Questions with Answer:

Ques: What is macroeconomics?

Ans: The term macro has been derived from Greek word ‘makros’ which means large. It is the study
of aggregates or groups or the entire economy such as gross domestic product, total employment,
aggregate demand, aggregate supply, total savings, general price level, etc

. Ques: What are the scopes of macroeconomics?

Ans: Macroeconomics has a wider scope than microeconomics. The study of macroeconomics
extends to the following areas:  Theory of National Income;  Theory of Employment;  Theory of
Money Supply;  Theory of General Price Level;  Theory of International Trade; and  Theory of
Economic Growth.

Ques: what are the main objectives/goals of macroeconomics?

Ans: Followings are the main objectives or goals of macroeconomics:

 To Achieve Higher Level of Gross Domestic Product;

 To Achieve Higher Level of Employment;

 Stability of Prices;  Formulation of Economic Policies; and

 Achievement of Economic Development

Ques: What are the main tools of macroeconomics?

Ans: Fiscal Policy: relates to the management of government revenue, expenditure and debt to
achieve favorable effects and avoid unfavorable effects on income, output and employment.

Monetary Policy: relates to the management of money supply and credit to step up business
activities, promote economic growth, stabilize the price level, achievement of full employment and
equilibrium in balance of payments. Income Policy: through this policy direct control is exercised
over prices and wages.

Ques: What are the major issues and concerns of macroeconomics?

Ans: The major issues and concerns of macroeconomics are as follows

 Employment and Unemployment;

 Determination of National Income (or GNP);

 General Price Level and Inflation

;  Business Cycle;  Stagflation;

 Economic Growth;

 Balance of Payments and Exchange Rate.

Questions with Answer: Question: What do you understand by the term national income?
Answer: It is the money value of all final goods and services produced by residents of a country in a
year. It is also defined as the sum of factor incomes in a country in a year. It is also expressed in
terms of aggregate expenditure of a country in a year.

Question: What is the importance of national income accounting in an economy?

Answer: Followings are the points which shows the importance of national income accounting:

 Indicator of Economic Progress;

 Measure of Economic Growth;

 Comparison with other Countries;

 Significance in Business Policy Making;

 Significance for Trade Unions;

 Knowledge of Structural Changes

Question: What do you understand by the term domestic territory of a country?

Answer: It includes land mass of a country, territorial waters, ships and aircrafts owned and
operated by residents across countries, fishing vessels, oil rigs and floating platforms and embassies
abroad.

Question: What do you mean by normal resident?

Answer: A person or institution who ordinarily resides in a country and whose centre of economic
interest lies in that country is called normal resident. The normal residents of a country include the
following:

 All producing enterprises operating in a country;

 Nationals of a country and the foreign nationals who stay for one year or more in the country;

 Saudi nationals who have gone abroad but come back within a year’s time;

 Saudi employees working in the foreign embassies and international institutions located in Saudi
Arabia; and

 Saudi students and patients who have gone abroad and stay there even for more than one year.
Normal Residents = Nationals living in Saudi Arabia + Non- nationals living in Saudi Arabia

Question: What do you understand by non- resident of a country?

Answer: if a Saudi national goes abroad and stays there for a period less than one year, he will
remain normal resident of Saudi Arabia. But, if he stays there for more than one year he will be
treated as non- resident of Saudi Arabia.

Question: What do you understand by non- resident of a country?

. Question: What is capital formation?

Answer: The surplus of the production over consumption in an accounting year which is further
used for production is called capital formation.

Question: What are final goods?

Answer: Goods which directly satisfies human wants are called final goods.

Question: What are intermediate goods?

Answer: Goods which are used in the production process to produce other goods are called
intermediate goods.

Question: What is Gross Domestic Product at Market Price (GDPMP)?

Answer: Gross Domestic Product (GDPMP) is the market value of all final goods and services
produced within domestic territory of the country during a year.

Question: What is Gross Nation Product at Market Price (GNPMP)?

Answer: Gross National Product at market price is Gross Domestic Product at market price plus net
factor income from abroad. GNPMP is the money value of all final goods and services produced in
the domestic territory of a country during a year plus Net factor income from abroad. i.e., GNPMP =
GDPMP + NFIA Where, GNPMP = Gross National Product at market price GDPMP= Gross Domestic
Product at market price NFIA= Net factor income from abroad

Question: What do you understand by Net Factor Income from Abroad (NFIA)?

