6 Mark questions
1. State whether following is true or false. Give a reason for your answer.
a) Capital formation is a flow
Ans. True, because it is measured over a period of time.
b) Bread is always a consumer good.
Ans. False, it depends upon the end use of bread. When it is purchased by a household it is a consumer good. When purchased by the restaurant for making a sandwich, it is an intermediate (producer) good.
c) Nominal GDP can never be less than real GDP
Ans. False. Nominal GDP can be less than the real GDP when the prices in the base year are more than the current year.
d) Gross domestic capital formation is always greater than gross fixed capital formation.
Ans. The false, gross domestic capital formation can be less than gross fixed capital formation if a change in stock is negative.
2. Why are exports included in the estimation of domestic product by the expenditure method? Can the gross domestic product be greater than the gross national product? Explain
Ans. Expenditure method estimates expenditure on domestic product i.e., expenditure on final goods and services produced within the economic territory of the country. It includes expenditure by residents and non-residents both. Exports though purchased by non-residents are produced within the economic territory and therefore a part of a domestic product.
Domestic product can be greater than national product if the factor income paid to the rest of the world is greater than the factor income received from the rest of the world i.e when net factor income received from abroad is negative.
3. How will you treat the following while estimating domestic product of India?
a) Rent received by resident Indian from his property in Singapore.
Ans. No, it will not be included in a domestic product as this income is earned outside the economic territory of India.
b) Salaries of Indians working in the Japanese Embassy in India
Ans. It will not be included in the domestic product of India as the embassy of Japan is not a part of the economic territory of India.
c) Profits earned by a branch of an American bank in India.
Ans. Yes, it is included as part of a domestic product since the branch of American bank is located within the economic territory of India.
d) Salaries paid to Koreans working in the Indian embassy in Korea
Ans. Yes, it will be part of the domestic product of India because the income is earned within the economic territory of India. The Indian embassy in Korea is a part of the economic territory of India.
4. How are the following treated in estimating national income from the expenditure method? Give reason.
Ans. a) Purchase of new car by a household: purchase of the car is included in the national income because it is final consumption expenditure, which is part of national income.
b) Purchase of raw material by purchase unit: purchase of raw material by purchase unit is not included in the national income because the raw material is intermediate goods and intermediate goods and service are excluded from the national income. Purchase of raw material, if included in national income will result in double counting.
c) Expenditure by the government on scholarship to the student is not included in the national income because it is a transfer payment and no productive service is rendered by the student in exchange.
5. Are the following item included in estimating a country‘s national income? Give reason.
Ans. 1) free cloth was given to workers: free cloth given to worker is a part of wages in kind i.e. compensation to employee such compensation to the employee is paid for the productive services in the economy, it is included in the national income.
2) Commission paid to the dealer in an old car: commission paid to a dealer in the old car is included in the estimation of national income because it is the income of the dealer for his productive services to various parties.
3) Growing vegetable in a kitchen garden of the house: growing vegetable in a kitchen garden of the house amount to production, though not for sale for self-consumption. It is included in the national income because it adds to the production of goods.
