NCERT Class 12 Economics-II Class 12 Chapter 2 Questions And Answers National Income Accounting

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Economics-II Class 12 Chapter 2 Questions And Answers, NCERT Class 12 Economics-II Class 12 Chapter 2 Questions And Answers Introduction to Macro Economics 


National Income Accounting


National Income The monetary value of the goods and services produced in the country within a year at the market price is called national income. • Monetary National Income at current prices is called monetary national income. real national income goods and services produced in a year.

per capita income at current prices divided by the population at current prices is called per capita income. Closed economy – an economy that does not have any economic relations with foreign countries.

is called a closed economy. An open economy is called an open economy. having economic relations with foreign countries domestic border – the political border of a country including ships, aeroplanes, fishing vessels, embassies and consulates of residents of the country, domestic border

It is called Stock – Stock refers to those variables whose value is known at a given time or point of time. Flow refers to those economic variables which are related to occur over a period of time.

Capital loss – Capital loss means indefinite uselessness of assets in the capital, natural calamities,Loss due to accident and theft etc. is included.physical flow – the flow of services from households to business units andRealizing the flow of goods and services from business units to households called flow.

Circular flow of income/product- Circular flow of income/product means economy the flow of goods and services or currency to different regions of the world.

Each flux shows how one region depends on the whole region. monetary flow or income flow monetary flow or income flow currency in different sectors represents the flow of Consumption, investment and exports are important inclusions or fillings of the circular flow.

An increase in these variables increases the level of economic activity in the economy. Factor income and transfer income – By factor income is meant the income of the factors of production. Such as wages, rent, interest and profit which are received by labour, land, capital and the entrepreneur respectively.

Transfer income means income that is not received as a result of the award of services or for which no goods or services are provided. It is a kind of cash gift, scholarship to students, old age pension to senior citizens etc. National income includes only factor income and not transfer income.

Difference between Gross Domestic Product at Market Price and Gross Domestic Product at Factor Cost – There is a difference between Gross Domestic Product at market price and Gross Domestic Product at factor cost.

The former includes “net indirect taxes” and not the latter. Private income is the income that the private sector receives from all sources including factor income and current transfers from the government and current transfers from the rest of the world and national income. Interest on the loan is added.

Personal Income- Personal income is the factor income actually received by individuals from all sources. and is the sum of current transfer payments.

Personal disposable income is the income that individuals have with the government. What is left after paying all the taxes imposed by the government on their income and properties? National Disposable Income – It is equal to the Net National Income (NNP) at market prices plus current net transfers from the rest of the world.

Current Replacement Cost – This means, over a period of one year, the entire economy from their replacement due to wear and tear of the asset. the notion of wear and tear which is estimated at the collective level.


NCERT Class 12 Economics-II Class 12 Chapter 2 Questions And Answers


Class12th 
Chapter NameNational Income Accounting
Chapter numberChapter 2
Part B
BoardCBSE
Book NCERT
SubjectEconomics
Medium English
Study MaterialsQuestion Answers & Notes
Download PDFNcert class 12 economics-II chapter 2 pdf
National Income Accounting

VERY SHORT ANSWER TYPE QUESTIONS


1. Write the meaning of monetary flow.

Ans. By this is meant the transfer of factor income from the productive sector to the family andIt refers to the monetary expenditure on the goods and services produced from the region to the producing region.

2. Why is the flow of income called circular flow?

Ans. The flow of income is called circular flow because the flow of receipts and payments in different sectors is equal and each real flow is accompanied by money flow in the opposite direction.

3. State the importance of circular flow model.

Ans. The circular flow model has the following importance- (i) Knowledge of interdependence of different sectors.

(ii) Knowledge of inclusion and withdrawal.

(iii) Facilitate the estimation of national income

(iv) Knowledge of important population variables.

(v) Knowledge of the structure of the economy.

4. What is real flow?

Ans. Factor services flow through the household sector to the productive sector and goods and services produced by the productive sector flow toward the household sector.

5. What areas are studied in the three sectoral model? 

Ans. In the three sector model, three sectors of the economy are studied as follows

(i) the family sector,

(ii) productive sector and

(iii) of the income arising between the government sectorcircular flow.

