Reason Based Questions Answers - National Income Accounting, Related Concept, Measurement | Crash Course of Macro Economics -Class 12 - Commerce PDF Download

Reason Based Question’s

(Q1) Gross investment may occur even when net investment is zero.

Ans: True , Gross investment = Net investment + Depreciation. So , Gross investment = Depreciation , when net investment = 0.

(Q2) In the determination of social welfare, what matters is the quantum of output rather than the composition of output

Ans: False , Social welfare depends on both . If goods are produced primarily for richer sections of the society (ignoring the interest of poorer sections of the society) social welfare is bound to remain low even when the quantum of output is rising.

(Q3) Value addition occurs even when goods do not undergo any material transformation.

Ans: True , Value addition occurs even when goods are purchased for resale, without any material transformation.

(Q4) Investment on the purchase of shares is a part of net capital formation
Ans: False ,  Shares are a part of financial capital only

(Q5 ) No value is to be added to the final goods.         

Ans: False ,  Because these goods have crossed the boundary line of production and are ready for use by the final users.

(Q6) Final goods must finally be consumed by the household.    

Ans: False , Final goods can  finally be consumed by the households as well as by the producers

(Q7) Real GDP reflects the level of economic growth but nominal GDP does not 

Ans: True , because nominal GDP is affected by change in prices whereas real GDP is not affected.

(Q8) Increase in stock of goods by a consumer increases the capital stock of a country 

Ans: False , as the goods are deemed to be consumed the moment they are purchased by a consumer.

(Q9)  Income from exports is a part of net factor income from abroad 

Ans: False , because income from exports is a part of net exports and so a component of gross domestic product

(Q10) National income at current prices can increase even when quantum of goods and services produced during the year remains constant.

Ans: True , because increase in price level can cause an increase in national income at current prices without increase in quantum of goods and services produced.

(Q11)  Capital formation includes capital goods only 

Ans: False , it also includes change in inventory stock 

(Q12)  The value of intermediate consumption is the gross total value of intermediate goods

Ans: True , as intermediate consumption, by definition, is total expenditure by the producers on the purchase of non-factor inputs (intermediate goods).

(Q13)  All capital goods are producer goods, but all producer goods are not capital goods 

Ans:  True ,   Producers goods are defined as all those goods which are used in the production of other goods, whereas, capital goods are the fixed assets (like machinery, building, etc.) used by the producers in the production of goods and services.

(Q14) Private final consumption expenditure refers to consumption expenditure by the households only. 
Ans: False , It includes consumption expenditure by the households as well as non-profit private institutions serving households.

(Q15) Depreciation has nothing to do with the efflux of time

Ans: False ,  Value of fixed assets go down even if they are not used even for a day . Also, estimated life is a dividing factor while estimating depreciation.

(Q16) Obsolescence, be it expected or unexpected, is a component of depreciation.

Ans: False ,Only expected obsolescence is a component of depreciation.  Loss of value of fixed assets due to any unexpected obsolescence is capital loss & not depreciation

(Q17) LED lights imported by an importer are intermediate goods

Ans: True , as the importer is aiming for the resale of the LED light 

(Q18)  Expenditure on purchase of curtain cloth by Indian High Commission in London is treated as intermediate consumption.

Ans: False ,. All direct purchases of goods and services made abroad by the government on current account for its embassies or consulates or for its own direct use abroad are treated as final consumption expenditure.

(Q19) Only those goods are included in the estimation of domestic product which are sold or purchased in domestic market of a country.  

Ans: True , the domestic product is the money value of final good and services produced in the domestic territory in an economy .  It doesn’t matter if they are citizens of foreign or foreign-owned companies.  

(Q20) Intermediate goods have a derived demand, while final goods have direct demand.

Ans: True , Intermediate goods have a derived demand as their demand depends on demand for final goods.  On the other hand, final goods have a direct demand as they satisfy the wants directly.

