Q21: If Real GDP is `R.s. 200 and Price Index (with base =100) is 110, calculate Nominal GDP.
(a) R.s. 33
(b) R.s. 220
(c) R.s.200
(d) R.s. 100
Ans: b
Q21: Let us assume that the GDP of some country was R.s.100 at current prices in 2012-13 and that was R.s. 90 in 2011-12; and that the GDP at constant 2004-05 prices was R.s. 59 in 2012-13 and that was R.s. 56.1 in 2011-12, then in GDP of 2011-12 at 2012-13 (constant) prices would be
(a) R.s.59.1
(b) R.s. 90
(c) R.s. 95.08
(d) R.s.100
Ans: c
Q22: Which of the given statement is incorrect?
(a) GDPMP GDPFC NIT = +
(b) NNPMP NNP = FC
(c) GNPMP GDPMP NFIA = +
(d) NNPFC = National Income
Ans: b
Q23. If in an economy, all production is undertaken by firms and the recorded sales of all firms in a year are less than their respective recorded costs, then which of the following statements is necessarily true?
(a) At least some firmsmust havemade accounting errors
(b) The economy’s GDP of that year was negative
(c) The total purchases of intermediates by firms were more than their total sales
(d) None of the above
Ans: c
Q24: With a positive externality
(a) there is under consumption in the free market.
(b) there is over consumption in the free market.
(c) the government may tax to decrease production.
(d) society could be made better-off if less was produced.
Ans: b
Q25: Given the following data for an economy Gross domestic product at market prices `R.s.20,000 Gross domestic capital formation `R.s. 5,000 Depreciation ` R.s.4,000 Net exports (–) ` R.s.2,000 Net factor incomes from abroad ` 5,000 The economy’s net domestic capital formation is
(a) R.s.1,000
(b) R.s. 5,000
(c) R.s.3,000
(d) (–)R.s. 1,000
Ans: a
Q26: Which of the following statements is/are correct?
(i) Capital formation is a stock variable.
(ii) A car covering a distance of 400 km in 5 hours includes both stock as well as flow variable.
Alternatives
(a) Both are true
(b) Both are false
(c) (i) is true, but (ii) is false
(d) (i) is false, but (ii) is true
Ans: d
Q27: Depreciation of fixed capital assets refer to
(a) normal wear and tear
(b) foreseen obsolescence
(c) Both (a) and (b)
(d) unforeseen obsolescence
Ans: c
Q28: Money flows are reciprocal of
(a) monetary flows
(b) real flows
(c) circular flow
(d) inventory flows
Ans: b
Q29: A thousand rupee note is an example of
(a) stock variable
(b) flow variable
(c) Either stock or flow
(d) Neither stock nor flow
Ans: a
Q30: Circular flow of income is based upon which of the following assumptions?
(a) All sectors are self-sufficient and independent
(b) Income generated in one sector is consumed within the same sector
(c) One person’s expenditure is another person’s income
(d) All economies are closed economies
Ans: c
Q31: In which of the following cases would the purchase of rice be included while calculating the GDP of India from the expenditure side?
(a) A resident Indian purchases rice to make a dosa which he sells to his neighbour. He then pockets the money received.
(b) A resident Indian purchases rice to make dosa which he sells to his neighbour. He donates the money received to a charity.
(c) A foreign citizen visiting Indian purchases rice to make a dosa which he sells to another foreign citizen visiting India.
(d) A non-resident Indian visiting India purchases rice, goes back to his country of residence, makes a dosa and then sells it to his neighbour.
Ans: d
Q18: What precautions should be taken while estimating national income by income method?
Ans:
Define: –
Method to Learn –
Q19: What steps are taken while estimating national income by expenditure method?
Ans: Steps: –
Q20: (a) Estimate the value of all above components of final expenditure incurred by all economic units within domestic territory of country in a year and their sum will estimate GDPMP.
(b) From the estimates of GDPMP, value of depreciation and NIT are subtracted and NFIA is added to get NNPFC (National Income).
(c) Explain the components of domestic factor income.
Ans: (a) Compensation of employees: It is the reward paid to an employee for his physical or mental services rendered in the process of production. It can be paid in three ways: –
(i) Wages and salaries in cash
(ii) Wages and salary in kind
(iii) Social security schemes by employer
(b) Operating surplus: It refers to income from property and entrepreneurship. It is the sum of rent, interest and profit.
(i) Rent and Royalty- Rent is the income earned by landlord by providing the services of land, building or any sub-soil assets. It is to be noted that domestic income also includes imputed rent of self-occupied houses. Royalty is the income earned from intangible assets like copyright, patents, trademarks etc.
(ii) Interest- It is the cost of capital sacrificed for a particular period of time. In other words, it refers to that amount which debtor is liable to pay to creditors for the use of funds borrowed.