6. What is meant by Net National Product at factor cost?

Ans. Net national product at factor cost refers to the total income received by all factors in the form of interest, wages, rent and profit without double counting and net foreign factor income.

7, What is meant by disposable income?

Ans. From personal income, direct taxes and various government administrative departmentsDisposable incomeThey say .

8. Is the sale price of a used car included in the national income?

Ans. The selling price of an old car is not included in national income becauseWhen that car was produced only then it was included in GNP.

9. What is real GNP?

Ans. National income at constant prices and real national income is the sum of constant values ​​of final goods and services produced by the general residents of a country in a year.

10. What are factor payments?

Ans. Income received by factors of production i.e. land, labour, capital and entrepreneurshipFor example, rent, interest, wages and profit are called factor payments.

11. Will windfall profits from lotteries be included in factor income?

Ans. You do not factor in windfall gains from lotteries,Because it is a transfer payment.

12. Which items are not included in Domestic Product/Income

Ans. The following items are not included in domestic product/income- (i) services of housewives, (ii) sale and purchase of old goods, (iii) transfer payments, (iv) financial transactions, (v) non- legal activities, (vi) leisure activities, (vii) intermediate goods.

13. State the importance of National Income Accounting । 

Ans. National income accounting has the following importance-

(i) It helps in measuring national income. (ii) It helps in understanding the structure of the economy. (iii) The relative importance of different sectors of the economy is known. (iv) Knowledge of distribution among the factors of income is obtained.

(v) Helpful in intra-regional and international comparison. (vi) Assistant than you at different time periods.

14. Define the concept of value addition.

Ans. Cost of intermediate goods out of the sum of selling price and increase in stock (averageReduction in consumption results in increase in price. Value addition Production increase The increase in the utility of non-factor inputs (intermediate goods) by using the services of firm factor inputs (land, labour, capital and enterprise) in the intermediate consumption or production process.

15. What is depreciation? 

Ans. Deficiency in capital goods like building, machine, equipment etc. due to wear and tear, normal wear and tear, obsolescence (technological change) etc. in production process is called Saas. It is divided into use of fixed capital and consumption or wear and tear of fixed capital.They say.


short answer type questions


1. What are the uses of National Income Accounting?

Ans. Following are the major uses of national income accounting-

(i) The division of national income among various productive resources can be explained.That is, the contribution of which resource in the national income can be known.

(ii) Contribution of primary, secondary and tertiary sectors of the economy to national income, information about relative and absolute growth of these sectors is obtained from national income accounting.

(iii) Changes in the structure of the economy are to blame.

(iv) In national income accounting, information about the strong and weak sides of the economy is obtained.

(v) Statistics of national income, rise in standard of living, distribution of national income etc.provide information

(vi) The basis of comparative study of different countries is obtained from the statistics of national income.

(vii) Information about consumption, savings and capital formation is obtained from the statistics of national income.

(vii) National income figures are the basis for the review of future economic policies.

(ix) Future economic policies, social policies etc. are formulated on the basis of national income figures.

2. Explain circular flow in a two sector economy.

Ans. A two sector economy is a simple economy. Only two sectors of the economy, the family and the firm, exist. The households provide factor services to the firms, in return the firms pay for the factor services to the households.

Similarly, the firm provides goods and services to the households and the households pay the value of the goods and services to the firm. There is no existence of capital market, government and foreign trade in this economy. Families provide land, labour, capital and enterprise to the productive sector.

 The firm pays wages, rent, interest and profit to the households. Households buy goods and services from firms with the help of factor income, in return their value flows to the productive sector.

3. Who was Krishyartha Shastri? What were his views about economic activities?

Ans. The French naturalist economists of the 18th century are called agricultural economists. He was in favor of free flow regarding the conduct of economic activities.

That’s why those economists were against government interference in economic activities. He was in favor of free trade. In his view, the main activity of the society was agriculture.

Quine presented a systematic picture of the circular flow of money and the distribution of agricultural production among different sections of the society through the economic table.

4. What do you understand by circular flow of income and output?

Ans. With the help of flow, the information about the changes in the value of economic variables in a given period of time is obtained. Income and production are also economic flows. Economic flows differ from economic stocks because stocks are measured at a specific point in time.

