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Question
Match the following groups:
| Group A | Group B | ||
| 1) | Income method | a) | Personal income – direct taxes |
| 2) | Unemployment allowance | b) | Money value of goods and services |
| 3) | Disposable Income | c) | Factor cost method |
| 4) | National Income | d) | Personal income subsidy |
| 5) | NNP(MP) | e) | Transfer payment |
| f) | GNP(MP) - Depreciation | ||
| g) | Output method | ||
| h) | Transfer income | ||
Solution
| Group A | Group B | ||
| 1. | Income method | c) | Factor cost method |
| 2. | Unemployment allowance | e) | Transfer payment |
| 3. | Disposable Income | a) | Personal income – direct taxes |
| 4. | National Income | g) | Output method |
| 5. | NNP(MP) | f) | GNP(MP) - Depreciation |
The above table can be matched as follows:
Explanations:
1) Income method is also known as factor cost method as in this method, national income is estimated by aggregating all the factor incomes (in the form of wages, rent, interest and profits) paid to the owners of these factors of production (land, labour, capital and enterprise) within the domestic territory in an accounting year.
2) Transfer payments refer to those payments in exchange of which no factor services are employed. Unemployment allowance is a kind of transfer income since no services are rendered in return for this allowance.
3) Disposable income is that part of personal income that is actually available for consumption and saving by the households after paying personal direct taxes and other miscellaneous payments (such as fees and fines) to the government.
Thus, Disposable income = Personal income – direct taxes + subsidy
4) One of the methods to calculate national income is output method. The output approach measures the national income by estimating the contribution made by each of the producing units in the economy to the total production within the domestic territory during an accounting year.
5) Net (N) is the value that is obtained after deducting depreciation of that year from the gross (G) value. Thus, to arrive at an estimate of Net National Product at market price (NNPMP), we need to deduct depreciation from the value of the Gross National Product at market price (GNPMP).
That is, NNP(MP) = GNP(MP) – depreciation
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