Scanner - National Income Accounting, Related Concept, Measurement, (2014 - 2018) Notes | Study Crash Course of Macro Economics -Class 12 - Commerce

Commerce: Scanner - National Income Accounting, Related Concept, Measurement, (2014 - 2018) Notes | Study Crash Course of Macro Economics -Class 12 - Commerce

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Sample Paper 2014 -15 & 15-16 & 16-17

(Q1) Only one Product X is produced in the country. Its output during the year 2012 and 2013 was 100 units and 110 units respectively.  The market price of the product during the year was Rs 50 and Rs 55 per unit respectively. Calculate the percentage change in real GDP and nominal GDP in year 2013 using 2012 as the base year.   (4M)

 Ans: 10 % & 21 %

(Q2) State the various components of the Income Method that are used to calculate national income.    (4M)

 Ans: (a) Compensation of employees which includes - wages and salaries in cash and kind and employers’ contribution to social security benefits.    (1M)

(b) Operating surplus - which includes rent and royalties, interest and profit earned by a firm. 

(c)  Mixed income of self employed which includes any income that has 2 or more factor income, which cannot be accounted for separately.         (1M)

(d) Net factor income from aboard , which in the difference between factor income from aboard and factor income to abroad.                                 (1M)

(Q3) State any four precautions that need to be kept in mind when using the value added method for calculating national income. 

Ans: (a) Avoid double counting of goods and services as these tend to inflate national income estimates.

(b) Do not include the value of second hand goods being sold as their value was accounted for at the time of first production.

(c) Include imputed value of own account production in total output as output has been produced.

(d)  Include the imputed value of owner occupied dwellings as houses provide housing services. (1x4=4M)

(Q4) State the various components of the Expenditure Method that are used to calculate NY

Ans: Components of Expenditure method :-

(a) Private Final Consumption Expenditure  
(b) Government Final Consumption Expenditure

(c) Investment Expenditure               
(d) Net Exports            ( 1X 4)    

(Q5) Discuss any two differences between GDP at constant prices and GDP at current Prices.

 Ans: Two main difference between GDP at current prices and at constant price are

(1) GDP at current prices are measured at Current Year’s Prices whereas GDP at constant prices are measured at base year’s prices. (2m)

(2) GDP at current prices may increase even if there is no flow of goods and services whereas GDP at constant prices will only increase when there is an increase in the flow of goods and services.   (2m)    

(Q6) Suppose in an imaginary economy GDP at Market Price in a particular fiscal year was Rs. 4,000 crores, National Income was Rs. 2,500 crores, Net Factor Income paid by the economy to Rest of the World was Rs. 400 crores and the value of Net Indirect Taxes is Rs. 450 Crores. Estimate the value of consumption of fixed capital for the economy from the given data.   (4M)

 Ans: NNPfc = GDPmp – Consumption of fixed capital    +  NFYA – Net indirect taxes    

    2500 = 4000 - CFC - 450 – 400           (1m)

    2500 = 3150 – CFC                                (1m)

    CFC = 650 (in crores)                            (1m)

(Q7) What are ‘subsidies’ ?                         (1)

 Ans: Subsidies are the ‘economic assistance’ given by the government to the firms and households, with a motive of general welfare.   (1)    

(Q8) Increase in per capita real income means increase in per capita availability of goods and services. Does it necessarily mean rise in the welfare of the people of the country ? Give any one argument in support of your answer and explain the same. (3 marks)

Ans: Increase in per capita availability of goods and services does raise the standard of living and consequently welfare. But it may not necessarily always be so. For example, manufacturing etc. does raise output but at the same time also leads to water pollution and air pollution which reduces welfare of the people. Such a reduction in welfare may outweigh the increase in welfare and thus lead to overall reduction in welfare.                        

(Q9) During a given year nominal national income increased by 14 per cent while the real  national income increased by only 6 per cent. Population increased by 2 per cent. What has caused the difference between nominal income and real income ? What is real per capita income  ?   (3 marks)

 Ans: Change in nominal income over a year is on account of 

(a) change in quantity of goods and services , and 

(b) change in price level. 

However, change in real income refers to change in quantity of goods and services only. 

