Chapter 13.1, Problem 1R

To determine

To discuss: The importance of the terms given.

Explanation of Solution

The significance of the various terms is as explained below:

1. National income accounting: This helps in measuring the overall performance of an economy dealing with the total output and the income. National income accounting helps policy makers as it gives an idea of economic and social patterns.

2. Gross domestic product: The value of gross domestic product tells the amount of goods and services that are available within the borders of a country. The importance of GDP is that give information about the size of economy and the performance of economy.

3. Net exports:Net exports is a category of GDP,which shows the value of difference between the nation’s exports and imports. This value shows the economic activity of a year.

4. Depreciation: The loss of value that happens due to wear and tear on any asset is termed as depreciation. The value of depreciation allows companies to recover the cost of the asset. In calculation of GDP, depreciation is not considered as many machines are not used and are replaced after some time.

5. Net domestic product: Net domestic product accounts for the total value of goods and services considering depreciation in an economy because some production can be lost due to depreciation. The importance of NDP is that it gives a fairer measure of economy as it accounts for depreciation too.

6. National income: The amount of income that is earned by people in an economy is termed as national income. The importance of national income is that it provides a most thorough value of the total economic activity made in an economy.

7. Personal income: The total income that is received by an individual before paying the taxes is termed as personal income. Personal income provides an indication of the total demand in an economy as it provides a trend of spending made by people.

8. Transfer payments: The welfare and assistance payments like unemployment compensation and social security taxes are termed as transfer payments. The importance of transfer payments is that they redistribute the income and hence more products and services can be purchased from that income.

9. Disposable personal income: The income that is left by individuals after the taxes are paid is the disposable personal income. This income helps economists find how much amount is spent and saved by households.

Economics Concept Introduction

Introduction:

Economic performance- The performance of a nation’s economy can be measured by national income accounting. There are some statistics that are used in measuring the national economy like gross domestic product, net domestic product, national income, personal income and disposable personal income. Economists begin with finding GDP and then by adding and subtracting various items find the disposable personal income.