NATIONAL INCOME – NUMERICALS
1. Calculate Value Added at factor cost from the following.
Ans. Sales + Δin stock = value of output
200 + (cl. St – op. st)
200 + (10 -15)
= 200 -5=195
Value of output – intermediate consumption
= value added at MP
195-48 = 147
V.A at FC = V.A at MP – Net indirect tax
147 – 20
127 crores
2. Calculate (a) Net National Product at MP, and
(b) Gross National Disposable Income
ITEMS Rs. crores
a. Private final Consumption expenditure 200
b. Net indirect taxes 20
c. Change in stocks (--)15
d. Net current transfers from abroad (--)10
e. Govt. final consumption expenditure 50
f. Consumption of fixed capital 15
g. Net domestic capital formation 30
h. Net factor income from abroad 5
i. Net imports 10
Ans: (a) + (e) + (g) + (-i) = NDP MP
200 + 50+ 30 -10
280 -10 = 270 crores
NNP MP = NDP MP + NFIFA
270 + 5 = 275
NNP MP + 275 crores
GNDI = NNP PC + NFIFA + Net indirect taxes + Net current transfers from abroad + Depreciation (comp of fixed capital)
NNP MP – net in tax = 275 – 20 =255 crores
GNDI = 255 + 20 + 5 + (-10) + 15
= 295 – 10 = 285 crores
GNDI = 285 crores
3. Calculate Gross Domestic Product at Market Price by
(a) Production Method and
(b) Income Method
ITEMS Rs. crores
a. Intermediate consumption by
i) Primary sector 500
ii) Secondary sector 400
iii) Tertiary sector 400
b. Value of output by
i) Primary sector 1000
ii) Secondary sector 900
iii) Tertiary sector 700
c. Rent 10
d. Compensation of employees 400
e. Mixed income 550
f. Operating surplus 300
h. Net factor income from abroad (--)20
i. Interest 5
j. Consumption of fixed capital 40
k. Net indirect taxes 10
Ans: GDP MP by production method
(b) (i) + (ii) + (iii) – a (i) + (ii) + ( iii) = value added
(1000+ 900 + 700) – (500 -400-400)
2600 – 1300 = 1300 crores Value added at MP (GDP MP)
Income method
Compensation of employees + operating surplus + mixed income = NDP FC
= 400 + 300 + 550 = 1250 crores
GDP MP = NDP FC + conspn of fixed capital + net In. tax
= 1250+ 40 + 10
GDP MP =1300
4. Calculate Net National Disposable Income from the following data.
ITEMS Rs. crores
a. The gross domestic product at MP 1000
b. Net factor income from abroad (-) 20
c. Net indirect taxes 120
d. Consumption of fixed capital 100
e. Net current transfers from abroad 50
Ans: NNDI = GDP MP – consumption of fixed capital + Net FIFA + Net current transfer from abroad
= 1000- 100 + 50 + (-20)
= 880 + 50 = 930 crores
5. Calculate Gross National Disposable Income from the following.
ITEMS Rs. crores
a) National Income 2000
b) Net current transfers from rest of the world 200
c) Consumption of fixed capital 100
d) Net factor income from abroad (-) 50
e) Net indirect taxes 25
Ans: GNDI= (a) + (b) +(c) + (e)
= 2000 + 200 + 100 + 250
GNDI = 2550 crores
6. ESTIMATE NATIONAL INCOME BY
(a) EXPENDITURE METHOD
(b) INCOME METHOD FROM THE FOLLOWING DATA
Rs. in crores
1. Private final consumption expenditure 210
2. Govt: final consumption expenditure 50
3. Net domestic capital formation 40
4. Net exports (-) 5
5. Wages & Salaries 170
6. Employer’s contribution 10
7. Profit 45
8. Interest 20
9. Indirect taxes 30
10. Subsidies 05
11. Rent 10
12. Factor income from abroad 03
13. Consumption of fixed capital 25
14. Royalty 15
Ans: National Income (NNP FC)
Expenditure Method
(1) + (2) + (3) + (4) = NDP MP
210 + 50 + 40 + (-5) = 295
NNP FC = NDP MP + factor Income from abroad – net Indirect tax ( Indirect tax – subsidy)
295 + 3 – (30 -5)
295 + 3 – 25
= 298 – 25 = 273
NNP FC= 273 crores
Income method:
(5) + (6) + (7) + (8) + (11) + (15)
170 + 10 + 45 + 20 + 10 + 15
= 270 (NDP FC)
NDP FC = NDP FC + FIFA
= 270 + 3= 273 crores
(7) FROM THE FOLLOWING DATA CALCULATE
(a) NATIONAL INCOME
(b) PERSONAL DISPOSABLE INCOME.
