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Wednesday, November 30, 2016

Concepts of National Income:

Image result for national income


There are various concepts of national income. These are explained below one by one:

(1) Gross National Product (GNP).

(2) Net National Product (NNP)/National Income.

(3) Gross Domestic Product (GDP).

(4) National Income at Factor Cost.

(5) Personal Income.

(6) Disposable Personal Income.

(1) Gross National Product (GNP):


Gross National Product at Market Price:


Definition and Explanation of GNP:


The concept of gross national product (GNP) is comprehensive. It enables us to measure and analyze as to how much is the aggregate economic production of a country in a given period. The gross national product of a country (GNP) is defined as:

"The total money value of all final goods and services produced by the residents of a country in one year period".

In the words of W.C. Peterson:

"Gross national Product may be defined as the current market value of all final goods and services produced by the economy during an income period regardless of where the output is produced".

we should remember the following aspects about GNP.

(i) GNP is a flow concept: GNP represents a flow. It is a quantity produced per unit of time. It is the value of final goods and services I produced in a country during a given time period.

(ii) GNP measures final output: While calculating GNP, the market value of only final goods and services produced in a year are added up. Final goods are those goods which are purchased for final use in I the market.

(iii) GNP is output produced by the citizens of a country: Gross national product is the final output of goods and services produced by the citizens and businesses of a country during a given time period which is usually a year. For example, the economic activity carried out by the USA citizens and businesses outside the country is counted in GNP. While the income of the residents who are not USA citizens is subtracted from GNP.

Components of Expenditures in GNP:


For measuring GNP at market price, the economists use Expenditure Approach. According to this approach:

There are four categories of expenditures which are added together to measure gross national product (GNP) at market price, (i) Consumption, (ii) Investment (iii) Government expenditure and (iv) Net exports.

These four types of expenditures are now explained in brief:

(i) Consumption Expenditure (C): It includes all personal expenditure incurred by the citizens of a country on durable and non-durable goods in a period of one year.

(ii) Investment (I): It is the total expenditure incurred by firms or households on capital goods.

(iii) Govt. expenditures (G): It includes all types of expenditure incurred by Federal, Provincial, Local Councils on the purchases of goods and services such as national defense, law and order, street lighting etc.

(iv) Net Exports (X - M): Net exports of goods and services are value of exports minus the value of imports.

Formula For Gross Profit:


GNP = C + I + G + (X - M)

Where:

C = consumption, I = investment, G = Govt. expenditure and X - M = Net exports

(2) Net National Product (NNP)/National Income:


Definition and Explanation of NNP:


"Net national Product or national income at market prices is the net market money value of all the final goods and services produced in a country during a year. It is found out by subtracting the amount of depreciation of the existing capital in a year from the market value of all final goods and services".

For a continuous flow of money payments, it is necessary that a certain amount of money should be set aside from the gross national income for meeting the necessary expenditure of wear and tear of all capital equipment so that there should not be any deterioration in the capital and it should remain intact. If we deduct depreciation allowance from gross national product, we get Net National Product at current market price.

Formula For Net National Product/National Income:


NNP at Market Price = GNP at Market Price - Depreciation

Depreciation Allowance and Maintaining Capital Intact. Here a question can be asked as to what we actually mean by depreciation allowance and maintaining capital intact; (the words which we have used in explaining NNP).

It is known to every one of us that when production is going on, the value of capital equipments does not remain the same. A decrease in value because of wear and tear through, use, rusting, accident or through actions of elements, gradually take place in the building and other equipments of business. A certain sum of money based on the value of the capital equipment and its longevity is set aside every year from the gross annual income so that when machinery is worn out, a new capital equipment can be set up from the sum thus accumulated. This fund which is set aside for covering the wear and tear, deterioration and obsolescence of the machinery is named as Depreciation Allowance. We can make this concept more clear by taking a simple example.

Example of NNP:


Suppose, a person buys a machinery for manufacturing cloth for $10000 only. He expects that this machinery will last ten years and after that period, it will be partially or completely worn out. He sets aside $1000 every year from the gross national income as a depreciation reserve of the capital equipment.

