NIOS Economics (318) Notes/Answer| Chapter-10|Income Flows

NIOS Economics (318) Notes/Answer| Chapter-10|Income Flows. Important questions for NIOS Economics (318) Questions Answers brings you latest queries and solutions with accordance to the most recent pointers SOS . Students will clear all their doubts with regard to every chapter by active these necessary chapter queries and elaborate explanations that area unit provided by our specialists so as to assist you higher. These queries can facilitate students prepare well for the exams thanks to time constraint . NIOS Economics (318) Notes/Answer| Chapter-10|Income Flows

HS 2nd years Solutions (English Medium)

NIOS Economics (318) Notes/Answer| Chapter-10|Income Flows

Intext Questions

1. Fill in the blanks from the given clues:

(compensation, non-factor, interest, transfer, factor, profit)

(a) The income received in return for the factor service rendered is termed as ________ income.

Ans. factor

(b) The gift received is a __________ income.

Ans. transfer

(c) National income includes only the__________Incomes.

Ans. factor

(d) The remuneration of the entrepreneur is termed as _________

Ans. profit

(e) The remuneration to the labour is termed

as__________ of employees.

Ans. compensation

2. Fill in the blanks from the given clues:

(a) The flow of a good or a service is a__________flow.

Ans. real

(b) All government departments supplying free services to the people are termed as _______ 

Ans. general

(e) The economy having no economic relation with the rest of the world is a________ economy.

Ans. Close

(d) The production units buy factor service from the households and in return make________ payment.

Ans. factor

Terminal Exercise

1. Explain the meaning of the term ‘factor income’. Give examples.

Ans. The term ‘factor’ here means factor of production. There are four factors of production: land, labour, capital, and entrepreneurship. The owner of these factors of production sell the services of their factors to the production units. The production units in turn pay the price for the factor services purchased by them from the factor owners. This price is the factor cost to the production unit and factor income to the owner of the factor of production.

So, a factor income is the income accruing to the owner of a factor of production in return for the services rendered to the production units. A worker earns income called wages in return for labour services rendered. A land owner earns rent by allowing the use of his land to the production units. The owner of capital earns interest by lending his funds for investment to the production units. The entrepreneur, i.e. the owner of the production unit, earns profit in return for the risk he undertakes in organising the business. There are thus four types of factor incomes in the form of wages, rent, interest and profits 

2. Explain the meaning of the term ‘non-factor income’. Give examples.

Ans. Non-factor incomes are those against which nothing is provided in return, e.g. gifts, donation, tax, fines etc. No sale or provision of any factor service is involved in getting these incomes. These incomes are also known as transfer incomes because such incomes merely represent transfer of money without any goods or services being provided in return for the receipts. National income does not include these incomes. National income includes only the factor incomes.

3. Distinguish between factor incomes and ‘non-factor income’.

Ans. A factor income is the income accruing to the owner of a factor of production in return for the services rendered to the production units. Examples of factor income are wage paid to workers, rent paid to landholders and profit paid to the entrepreneur.

Whereas, non-factor incomes are those against which nothing is provided in return. Examples of non-factor income are gifts, donation, tax, fines etc.

4. Explain briefly the meaning of the four factors of production and the remuneration accruing to them.

Ans. Following are the meaning of the four factors of production and the remuneration accruing to them.

1. Labour

Human efforts done mentally or physically with the aim of earning income is known as labour. Thus, labour is a physical or mental effort of human being in the process of production. The compensation given to labourers in return for their productive work is called wages and salaries (or compensation of employees). In national income accounting it is termed as compensation of employees.

2. Land

It refers to all-natural resources which are free gifts of nature. Land, therefore, includes all gifts of nature available to mankind-both on the surface and under the surface, e.g., soil, rivers, waters, forests, mountains, mines, deserts, seas, climate, rains, air, sun, etc. Historically, when land was abundant, there was no need to pay any price for owning land. But as land became scarce sale and purchase of land started. Those who owned land started charging payment for the use of the land by them. Such a remuneration accruing to the land is termed as rent in national income accounting.

3. Capital

Capital includes all the mam-made assets used for producing a good or a service like structures on land, machines, equipment, vehicles, stock of material etc. 5. Explain the basic economic activities of an economy. The remuneration accruing to the capital is termed as interest in national income accounting. 