Answer: Net factor income from abroad is the difference between the income received from abroad
for rendering factor services by the normal residents of the country to the rest of the world and
income paid for the factor services rendered by nonresidents in the domestic territory of a country.

Question: What is Net Domestic Product at Market Prices (NDPMP)?

Answer: Net Domestic Product at market prices is the net market value of all the final goods and
services produced in domestic territory of a country during a year. Net market value of the goods is
equal to the market value of goods minus depreciation. NDPMP = GDPMP – D (or CCA) Where,
NDPMP= Net Domestic Product at market prices GDPMP= Gross Domestic Product at market price|

D = Depreciation CCA= Capital Consumption Allowances

Question: What is Net National Product at Market Price (NNPMP)?

Question: What is Gross Domestic Product at Factor Cost (GDPFC)?

Answer: It is the sum of net value added at factor cost by all the producers in the domestic territory
of a country and the consumption of fixed capital during an accounting year. i.e., GDPFC = Domestic
Factor Income + Consumption of Fixed Capital GDPFC = GNPMP – IT + S

Question: What is Gross National Product at Factor Cost (GNPFC)?

Answer: It is the difference between the GNPMP and net indirect taxes. It is the sum of net domestic
factor income, consumption of fixed capital and net factor income from abroad. Symbolically, GNPFC
= GNPMP – IT + S GNPFC = Domestic Factor Income + NFIA + Consumption of fixed capital.

Question: What is Net Domestic Product at Factor Cost (NDPFC)?

Answer: Net domestic income is the income generated in the form of wages, rent, interest and
profit in the domestic territory of a country by all the producers (normal and non normal residents)
in an accounting year. In other words, NDPFC = NDPMP – IT + S Where; IT = Indirect Taxes; and S =
Subsidies.

Question: What is Net Indirect Tax?

Answer: The difference between IT and S is known as net indirect tax.

Question: What is Net National Product at Factor Cost (NNPFC)?

Answer: Net National Product at the factor cost is the sum total of net value added at factor cost by
all the normal residents producer enterprises of a country during a year. Symbolically, NNPFC =
NDPFC + NFIA It is also expressed as the sum of domestic factor income and net factor income from
abroad. i.e., NNPFC = Net Domestic Income + NFIA Net National Product at Factor Cost (NNPFC) is
also known as National Income.

Question: What is Personal Income?

Answer: Personal income is sum of all kinds of income received by the individuals from all sources.

Question: What is Private Income?

Answer: It refers to the income which accrues to individuals from whatsoever source, within the
domestic territory of a country and abroad

. Question: What is difference between Private Income and Personal Income?

Answer: Private income includes all the payments which accrue to individuals from whatever sources
while personal income includes only those payments which are actually received by the individuals.

Question: What is Personal Disposable Income?

Answer: It refers to that part of personal income which is actually available to households for
consumption and saving. In other words, Personal Disposable Income = Personal Income – (Direct
Taxes + Fines, Fees, etc. + Social Security Contributions by Employees)
Question: What is Per Capita Income (PCI)?

Answer: It is the average income of the normal residents of a country. Symbolically, PCI = 𝑁𝑎𝑡𝑖𝑜𝑛𝑎𝑙
𝐼𝑛𝑐𝑜𝑚𝑒 (𝑁𝑁𝑃𝑎𝑡 𝐹𝑎𝑐𝑡𝑜𝑟 𝐶𝑜𝑠𝑡)/ 𝑃𝑜𝑝𝑢𝑙𝑎𝑡𝑖𝑜𝑛

Question: What is Real Income?

Answer: The income measured in physical term or in terms of the quantity of goods and services. It
is calculated at some base year.

Question: What is Nominal income?

Answer: The income measured in term of current price is called nominal income.

Question: What is GDP Deflator?

Answer: It is nominal GDP (current price) divided by real GDP (base year price). GDP Deflator =
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃/ 𝑅𝑒𝑎𝑙 𝐺𝐷𝑃 × 100

Question: What are the methods of measurement of national income?

Answer: There are three methods of the measurement of the national income: 1. Value Added
Method or Product Method 2. Income Method or Factor income in production process 3.
Expenditure Method