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Important Questions : National Income & Related Aggregates Notes - Class 12

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 Page 1


50 XII ?  Economics
AK
UNIT 6
NATIONAL INCOME
POINTS TO REMEMBER
q Good : In economics a good is defined as any physical object, natural or
man-made, that could command a price in the market.
q Consumption Goods : Those goods which satisfy human wants directly.
q Capital Goods : Those final goods which help in production. These goods
are used for generating income.
q Final Goods are those goods which are used either for final consumption
or for investment.
q Intermediate Goods refers to those goods and services which are used
for further production or for resale. These goods do not fulfil needs of
mankind directly.
q Investment : Addition made to the stock of capital during a period is called
investment. It is also called capital formation.
q Depreciation : is expected fall in value of fixed capital goods due to
normal wear and tear and obsolescence.
q Gross Investment : Total addition of capital goods to the existing stock of
capital during a time period at market price.
q Net Investment : is a measure of net availability of new capital or new
addition to capital stock in an economy.
Net Investment = Gross investment ? Depreciation.
q Stocks : Variables whose magnitude is measured at a particular point of
time are called stock variables.
q Flows : Variables whose magnitude is measured over a period of time are
called flow variable.
Page 2


50 XII ?  Economics
AK
UNIT 6
NATIONAL INCOME
POINTS TO REMEMBER
q Good : In economics a good is defined as any physical object, natural or
man-made, that could command a price in the market.
q Consumption Goods : Those goods which satisfy human wants directly.
q Capital Goods : Those final goods which help in production. These goods
are used for generating income.
q Final Goods are those goods which are used either for final consumption
or for investment.
q Intermediate Goods refers to those goods and services which are used
for further production or for resale. These goods do not fulfil needs of
mankind directly.
q Investment : Addition made to the stock of capital during a period is called
investment. It is also called capital formation.
q Depreciation : is expected fall in value of fixed capital goods due to
normal wear and tear and obsolescence.
q Gross Investment : Total addition of capital goods to the existing stock of
capital during a time period at market price.
q Net Investment : is a measure of net availability of new capital or new
addition to capital stock in an economy.
Net Investment = Gross investment ? Depreciation.
q Stocks : Variables whose magnitude is measured at a particular point of
time are called stock variables.
q Flows : Variables whose magnitude is measured over a period of time are
called flow variable.
51 XII ?  Economics
AK
q Economic Territory : Economic (or domestic) Territory is the geographical
territory administrated by a Government within which persons, goods, and
capital circulate freely.
q Scope of Economic Territory :
(a) Political frontiers including territorial waters and airspace.
(b) Embassies, consulates, military bases etc. located abroad.
(c) Ships and aircraft operated by the residents between two or more
countries.
(d) Fishing vessels, oil and natural gas rigs operated by residents in the
international waters.
q Normal Resident of a country : is a person or an institution who ordinarily
resides in a country and whose centre of economic interest lies in that
country.
NATIONAL INCOME AGGREGATES
Domestic Aggregates
q Gross domestic Product at Market Price (GDP
MP
) is the market value
of all the final goods and services produced by all producing units located
in the domestic territory of a country during a financial year.
q Net Domestic Product at Market Price (NDP
MP
) : NDP
MP
 = GDP
MP
 ?
Depreciation (consumption of Fixed capital)
q Domestic Income : (NDP
FC
) : It is the factor income accruing to owners
of factors of production for suppling factor services with in domestic territory
during an accounting year.
NATIONAL AGGREGATES
q Gross National Product at Market Price (GNP
MP
) is the market value of
all the final goods and services produced by all producing units (in the
domestic territory and abroad) of a country during a financial year. GDP
MP
+ NFIA = GNP
MP
q National Income (NNP
FC
) : is a measure of factor earnings of the residents
of a country both from economic (Domestic) territory and from abroad
during an accounting year.