4. Entrepreneurship

It refers to the initiative taken by a person or a group of persons in starting and organising a business and taking upon their shoulders all the good and bad consequences of doing so. The good consequence of a business is the profit it earns. The bad consequence is the losses it may incur. Unless somebody take this initiative, no business can be started. The one who takes initiative is termed as ‘entrepreneur’. He brings together the owner of labour, land and capital and uses their factors of production in the production unit. The remuneration accruing to the entrepreneurship is termed as profit in national income accounting.

5. Explain the basic economic activities of an economy. 

Ans. Production is not only economic activity. There are other economic activities as well. Why do production units produce goods and services? They produce them because people need them to satisfy their wants. The use of goods and services for the satisfaction of wants is called consumption. It will include all goods and services purchased by households like food items, clothes, shoes, vehicles, TV sets, radios, furniture etc.

We also produce goods and services for using them to produce more goods and services. These include all such items as machines, equipment, materials etc. used by production units’ Acquiring such goods and services for use in the production process are called capital formation or investment. So, there is not one but three economic activities i.e. production, consumption and investment.

The three economic activities are interrelated and interdependent. The interrelation is clear from the fact that the goods and services produced are either used for consumption or for investment. Let us try to understand it more clearly .Firstly, unless there is need for the other way round also.Unless there is production, no consumption or investment can take palace. Thus besides production, consumption and investment are also the basic economic activities .These three economic activities are responsible for generating the income flows in the economy. 

6. Distinguish between real flow and money flow. Give examples.

Ans. Following are the difference between real flow and money flow 

  1.  Real flow is the exchange of goods and services between household and firms whereas money flow is the monetary exchange between two sectors.
  1.  In real flow, the household sector supplies raw material, land, labour, capital and enterprise to firms and in return the firms sector provides finished goods and services to the household sector. Whereas in money flow, firm sector gives remuneration in the form of money to the household sector, wages and salaries, rent, interest etc.
  2.  Difficulties of barter system for the exchange of goods and factor services between households and firms sector in real flow, whereas no such difficulty or inconvenience arise in money flow.

7. Distinguish between a closed economy and an open economy.

Ans. Following are the difference between closed and open economy Closed economy is an economy, which does not have any sort of economic relation with rest of the world but is confined to itself only. A closed economy does not enter into any one of the following activities.

  1. It neither buys shares, debentures, bonds etc. from foreign countries nor sells shares, debentures, bonds etc. to foreign countries.
  2. It neither borrows from the foreign countries nor lends to the foreign countries. 
  3. It neither receives gifts from foreigners nor sends gifts to foreigners.
  4. Normal residents of a closed economy cannot go to other countries to work in their domestic territory. No foreigner is allowed to work in the domestic territory of a closed economy. 

Due to all these seasons, Gross Domestic Product and Gross National Product are the same in a closed economy.

On the other hand, an open economy is one, which is not only involved in the process of production within its domestic territory but also can participate in production anywhere in the rest of the world. An open economy involves itself in the following activities. 

  1. It buys shares, debentures, bonds etc. from foreign countries and sells shares, debentures, bonds etc. to foreign countries.
  2. It borrows from foreign countries and lends to foreign countries. 
  3. It can send gifts and remittances to foreigners and can receive the same from them.
  4. Normal residents of an open economy can move or be employed and are allowed to work in the domestic territory of other economies.

Due to these reasons, Gross Domestic Product and Gross National Product are not same in an open economy. It is to be noted that at present all economies of the world are open economies.

NIOS Class 12th Economics (318) Notes/Question Answer

Chapter Chapters NameLink
Chapter 1Economy and Its ProcessClick Here
Chapter 2Basic Problems of an EconomyClick Here
Chapter 3Economic Development and Indian EconomyClick Here
Chapter 4Statistics: Meaning and ScopeClick Here
Chapter 5Making Statistical Data MeaningfulClick Here
Chapter 6Presentation of Statistical DataClick Here
Chapter 7Statistical MethodsClick Here
Chapter 8Index Numbers (Meanings and Its Construction)Click Here
Chapter 9Index Numbers (Problem and Uses)Click Here
Chapter 10Income FlowsClick Here
Chapter 11National Income: ConceptsClick Here
Chapter 12National Income: MeasurementClick Here
Chapter 13Uses of National Income EstimatesClick Here
Chapter 14What micro EconomicsClick Here
Chapter 15What affects demandClick Here
Chapter 16What affects supplyClick Here
Chapter 17Price determinationClick Here
Chapter 18CostClick Here
Chapter 19RevenueClick Here
Chapter 20Profit maximizationClick Here
Chapter 21Government budgetingClick Here
Chapter 22Money supply and its regulationClick Here
Chapter 23Need for planning in IndiaClick Here
Chapter 24Achievements of planning in IndiaClick Here
Chapter 25Recent economic reforms and the role of planningClick Here