After the expiry of ten years, he accumulates $10000 and with that money he replaces the old capital equipment which has lived its useful life and maintains capital intact. The sum of money, i.e., $1000 which he annually deducts from the gross annual income, is known as depreciation allowance.

It is often pointed out by economists that the calculation of depreciation allowance every year is a difficult task.

For example, a person expects the longevity of the capital equipment, say for ten years. There is a possibility that machinery may last longer or it may go out of use earlier. So they say what needed is an approximate decision regarding the' depreciation allowance. This decision should be based on high degree of judgment and guessing about the future.

Maintaining Capital Intact. By maintaining capital intact we do not mean that capital equipments should remain the same. It should neither increase nor decrease. This can only by possible in a static society. In a progressive society, the total capital equipment of a country must increase every year, otherwise the national income will be affected adversely.

In Economics, by the phrase 'maintaining capital intact' is meant to make good the physical deterioration which has taken place in the capital equipment while creating income during a given period. This can only be made by setting aside a certain amount of money every year from the annual gross income so that when the income creating equipment becomes obsolete, a new capital equipment may be created out. If the depreciation allowance is not set aside every year, the flow of income would not remain intact. It will decline gradually and the whole country will become poor.

NNP = GNP - Depreciation

(3) Gross Domestic Product (GDP):


Definition and Explanation of GDP:


It is a key concept in the national income. "Gross domestic product (GDP) is the total market value at current prices of all final goods and services produced within a year by the factors of production located within a country".

The labor and capital of a country working on its natural resources produce a certain aggregate of commodities, material and non-material every year. In addition to this, there may be foreign firms producing goods in the various sectors of the economy like mining, electricity, manufacturing etc.

If we add up the money value of all the final goods produced both by domestic and foreign owned factors annually in the country and valued at market prices, it wilt be called gross domestic product (GDP). Gross Domestic Product thus is the value of aggregate or total production of goods and services in a country in one year. This constitutes the Gross National Product, of a country. If we make a detailed list of all such commodities produced annually or measure the total goods produced during a year by weight or by volume, it will not give us any clear and concise impression about our total national output. So what generally done is that the money value of all final goods and service produced during a year at current market prices is added up. This total current market value of all final goods and services produced in an economy in one year period is called gross domestic product (GDP). In the words of Campbell:

"Gross Domestic Product is defined as the total value of all final goods and services produced in a country in one year".

According to Shapiro:

"GDP is defined as a flow variable, measuring the quantity of final good and services produced" during a year".

Problems in Measuring GDP:


The main problems or pitfalls which are to be avoided in the measurement of GDP are as under:

(i) Stress on final output. While calculating the gross domestic product (GDP), the value of only those goods are added which have reached their final stage of production and are available for consumption. The primary or intermediate goods are not counted in GDP. For example, table made of wood is the final product. The wood used in making the table is a primary good. While calculating GDP, if we include the value of wood as a separate item and the value of table separate, it will be a case of double counting and this leads to inflated rise in GDP.

(ii) Value added method. Another way to avoid pitfall of double or multiple counting is to calculate only the added value of a particular commodity at its every stage of production. The result in both the cases will be the same.

Suppose, the price of book which you are reading is $10. This includes the cost of paper, printing and binding charges, etc., While estimating the gross domestic product, there are two ways open to you. Either you include the final price of the book at one time in gross domestic product or you add up the added value at every stage in the process of the production of the book. But you are not to count the value of a thing more than once.

From the following example, the reader can easily understand as to how the danger of double or multiple counting can be avoided.

Stage of ProductionForm of the ProductPrice at Each Stage ($)Value Added at Each Process ($)
1stJungle Wood0.250.25
2ndThe price of wood after transporting to the city0.380.13
3rdPaper manufacturing2.001.62
4thPrinting of book5.003.00
5thBinding and title, etc.6.001.00
6thSale price10.004.00
  $23.63$10.00

From the above example, it is clear that if we add up the value of the product at every stage of production, the total value of the book comes to $23.63, while in fact it is priced al $10 only.

So we come to the conclusion that while adding the value of the book to the gross national product, we should either include the final price of the book which is $10 or we should add up the added value at each stage in the process of production. But we are not to count the value of a particular commodity more than once. If we do so, the gross product will be overestimated. The computation of GDP by this method is not popular.