1. Profit 500
2. Rent 200
3. Private income 2000
4. Mixed income of self-employed 800
5. Compensation of employers 1000
6. Consumption of fixed capital 100
7. Net factor income from abroad -(50)
8. Net retained earnings of private employees’ 150
9. Interest 250
10. Net exports 200
11. Co-operation 100
12. Net indirect tax 160
13. Direct taxes paid by houses hold’s 120
14. Employers contribution to social security scheme. 60
Ans: NNP FC (N. I) = (5) + (9) + (4) + (1) + (2)
1000 + 250+ 800 + 500 + 200
NDP FC = 2750 crores
NNP FC = NDP FC + (7)
= 2750 + (-50)
NNP Fc = 2700 crores
PDI = (3) – (8) – (11) – (13)
2000 – 150 – 100 -120
PDI = 2000 – 370 = 1630 crores
(8) CALCULATE NATIONAL INCOME AND GROSS NATIONAL DISPOSABLE INCOME FROM THE FOLLOWING DATA.
Net indirect tax 05
Net domestic fixed capital formation 100
Net exports (-) 20
Gov.: final consumption expenditure 200
Net current transfer from abroad 15
Private final consumption expenditure 600
Change in stock 10
Net factor from abroad 05
Gross domestic fixed capital formation 125
Ans: National Income (NNP FC)
= (4) + (6) + (2) + (7) + (3) = NDP MP
= 200 + 600 + 100 + 10 + (-20)
= 910 -20 = 890
NDP MP = 890 crores
NNP FC = NDP MP + (8) – (1)
= 890 + 5 -5
NNP FC = 890
Depreciation = (9) – (2)
125 – 100 = 25 crores
GNDI = NNP FC + Net Indirect Tax + Net Current transfers from abroad + depreciation
= 890 = 05+ 15 + 25
GNDI = 935 crores
(9) CALCULATE NNP AT MARKET PRICE BY PRODUCTION METHOD AND INCOME METHOD
Crores
1. Inter mediate consumption
(a) primary sector 500
(b) Secondary sector 400
(c) tertiary sector 300
2. Value of output of
(a) primary sector 1,000
(b) Secondary sector 900
(c) tertiary sector 700
3. Rent 10
4. Emoluments of employers 400
5. Mixed income 650
6. Operating surplus 300
7. Net factor income from abroad -20
8. Interest 05
9. Consumptive of fixed capital 40
10. Net indirect tax 10
Ans: NNP MP by production method
(2) Value of output – (1) Intermediate conspn = value added at MP
(2) a + b+ c – (1) a + b + c
1000 + 900 + 700 – 500 + 400 + 300
2600 – 1200
1400 = GDP MP
NNP MP = GDP MP – (9) + (7)
= 1400 – 40 + (-20)
NNP MP = 1340
Income Method:
NNP MP = (4) + (5) + (6) + (10) + (7)
= 400 + 650 + 300 + 10 + (-20)
NNP MP = 1350 + 10 – 20
(10) CALCULATE GNP at FACTOR COST BY INCOME METHOD AND EXPENDITURE METHOD. Rupees in crores
1. Private final consumption expenditure 1000
2. Net domestic capital formation 200
3. Profit 400
4. Compensation of employers 800
5. Rent 250
6. Gov.: final consumption expenditure 500
7. Consumption of fixed capital 60
8. Interest 150
9. Net current transfer from row (-)80
10. Net factor income from abroad (-)10
11. Net exports (-)20
12. Net indirect taxes 80
Ans: GNP FC by Income method
GNP FC = 4 + 3 + 5 + 8 + 10 + 7
800 + 400 +250 + 150 + (-10) + 60
GNP FC = 1650 crores
GNP FC by Expenditure Method
GNP FC = 1 + 2 + 6 + 10 + 11 -12 + 7
= 1000 + 200 + 500 + (-10) + (-20) -80 + 60
= 1700 -110 + 60
GNP FC = 1650 crores
(11) CALCULATE PRIVATE INCOME AND PERSONAL DISPOSABLE INCOME
FROM THE FOLLOWING DATA.
