1. What is meant by national income?

The total net value of all goods and services produced within a nation over a specified period of t
ime, representing thesum of wages, profits, rents, interest, and pension payments to residents of t
he nation.
The total amount of money earned within a country.

2. What types of taxes are deducted in order to obtain disposable income?

Disposable income, also known as disposable personal income (DPI), is the amount of money
that households have available for spending and saving after income taxes have been accounted
for. Disposable personal income is often monitored as one of the many key economic
indicators used to gauge the overall state of the economy.
Gross income of an individual or firm from which direct taxes (such as PAYE, income tax) have
been deducted. When essential expenditure (such as on food, clothing, shelter) is deducted from
the disposable income, the balance is called discretionary income which the income earner is free
to spend or save

3. Distinguish between income and wealth.

Income

Income is not the same as wealth

Income is a flow of money going to factors of production:
1. Wages and salaries paid to people from their jobs
2. Money paid to people receiving welfare benefits such as the state pension and tax credits
3. Profits flowing to businesses and dividends distributed to shareholders
4. Rental income flowing to people who own and lease out property
5. Interest paid to those who hold money in deposit accounts or who own bonds etc.

Wealth

Wealth is a stock concept – it is a large amount of money or valuable possessions and can be held in
different ways:
1.Savings held in bank deposit accounts
 2.Ownership of shares issued by listed companies and equity stakes in private businesses
3.The ownership of property
4.Wealth held in bonds
5. Wealth held in occupational pension schemes and life assurance schemes

4. What effect will arise in wealth have on consumption?

The term wealth effect refers to a change in spending that accompanies a change
in either actual wealth or perceived wealth. This means that consumers typically
spend more when they are either actually wealthier or perceive themselves to be
so. In addition, consumption is often tied to relative wealth (and income), meaning
that a consumer’s ability to obtain certain goods may depend on the amount
of his wealth relative to that of other consumers in the economy (Sorensen and
Whitta-Jacobsen, 2010). Wealth effects are often reported as elasticities of consumption
with respect to different components of wealth5. Many studies also report
marginal propensities to consume (MPC) out of wealth which can be obtained by
multiplying the elasticities of consumption by the sample period’s average consumption-
to-wealth ratio (Dvornak and Kohler, 2003). The marginal propensity to
consume out of wealth can be interpreted to report by how many cents consumption
will rise given a one euro increase in wealth.