(iii) Non-Productive transactions are excluded from GDP. In order to measure the economic well being of a society in a year, the non-productive transactions are excluded from the Gross Domestic Product. There are two major types of non-productive transactions, namely: (a) Purely financial transactions and (b) Second hand sales. Under purely financial transaction (i) all public transfer payments which do not add to the current flow of goods such as social security payments, relief payments and (ii) all private financial transactions such as receipt of money by a student from his father which make no contribution in current production are all excluded from GDP. Similarly, the second hand sales are excluded from GDP as they do not contribute to current production in a year.

(iv) Other transactions. There are a few other transactions which are not included in GDP. For example, persons working in their own houses without any payment through the market. For example, a house wife takes care of house and children. Since she is not paid, therefore, the value added by her is not included in GDP.

Exclusion of output production abroad. GDP is the value of output produced by factors of production located within a country. It excludes the output produced abroad by domestically owned factors of production.

Distinction Between GDP and GNP:


Here it seems necessary to make a distinction between gross domestic product (GDP) and gross national product (GNP). Gross domestic product is the total market value of all final goods and services produced by factors of production within a nation's border during a period of one years. In other words GDP is a flow of production produced within the country by domestically located resources in a year.

Gross national product (GNP) on the other hand, is the measure of all final goods and services produced by the citizens within their own country as well as outside the country during a period of one year. In other words, GNP expresses the money value of flow of goods and services produced within the country and the net income received from abroad during a period of one year. Thus when we move from GDP to GNP, we add factor income receipts from foreigners and subtract factor income payments to foreigners.

Formula For GDP:


GDP = GNP - Net Foreign Income From Abroad

(4) National Income at Factor Cost:


Definition and Explanation:


National income can be estimated in terms of either output or total income. When national income is measured by adding together all income payments made to the factors of production in a year, it is called national income at factor cost. National income thus is the sum total of all income payments made to the factors of production. In the words of J. Sloman:

"National income (Nl) or national income at factor cost is the aggregate earning of the four factors of production (land, labor, capital and organization) which arise from the current production of goods and services by the nations' economy".

Components of National Income at Factor Cost:


The main components of national income at factor cost are as follows:

The factor incomes are generally divided into four categories:

(i) Compensation to employees (ii) Interest (iii) rents and (iv) profits.

(i) Compensation to employees: It is the largest component of national income. It consists of wages and salaries paid by the firms to the workers for their labor services.

(ii) Interest: Interest is the payment for the use of funds in a year. The payment is made by private businesses to households who have lent money to them.

(iii) Rent: Rent is all income earned by individuals for the use of their real assets such as building, farms etc.

(iv) Profit: Profit is the amount which is left after compensation to employees, rent, interest have been paid out. The sum of compensation to .employees, interest, rent and profit is supposed to equal national income at factor cost.

(5) Personal Income:


Definition and Explanation:


National income is the sum of factor income. In other words, it is the income which individuals receive for doing productive work in the form of wages, rent, interest and profits. Personal income, on the other hand, includes all income which is actually received by all individuals in a year. It includes income which is not directly earned but is received by individuals.

For example, social security payments, welfare payments are received by households but these are not elements of national income because they are transfer payments.

In the same way, in national income accounting, individuals are attributed income which they do not actually receive. For example, undistributed profits, employees contribution for social security corporate income taxes etc. are elements of national income but are not received by individuals. Hence they are to be deducted from national income to estimate the personal income.

Formula For Personal Income:


PI = Nl + Transfer Payments - Corporate retained earnings, income taxes, social security taxes

(6) Disposable Personal Income:


Definition and Explanation:


Disposable personal income is the amount which is actually at the disposal of households to spend as they like. It is the amount which is left with the households after paying personal taxes such as income tax, property tax, national insurance contributions etc.

Formula For Disposable Personal Income:


Disposable personal income = Personal Income - Personal Taxes

DPI = PI - Personal Taxes
The concept of disposable personal income is very important for studying the consumption and saving behavior of the individuals. It is the amount which households can spend and save.
Disposable Income = Consumption + Saving

DI = C + S

Monday, November 28, 2016

Determination of Equilibrium National Income in a Two-Sector Economy!