(Q21) Gross investment can be equal to net investment

Ans: True ,  It is possible when depreciation is zero 

(Q22) The concept of normal resident applies to individuals only 

Ans: False ,  The concept applies to institutions also, in addition to individuals.

(Q23) In a closed economy, gross domestic product is always equal to gross national product

Ans: True , it happens because net factor income from abroad is zero due to no interaction with the rest of the world.

(Q24) Domestic product includes contribution of only resident producers within the domestic territory of the country

Ans: False , domestic product includes contribution of all the producers (whether resident or non-resident) who are within the domestic territory of the country.

(Q25)  Measurement of national income at current prices provides a reliable base of comparison.

Ans: False , National income at ‘Constant Prices’ is a reliable base 

(Q26)  Free samples distributed by a business enterprise for advertisement will not be included in national income.

Ans: True , such free samples are pad of intermediate consumption expenditure.

(Q27) Purchase of a refrigerator by a firm for its own use is included in the estimation of national income because it leads to final consumption expenditure.

Ans: False , Purchase of a refrigerator by a firm for its own use is included in the estimation of national income because it leads to final investment expenditure.

(Q28) Inventory investment includes change in stock of consumer goods with the producers.

Ans: True , Inventory investment includes stock of all types of goods (including consumer goods) with the producers.

(Q29) Double counting occurs when the both final and intermediate goods are included in the estimation of GDP.

Ans: True , Because, GDP includes only final goods.

(Q30) If depreciation reserve fund is not maintained, production capacity in the economy would tend to reduce. Do you agree ?

Ans: True , If depreciation reserve fund is not maintained, production capacity in the economy would tend to reduce. Because depreciation reserve fund facilitates replacement investment (replacement of worn-out assets).

(Q31) Net factor income from abroad is treated as a components of income from domestic product accruing to the government sector.

Ans: False ,  Net factor income from abroad is a component of national income. It is added to domestic income to get national income.

(Q32) GDP growth as an index of welfare loses its significance if there is a deep economic divide in the economy.

Ans: True , Economic divide indicates the increasing gulf between the rich and poor people. If the gulf increases, GDP growth loses its significance

(Q33) Only net investment and not gross investment shows change in stock of capital

Ans: True , Gross investment includes expenditure on the purchase of new assets which cause change in the stock of capital and expenditure on the replacement of worn-out machinery which does not cause change in stock of capital. Thus, from gross     investment, we cannot estimate net addition to the stock of capital. It is only indicated by the net investment.      

(Q34) State with valid reasons which of the following is true/false 

(a) Investments in an economy is a stock concept.
Ans:  T

(b) Any given commodity can be an intermediate good as well as a final good.
Ans: T

(c) NNPFC must be greater than NDPFC.
Ans:  F

(d)  Interest received by a household on his investments in government bonds will not be included in National Income.
Ans: T

(e) Operating surplus may also be labeled as Income from Property and Entrepreneurship..
Ans:  T

(f) National income exceeds domestic income only when exports are greater than imports.
Ans: F 
(g)  There is no difference between GDP at market price and GDP at factor cost in a two sector economy including household sector and producer sector.
Ans: T 

(h) In net factor income from abroad zero if export is equal to imports?
Ans:  F

(i) Intermediate goods are included in the estimation of GDP.
Ans: F

(j) Value of intermediate goods is equal to the value of intermediate consumption.
Ans: T 

(k) Travelling Allowance paid by employer is a part of national income.
Ans: F

(l) Both value added and value of output are identical concepts.
Ans:  F

(m) Free dress provided to nurses by the hospital is included in the estimation of national income
Ans: F

(n) National income includes both factor incomes and transfer incomes
Ans:  F

(o) Butter is only a final product.
Ans: F

(p) Depreciation is an expected loss.
Ans: T

(q) Spares of a machine are intermediate goods
Ans: T

(r) Wheat used by a household is an intermediate product while bread is a final product.
Ans: F