National Income Statistics: three questions to try now
Real past-paper questions, the answer key from the mark scheme, and the explanation that goes with it. No account needed to answer them.
Question 1
The table gives details of national income statistics for an economy. What is the net national income for this economy?
Answer: A.
Build it up one step at a time, and note that DEPRECIATION IS SUBTRACTED; that is what makes a figure "net" rather than "gross". Start with GDP: 2000 + 500 + 600 − 100 = $3000bn. Take off depreciation to reach net domestic product: 3000 − 100 = $2900bn. Then add net foreign factor income, which is what turns a domestic measure into a national one: 2900 − 200 = $2700bn. That is the net national income, answer A. Every wrong option is one of the steps stopped short, $3000bn is GDP, $2900bn is net domestic product, and $2800bn is gross national income with depreciation still in it.
Question 2
Governments in market economies give different reasons for intervening in the operation of an economy.
Which reason given is a normative statement?
Answer: C.
The correct answer is C: the distribution of incomes has become more unfair during the past year.
The word "unfair" carries a value judgement. Measuring how income is distributed is a factual exercise, a Gini coefficient or a Lorenz curve can be computed, but deciding whether a given distribution is unfair requires a view about what a just distribution would look like, and no evidence can settle that. Two economists could agree entirely on the data and disagree on the fairness, which is what makes the statement normative.
Why the other options are positive statements:
The word "unfair" carries a value judgement. Measuring how income is distributed is a factual exercise, a Gini coefficient or a Lorenz curve can be computed, but deciding whether a given distribution is unfair requires a view about what a just distribution would look like, and no evidence can settle that. Two economists could agree entirely on the data and disagree on the fairness, which is what makes the statement normative.
Why the other options are positive statements:
- A, average incomes failing to keep pace with price rises, is a comparison of two measured series, nominal income growth and inflation. Testable.
- B, energy prices rising by more than 50%, is a straightforward factual claim about price data.
- D, the poorest 10% suffering the greatest fall in real income, is the strongest distractor because it concerns inequality and sounds like a complaint. But it makes no judgement: it states which decile experienced the largest fall, and household income statistics can confirm or refute it.
Question 3
A teenager received a cheque for $50 as a birthday gift from her parents. The teenager paid the cheque into her savings account at the bank. Why is this gift a transfer payment?
Answer: D.
A payment counts as a transfer when nothing has been produced in return for it, so the money simply changes hands and national output is unaffected. The teenager supplied no labour, no goods and no service for the 50 dollars, which is why the gift is excluded from national income and why it is a transfer. The claim that no cash payment was involved is beside the point, because a cheque still moves money and a wage paid by cheque would not become a transfer for that reason. Saying it transfers money between bank accounts describes the mechanism rather than the nature of the payment, and salaries move between bank accounts every month without being transfers. The observation that the parents did not spend their money elsewhere says something about the givers' choices, whereas the classification depends entirely on whether the recipient produced anything.
What this practice covers
These questions are drawn from past CIE 9708 papers. You answer, you find out immediately whether you were right, and you get the reasoning for the correct option and for each distractor. Wrong answers go to a mistakes locker so you can come back to exactly those.
Practice is free. You need an account only so your progress and your mistakes are still there next time.
What examiners see students get wrong here
These are the errors that cost marks on national income statistics, taken from our own topic notes. Read them before you practise and you will recognise the traps in the questions.
- Counting every transaction instead of final output.
- Defining GDP by ownership, or GNI as output inside the country.
- Adding income paid abroad, or dropping the minus sign.
- Including every cross-border payment: GNI uses net primary income only.
- Deducting depreciation twice, or confusing it with inflation or with investment: net investment is gross investment minus depreciation.
- Subtracting subsidies when converting market to basic prices.
- Leaving out units.
Revise it first
If any of the above is unfamiliar, work through the notes before practising: National Income Statistics revision notes.