Therefore, a change of 14 percent in nominal income over the year is partly on account of 6 percent change in quantity of goods and services and the remaining 8 per cent must be on account of rise in general price level.

Real per capita income rise = Rise in real national income - Rise in population

= 6 - 2 = 4 per cent   

(Q10) Explain any four limitations of using GDP as a measure/index of welfare of a country 

Ans: Four limitations of using GDP as a measure/index of welfare of a Country are:

(a) Distribution of GDP        
(b) Composition of GDP

(c) Non-Monetary Exchanges    
(d) Externalities.      (1 ½ x 4 m)

(Q11)  State under what conditions in the following statements may be true:

(a) GNDI is equal to GNP at market prices.

(b) Domestic Income is greater than National Income

(c)  Value of output is equal to Value Added (3)

 Ans: 
(a) When net current transfer from abroad are zero

(b) When Net Factor Income from Abroad is negative

(c) When intermediate consumption is zero

(Q12)  ‘GDP as an index of welfare may understate or overstate welfare.‘ Explain the statement using examples of a positive and a negative externality            (4)

 Ans: GDP doesn’t account for externalities                    (1)

Positive Externality : eg: saving commuting time due to construction of a fly-over , increases welfare, GDP as an index understates welfare                    (1 ½ )

Negative Externalities : eg: Pollution from factories, decreases welfare ,GDP overstates welfare                                            (1 ½ )

(Q13) Explain the concepts of Real GDP and Nominal GDP, using a suitable numerical   example. 

CBSE 2015

 (Q1) Which of the following is a characteristic of a good?            

(a) Intangible

(b)Can be stored

(c) Production and consumption must happen simultaneously 

(d) Cannot be transferred        

(Q2) Which of the following is a stock ? (Choose the correct alternative)        (1)

(a) Wealth    
(b) Saving   
(c) Exports    
(d) Profits

 Ans: 1 (b) , 2 (a)

(Q3) Giving reason explain how the following should be treated in estimation of national income 

(i) Payment of interest by a firm to a bank    (6 M)

(ii) Payment of interest by a bank to an individual

iii) Payment of interest by an individual to a bank 

Ans: Yes , Yes , NO  (No marks if reason is not given)

(Q4) What precautions (any four) should be taken while estimating national income by expenditure method.    (4)

Ans: 
(a) Expenditure on intermediate goods should not be included.

(b) Estimated expenditure on production for self consumption should be included.        
(c) Transfer payments should not included.

(d)  Expenditure on financial assets should not be included.

(any other relevant precaution)

(Q5) What any four precautions should be taken while estimating national income by income method

Ans:   
(a) Transfer payments should not be included. 

(b) Capital gains from sale of old goods should not be included. 

(c) Commission etc of brokers on sale of old good should be included.

(d) Transaction in financial assets should not be included. 

(Q6) Define intermediate goods and final goods. Can milk be an intermediate good ? Give reasons for your answer. 

Ans: Goods purchased by a production unit from other production units for resale or for using them completely during the same year are intermediate goods, goods purchased for consumption / investment are final goods                              

 Milk purchased by a restaurant is intermediate good, because it is purchased for reselling.

(Q7) If the Real GDP is Rs. 400 and Nominal GDP is Rs. 450, calculate Price Index (base = 100).        

 Ans:   Scanner - National Income Accounting, Related Concept, Measurement, (2014 - 2018) Notes | Study Crash Course of Macro Economics -Class 12 - Commerce

(Q8) If the Real GDP is Rs. 500 and Price Index (base = 100) is 125, calculate the Nominal GDP.    (3M)
 Ans: 625

(Q9) If the Nominal GDP is Rs. 600 and Price Index (base = 100) is 120, calculate the Real GDP. 
 Ans: 500                   

(Q10) Calculate gross value added at factor cost.( rs in crores)        (4M) 

    (i) Domestic sales                                                      3000

    (ii) Change in stock                                                  (–) 100

    (iii) Depreciation                                                          300

    (iv) Intermediate consumption                                 2000

    (v) Exports                                                                      500