Ans: Private Income = 1 – 2- 3 + 5 + 9
5050 – 500 – 100 + 200 + 80
5430 – 500
Private Income = 4930 crores
PDI = Private Income – 4 -10 -7
4930 -80 -500 -150
PDI = 4200 crores
12) Calculate private income
Ans: Private Income = 1 + 2+ 3 + 4 + 5
250 + 40 + 10 + 20 + 5
= 325 crores
(13) Calculate net national dispOsable income and personal income from the following data
Ans: NDPfc = (2) + (4) + (6)
400 + 200 + 500 = 1100 crores
NNDI = NDP fc + (12) + (1) + (11)
=1100 + (-50) + 90 + 20
NNDI = 1210 – 50
= 1160 crores
Personal Income
Ans:
Private Income = NDP FC –(8) – (10)
1160 -40 – 30=1090 crores
1090 + 7 + 9 +11 +12
1090 + 70 + 60 + 20 + (-50) = 1190 crores
Personal income = Private Income – Corporation Profit Tax – Savings of private corporate sectors
1190 – 80 – 20= 1090 crores
(14) Calculate from the following data
(a) Private income
(b) Personal income
(c) Personal disposable income.
Ans Private Income = 1 + 5 + 7 -9 + 10 + 12
300 + 20 + 15 -30 + 40 + 05
Private Income = 350 crores
Personal Income = Private income – 8 – 13
= 350 – 25 – 80
Personal Income = 245 crores
PDI = Personal Income - 11
245 – 20
PDI = 225 crores
15. From the following data, calculate:
(a) Gross national Disposable Income
(b) Private Income
(c) Personal Disposable Income
Ans GNDI = 1 + 2 -3 + 6 + 4
700 + 60 – 10 + 45 + 40= 805 -10 + 40 GNDI = 835 crores
b) Private Income = 1 – 5 -10 + 6 +11
700 – 50 -25 + 45 +70
Private Income = 740 crores
c) PDI = Private Income – 14 – 9 – 8
740 – 35 – 60 – 50
PDI = 594 crores
16. Calculate Gross National Disposable Income from the following data:
Ans: GNDI = 1 + 5 + 2 + 3
2000 + 250 + 200 + 100
GNDI = 2550 crores
17. Calculate Net National Disposable Income from the Following Data:
(Rs. In Crores)
(1) The gross national product at factor cost 800
(2) Net current transfer from rest of the world 50
(3) Net indirect taxes 70
(4) Consumption of fixed capital 60
(5) Net factor income from abroad (-)10
Ans: NNDI = 1 + 2 + 3 -4
800 + 50 + 70 -60
= 860 crores
NUMERICALS TO BE CALCULATED BY STUDENTS
1. Calculate Net National Disposable Income From The Following Data:
(Rs. In Crores)
(i) The gross domestic product at market price 1,000
(ii) Net factor income from abroad (-)20
(iii) Net indirect taxes 120
(iv) Consumption of fixed capital 100
(v) Net current transfer from rest of the world 70
2. Calculate Gross National Disposable Income The Following Data:
(Rs. In Crores)
(i) National income (or NNPfc) 800
(ii) Net indirect taxes 100
(iii) Net factor income from abroad 30
(iv) Net current transfer from rest of the world 50
(v) Consumption of fixed capital 70
3.Calculate Gross National Disposable Income And net National Disposable Income from the Following Data:
(Rs. In Crores)
(i) Consumption of fixed capital 30
(ii) A net national product at market price 240
(iii) Net Indirect taxes 40
(iv) Net current transfers from the rest of the world (-)20
(v) Net factor income from abroad (-) 10
4. Find Out GNPMP, NDPFC And Gross National Disposable Income.
(Rs. In Crores)
(i) National income 520
(ii) Net factor income from abroad 10
(iii) Indirect taxes 40
(iv) Subsidies 10
(v) Consumption of fixed capital 50
(vi) Net current transfer received from abroad 20
5.Calculate NNPFC, net National Disposable Income and Gross National Disposable Income from following data: (Rs. In Crores)
(i) GNPMP 1000
(ii) Net Indirect taxes 100
(iii) Net current transfer received from the rest of the world (-)20
(iv) Subsidies 25
(v) Consumption of fixed capital 50
(vi) Net factor income paid to the rest of the world (-)10
6.Find Out (a) Personal Income and (b) Personal Disposable Income from following data:
(Rs. In Crores)
1.Private income 48,800
(ii) Interest on national debit 1,000
(iii) Net factor income from abroad 300
(iv) Corporate Savings 800
(v) ) Corporation tax 210
(vi) Personal income tax 540
7.From The Following Data Calculate:
(a) Private Income and
(b) Personal disposable income.