The depiction of the interdependence of key sectors of the economy such as households, firms, government and the rest of the world is called circular flow of income and output. In other words, the economic decisions of one sector are taken according to the flow of economic decisions of other sectors.

5. “The road to the study of macroeconomics runs through the corridors of national accounting.” Explain.

Ans. With the help of national accounting, we do two main things. The specific rational achievements of a country are revealed. Two, rationale for the review of economic policies based is obtained. In other words, with the help of national accounting, not only economic aggregates are measured, but also the evaluation and analysis of the functioning of the economy are performed and interpreted. Therefore, it is fair to say that the path to the study of aggregate meaning passes through the corridors of national accounting.

6. State the importance of accounting at the macro level.

Ans. Accounting is important at all levels but is even more important at the macro level. There are many reasons for this – On the basis of accounting, the activities of the entire financial year in the economy are reviewed.

After economic analysis, the government makes suitable economic and social policies with the spirit of public welfare. On the basis of this, information about national production, national income, national expenditure, domestic capital formation, per capita income etc. is obtained in the economy. On the basis of accounting, a comparative study of the achievements of the economy in different years is possible.

7. Explain the concept of monetary flow.

Ans. If the economic flow is in the form of money, it is called monetary flow. Monetary flow is the flow of money from one sector to another sector/s. In this type of flow, the flow of goods and services is not included.

For example, the flow of monetary value of goods and services harvested from the household sector by firms, government and the rest of the world. Payment of factor income (rent, wages, interest and profit) to the family sector by the firm, government and the rest of the world etc.

8.What is the principle of circular flow of income and production?

Ans. In the year 1758, Quine created the circular flow table of income and production. Eminent economists were mean in this matter. In the mid-19th century, Karl Marx discussed the circular flow of income and production. The following are the principles of income and production flow:

(i) In every process of exchange, whether in kind or in money,The producer/seller receives the same amount as the consumer/buyer spends.

(ii) The flow of goods and services is in one direction but in order to receive themThe flow of payments made is in the opposite direction.

9. Explain the difference between goods and services.

ThingService
(i) The object is physical i.e. the object has shape. can touch it.(i) Service is immaterial. There is no size of commodity service. Can’t touch it.
(ii) Difference is found in production time and consumption time of the commodity.(ii) The production and consumption periods of a service are of the same size.
(ii) Goods can be stored for future use.(ii) Cannot store the service for the future 1
(iv) Example-table, book, clothes etc.(iv) Example- doctor’s service, teacher’s service

10. What is intermediate consumption? Give two reasons for intermediate consumption by the government.

Ans. Intermediate Consumption – Purchased by one producer unit from another producer unit. The goods and services that are resold are called intermediate consumption. Examples of government’s recurring consumption-

(i) Stationery purchased by Government Departments.

(ii) Petrol purchased for Government vehicles.

11. Differentiate between intermediate products (goods) and final products.

Years.

intermediate objectsfinal goods
(1) The use of non-factor inputs in production is called intermediate consumption. Intermediate goods include non-durable goods and services.(i) Final goods, which satisfy the needs of the consumers.
(ii) Intermediate consumption is demanded by the producers.(iii) Final goods are not included in the national income.
(iii) Intermediate goods are converted into national income.(ii) Final goods are demanded by the consumers

12. Harit G. N. P. Who is called?

Ans. The concept of Green GNP is being developed as a measure of economic development. GNP Efforts are being made to make it capable of measuring human efficiency. In this context, Green G.N.P. has been rendered.

Green GNP Crucial to economic growth – judicious exploitation and development of natural resources

Emphasizes on equitable distribution of benefits. Means GNP It is related to the judicious use of natural resources, conservation and their equitable distribution among different sections of the society.

13. State the importance of national income at constant prices.

Ans. To find out the economic growth in an economy, the national income of one year is compared with the national income of the base year. The increase in national income may be due to increase in output as well as due to increase in prices. When there is an increase in national income due to increase in price, this increase does not represent the real picture of the progress of the economy.

When national income increases due to increase in production, it is called real increase in national income. This increase is an indicator of economic growth.

Since national income at current prices includes the effect of prices, it cannot be compared with national income of the base year.

Therefore, by converting national income at current prices to national income at constant prices, we compare national income with the national income of the base year.

Can

14. Give the meaning of warehouse.

Ans. Raw materials, semi-finished goods and finished goods are required to produce a commodity.