1. Meaning of Equilibrium:

By equilibrium we mean the state of balance or state of no change. By equilibrium national income we refer to that level of national income which remains unchanged at a particular level.
At the equilibrium level of national income there is no tendency for income/output to rise or fall.
In the Keynesian two-sector economy there are only household and business sectors.
Government is absent and the economy is a closed one. In this simple economy, there are two elements of national income—consum­ption and investment, i.e., C + I. An economy is said to be in equilibrium when aggregate expenditure equals aggregate income or aggregate money value of all goods and services.
Aggregate demand is, thus, sum of consumption demand and investment demand. Since, in a two-sector economy, there are only two goods—consumption goods and investment goods—aggregate expenditure is, the sum of consumption and investment expenditures. Thus, aggregate demand (C + I) equals aggregate expenditure (C + I).
Alternatively, whenever aggregate income equals aggregate expenditure, leakages from and injections into the circular flow of income become equal to each other. In a two-sector economy, saving is the only source of withdrawal and investment is the only source of injection. Thus, an economy is said to be in equilibrium when saving (i.e., withdrawal) equals investment (i.e., injection).
The above argument, thus, suggests that there are two alternative approaches of national income determination. First approach slates that the equilibrium level of national income is determined by the equality of aggregate demand (or aggregate expenditure) and aggregate supply of output. In terms of a diagram, one can say that in a two-sector economy, the equilibrium level of national income is determined at that point where C + I line cuts the 45° line. This approach is, thus, known as income-expenditure approach or aggregate demand-supply approach.
Aggregate demand = money value of output (income)
or Y = C + I …(3.17)
Alternative approach states that, when injection (I) equals leakage (S) in a two-sector economy, equilibrium level of national income is determined. In terms of a diagram, when saving line and investment line intersect each other, equilibrium level of income is determined.
Leakage (saving) = injection (investment)
or S = I …(3.18)
Remember that these two approaches are alternative to each other.

2. Methods to Determine Equilibrium National Income:

Now these approaches will be explained in detail:

(i) First Method: Aggregate Income- Expenditure Approach:

In a two-sector Keynesian model, aggregate demand is composed of planned or desired consumption demand and planned investment demand. The total of planned expenditure (C + I) must be equal to the value of output or income for a simple economy to be in equilibrium. Or when the C + I line cuts the 45° line, an equilibrium level of income is determined. In other words, an equilibrium level of national income is determined at that point where aggregate demand (C + I) equals aggregate supply (i.e., the country’s aggregate output or national income).
To illustrate equilibrium national output graphically, we use Fig. 3.11 where we measure national income on the horizontal axis and aggregate demand or spending (C +1) on the vertical axis. The 45° line is purely a reference line; any point on this line is equidistant from both the horizontal and vertical axes. Aggregate spending (C + I) is equal to the value of income or output on this 45° line. For our exposition purposes, this line can be thought of as an aggregate supply curve, though it is not a ‘true’ aggregate supply curve.
With no government and foreign trade sectors, aggregate demand/expenditure is the sum of consumption demand and investment demand. In Fig. 3.11, CC’ is the planned consumption line. It shows the level of consumption for each level of income. Investment expenditure is assumed to be autonomous. To demonstrate this, investment line 1 has been drawn parallel to the horizontal axis.
Equilibrium Income: Income-Expenditure Approach
By summing up the consumption and autonomous investment schedules one obtains aggregate demand schedule (C + I). The vertical distance between the CC’ line and the C + I line measures the volume of autonomous investment. Point E is the equilibrium point since C + I line cuts the 45° line at that point. Equilibrium level of income, thus determined, is OYE since it is the only level of income at which aggregate demand and aggregate value of output (or income) are equal to each other.
We can show that this equilibrium level of income is a stable one. This means that if the level of income is either more than or less than OYE then there will be a tendency for the level of income to move toward OYE. Otherwise, equilibrium is said to be unstable. Suppose, if income is OY, (< OYE), aggregate demand will exceed aggregate supply or aggregate output. Now there will be an excess demand for goods and services, resulting in an unplanned reduc­tion of inventories. (Remember that invento­ries are part of investment.) As inventories decline, business firms step up production.
Thus, output will continue to rise till OYE is achieved. Similarly, at OY, level of income, aggregate supply exceeds aggregate demand. This means an excess supply of goods and services. People are not willing to purchase all the goods that the nation has produced. Thus, there will be an unintended accumula­tion of inventories by producers. Firms will now be forced to cut back production. Output will continue to decline till OYE is attained. Only at OYE there is neither unplanned accu­mulation nor depletion of inventories. Thus, OYE is stable equilibrium national income.
To have a stable equilibrium of income one condition is needed—slope of the line C + I must be equal to the slope of the CC’ line. The slope of the consumption line CC’ is the MPC whose value must always be less than unity. Diagrammatically, this means that the C + I line must cut the 45° line from above. If C + I line cuts the 45° line from below then the value of MPC would be greater than unity and equilibrium income, thus, determined in this manner would be unstable.

