Economics Questions and Answers

Precautionary Motive. A desire to hold cash in order to be able to deal effectively with unexpected events that require cash outlay.

There are five causes for demand-pull inflation:

1. A growing economy: When consumers feel confident, they will spend more, take on more debt by borrowing more. This leads to a steady increase in demand, which means higher prices.  
2. Asset inflation: a sudden rise in exports, which translates to an undervaluation of the involved currencies
3. Government spending: When the government opens up its pocketbooks, it drives up prices. Military spending prices may go up when the government starts to buy more military equipment.
4. Inflation expectations: forecasts and expectations of inflation, where companies increase their prices to go with the flow of the expected rise
5. More money in the system: demand-pull inflation is produced by an excess in monetary growth or an expansion of the money supply. Too much money in an economic system with too few goods makes prices increase.

National income of a country can be defined as the total market value of all final goods and services produced in the economy in a year.

The income of a housewife is not counted in the National Income or the Gross National Product of the country. This will make the national income under stated

floor = $250

distribution cost = $52

250 + 52 = 302

selling price $320 - $302 =  $18

The largest component of national income is: compensation of employees. (wages and salaries). National income measures: the market value or cost of the resources used in the production of the national output.