Chapter 3 & 4 (Macro Economics) - Chapter Notes (Part -2) - Commerce PDF Download

NET FACTOR INCOME FROM ABROAD (NFIA)

MEANING :: It is difference between factor income in form of rent ,interest, profit and wages
earned by normal resident from rest of the world and factor income paid to non-resident in
domestic territory.

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NFIA = Factor income from ROW - Factor income to ROW

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It is used to DIFFERENTIATE BETWEEN DOMESTIC AND NATIONAL VARIABLES

CONSTITUENTS OR COMPONENTS OF NFIA
The three main components of NFIA are :
(1) NET COMPENSATION OF EMPLOYEES :: Net Compensation of Employees
from Abroad = Compensation received by residents of a country working abroad ( - )

                    Compensation paid to the non-residents working in the domestic territory.
(2) NET INCOME FROM PROPERTY AND ENTREPRENEURSHIP :: It is equal to the difference between the income received by way of interest, rent and profit by the residents of a country and similar payments made to the rest of the world.
(3) NET RETAINED EARNINGS OF RESIDENT COMPANIES :: It is the difference between the retained earnings (or undistributed profits) of the resident companies located abroad and retained earnings of non - resident (or foreign companies) located within the domestic territory of a country.

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CHECK YOUR CONCEPT

(Q1) GDP_MP = 200 crore , Indirect tax= 50 , Subsidies = 30 , Depreciation = 75 , Factor income
from abroad = 50 ,factor income to abroad = 10
Find (a) GDP FC (b) NDPMP (c) NDP_FC (d) NNP_MP (e) NNP_FC

(Q2) NDP_MP =750 crore , Net Indirect tax= 50 , Subsidies = 60 , Depreciation = 75 , Factor
income to abroad = 15
Find (a) NDP_FC (b) GDP_FP (d) NNP_MP (e) NNP_FC

(Q3) Under what circumstances (a) NNP_MP < NDP_MP
(b) NNPMP < NNPFc
(Q4) Does increase in domestic income always lead to increase in national income ? If not,
give an illustration in support of your answer. Also, write two suggestions to accelerate the growth
of domestic income.
Ans :: Develop infrastructure and promote FDI

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INTERMEDIATE CONSUMPTION (I.C)

It differentiate between VALUE OF OUTPUT AND VALUE ADDED

Also value added by all the sector in an economy is GDP at MP

(1) VOQ = Value of output in an economy as a whole is the sum total of the market value
of goods and services produced in an accounting year by all producing enterprises. It is
calculated by using any formula

For GOVERNMNET SECTOR
                                      VOQ = Intermediate consumption + Compensation of employees or
                                              = Sales to public + Supply to public
(2) I.C                                     = Purchase of raw material from domestic market +
                                                 Import Of Raw material +
                                                 Expenses(like Electricity,fuel etc.)

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SPECIAL PONTS ::
(a) Net Sales is equal to sum of Domestic sales and Export
(b) Purchase and / or Import of machinery is not added in Intermediate
consumption as these are Capital goods
(c) Change in stock = Closing Stock - Opening Stock
(d) Change in stock is also known as
(i) Value added in stock
(ii) Inventory investment
(iii) Increase in stock

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CHECK YOUR CONCEPT
(Q1) Identify the concept X in each of the following :
(i) X = Sum of net values added + Consumption of fixed capital.
(ii) X = Domestic factor income + Consumption of fixed capital.
(iii) X = GDP at factor cost + Net Indirect Taxes.
(iv) X = GDP at market prices + Net Factor Income from Abroad.
(v) X = GNP at market prices - Consumption of fixed capital.
(vi) X = NNP at market prices - Net Indirect Taxes.