(ii) Alternative Method: Saving-Investment Approach:

Total withdrawals from and injections into the circular flow determine equilibrium national income. In a two-sector economy, withdrawal comprises only saving while injection comprises only investment. Equilibrium national income is determined at that point when planned saving and planned investment are equal to each other. Diagram­matically, at the intersection of the saving and investment line, equilibrium national income is determined.

In Fig. 3.12, we measure national income on the horizontal axis and savings and investment on the vertical axis. SS’ is the planned saving curve which has a negative intercept in the sense that at low level of income since consumption exceeds income savings must be negative. As usual, I is the autonomous investment line drawn parallel to the horizontal axis. As SS’ curve cuts I at point E, equilibrium level of income is thus determined at OYE. In other words, planned saving and planned investment are equal only at the intersection of the two curves and, thus, equilibrium income is OYE. And this equilibrium income is a stable one.
Equilibrium Income: Saving-Investment Approach
To see whether OYE is a stable equilibrium income, we consider OY1 or OY2 level of income. If the deviation from OYE level of income gets corrected or if the equilibrium income OYE is attained after deviation, then equilibrium is said to be a stable one. At OY1 level of income, investment (injection) exceeds saving (leakage). Aggregate demand must exceed aggregate output. This will result in an unplanned reduction of inventories to meet excess demand. Consequently, output will rise until planned saving and planned investment are equal.
Similarly, at OY2 level of income, since saving exceeds investment, aggregate demand falls short of aggregate supply. Hence, an excess supply of commodities will appear leading to an unplanned accumulation of inventories. This will act as an incentive to cut back output. Output will continue to decline until point E is reached where OYEequilibrium level of national income is determined. Thus, OY£ is a stable equilibrium.
The condition for stability is that the saving curve must be positively sloped. MPS is the slope of the saving function. To have stability, the value of MPS must be positive but less than one. Remember that MPS is complementary to MPC. If MPC < 1, then MPS must be less than one since MPC + MPS = 1. Thus, the condition for stability in equilibrium income in both the approaches is the same, i.e., 0 < MPC < 1.
A Numerical Example on the Determination of Equilibrium National Income in. a two-sector economy:
Suppose, consumption (C) is given by the consumption function
C = 5 + 0.8Y
where Y is income.
Assume that investment is autonomous (I) and is given by
I = Rs. 10
With this information, we want to derive the equilibrium values of income, consumption, saving and investment.
Solution:
Equilibrium condition is Y = C + I, where C = a + bY and I = I. Putting the values of C and I, we obtain
Y = a + bY + I
or Y – bY = a + I
or Y (I – b) = a + I
clip_image006Y = 1/1-b (a + I)
Here, Y is the equilibrium level of income. Substituting the consumption and investment equations into equation Y, we get 1
Y =1/1-0.8 (5 + 10) – Rs. 75
Thus, C = 5 + 0.8(75) = Rs. 65, and
S = Y-C = 75 – 65 = Rs. 10
I = Rs. 10

3. Equilibrium Income is not Necessa­rily Full Employment Income:

We have demonstrated how equilibrium level of national income in the Keynesian framework is determined. But this equilibrium income must not necessarily be full employment income (designated as YF in Figs. 3.11 and 3.12). Equilibrium income determined (OYE) is definitely less than full employment income (OYF). This means that aggregate demand (C + I) is inadequate to maintain full employment. At the full employment level, aggregate output becomes maximum.
But, in the Keynesian system, aggregate demand or aggregate spending creates an income level which is necessarily less than full employment income. This equilibrium income has been described by Keynes as ‘underemployment equilibrium’. To reach ‘full employment equilibrium’, Keynes prescribed a fiscal policy measure which aims at stepping up government expenditure and tax cuts.