In this way, in the process of manufacturing the goods, all the goods that are there in the middle of the production system are invested in the stock of goods. If this investment is not made, the process of production stops. The following items are included in the investment of inventory-

(i) Goods manufactured with producers and sellers. (ii) Semi-finished goods in the production pipeline.

(iii) Raw materials with the producers.

Stock of goods can be positive as well as negative if the consumption is more than the quantity of goods produced, then stock investment will be negative. If the goods produced are more than the quantity consumed, then the stock of goods will be positive.

15. Outline the value added method of estimating domestic product (national income).

Ans. The following steps are taken to find out national income by this method-

(i) Identifying the productive units in the economy and dividing them into different industrial sectors (primary, secondary and tertiary) on the basis of similar activities.

(ii) To find out the value addition by each production unit and by adding them together to derive the net value addition on each sector’s factor cost.

(iii) To ascertain the income by adding the value addition on the factor cost of all the areas in the domestic border of the country.

(iv) Finding zero foreign factor income and adding it to domestic income to find national income.

16. Distinguish between national income at market price and constant price.

Ans. National income at market prices within the domestic limits of a country in an accounting year. The monetary value of final goods and services produced at market prices and the net factor income earned from abroad is called national income at market prices. National Income at constant prices The monetary value of final goods and services produced within the domestic territory of a country in an accounting year at base year prices and dry factor income earned from abroad is called national income at constant prices.

Increase in national income at market prices is due to increase in prices or increase in quantity of production or increase in prices and quantity of production. The increase in national income at constant prices is due only to the increase in the quantity of output.

17. Does GNP measure national welfare?

Ans. For a long time, economists have been using GNP (Gross National Product) as a measure of economic growth and economic development. An increase in GNP is considered good for the economy and a decrease in GNP is considered bad. But the increase in GNP does not give any information about the distribution of national income, nature and rate of use of resources, quality of life etc.

Therefore, GNP does not measure the national sector level. The purpose of calculating income is to tell people what they can consume without making themselves poor. Increase in GNP is not the only objective of development. Apart from this, equal distribution of national income, improvement in the quality of life of the people and conservation of natural resources etc. should also be included in the objectives of economic development.

In other words, the objective of economic development is to increase productivity. Along with the increase in human efficiency, conservation of natural resources for future generations is considered essential for sustainable development. Therefore, increase in GNP is an incomplete measure of national welfare.

18. Write down the receipts and payments of the households.

Ans. Receipts and payments of the family sector are as follows – Receipts – The family sector receives rent, wages, interest and profit as a reward for resource services. This sector receives final goods and services from the productive sector.

The family receives financial assistance from the government. The household sector receives factor payments from the rest of the world. Households also directly buy goods and services from abroad. The household also receives current transfers from the rest of the world.

Payment – ​​The monetary value of the goods and services purchased by the family, firm, government and abroad has to be paid. The government imposes direct taxes on the families. Families pay taxes to the government sector.

19. Differentiate between gross domestic fixed capital formation and change in stock.

change in stock, gross domestic fixed capital formation
(1) It means investment in raw material, semi-manufactured goods and finished goods(i) It refers to investment in fixed capital goods like machines, buildings, transport equipment etc.
(ii) There is no depreciation in it.(ii) Depreciation takes place in it.
(iii) It keeps on changing continuously.(iii) It changes only in the long run.
(iv) It is done keeping in view the short term demand.(iv) It is done keeping in view the long term demand.
(v) It does not have gross and pure concepts.(v) It consists of gross and pure concepts. The difference between gross domestic capital formation and net domestic capital formation is depreciation.

LONG ANSWER TYPE QUESTIONS


1. Income when the financial sector is included in the circular flow of a two-sector economyAnd show the circular flow of expenditure.

Ans. Various financial institutions like commercial banks, insurance companies etc. in an economy are called financial sector or capital market. The financial market acts as an intermediary between savers, investors or lenders.

In fact, both the household and the productive sector do not spend their entire income. The family saves some of the source income. Similarly, producers save some of the proceeds from the sale of goods and services.

Similarly, producers save some of the proceeds from the sale of goods and services. Some firms also demand money for making investments. Therefore, the financial sector has to play the role of an intermediary between the family and the producer.