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NUMERICALS

Q1a) Calculate Gross Value added at factor cost ( Rs in lakhs )
(i) Sales 180                      (ii) Rent 5
(iii) Subsidies 10                (iv) Change in stock 15
(v) Purchase of raw material 100
(vi) Profits 25                                                          ( Ans. Rs 105 lakh )

Q1b) Calculate Gross Value added at factor cost ( Rs in lakhs )
(i) Net indirect taxes                                    20
(ii) Purchase of intermediate                        120
(iii) Purchase of machine                             300
(iv) Sales                                                   250
(v) Consumption of Fixed Capital                20
(vi) Change in stock                                    30 ( Ans. Rs 140 lakh )

Q1c) Find value added ( Ans. Rs 330 lakh )
(a) Sales = 600 (lakhs)
(b) Purchase of raw-material = 200
(c) Import of raw material = 100
(d) Import of machines = 200
(e) Closing stock = 40
(f) Opening stock = 10

Q1d)Find net value added at market price
(a) Sales = 300 (thousands)
(b) Depreciation = 20
(c) Net indirect taxes = 30
(d) Purchase of intermediate prod. = 150
(e) Change in stock = (-)10
(f) Purchase of machiney = 100                                               (Ans.Rs.1,20,000)

Q1e) Calculate N.V.A at Factor Cost                                        ( Ans. Rs 90 lakh )
(i) Opening Stock = 10                         (ii) Cons. of fixed capital =20
(iii)Sales = 200                                    (iv) Excise Duty=15
(v) Purchase of raw material=80            (vi) C.stock=30
(vii) Sales tax=5
(viii)Purchase of service from other firm=10

(Q1f) Calculate Gross Value Added at Market Price from the following (Rs. inlakhs)
(i) Intermediate cost         8
(ii) Closing Stock             5
(iii) Sales                       30
(iv) Net indirect tax          6
(v) Subsidy                    1
(vi) Depreciation             3
(vii) Opening stock 4                                                           ( Ans. Rs 23 lakh )

Q1 g) From the following about firm ‘X’, calculate gross value added at factor cost by it:(‘000)
(i) Sales                                    500
(ii) Opening Stock                       30
(iii) Closing Stock                        20
(iv) Purchase of intermediate products 300
(v) Purchase of machinery 150
(vi) Subsidy 40                                                                               ( Ans. Rs 230 lakh )
Q1h) Calculate Net Value Added at Factor Cost from the following: (Rs. in lakhs)
(i) Purchase of materials 30
(ii) Depreciation 12
(iii) Sales 200
(iv) Excise tax 20
(v) Opening stock 15
(vi) Intermediate consumption 48
(vii) Closing Stock 10                                                                         ( Ans. Rs 115 lakh )
(Q 1 i) Find out the value of output of the government sector on the basis of the given data :
Rs.
(i) Intermediate consumption                                            5,000
(ii) Compensation of employees                                        20,000
(iii) Sales to public                                                           2,000
(iv) Supply to public                                                       23,000

(Q 2b) Calculate value added by firm X and firm Y from the following data:

(Q 2c) Calculate Value added by firm A and firm B
(i) C.S by firm A = 20
(ii) C.S by firm B = 15
(iii) O.S by firm A = 5
(iv) O.S by firm B = 10
(v) Sales by firm A = 300
(vi) Purchases by firm A from firm B = 100
(vii) Sales by firm B = 250
(viii) Purchases by firm B from firm A = 80
(ix) Import of raw material by A = 50
(x) Export by firm B = 30                                                   ( ANS. A = 165 , B = 205 )

(Q2 d) From given information about these firms, find out:
(a) Value Added by firms A and B. (b) Gross domestic product at market price.
(i) Exports by firm A 20
(ii) Imports by firm A 50
(iii) Sales to households by firm A 90
(iv) Sales to firm B by firm A 40
(v) Sales to firm A by firm B 30
(vi) Sales to households by firm B 60                                  ( ANS. 70 & 50 lakhs )

(Q 2e) (i) Export by A = 10
(ii) Import by A = 25
(iii) Sales to household by A = 45
(iv) Sales to firm A by firm B = 15
(v) Sales to firm B by firm A = 20
(vi) Sales to Household by B = 30
Also Find GDP at M.P                                                       ( ANS. A = 35 and B = 25 ).

