One major difficulty in measuring national income in developing countries is
A Excessive documentation
B Large non-monetized sector
C High literacy rate
D Perfect record keeping
A large part of economic activity occurs without money transactions, making measurement difficult.
Subsistence farming creates difficulty in national income estimation because
A Output is exported
B Output is not sold in the market
C Output is illegal
D Output is overvalued
Self-consumed output lacks market prices, complicating valuation.
The problem of multiple occupations affects national income estimation because
A Workers change jobs
B Income from different sources is underreported
C Prices fluctuate
D Output is standardized
Individuals earn income from various activities, often not fully recorded.
Which of the following leads to underestimation of national income?
A Inclusion of imputed rent
B Accurate census
C Black money
D Double counting
Unreported or illegal income is excluded, causing underestimation.
Black money mainly distorts national income statistics by
A Overestimation
B Underestimation
C Accurate estimation
D Seasonal variation
Since black income is hidden, it is not included in official estimates.
Difficulty in valuing services arises because
A Services are free
B Services lack physical output
C Services are illegal
D Services are exported
Absence of tangible output makes valuation subjective.
Which sector poses maximum difficulty in income estimation?
A Manufacturing
B Agriculture
C Services
D Mining
Many services lack proper records and market prices.
Inaccurate data from unorganized sector leads to
A Overestimation
B Perfect estimation
C Underestimation
D No estimation
Lack of records in informal sector causes underreporting.
Price fluctuations create difficulty in national income estimation because
A Output changes daily
B Value comparison becomes difficult
C Production stops
D Services disappear
Changing prices distort real comparisons over time.
Which of the following causes double counting problem?
A Counting final goods only
B Counting value added
C Counting intermediate goods
D Using factor cost
Intermediate goods get counted multiple times if not excluded.
The existence of barter transactions affects national income estimation because
A They are illegal
B They involve no money value
C They increase GDP
D They reduce population
Barter exchanges lack monetary valuation.
Which of the following is a statistical difficulty in national income accounting?
A Non-monetized output
B Price instability
C Inadequate data collection
D Income inequality
Incomplete or unreliable data leads to estimation errors.
Transfer payments create difficulty because they
A Are earned incomes
B Do not relate to current production
C Increase GDP
D Reduce production
Transfers must be excluded as they do not generate output.
Which of the following leads to overestimation of national income?
A Ignoring depreciation
B Excluding black income
C Excluding services
D Ignoring transfer payments
If depreciation is ignored, gross figures overstate real output.
In developing countries, national income data is often
A Fully accurate
B Updated daily
C Approximate and revised frequently
D Always overstated
Data limitations require frequent revisions.
Circular flow of income shows
A Flow of money only
B Flow of goods only
C Flow of income and expenditure
D Flow of population
It depicts continuous movement of income and goods between sectors.
In a two-sector economy, the main sectors are
A Households and firms
B Households and government
C Firms and government
D Foreign sector and firms
Two-sector model includes households and producing firms.
In the two-sector model, households provide
A Goods and services
B Factors of production
C Capital goods
D Finished products
Households supply land, labour, capital, and enterprise.
Firms in the two-sector model provide households with
A Factors of production
B Money income
C Government services
D Taxes
Firms pay wages, rent, interest, and profit to households.
Real flow in circular flow refers to
A Flow of money
B Flow of income
C Flow of goods and services
D Flow of taxes
Real flow consists of physical goods and factor services.
Money flow in circular flow refers to
A Flow of goods
B Flow of factor services
C Flow of payments
D Flow of population
Money flow represents income, expenditure, and payments.
In two-sector economy, savings equal
A Consumption
B Investment
C Government expenditure
D Taxes
In absence of government and foreign sector, S = I.
Equilibrium in two-sector circular flow requires
A C = I
B S = I
C C = S
D Y = T
Leakages (savings) must equal injections (investment).
Which of the following is a leakage in circular flow?
A Consumption
B Investment
C Saving
D Government spending
Savings withdraw income from the flow.
Which of the following is an injection in circular flow?
A Saving
B Taxes
C Investment
D Imports
Investment adds income to the circular flow.
Three-sector economy includes
A Households, firms, government
B Households, firms, foreign sector
C Firms, government, foreign sector
D Only domestic sector
Government is added to households and firms.
In three-sector model, government income comes mainly from
A Wages
B Profits
C Taxes
D Exports
Taxes are primary government revenue.
Government expenditure in circular flow acts as
A Leakage
B Injection
C Saving
D Transfer
Government spending injects income into the economy.
Taxes in circular flow are treated as
A Injection
B Leakage
C Consumption
D Investment
Taxes reduce disposable income and withdraw money.
Equilibrium condition in three-sector economy is
A S = I
B S + T = I + G
C C = Y
D T = G
Total leakages (S + T) must equal injections (I + G).
Transfer payments in circular flow are
A Real flows
B Leakages
C Non-productive monetary flows
D Factor payments
Transfers redistribute income without production.
Which of the following is NOT a feature of two-sector model?
A No government
B No foreign trade
C Existence of taxes
D Savings and investment
Taxes appear only when government is introduced.
In circular flow, households are owners of
A Capital only
B Land only
C Factors of production
D Finished goods
Households own and supply factors.
Firms demand factors of production because
A They consume them
B They need them for production
C They export them
D They store them
Factors are inputs for production.
Circular flow assumes
A No saving
B No government
C Continuous flow of income
D Fixed population
Income and expenditure circulate continuously.
Which sector is absent in two-sector model?
A Households
B Firms
C Government
D Financial sector
Government appears only in three-sector model.
Investment by firms creates
A Leakage
B Injection
C Saving
D Tax
Investment adds to income flow.
Savings by households reduce
A Production
B Consumption expenditure
C Government revenue
D Investment
Saving reduces consumption demand.
Circular flow analysis helps in understanding
A Inflation only
B Income distribution only
C Relationship between income and expenditure
D Population growth
It shows how income equals expenditure.
Which model introduces the role of government?
A One-sector model
B Two-sector model
C Three-sector model
D Four-sector model
Government enters in three-sector circular flow.
In circular flow, factor payments move from
A Households to firms
B Firms to households
C Government to firms
D Firms to government
Firms pay wages, rent, interest, and profit to households.
Goods and services flow from
A Households to firms
B Firms to households
C Government to firms
D Firms to government
Firms supply goods/services for consumption.
Which of the following breaks circular flow?
A Continuous spending
B Equal savings and investment
C Excess leakages over injections
D Stable prices
If leakages exceed injections, income contracts.
Circular flow analysis assumes
A Constant prices
B No government intervention
C Balanced budget
D No unemployment
Simplified models assume constant prices.
The circular flow model helps explain
A How GDP is measured
B How income equals expenditure
C How prices are fixed
D How inflation occurs
It shows equality of income and expenditure.
In three-sector model, disposable income equals
A National income − Taxes
B Personal income − Taxes
C GDP − Taxes
D Income − Saving
Disposable income is personal income after direct taxes.
Government saving occurs when
A G > T
B G = T
C T > G
D G = 0
Budget surplus implies government saving.
If government expenditure exceeds taxes, it results in
A Budget surplus
B Balanced budget
C Budget deficit
D No effect
G > T creates fiscal deficit.
Circular flow ignores which sector in two-sector model?
A Financial sector
B Government
C Foreign sector
D Both B and C
Both government and foreign sectors are absent.
Circular flow of income is important because it
A Shows inequality
B Explains production technology
C Helps understand macroeconomic equilibrium
D Explains individual demand
It links production, income, and expenditure at macro level.