Q.
a) Explain the following terms in the context of national economy:-
( 3 marks each)
b) Explain any one (1) approach of calculating National Income. (8 marks)
(20 marks, 2014 Q5)
A.
Earlier posts on National Income and its calculation - circular flow of income method. GNP and Indirect Taxes are also posted earlier, hence only Subsidy is new.
Subsidy from Wikipedia:
A subsidy is a form of financial or in kind support extended to an economic sector (or institution, business, or individual) generally with the aim of promoting economic and social policy. Although commonly extended from Government, the term subsidy can relate to any type of support - for example from NGOs or implicit subsidies. Subsidies come in various forms including: direct (cash grants, interest-free loans) and indirect (tax breaks, insurance, low-interest loans, depreciation write-offs, rent rebates).
Furthermore, they can be broad or narrow, legal or illegal, ethical or unethical. The most common forms of subsidies are those to the producer or the consumer. Producer/Production subsidies ensure producers are better off by either supplying market price support, direct support, or payments to factors of production. Consumer/Consumption subsidies commonly reduce the price of goods and services to the consumer. For example, in the US at one time it was cheaper to buy gasoline than bottled water.
Whether subsidies are positive or negative is typically a normative judgment. As a form of economic intervention, subsidies are inherently contrary to the market's demands. Thus, they are commonly used by governments to promote general welfare (such as housing, tuition, and sustenance). However, they can also be used as tools of political and corporate cronyism.
Ref:
Wikipedia search "subsidy"
http://en.m.wikipedia.org/wiki/Subsidy
b) Methods of Calculating National Income
Many questions asked about calculating national income below:
Ref:
Earlier posts.