(Q 2f) Find value added by Firm C
(i) Sales by A to B = 20
(ii) V.A by firm B = 40
(iii) V.A by firm D = 30
(iv) Sales by C to firm D=70
(v) FInal sales=130

( ANS. 165 & 390 lakhs )

(Q3) Firm A sells its output to firm B for Rs. 500 crores. Firm B sells its product to firm C for Rs. 800 crores. Firm C sells all of its output to private consumption for Rs. 1,200 crores. (i) What is the value of National Product and the value added by each industry ? (ii) If A’s imports amount to
Rs. 50 crores, what will be the value of National Product ? (iii) If firm A imports goods for Rs. 100 crores and firm C exports goods for Rs. 200 crores, find the value of National Product.
(Ans. 1,200 cr; 1,150 cr; 1,300cr).

DEFINATIONS

GDP_MP :: It is market value of final goods and services produced within domestic territory
of a country during accounting period .It includes depreciation and measured as

1= market value

2 = domestic territory

3 = includes depreciation

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GDP_MP = Σ Value added = V.O.Q - I.C

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Replace 1 with Factor Price ,if in defination factor cost is there
Replace 2 with by Normal resident ,if in defination National is there
Replace 3 with exclude Depreciation , if in defination . Net is there

TRY YOURSELF ----
(1) GNPMP ::
(2) NNPMP ::
(Ques ) Differentiate between
               (a) GNP_MP and NDP_FC
               (b) Gross domestic product at M.P and Net National income at F.C

Ans. (a)

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NDP_FC = GNP_MP - Depreciation - Net indirect taxes - NFIA

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DIFFERENTIATION BETWEEN DOMESTIC AND NATIONAL INCOME

DIFFERENTIATION BETWEEN NFIA AND NET EXPORT

(NET) NATIONAL DISPOSABLE INCOME

MEANING :: It is income from all souces (factor income and transfer receipt from abroad)
available to a country for consumption expenditure or saving during an year.

GROSS NATIONAL DISPOSABLE INCOME

MEANING :: It includes current replacement cost, therefore it is measured as

GROSS N.D.I = National Disposal income + Current Replacement Cost (Depreciation)

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SPECIAL POINT :: National disposable income can also be calculated as :
                                 NDI = National Consumption Expenditure + National Savings
where national Consumption Expenditure is the sum total of ‘Private Final Consumption
Expenditure’ and ‘Government Final Consumption Expenditure

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NUMERICALS

(Q1) Calculate GNDI in following numericals
(a) (1) Net C.T From abroad =100
(2) National income = 1600
(3) Cons. Of fixed capital = 150
(4) NFYA = 20
(5) N.I.T = 180 cr

(b) (1) Net national Product at F.C= 3000
(2) Net C.T From abroad = 300
(3) Cons. Of fixed capital = 150
(4) NFYA = -50
(5) N.I.T = 250 cr

(c) (1) Net C.T From abroad =50
(2) GDP at market Price = 1000
(3) Cons. Of fixed capital = 100
(4) NFYA = -20
(5) N.I.T = 120 cr

(d) (1) Net C.T From abroad =-30
(2) GDP at market Price = 1500
(3) Cons. Of fixed capital = 100
(4) NFYA = -30
(5) N.I.T = 120 cr

(e) (1) G.N.P at F.C= 800
(2) Net C.T From abroad = 50
(3) Cons. Of fixed capital = 60
(4) NFYA = -10
(5) N.I.T = 70 cr

(Q2) Calculate National income
(i) Natinal Disposable Income=600
(ii) Current Transfer from RoW=50
(iii)Dep=50
(iv)Indirect Tax=30
(v) Subsidies =15

(Q3) Calculate Gross National Disposable Income and Net National Disposable Income from the following data :

Ans. (Q1) (a) 2030 cr (b) 3700 cr (c) 1030 cr (d) 1440 cr (e) 920 cr
(Q2) 535 cr                  (Q3) 310, 330