Saturday, November 19, 2016

B-COM PART 2 (REGULAR/EXTERNAL) GUESS PAPERS FOR EXAM 2016















B-COM PART 1 (REGULAR/EXTERNAL) GUESS PAPERS FOR EXAM 2016











10 Steps To Effective Listening

"Effective listening is a skill that underpins all positive human relationships, spend some time thinking about and developing your listening skills – they are the building blocks of success."



In today’s high-tech, high-speed, high-stress world, communication is more important then ever, yet we seem to devote less and less time to really listening to one another. Genuine listening has become a rare gift—the gift of time. It helps build relationships, solve problems, ensure understanding, resolve conflicts, and improve accuracy. At work, effective listening means fewer errors and less wasted time. At home, it helps develop resourceful, self-reliant kids who can solve their own problems. Listening builds friendships and careers. It saves money and marriages.
Here are 10 tips to help you develop effective listening skills.

Step 1: Face the speaker and maintain eye contact.


Talking to someone while they scan the room, study a computer screen, or gaze out the window is like trying to hit a moving target. How much of the person’s divided attention you are actually getting? Fifty percent? Five percent? If the person were your child you might demand, “Look at me when I’m talking to you,” but that’s not the sort of thing we say to a lover, friend or colleague.
In most Western cultures, eye contact is considered a basic ingredient of effective communication. When we talk, we look each other in the eye. That doesn’t mean that you can’t carry on a conversation from across the room, or from another room, but if the conversation continues for any length of time, you (or the other person) will get up and move. The desire for better communication pulls you together.

Do your conversational partners the courtesy of turning to face them. Put aside papers, books, the phone and other distractions. Look at them, even if they don’t look at you. Shyness, uncertainty, shame, guilt, or other emotions, along with cultural taboos, can inhibit eye contact in some people under some circumstances. Excuse the other guy, but stay focused yourself.


Step 2: Be attentive, but relaxed.


Now that you’ve made eye contact, relax. You don’t have to stare fixedly at the other person. You can look away now and then and carry on like a normal person. The important thing is to be attentive. The dictionary says that to “attend” another person means to:
  • be present
  • give attention
  • apply or direct yourself
  • pay attention
  • remain ready to serve
Mentally screen out distractions, like background activity and noise. In addition, try not to focus on the speaker’s accent or speech mannerisms to the point where they become distractions. Finally, don’t be distracted by your own thoughts, feelings, or biases.


Step 3: Keep an open mind.


Listen without judging the other person or mentally criticizing the things she tells you. If what she says alarms you, go ahead and feel alarmed, but don’t say to yourself, “Well, that was a stupid move.” As soon as you indulge in judgmental bemusements, you’ve compromised your effectiveness as a listener.
Listen without jumping to conclusions. Remember that the speaker is using language to represent the thoughts and feelings inside her brain. You don’t know what those thoughts and feelings are and the only way you’ll find out is by listening.
Don’t be a sentence-grabber. Occasionally my partner can’t slow his mental pace enough to listen effectively, so he tries to speed up mine by interrupting and finishing my sentences. This usually lands him way off base, because he is following his own train of thought and doesn’t learn where my thoughts are headed. After a couple of rounds of this, I usually ask, “Do you want to have this conversation by yourself, or do you want to hear what I have to say?” I wouldn’t do that with everyone, but it works with him.


Step 4: Listen to the words and try to picture what the speaker is saying.


Allow your mind to create a mental model of the information being communicated. Whether a literal picture, or an arrangement of abstract concepts, your brain will do the necessary work if you stay focused, with senses fully alert. When listening for long stretches, concentrate on, and remember, key words and phrases.
When it’s your turn to listen, don’t spend the time planning what to say next. You can’t rehearse and listen at the same time. Think only about what the other person is saying.
Finally, concentrate on what is being said, even if it bores you. If your thoughts start to wander, immediately force yourself to refocus.


