METHODS TO MEASURE NATIONAL INCOME WITH EXAMPLES AND MCQS

METHODS  TO MEASURE NATIONAL INCOME WITH EXAMPLES AND MCQS

There are three main methods to measure national income:

Output Method (Value Added Method): This method calculates national income by summing up the value added at each stage of production. Value added is the difference between the value of goods produced and the cost of raw materials and other inputs used in production. For example, if a farmer sells wheat to a baker for Rs. 10, and the baker sells bread to a consumer for Rs. 20, the value added by the baker is Rs. 10 (Rs. 20 - Rs. 10).

Income Method: This method calculates national income by summing up all the incomes earned by individuals and businesses in an economy. This includes wages, salaries, profits, rents, and interest. For example, if a worker earns a salary of Rs. 40,000, a business owner earns a profit of Rs. 20,000, and a landlord earns rent of Rs. 10,000, the total income earned in the economy is Rs. 70,000 (Rs. 40,000 + Rs. 20,000 + Rs. 10,000).

Expenditure Method: This method calculates national income by summing up all the expenditures made on final goods and services in an economy. This includes consumption expenditure, investment expenditure, government expenditure, and net exports (exports minus imports). For example, if consumers spend Rs. 100, businesses invest Rs. 50, the government spends Rs. 30, and net exports are Rs. 20, the total expenditure in the economy is Rs. 200 (Rs. 100 + Rs. 50 + Rs. 30 + Rs. 20).

These three methods should, in theory, yield the same result, as they are different ways of looking at the same economic activity.

Here are some multiple-choice questions with answers on methods to measure national income:

1. Which of the following is NOT a method used to measure national income?

A) Output Method

B) Income Method

C) Expenditure Method

D) Productivity Method

Answer: D) Productivity Method

2. The Output Method calculates national income by summing up:

A) Total expenditure in the economy

B) Total incomes earned in the economy

C) Value added at each stage of production

D) Total value of goods and services produced

Answer: C) Value added at each stage of production

3. The Income Method calculates national income by summing up:

A) Total expenditure in the economy

B) Total incomes earned in the economy

C) Value added at each stage of production

D) Total value of goods and services produced

Answer: B) Total incomes earned in the economy

4. The Expenditure Method calculates national income by summing up:

A) Total expenditure in the economy

B) Total incomes earned in the economy

C) Value added at each stage of production

D) Total value of goods and services produced

Answer: A) Total expenditure in the economy

5. Which method of measuring national income is based on the principle of "gross output minus intermediate consumption"?

A) Output Method

B) Income Method

C) Expenditure Method

D) Gross Domestic Product (GDP)

Answer: A) Output Method

6. In the Income Method, national income is the sum of:

A) Wages, salaries, and profits

B) Government expenditure and investment

C) Consumption, investment, and exports

D) Rent, interest, wages, and profits

Answer: D) Rent, interest, wages, and profits

7. Government expenditure is included in the calculation of national income in which method?

A) Output Method

B) Income Method

C) Expenditure Method

D) None of the above

Answer: C) Expenditure Method

8. Which method of measuring national income accounts for the value added at each stage of production?

A) Output Method

B) Income Method

C) Expenditure Method

D) All of the above

Answer: A) Output Method

9. Which method of measuring national income is also known as the "value-added method"?

A) Output Method

B) Income Method

C) Expenditure Method

D) None of the above

Answer: A) Output Method

10. Which method of measuring national income focuses on the spending behavior of households, businesses, and governments?

A) Output Method

B) Income Method

C) Expenditure Method

D) Gross Domestic Product (GDP)

Answer: C) Expenditure Method

11. In the Expenditure Method, national income is the sum of:

A) Total value added in production

B) Total incomes earned by individuals and businesses

C) Total expenditure on final goods and services

D) Total government expenditure

Answer: C) Total expenditure on final goods and services

12. Which of the following is NOT included in the calculation of national income in the Income Method?

A) Wages

B) Profits

C) Government expenditure

D) Rent

Answer: C) Government expenditure

13. Which method of measuring national income is most closely related to the concept of GDP?

A) Output Method

B) Income Method

C) Expenditure Method

D) None of the above

Answer: C) Expenditure Method

14. Which method of measuring national income is based on the principle of "total income earned"?

A) Output Method

B) Income Method

C) Expenditure Method

D) Gross National Product (GNP)

Answer: B) Income Method

15. The concept of "value added" is central to which method of measuring national income?

A) Output Method

B) Income Method

C) Expenditure Method

D) Gross Domestic Product (GDP)

Answer: A) Output Method

16. Which method of measuring national income is most suitable for analyzing the distribution of income?

A) Output Method

B) Income Method

C) Expenditure Method

D) None of the above

Answer: B) Income Method

17. Which of the following is NOT a component of national income in the Expenditure Method?

A) Consumption expenditure

B) Investment expenditure

C) Government expenditure

D) Total value added

Answer: D) Total value added

18. The Expenditure Method is often used to calculate which of the following economic indicators?

A) Gross Domestic Product (GDP)

B) Gross National Product (GNP)

C) Net National Product (NNP)

D) Net Domestic Product (NDP)

Answer: A) Gross Domestic Product (GDP)

19. Which method of measuring national income is most suitable for assessing the overall health of an economy?

A) Output Method

B) Income Method

C) Expenditure Method

D) None of the above

Answer: C) Expenditure Method

20. Which method of measuring national income is based on the principle of "total spending"?

A) Output Method

B) Income Method

C) Expenditure Method

D) Gross National Product (GNP)

Answer: C) Expenditure Method