it is not a direct tool for calculating national income.
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Which of the following is not used to calculate national income?a)Expenditure methodb)Product methodc)Balance of Payment methodd)Income methodCorrect answer is option 'C'. Can you explain this answer?
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Which of the following is not used to calculate national income?a)Expenditure methodb)Product methodc)Balance of Payment methodd)Income methodCorrect answer is option 'C'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Which of the following is not used to calculate national income?a)Expenditure methodb)Product methodc)Balance of Payment methodd)Income methodCorrect answer is option 'C'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Which of the following is not used to calculate national income?a)Expenditure methodb)Product methodc)Balance of Payment methodd)Income methodCorrect answer is option 'C'. Can you explain this answer?.
Which of the following is not used to calculate national income?a)Expenditure methodb)Product methodc)Balance of Payment methodd)Income methodCorrect answer is option 'C'. Can you explain this answer? for UPSC 2025 is part of UPSC preparation. The Question and answers have been prepared according to the UPSC exam syllabus. Information about Which of the following is not used to calculate national income?a)Expenditure methodb)Product methodc)Balance of Payment methodd)Income methodCorrect answer is option 'C'. Can you explain this answer? covers all topics & solutions for UPSC 2025 Exam. Find important definitions, questions, meanings, examples, exercises and tests below for Which of the following is not used to calculate national income?a)Expenditure methodb)Product methodc)Balance of Payment methodd)Income methodCorrect answer is option 'C'. Can you explain this answer?.
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