Question

Define National Income.

Hint:

When defining national income, always include the key phrases: "monetary value," "final goods and services," and "during a financial year" to ensure a complete and accurate definition.

Answer 1

Step 1: Understanding the Concept:
National Income is a key macroeconomic indicator that measures the economic performance and overall health of a country's economy.

Step 2: Detailed Explanation of Key Terms:
\begin{itemize} \item Monetary Value: National income is measured in terms of money, which serves as a common denominator for the vast variety of goods and services produced. \item Final Goods and Services: It includes only the value of final products and not intermediate goods. This is done to avoid the problem of double counting. For example, the value of bread is included, but not the value of the wheat used to make the flour for the bread. \item Normal Residents: It refers to the income earned by the citizens and institutions of a country, regardless of whether they are operating within the domestic territory or abroad. This is the basis for Gross National Product (GNP). \item Financial Year: It is measured over a specific period, typically one year. \item Factor Incomes: It represents the total income earned by the factors of production—land, labor, capital, and entrepreneurship—in the form of rent, wages, interest, and profit. \end{itemize} The most common measure is Net National Product at Factor Cost (NNP_FC).