Step 5: Don’t interrupt and don’t impose your “solutions.”


Children used to be taught that it’s rude to interrupt. I’m not sure that message is getting across anymore. Certainly the opposite is being modeled on the majority of talk shows and reality programs, where loud, aggressive, in-your-face behavior is condoned, if not encouraged.
Interrupting sends a variety of messages. It says:
  • “I’m more important than you are.”
  • “What I have to say is more interesting, accurate or relevant.”
  • “I don’t really care what you think.”
  • “I don’t have time for your opinion.”
  • “This isn’t a conversation, it’s a contest, and I’m going to win.”
We all think and speak at different rates. If you are a quick thinker and an agile talker, the burden is onyouto relax your pace for the slower, more thoughtful communicator—or for the guy who has trouble expressing himself.
When listening to someone talk about a problem, refrain from suggesting solutions. Most of us don’t want your advice anyway. If we do, we’ll ask for it. Most of us prefer to figure out our own solutions. We need you to listen and help us do that. Somewhere way down the line, if you are absolutely bursting with a brilliant solution, at least get the speaker’s permission. Ask, “Would you like to hear my ideas?”


Step 6: Wait for the speaker to pause to ask clarifying questions.


When you don’t understand something, of course you should ask the speaker to explain it to you. But rather than interrupt, wait until the speaker pauses. Then say something like, “Back up a second. I didn’t understand what you just said about…”


Step 7: Ask questions only to ensure understanding.


At lunch, a colleague is excitedly telling you about her trip to Vermont and all the wonderful things she did and saw. In the course of this chronicle, she mentions that she spent some time with a mutual friend. You jump in with, “Oh, I haven’t heard from Alice in ages. How is she?” and, just like that, discussion shifts to Alice and her divorce, and the poor kids, which leads to a comparison of custody laws, and before you know it an hour is gone and Vermont is a distant memory.
This particular conversational affront happens all the time. Our questions lead people in directions that have nothing to do with where they thought they were going. Sometimes we work our way back to the original topic, but very often we don’t.
When you notice that your question has led the speaker astray, take responsibility for getting the conversation back on track by saying something like, “It was great to hear about Alice, but tell me more about your adventure in Vermont.”

Step 8: Try to feel what the speaker is feeling.


If you feel sad when the person with whom you are talking expresses sadness, joyful when she expresses joy, fearful when she describes her fears—and convey those feelings through your facial expressions and words—then your effectiveness as a listener is assured. Empathy is the heart and soul of good listening.
To experience empathy, you have to put yourself in the other person’s place and allow yourself to feel what it is like to be her at that moment. This is not an easy thing to do. It takes energy and concentration. But it is a generous and helpful thing to do, and it facilitates communication like nothing else does.

Step 9: Give the speaker regular feedback.


Show that you understand where the speaker is coming from by reflecting the speaker’s feelings. “You must be thrilled!” “What a terrible ordeal for you.” “I can see that you are confused.” If the speaker’s feelings are hidden or unclear, then occasionally paraphrase the content of the message. Or just nod and show your understanding through appropriate facial expressions and an occasional well-timed “hmmm” or “uh huh.”

The idea is to give the speaker some proof that you are listening, and that you are following her train of thought—not off indulging in your own fantasies while she talks to the ether.
In task situations, regardless of whether at work or home, always restate instructions and messages to be sure you understand correctly.


Step 10: Pay attention to what isn’t said—to nonverbal cues.


If you exclude email, the majority of direct communication is probably nonverbal. We glean a great deal of information about each other without saying a word. Even over the telephone, you can learn almost as much about a person from the tone and cadence of her voice than from anything she says. When I talk to my best friend, it doesn’t matter what we chat about, if I hear a lilt and laughter in her voice, I feel reassured that she’s doing well.
Face to face with a person, you can detect enthusiasm, boredom, or irritation very quickly in the expression around the eyes, the set of the mouth, the slope of the shoulders. These are clues you can’t ignore. When listening, remember that words convey only a fraction of the message.


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