Page 3


50 XII ?  Economics
AK
UNIT 6
NATIONAL INCOME
POINTS TO REMEMBER
q Good : In economics a good is defined as any physical object, natural or
man-made, that could command a price in the market.
q Consumption Goods : Those goods which satisfy human wants directly.
q Capital Goods : Those final goods which help in production. These goods
are used for generating income.
q Final Goods are those goods which are used either for final consumption
or for investment.
q Intermediate Goods refers to those goods and services which are used
for further production or for resale. These goods do not fulfil needs of
mankind directly.
q Investment : Addition made to the stock of capital during a period is called
investment. It is also called capital formation.
q Depreciation : is expected fall in value of fixed capital goods due to
normal wear and tear and obsolescence.
q Gross Investment : Total addition of capital goods to the existing stock of
capital during a time period at market price.
q Net Investment : is a measure of net availability of new capital or new
addition to capital stock in an economy.
Net Investment = Gross investment ? Depreciation.
q Stocks : Variables whose magnitude is measured at a particular point of
time are called stock variables.
q Flows : Variables whose magnitude is measured over a period of time are
called flow variable.
51 XII ?  Economics
AK
q Economic Territory : Economic (or domestic) Territory is the geographical
territory administrated by a Government within which persons, goods, and
capital circulate freely.
q Scope of Economic Territory :
(a) Political frontiers including territorial waters and airspace.
(b) Embassies, consulates, military bases etc. located abroad.
(c) Ships and aircraft operated by the residents between two or more
countries.
(d) Fishing vessels, oil and natural gas rigs operated by residents in the
international waters.
q Normal Resident of a country : is a person or an institution who ordinarily
resides in a country and whose centre of economic interest lies in that
country.
NATIONAL INCOME AGGREGATES
Domestic Aggregates
q Gross domestic Product at Market Price (GDP
MP
) is the market value
of all the final goods and services produced by all producing units located
in the domestic territory of a country during a financial year.
q Net Domestic Product at Market Price (NDP
MP
) : NDP
MP
 = GDP
MP
 ?
Depreciation (consumption of Fixed capital)
q Domestic Income : (NDP
FC
) : It is the factor income accruing to owners
of factors of production for suppling factor services with in domestic territory
during an accounting year.
NATIONAL AGGREGATES
q Gross National Product at Market Price (GNP
MP
) is the market value of
all the final goods and services produced by all producing units (in the
domestic territory and abroad) of a country during a financial year. GDP
MP
+ NFIA = GNP
MP
q National Income (NNP
FC
) : is a measure of factor earnings of the residents
of a country both from economic (Domestic) territory and from abroad
during an accounting year.
52 XII ?  Economics
AK
NNP
FC
 = NDP
FC
 + NFIA = National Income.
q National Income at Current Prices (Nominal National Income) : It is
the money value of all final goods and services valued at current prices
produced by normal residents of a country over a particular period of time.
q Real National Income or National Income at Constant Prices : It is
also called as real income. It is the money value of all final goods and
services valued at constant prices produced by normal residents of a country.
q Value of Output : Market value of all goods and services produced by an
enterprise during an accounting year.
q Value added : It is the difference between value of output of a firm and
value of inputs bought from the other firms during a particular period of
time.
q Double Counting : Counting the value of a commodity more than once
while estimating national income is called double counting.
q Ways to solve the problem of double counting.
(a) By taking the value of only final goods.
(b) By taking value added.
q National Disposable Income (NDI) : It is defined as net national product
at Market price (NNP
MP
) plus net current transfer from rest of the world. NDI
= NNP
MP
 + Net current transfers from rest of the world.
Page 4


50 XII ?  Economics
AK
UNIT 6
NATIONAL INCOME
POINTS TO REMEMBER
q Good : In economics a good is defined as any physical object, natural or
man-made, that could command a price in the market.
q Consumption Goods : Those goods which satisfy human wants directly.
q Capital Goods : Those final goods which help in production. These goods
are used for generating income.
q Final Goods are those goods which are used either for final consumption
or for investment.
q Intermediate Goods refers to those goods and services which are used
for further production or for resale. These goods do not fulfil needs of
mankind directly.
q Investment : Addition made to the stock of capital during a period is called
investment. It is also called capital formation.
q Depreciation : is expected fall in value of fixed capital goods due to
normal wear and tear and obsolescence.
q Gross Investment : Total addition of capital goods to the existing stock of
capital during a time period at market price.
q Net Investment : is a measure of net availability of new capital or new
addition to capital stock in an economy.