Financial institutions encourage households and firms with surplus income to save and get their savings deposited with them.

On the other hand, financial institutions also induce households and enterprises to borrow or firms to invest. The flow of goods and services between these sectors is exactly the same as without the involvement of the financial sector. But there the savings of family and enterprises are taken for granted.

2. Explain the production and income methods of estimating national income.

Ans. The following steps are used in the calculation of national income-

(i) Classification of economic units- All the productive units of the economy are divided into three sectors- primary, secondary and tertiary sector. Divide these regions into different sub-regions.goes.

(ii) Calculating gross output value at market prices – Market prices of all goods and services produced in an accounting year is called gross output value at market prices = quantity of production x market price per unit. At market prices for the economy as a whole by adding up the output value of the productive units.The gross output value is calculated.

(iii) Intermediate/intermediate consumption-producing units of final goods and services makes use of The use of such goods is called intermediate consumption. all producers to find out the intermediate consumption of the whole economy by adding the intermediate consumption of the units goes.

(iv) Gross Value Added at Market Prices – Gross Value Added at market prices is calculated by deducting intermediate consumption from the figure of Gross Output Value at Market Prices. It is equal to the money value of final goods and services or gross domestic product at market prices.

(v) Net Value Added at Factor Cost (NCA at fe) or Net Domestic Product at Factor Cost (NVA at fe) or Domestic Factor Income-To find domestic factor income, consumption of fixed capital and net indirect taxes are subtracted from gross domestic product at market prices.

Domestic factor income = GDP at market prices minus fixed capitalconsumption net indirect tax

Or, Domestic Factor Income = Gross Output Value at Market Prices Intermediate Consumption Fixed Capital Consumption Net Indirect Taxes.

(vi) National Income- National income is calculated by adding net factor income earned from abroad in domestic factor income or net value addition on factor cost.

National Income = Domestic factor income + Net factor income earned from abroad National Income = Net value addition at factor cost + Net factor income earned from abroad or, or, National Income = Gross Output Value at market prices – Intermediate consumption – Consumption of fixed capital – Net indirect tax + from abroad

Earned factor income National income by income method- The sum of income earned in the production process of all goods and services is called national income. The following steps are used to calculate national income by income method

(i) Wages of employees Labor to produce goods and services they provide their physical and mental services. In return for the services of workers, they are paid in cash, in kind or as social security. The sum of all the payments made to the workers is called the wages of the workers.

(ii) Rent – The payment made to the landowners in return for the services of the land is called rent.

(iii) Interest: The payment made to the capitalists in return for the use of capital is called interest.Are. This includes the net interest received by households. net interest calculation interest payments made by households out of the interest received by them to Let’s subtract

(iv) Profit – The reward for bearing the risks and uncertainties of the production process is called profit.

(v) Household Means Income- To calculate the household means income, wages, rent, interest and profit of the employees are added.Domestic Means Income Employees’ wages + Rent + Interest + Mixed income(Income of unincorporated enterprises other than remuneration of employees, rent, interest and profit)Its difficult

(vi) National Income – By adding net factor income earned from abroad to domestic factor incomeNational income is calculated. National income = domestic factor income + net factor income from abroad

3. Show how the sum of increase in prices becomes equal to the sum of factor incomes?

Ans. Value Addition – The firm uses factor inputs to increase the utility of non-factor inputs.Purchases land, labour, capital and services of the enterprise. made on the services of factor inputsThe expenditure incurred is called factor payment. Net value addition over factor cost only factor paymentThey say . Out of the value of output for computing net value added at factor cost

Reduces intermediate consumption, use of fixed capital and net indirect taxes.

Net value addition at factor cost Output value – Intermediate consumption – Consumption of fixed capital

net indirect tax = factor payment

Factor Income – Factors of production land, labour, capital and enterprise sell their services to the firm in the process of production. The sum of all the incomes received by the owners of the resources in return for those resources is called the sum of the incomes of the resources.

It is clear from the above description that the amount that the firm spends on paying for the resources in return for the use of their services, the same amount is received by the owners of the resources as income. Therefore, the net value added at factor cost is equal to the sum of the factor incomes.