(Rs. In Crores)
(i) Income from Domestic product accruing to the private sector 4,000
(ii) Savings of non-departmental public enterprises 200
(iii) Current transfer from government administrative departments 150
(iv) Savings of private corporate sector 400
(v) Current transfers from the rest of the world 50
(vi) Net factor income from abroad (-) 4
(vii) Corporation tax 60
(viii) Direct Personal tax 140
8. Calculate
(a) Personal Income
(b) Personal Disposable Income from the following data:
9.From the following data calculate National Income by
(i) Income method and (ii) Expenditure method.
(Rs. In Crores)
(i) Compensation of employees 1,200
(ii) Net factor income from abroad (-)20
(iii) Net indirect taxes 120
(iv) Profit 800
(v) Private final consumption expenditure 2,000
(vi) Net domestic capital formation 770
(vii) Consumption of fixed capital 130
(viii) Rent 400
(ix) Interest 620
(x) Mixed income of self- employed 700
(xi) Net exports (-)30
(xii) Government final consumption expenditure 1,100
10. From the following data, calculate Gross national product at Market Price by
(i) Income method. (ii) Expenditure method:
(Rs. In Crores)
(i) Mixed income of self-employed 400
(ii) Compensation of employees 500
(iii) Private final consumption expenditure 900
(iv) Net factor income from abroad (-)20
(v) Net indirect taxes 100
(vi) Consumption of fixed capital 120
(vii) Net domestic capital formation 280
(viii) Net exports (-)30
(ix) Profits 350
(x) Rent 100
(xi) Interest 150
(xii) Government final consumption expenditure 450
11.Calculate
(a) National Income and
(b) Gross National Disposable Income from the following data
(Rs. In Crores)
(i) Net factor income from abroad (-)20
(ii) Government final consumption expenditure 200
(iii) Subsidies 10
(iv) Private final consumption expenditure 800
(v) Net current transfers from the rest of the world 30
(vi) Net domestic fixed capital formation 100
(vii) Indirect taxes 80
(viii) Consumption of fixed capital 40
(ix) Change in stock (-)10
(x) Net exports (-)50
12. From the following data, calculate ‘gross value added at factor cost’
(Rs. In Crores)
(i) Sales 500
(ii) Change in stock 30
(iii) Subsidies 40
(iv) Consumption of fixed capital 60
(v) Purchases of intermediate products 350
(vi) Profit 70
13. From the following data, calculate:
(a) National income, and (b) Personal disposable income
(Rs. In Crores)
(i) Compensation of employees 1,200’
(ii) Rent 400
(iii) Profit of 800
(iv) Consumption of fixed capital 300
(v) Mixed income of self- employed 1,000
(vi) private income 3,600
(vii) net factor income from abroad (-)50
(viii) net trained earnings of private enterprises 200
(ix)interest 250
(x) net indirect taxes 350
(xi) net exports (-)60
(xii) direct taxes paid by households 150
(xiii) corporation tax 100
14. From the following data calculate national income by
(a) Income method and (b) Expenditure method.
(Rs. In cores)
(i) Private final consumption expenditure 2,000
(ii) Net capital formation 400
(iii) Change in stock 50
(iv) Compensation of employees 1,900
(v) Rent 200
(vi) Interest 150
(vii) operating surplus 720
(viii) Net indirect tax 400
(x) Employers’ contribution to social security schemes 100
(xi) Net exports 20
(xii) Net factor income from aboard (-)20
(xii) Government final consumption expenditure 600
(xvi) Consumption of fixed capital 100
15. Find gross national product at market price by income method and expenditure method.
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