It is to be noted that interest on loan taken for consumption purpose is considered transfer income so not included in domestic income.
(iii) Profits- It is the reward given to factor input ‘entrepreneur’ for undertaking the risk and organising other factors of production.
(c) Mixed Income- It is the income of those self-employed persons who provide all factor services of land, labour, capital in their own business so their income includes rent, interest, wages and profit which is difficult to classify individually. So, their income is called mixed income.
Q21: Define NFIA. What are the components?
Ans: It refers to difference between factor income earned by normal residents of a country in abroad and factor income earned by non-residents within domestic territory of a country in a year.
Components
Q22: What is meant by expenditure method?
Ans: E(cxopnesunmdiptutiroen m eextpheondd iist uthrea+t m ientvheostdm wehnitc ehx mpeenasduitruerse n) aotnio tnhael pinucrocmhaes ien o tfe firmnasl ogfo tohdes eaxnpde snedrivtiucrees produced in the economy during the period of an accounting year.
Q23: Define nominal GDP.
Ans: Nominal GDP (also called GDP at current prices) refers to market value of the final goods and seesrtivmicaetse dp ruosdinugc ethde wcuitrhrienn tt hyee adr opmriecsetsi.c territory of a country during an accounting year, as
Q24: Define depreciation.
Ans: aDcecporuencti aotfi:o n(i ) (Noro rcmonaslu wmeparti oannd o tfe fiarx,e adn cda p(iiit) aEl)x rpeefcetresd t oob lsooslse socfe vnacleu, e( ioiif) Aficxceidd eanstsaelt sd a(imn augsees). on
Q25: Define depreciation reserve fund.
Ans. lDoessperse icnia tthioen p rreosceersvse o fuf pnrdo rdeufcetriso tno. that fund which the producers keep to cope with depreciation
Q26: Why does an entrepreneur make a provision for consumption of fixed capital?
Ans: Anwo renn-toruetp firexnedeu ars mseatsk. es a provision for the consumption of fixed capital with a view to replace the
Q27: What is fixed investment?
Ans: mFiaxcehdi ninevrye)s tomf ethnet prerfoedrsu cteor sin dcurerainseg iann tahcec osutonctkin og fy fiexare.d assets or capital goods (like plant and
Q28: What do you mean by inventory investment?
Ans: Change in inventory stock during the year is called inventory investment of the producers.
Q29: Define capital loss.
Ans: cCaalpamitailt ileoss,s aisn ad l o(isis) ofafl vla ilnu em oafr fikxeetd v aasluseet so wf hthilee athsseesets a drue rniontg i np uersieo. dIts oocfc eucros noonm acicco ruencet sosfi:o (ni). natural
Q3: How will the following be treated while estimating national income of India? Give reasons.
(i) Dividend received by a foreigner from investment in shares of an Indian company.
(ii) Expenditure on education of children by a family in Uttar Pradesh.
(iii) Remittances from non-resident Indians to their families in India.
Ans: (i) Dividend received by a foreigner from investment in shares of an Indian company is included in national income of India as a negative component because it is a part of net factor income to the rest of the world.
(ii) Expenditure on education of children by a family in Uttar Pradesh is included in the estimation of national income of India since it is a part of private final consumption expenditure.
(iii) Remittances from non-resident Indians to their families in India are to be treated as transfer payments.
Accordingly, these are not to be included in the estimation of national income of India.
Q4: Explain the precautions that are taken while estimating national income by value added method.
Ans: While using value added method for computing national income, the following precautions should be taken
(i) The value of intermediate goods should not be included.
(ii) Purchase and sale of second hand goods should be excluded.
(iii) Imputed value of self-consumed goods should be included.
(iv) Own account production of goods should be included.
(v) Value of self-consumed services should not be included in the estimation of national income.
(vi) Imputed rent on the owner occupied house is also taken into the account.
I. Are the following included in national income of India?
a. Profit of Indian banks operating in foreign countries.
b. Interest income received by non-residents of India living abroad.
c. Fees received from students.
d. Interest received on loan given to a foreign company in India.
e. Value of bonus shares received by shareholders of a company
f. Income of foreign banks operating in India.
g. Unilateral payments received by residents of India from abroad.
h. Gift and remittances received by Indians from abroad.
i. Interest income received by residents Indians on bonds they purchased from abroad.
j. Interest paid by government on foreign loans.
k. Foreign aid received by India from friendly countries.
l. Compensation of employees paid to Indian employees working in foreign embassies functioning in India.
m. Rents received by Indians on building owned by them abroad.
n. Interest paid by banks to depositors.
o. Interest on government borrowings.
p. Death duties, Gift tax and Wealth tax
q. Sales proceeds of second hand goods
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