    (vi) Indirect taxes                                                         250

    (vii) Net factor income from abroad                         (-) 50

 Ans: 1150

(Q11) From the following data, calculate net value added at factor cost.  (rs in crores)

(i) Sales                                                                                                                            300

(ii) Opening stock                                                                                                            40

(iii) Depreciation                                                                                                              30

(iv) Intermediate consumption                                                                                     120

(v) Exports                                                                                                                          50

(vi) Change in stock                                                                                                           20

(vii) Net indirect taxes                                                                                                       15

(viii) Factor income to abroad                                                                                          10

Ans : 155            

CBSE  2016        

(Q1) National income is the sum of factor incomes accruing to : 

(a) Nationals 

(b) Economic  territory 

(c) Residents

(d) Both residents and non-residents
Ans: (c)

(Q2) Depreciation of fixed capital assets refers to : (Choose the correct alternative) (1M)

(a) Normal wear and tear

(b) Foreseen obsolescence

(c) Normal wear and tear and foreseen obsolescence

(d) Unforeseen obsolescence
Ans: (c)

(Q3) Unforseen obsolescene of fixed capital assets during production is ::

(a) Consumption of Fixed Capital

(b) Capital Loss

(c) Income Loss

(d) None 

Ans: (b)

(Q4) Sale of petrol and diesel cars is rising particularly in big cities. Analyse its impact on gross domestic product and welfare.   (4M)

Ans: Final sale of car raises GDP ,because final sales are final product Cars provide convenience in transportation but at the same time it causes traffic jams , air pollution and noise pollution reducing the welfare of the people . Pollution has bad effects on the health of the people

(Q5) Government incurs expenditure to popularize yoga among the masses. Analyse its      impact on gross domestic product and welfare of the people.            (4M)

Ans: It raises GDP because it is govt . final consumption expenditure . It also raises welfare of the people because yoga exercise may improve health and thus raises efficiency of the people.

(Q6) Governments spends on child immunization programme . Analyse its impact on GDP and welfare of the people?

(Q7) Giving reason explain how the following should be treated in estimation of national income

(a) Payment of Corporate taxes by firm

(b) Purchase of Machinery by factory for own Use

(c) Purchase of Uniforms for nurses by a hospital

Ans : No , Yes , No                  

(Q8) Define Gross Investment.

(Q9) Assuming real income to be Rs. 200 crore and price index to be 135, calculate nominal income.
Ans: 270                                    

(Q10) If real income is Rs. 400 and price index is 105, calculate nominal income.    (3M)
Ans: 420

(Q11) If nominal income is Rs. 500 and price index is 125, calculate real income.    (3M)
Ans: 400
(Q12) Find gross value added at market price :        (Rs. Lacs)            (3M)

(i) Depreciation                                                                    20

(ii) Domestic sales                                                               200

(iii) Net change in stocks                                                  (-) 10

(iv) Exports                                                                             10

(v) Single use producer goods                                             120
Ans: 80 lakh

(Q13) Find net value added at Factor Cost                             ( in lakhs)

(a) Durable Use producer goods with a life span of 10 years         10

(b) Single use producer goods                                                             5

(c)  Sales                                                                                                  20

(d) Unsold output produced during the year                                      2

(e) Taxes on production                                                                          1

Ans: 15

(Q14) Find net value added at Factor Cost                         ( in lakhs)

(a) Fixed Capital cost  with a life span of 5 years                      15

(b) Raw Material                                                                             6

(c)  Sales                                                                                           25

(d) Net Change in Stock                                                                (-) 2

(e) Taxes on production                                                                     1

Ans: 13   

CBSE  2017    

(Q1) Goods purchased for the following purpose are final goods : 

(a) For satisfaction of wants 

(b) For investment in firm

(c) Both (a) and (b) 

(d) None of the above
Ans: (c)

(Q2) Foreign embassies in India are a part of India’s : (Choose the correct alternative)

(a) Economic territory

(b) Geographical territory

(c) Both (a) and (b)

(d) None of the above
Ans: (b)

(Q3) Which of the following affects national income ? (Choose the correct alternative)

(a) Goods and Services tax  

(b) Corporation tax

(c) Subsidies

(d) None of the above

Ans: (d)

(Q4) Given nominal income, how can we find real income ? Explain. 