4. Explain circular flow in three sector economy.

Ans. In a three-sector economy, apart from the family sector, the productive sector, the government gets involved. In this type of model, the government intervenes in the economic activities of the economy and increases the flow of goods and services in the spirit of public welfare.helps to do.

To avoid confusion, only the flow of goods and services bought and sold by the government is included, not the flow of transfer payments. Like firms, the government purchases factor inputs, land, labor and capital from the household sector, and payments for their services are given to the household sector.

The government harvests essential goods and services from firms, and their monetary value flows from the government to the productive sector. Households buy goods and services from the firm and in return their monetary value flows to the firm.

Various types of transfer payments such as taxes, subsidies, etc. also flow between the government, firm and household sectors. The circular flow in a three-sector economy can also be shown by the following diagram-

To avoid the labor situation, only the flow of goods and services bought and sold by the government is included, not the flow of transfer payments. Like firms, the government purchases factor inputs, land, labor and capital from the household sector, and payments for their services are given to the household sector. The government buys essential goods and services from the firms and their monetary value flows from the government to the productive sector.

Households buy goods and services from the firm and in return their monetary value flows to the firm. Various types of transfer payments such as taxes, subsidies, etc. also flow between the government, firm and household sectors. The circular flow in a three-sector economy can also be shown by the following diagram-Subsidies

5. Explain circular flow in four sector economy.

Ans. Modern economies are four sector economies. In a four-sector economy, greater complexity is found in the flow of goods and services. In this model families, firms, government and foreign countries are included. The flow between households and firms is similar to a two-sector economy. The flow between the firm, the household and the government is similar to that of a three-sector economy.

Relations with the rest of the world are in the form of international trade and capital flows. With the help of export and import of a country, information about the profit and loss of that country is obtained in international trade. If the business of an economyIf it is favourable, then it gets benefit in international trade. On the contrary, if the trade is unfavourable, then that country suffers loss in trade with foreign countries.

Households buy goods and services directly from abroad and pay for them in monetary terms. In foreign countries, resources and services are bought from the family sector and the family sector gets the value of the resources. Similarly, the government and the productive sector purchase inputs from abroad, the payment for their services flows abroad. Cyclic H can also be represented in the following way.

6. Explain in detail the meaning of National Product. 

Ans. of final goods and services produced within a country’s domestic territory in a yearDry money value is called ‘domestic product’. By adding net factor income earned from abroad to this, the national product is known. To understand the meaning of national product properly, it is very important to know the following things-

(i) National product is always a measure of the income of a nation or country. (ii) National product is related to one year’s income of a country. A year can be a calendar year as well as the financial year of the concerned country. In India, this year is the financial year (April 1 to March 31).

(iii) The problem of double counting is only the final product produced in a year in a country.is included in the national product. This is to avoid the problem of double countingis done.

(iv) National product means the net value of final goods produced. Net worth does not include depreciation, consumption of fixed capital. If actual increase is included in the value of goods, then it is called gross value.

(v) National product is the money value of final goods produced. Money value can be ascertained on two bases – on factor cost and on market price. To know the net real growth, the national product should be measured at factor cost.

(vi) National income can be estimated both at factor cost and market priceIs. In short-

National Income at Factor Cost = National Income at Market Price Income Tax + Subsidy National Income at Market Price = National Income at Factor Cost + Income Tax Subsidy

(vii) National product can be calculated in two ways – on the basis of current pricesOn the basis of and constant prices, current prices mean the prices of that year.The year in which national income is to be measured. Fixed prices mean any given prices

Or is it from the prices of a given year, such as national income in India at this time in 1993-94 Also measured at constant prices.

(viii) The final value of goods and services produced within the domestic territory of a country is called ‘domestic product’. By adding to these the net resources earned from abroad, we get national income or product.


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FAQs


Q. What are the components of gross expenditure?

Ans. Aggregate expenditure includes the expenditure incurred by the family, firm and the government.Is. The final expenditure of these areas is also divided into the following categories-
(i) Private Final Consumption Expenditure
(ii) Investment expenditure
(iii) Government final consumption expenditure
(iv) Net exports

Q. What is transfer income?

Ans. Such income which is received without any goods or services is called transfer income. Transfer income is one sided. It does not increase the flow of goods and services. For example, old age pension, scholarship etc. do not include transfer income in national income.


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