Optical Module – I

Chapter 26AgricultureClick Here
Chapter 27IndustryClick Here
Chapter 28Independence of Agriculture and IndustryClick Here
Chapter 29Transport and CommunicationClick Here
Chapter 30EnergyClick Here
Chapter 31Financial InstitutionsClick Here
Chapter 32Social Infrastructure (Housing, Health and Education)Click Here

Optical Module – II

Chapter 33Direction and composition of India’s Foreign tradeClick Here
Chapter 34Foreign exchange rateClick Here
Chapter 35Balance of trade and balance of paymentsClick Here
Chapter 36Inflow of capital (Foreign Capital and Foreign Aid)Click Here
Chapter 37New trade policy and its implicationsClick Here
Chapter 38Population and economic developmentClick Here
Chapter 39Population of IndiaClick Here

8. Explain the sectorization of an economy on the basis of the three basic economic activities.

Ans. Production, consumption, and investment are the three basic economic activities. Those who perform these activities are called producers (or production units), consumers and investors. This classification is based on the activities performed by these persons. A person can perform all the three activities but each of his activities is accounted for in a separate sector.

Out of the three sectors, the consumer sector is further classified into households and government. Households comprise of all individuals and families who purchase or acquire goods and services for personal satisfaction of their wants. The government comprises all government departments providing free services to the people. Such government departments are called General Government.

The reason behind classifying consumers into households and the general government is that the motive behind the consumption expenditure of each is different. Households spend on consumption keeping in mind personal or family welfare. General government spends on consumption keeping in mind public or social welfare.

The borrowing and lending activities are grouped in a separate sector termed as the capital sector. The savings of all the groups in the society are pooled in this sector which in turn lends these savings to the production units for investment.

Thus an economy is classified into four basic sectors i.e. production units, household, general government and capital. Another sector, the rest of the world is added to take care of the flows among different countries. In this way an economy can be divided into folowing five sector.

  1. Production units
  2. Households 
  3. General government
  4. Capital
  5. Rest of the world. 

9. Explain briefly the real and money flows between the sectors of the three basic economic activities. 

Ans. As we know the nature of flows that take place between different sectors. The flow are also presented in the form of a following figure

1. Flows from and to the Production Units

  1. They buy factor services from households (real inflow).

In return they make factor payment in the form of wages, rent, interest and profits (money outflow). 

  1. They deposit savings in the capital sector (money outflow).
  2. They import goods and services (real inflow) and in return make payment for import (money outflow).
  3. They export goods and services (real outflow) and in return they get payment for the export (money inflow) 
  4. They pay taxes to the general government (money outflow).
  5. They sell goods and services to households and the general government (real outflow). In return they get payments from households (private consumption expenditure) and general government (government consumption expenditure) (money inflows).
  6. They receive subsidies from the government (money inflow).
  7. They borrow from the capital sector (money inflow). 

2. Flow from and to the Households

  1. They buy goods and services from the production units (real inflow) and in return make payment (consumption expenditure) (a money outflow).
  2. They pay personal taxes to the general government (money outflow).
  3. They deposit savings in the capital sector (money outflow). 
  4. They sell factor services to the enterprises (real outflow) and in return get factor incomes (money inflow). 
  5. They get free services (real inflow) and transfer payments (money inflow) from the general government. 

3. Flows from and to the General Government 

  1. It purchases goods and services from production units (real inflow) and and in return makes payments i.e. government consumption expenditure (a money outflow).
  2. It pays subsidies to the production units (money outflow) 
  3. It provides free services to the households (real outflow) and makes transfer payments (money outflow).
  4. It deposits savings in the capital sector (money outflow). 
  5. It receives taxes from production units (money inflow).
  6. It receives personal taxes from households (money inflow).

4. Flows from and to the Capital Sector

  1. It lends capital to the production units (money outflow). 
  2. It receives savings from production units, households and general government (money inflow).

5. Flows from and to the Rest of the World

  1. Goods and services are exported to the rest of the world (real inflow) and in return payments are received (money outflow).
  2. Goods and services are imported from the rest of the world (a real outflow) and in return payments are made (money in flow).

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