(Q5) Distinguish between domestic product and national product.

(Q6) Explain ‘mixed income of self-employed’ and give an example.

(Q7) What is meant by real gross domestic product  ?

(Q8) What is meant by Nominal Gross Domestic Product  ?

(Q9) Suppose a ban is imposed on consumption of liquor or tobacco  in the country. Examine its effects on

(a) gross domestic product and 

(b) welfare.

Ans: (a) Ban on consumption of tobacco will bring down production of tobacco. Since it is counted in GDP , GDP will fall.

(b) The ban will improve the health in general.It will thus increase welfare.

(Q10) How do the negative externalities affect the welfare of the people ? Explain by taking an example.

(Q11)Explain ‘non-monetary exchanges’ as a limitation of using gross domestic product as an index of welfare of a country.

(Q12) How does increase in inequalities in distribution of income affect welfare of the society ? 

Ans: Increase in inequalities means that rich become richer and poor become poorer. Since utility of money is higher among poor and lower among the rich , any increase in inequalities may not lead to increase in welfare.   (To be marked as a whole)

(Q13) Explain the precautions that should be taken while estimating national income by   expenditure method. (6M)

(Q14) What precautions should be taken while estimating national income by value added method ? Explain.

(Q15) Explain with the help of an example, the basis of classifying goods into final goods and intermediate goods.    

(Q16) Which among the following are final goods & which are intermediate goods with reason

(a) Milk purchased by a tea stall        

(b) Bus purchased by a school

(c) Juice purchased by a student from the school canteen      

Ans : Inter , Final , Final

(Q17) Will the following be included in the domestic product of India ? Give reasons

(a) Profits earned by foreign companies in India

(b) Salaries of Indians working in the Russian Embassy in India

(c) Profits earned by a branch of State Bank of India in Japan     

Ans : (a) Yes, it is a factor income earned within domestic territory of India.

(b) No, because Russian Embassy is not a part of the domestic territory of India. It is factor income from abroad.

(c) No, as profits are not earned within the domestic territory of India.    (2x3M)

(Q18) Will the following factor income be included in domestic factor income of India 

(a) Compensation of employees to the resident of Japan working in Indian embassy in Japan.

(b) Payment of fees to a Chartered Accountant by a firm    

(c) Rent received by an Indian resident from Russian embassy in India.    

(d) Compensation given by insurance company to an injured worker.

Ans: (a) Yes , as its part of Factor Income earned in domestic territory of the country.

(b) No , Payment of fees to a Chartered Accountant is an intermediate expenditure for the firm. Hence it is to be deducted from the value of output of the firm to obtain value added. 

(c) No , as rent received be Indian resident from Russian embassy will be part of Factor Income received from abroad as Russian Embassy is not part of domestic territory of the country

(d) No , as compensation is given by insurance company to employee and not by employer.

(Q19) Will the following be included in the national income of India ? Give reasons 

(a) Financial assistance to flood victims

(b) Profits earned by the branches of a foreign bank in India

(c) Salaries of Indians working in the American Embassy in India      

Ans: No , No , Yes

(Q20) How will you treat the following while estimating domestic product of a country ? Give reasons for your answer :

(a) Profits earned by branches of country’s bank in other countries

(b) Gifts given by an employer to his employees on independence day

(c) Purchase of goods by foreign tourists

Ans:  Yes , No , Yes

(Q21) Giving reason state how the following are treated in estimation of national income :

(a) Payment of interest by banks to its depositors.

(b) Expenditure on old age pensions by government.

(c) Expenditure on engine oil by car service station.
Ans: Yes , No , No

(Q22) Giving reason state how are the following treated in estimation of national income.

(a) Payment of interest by an individual to a bank on a loan to buy a car.

(b) Expenditure by government on providing free educational services.

(c) Expenditure on purchasing a machine installed in a production unit. 

Ans: No, Yes, Yes

(Q23) Use following information of an imaginary country:                (4M)

Year                          2014 – 2015       2015– 2016           2016 - 2017        

Nominal GDP                6.5                      8.4                          9        

GDP deflator                100                      140                        125        

(a) For which year is real GDP and nominal GDP same and why ?