Net Investment = Gross investment ? Depreciation.
q Stocks : Variables whose magnitude is measured at a particular point of
time are called stock variables.
q Flows : Variables whose magnitude is measured over a period of time are
called flow variable.
51 XII ?  Economics
AK
q Economic Territory : Economic (or domestic) Territory is the geographical
territory administrated by a Government within which persons, goods, and
capital circulate freely.
q Scope of Economic Territory :
(a) Political frontiers including territorial waters and airspace.
(b) Embassies, consulates, military bases etc. located abroad.
(c) Ships and aircraft operated by the residents between two or more
countries.
(d) Fishing vessels, oil and natural gas rigs operated by residents in the
international waters.
q Normal Resident of a country : is a person or an institution who ordinarily
resides in a country and whose centre of economic interest lies in that
country.
NATIONAL INCOME AGGREGATES
Domestic Aggregates
q Gross domestic Product at Market Price (GDP
MP
) is the market value
of all the final goods and services produced by all producing units located
in the domestic territory of a country during a financial year.
q Net Domestic Product at Market Price (NDP
MP
) : NDP
MP
 = GDP
MP
 ?
Depreciation (consumption of Fixed capital)
q Domestic Income : (NDP
FC
) : It is the factor income accruing to owners
of factors of production for suppling factor services with in domestic territory
during an accounting year.
NATIONAL AGGREGATES
q Gross National Product at Market Price (GNP
MP
) is the market value of
all the final goods and services produced by all producing units (in the
domestic territory and abroad) of a country during a financial year. GDP
MP
+ NFIA = GNP
MP
q National Income (NNP
FC
) : is a measure of factor earnings of the residents
of a country both from economic (Domestic) territory and from abroad
during an accounting year.
52 XII ?  Economics
AK
NNP
FC
 = NDP
FC
 + NFIA = National Income.
q National Income at Current Prices (Nominal National Income) : It is
the money value of all final goods and services valued at current prices
produced by normal residents of a country over a particular period of time.
q Real National Income or National Income at Constant Prices : It is
also called as real income. It is the money value of all final goods and
services valued at constant prices produced by normal residents of a country.
q Value of Output : Market value of all goods and services produced by an
enterprise during an accounting year.
q Value added : It is the difference between value of output of a firm and
value of inputs bought from the other firms during a particular period of
time.
q Double Counting : Counting the value of a commodity more than once
while estimating national income is called double counting.
q Ways to solve the problem of double counting.
(a) By taking the value of only final goods.
(b) By taking value added.
q National Disposable Income (NDI) : It is defined as net national product
at Market price (NNP
MP
) plus net current transfer from rest of the world. NDI
= NNP
MP
 + Net current transfers from rest of the world.
53 XII ?  Economics
AK
OR
= National income + net indirect tax + net current transfers from the rest of
the world.
q Gross National Disposable Income (Gross NDI)
= GNP
MP
 + Net current Transfers from rest of the world.
q Net National Disposable Income (Net NDI)
= NNP
MP
 + Net current Transfers from rest of the world.
OR
= Gross NDI ? Depreciation.
q Concept of Value Added of One Sector or One Firm
1. Value output = Sales + Net Stock.
2. Gross Value added at market prices (GVA
MP
) = Value of output ?
Intermediate consumption
3. Net value added at market price (NVA
MP
) = GVA
MP
 ? Depreciation.
4. Net value added at factor cost (NVA
FC
) = NVA
MP
 ? Net indirect tax.
Note: By adding up NVA
FC
 of all the sectors, we get NDP
FC
 or Domestic Income.
