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Explain the following terms which are commonly used in estimating the National Income statistics of a country: - Subsidies; - Incomes-in-kind; - Net Factor Income from the Rest of the World - Leaving Cert Economics - Question 5 - 2013
Question 5
Explain the following terms which are commonly used in estimating the National Income statistics of a country: - Subsidies; - Incomes-in-kind; - Net Factor Income f... show full transcript
Worked Solution & Example Answer:Explain the following terms which are commonly used in estimating the National Income statistics of a country: - Subsidies; - Incomes-in-kind; - Net Factor Income from the Rest of the World - Leaving Cert Economics - Question 5 - 2013
Step 1
Explain the following terms which are commonly used in estimating the National Income statistics of a country: Subsidies;
Answer
Subsidies refer to payments made by the government to producers to lower the cost of production. This can result in lower prices for consumers and can encourage increased output. By reducing production costs, subsidies aim to stimulate economic activity.
Step 2
Explain the following terms which are commonly used in estimating the National Income statistics of a country: Incomes-in-kind;
Answer
Incomes-in-kind signify non-monetary compensation provided to individuals, such as goods or services instead of cash payments. This can include benefits like company cars, housing, or discounts on products, which contribute to an individual's overall wealth and expenditure capabilities.
Step 3
Explain the following terms which are commonly used in estimating the National Income statistics of a country: Net Factor Income from the Rest of the World.
Answer
Net Factor Income from the Rest of the World represents the income earned by residents from overseas investments minus the income earned by foreign residents from domestic investments. This accounting helps understand the net economic contribution a country receives from its international interactions.
Step 4
Illustrate by means of a diagram the Circular Flow of Income for an open economy.
Answer
The Circular Flow of Income for an open economy involves various sectors including households, firms, government, and foreign markets. In this model, households provide labor to firms in return for wages, while firms supply goods and services to households. Government interacts with both sectors through taxation and spending, while foreign markets involve exports and imports. A diagram would typically illustrate these interactions along with the flow of money between these sectors.
Step 5
Are transfer payments an injection into, or a leakage from the Circular Flow of Income? Explain your answer.
Answer
Transfer payments are considered an injection into the Circular Flow of Income because they increase the disposable income of recipients, allowing them to spend more, which in turn boosts aggregate demand in the economy.
Step 6
Outline three current determinants of the level of consumption in the Irish economy.
Answer
- Levels of incomes (irrespective of source): Current income levels in Ireland are decreasing, leading to reduced consumer spending.
- Interest rates: With low-interest rates, savers have less incentive to save, prompting more spending.
- Access/availability of credit: Limited access to credit reduces consumer ability to make larger purchases, impacting overall consumption.
Step 7
Using the Keynesian multiplier process outline how a fiscal stimulus (i.e. a government injection) would affect an economy’s Aggregate Demand.
Answer
A fiscal stimulus such as government spending increases aggregate demand significantly. The initial increase in government expenditure leads to increased income for those involved in the projects, who will then spend a portion of that income, thereby creating a multiplied effect on the economy. For instance, if the government injects €10 million into the economy with a multiplier of 2, the total increase in aggregate demand would be €20 million.
Step 8
Explain why the Irish government might find it difficult to implement such a Keynesian stimulus plan at the current time.
Answer
- Budget constraints: The government is constrained by fiscal policies and may depend on external funding, affecting its ability to provide stimulus.
- Dependence on global economic conditions: Economic recovery in Ireland is tied to broader global growth, making internal stimulus less impactful without external support.
- Public trust and perception: The government must convince the public that additional spending is credible and effective. If citizens doubt this, the effectiveness of the stimulus may be diminished.