(b) Calculate Real GDP for the given years. Is there any year for which Real GDP falls ?

Ans: (a) For the year 2011 as it’s the base year

(b) The Real GDP declined in the year 2015-2016 . It could be due to high rate of inflation or price levels.

(Q24) (a) Define Externality.            (2M)

(b) Find National Income from  following using expenditure method        (4M)

Current transfers from rest of the world                    50        

Net Indirect taxes                                                         100        

Net Exports                                                                    - 25        

Rent                                                                                 90        

Private Final Consumption Expenditure                  900

Net Domestic Capital Formation                               200        

Compensation of Employees                                      500        

Net Factor Income from Abroad                                 - 10        

Government Final Consumption Expenditure         400        

Profit                                                                               220        

Mixed Income of Self Employed                                 400      

Interest                                                                            230            

Ans: (a) Externality occurs when the actions of consumers or producers give rise to negative or positive side effects on third party who are not part of these actions , and whose interests are not taken into consideration. E.g. :- introduction of metro rail on one hand has increased the prices of property but has also saved the time and money of general public and has provided safe means of transport

(b) National Income by Expenditure Method = Private Final Consumption Exp. + Government Final Consumption Expenditure + Net Domestic  Capital Formation + Net Exports + NFIA - NIT        National Income by Exp. Method = 900 + 400 + 200 + (-25 ) + (-10) - 100  =  1365 Crores

(Q25) Calculate (a) GNP at market price &  (b) Net National Disposable Income 

                                                                                                  (Rs. in crores)        

(i) Compensation of employees                                                 2,500

    (ii) Profit                                                                                        700

    (iii) Mixed income of self-employed                                      7,500

    (iv) Government final consumption expenditure                3,000

    (v) Rent                                                                                          400

    (vi) Interest                                                                                     350

    (vii) Net factor income from abroad                                              50

    (viii) Net current transfers to abroad                                          100

    (ix) Net indirect taxes                                                                     150

    (x) Depreciation                                                                                  70

    (xi) Net exports                                                                                    40

  Ans: GNPmp    = Rs. 11720 Crore                                


CBSE  2018

(Q1) Give one example of negative externalities.                        (1M)

(Q2) What are capital goods ? How are they different from consumption goods ?    (1 ½ )

Ans: Capital goods are those durable goods which are used in production of goods and services Whereas consumption goods are those goods which are used for satisfaction of wants by the consumers.    (1 ½ ) 

(Q3)  Calculate (a) Operating Surplus   and        (b) Domestic Income         (6M)

                                                                                                      (Rs. in crores)

    (i) Compensation of employees                                             2,000

    (ii) Rent and interest                                                                  800

    (iii) Indirect taxes                                                                       120

    (iv) Corporation tax                                                                     460

    (v) Consumption of fixed capital                                                100

    (vi) Subsidies                                                                                    20

    (vii) Dividend                                                                                 940

    (viii) Undistributed profits                                                           300

    (ix) Net factor income to abroad                                                  150

    (x) Mixed income                                                                           200


(a) Operating Surplus = (ii)+ [(iv) + (vii) + (viii)]       (1 ½ ) 

= = 800+ 460+940+300                                                  (1)

= 2500 Crores                                                           ( ½ )

(b) Domestic Income = (i)+ Operating Surplus + (x)     (1 ½ )

= 2,000 + 2500 + 200           (1)

= 4700 crores         ( ½ )

(No marks to be awarded if only final answer is given) 

(Q4) Calculate (a) NNP at Market Price (b) GDP at Factor cost

                                                                            ( in crores)

(a) Rent and interest                                               6000

(b) Wages and Salaries                                            1800

(c) Undistributed profit                                           400

(d) Net indirect taxes                                               100

(e) Subsidies                                                                 20

(f) Corporation Tax                                                   120

(g) Net factor income to abroad                                 70

(h) Dividends                                                                80

(i) Consumption of fixed capital                                50

(j) Social security contribution by employers          200

(k) Mixed Income                                                        1000

Ans: 9630 , 9650

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