Page 5


50 XII ?  Economics
AK
UNIT 6
NATIONAL INCOME
POINTS TO REMEMBER
q Good : In economics a good is defined as any physical object, natural or
man-made, that could command a price in the market.
q Consumption Goods : Those goods which satisfy human wants directly.
q Capital Goods : Those final goods which help in production. These goods
are used for generating income.
q Final Goods are those goods which are used either for final consumption
or for investment.
q Intermediate Goods refers to those goods and services which are used
for further production or for resale. These goods do not fulfil needs of
mankind directly.
q Investment : Addition made to the stock of capital during a period is called
investment. It is also called capital formation.
q Depreciation : is expected fall in value of fixed capital goods due to
normal wear and tear and obsolescence.
q Gross Investment : Total addition of capital goods to the existing stock of
capital during a time period at market price.
q Net Investment : is a measure of net availability of new capital or new
addition to capital stock in an economy.
Net Investment = Gross investment ? Depreciation.
q Stocks : Variables whose magnitude is measured at a particular point of
time are called stock variables.
q Flows : Variables whose magnitude is measured over a period of time are
called flow variable.
51 XII ?  Economics
AK
q Economic Territory : Economic (or domestic) Territory is the geographical
territory administrated by a Government within which persons, goods, and
capital circulate freely.
q Scope of Economic Territory :
(a) Political frontiers including territorial waters and airspace.
(b) Embassies, consulates, military bases etc. located abroad.
(c) Ships and aircraft operated by the residents between two or more
countries.
(d) Fishing vessels, oil and natural gas rigs operated by residents in the
international waters.
q Normal Resident of a country : is a person or an institution who ordinarily
resides in a country and whose centre of economic interest lies in that
country.
NATIONAL INCOME AGGREGATES
Domestic Aggregates
q Gross domestic Product at Market Price (GDP
MP
) is the market value
of all the final goods and services produced by all producing units located
in the domestic territory of a country during a financial year.
q Net Domestic Product at Market Price (NDP
MP
) : NDP
MP
 = GDP
MP
 ?
Depreciation (consumption of Fixed capital)
q Domestic Income : (NDP
FC
) : It is the factor income accruing to owners
of factors of production for suppling factor services with in domestic territory
during an accounting year.
NATIONAL AGGREGATES
q Gross National Product at Market Price (GNP
MP
) is the market value of
all the final goods and services produced by all producing units (in the
domestic territory and abroad) of a country during a financial year. GDP
MP
+ NFIA = GNP
MP
q National Income (NNP
FC
) : is a measure of factor earnings of the residents
of a country both from economic (Domestic) territory and from abroad
during an accounting year.
52 XII ?  Economics
AK
NNP
FC
 = NDP
FC
 + NFIA = National Income.
q National Income at Current Prices (Nominal National Income) : It is
the money value of all final goods and services valued at current prices
produced by normal residents of a country over a particular period of time.
q Real National Income or National Income at Constant Prices : It is
also called as real income. It is the money value of all final goods and
services valued at constant prices produced by normal residents of a country.
q Value of Output : Market value of all goods and services produced by an
enterprise during an accounting year.
q Value added : It is the difference between value of output of a firm and
value of inputs bought from the other firms during a particular period of
time.
q Double Counting : Counting the value of a commodity more than once
while estimating national income is called double counting.
q Ways to solve the problem of double counting.
(a) By taking the value of only final goods.
(b) By taking value added.
q National Disposable Income (NDI) : It is defined as net national product
at Market price (NNP
MP
) plus net current transfer from rest of the world. NDI
= NNP
MP
 + Net current transfers from rest of the world.
53 XII ?  Economics
AK
OR
= National income + net indirect tax + net current transfers from the rest of
the world.
q Gross National Disposable Income (Gross NDI)
= GNP
MP
 + Net current Transfers from rest of the world.
q Net National Disposable Income (Net NDI)
= NNP
MP
 + Net current Transfers from rest of the world.
OR
= Gross NDI ? Depreciation.
q Concept of Value Added of One Sector or One Firm
1. Value output = Sales + Net Stock.
2. Gross Value added at market prices (GVA
MP
) = Value of output ?
Intermediate consumption
3. Net value added at market price (NVA
MP
) = GVA
MP
 ? Depreciation.
4. Net value added at factor cost (NVA
FC
) = NVA
MP
 ? Net indirect tax.
Note: By adding up NVA
FC
 of all the sectors, we get NDP
FC
 or Domestic Income.
54 XII ?  Economics
AK
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