National Income Accounting: Assertions & Reason Type Questions | Economics Class 12 - Commerce PDF Download

Direction: In the following questions, a statement of Assertion (A) is followed by a statement of Reason (R). Mark the correct choice as:

Question 1: 
Assertion: With every increase in the level of GDP, social welfare definitely increases in the economy.
Reason (R): GDP is not a true indicator of welfare of the economy.
(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation  of Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.

Correct Answer is Option (d)
GDP is a flawed measure of human welfare, e.g., if increase in the level of GDP is associated with higher level of income inequality, social welfare may not increase.

Question 2:
Assertion (A): The flour purchased by a baker is considered an intermediate good.
Reason (R): The flour is used for the production of bread, cakes and biscuits to be sold to the consumer.
(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation  of Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.

Correct Answer is Option (a)
Goods used in the production of final goods are known as intermediated goods.

Question 3:
Assertion (A): GDP is the correct measure of the improvement of welfare of the people.
Reason (R): Many activities in an economy are not evaluated in monetary terms, they are not included in GDP due to non-availability of data.
(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation  of Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.

Correct Answer is Option (d)
There are certain limitations of GDP as an index of welfare:

1. GDP does not take into account changes in inequalities in the distribution of income. 
2. GDP does not include non-monetary exchanges. 
3. GDP does not consider the changes in the population of a country. 
4. GDP does not account for valuation of externalities.

Question 4:
Assertion (A): Refrigerator used at home is considered as Capital Good.
Reason (R): Refrigerator is a one-time purchase for the household and will not be purchased for a very long time.
(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation  of Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.

Correct Answer is Option (d)
Capital goods includes those fixed or tangible assets that are purchased by producers or businesses to produce goods and services.

Question 5:
Assertion (A): GDP does not exhibit the structure of the product.
Reason (R): If the increase in GDP is mainly due to increased production of war equipment and ammunitions, then such an increase cannot improve welfare in economy.
(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation  of Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.

Correct Answer is Option (a)
An increase in GDP will raise the demand for money because people will need more money to make the transactions necessary to purchase the new GDP. In contrast, a decrease in real GDP (a recession) will cause a decrease in average interest rates in an economy.

Question 6:
Assertion (A): Car purchased by the hotel for the purpose of tourism facilitation is a Capital Good.
Reason (R): The car is purchased by the hotel to provide long term service to the consumers.
(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation  of Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.

Correct Answer is Option (a)
Capital goods includes those fixed or tangible assets that are purchased by producers or businesses to produce goods and services.

Question 7:
Assertion (A): Profits of chemical industries increased 150%; fishermen income reduced by 70% due to untreated chemical pollutants in water bodies. This is a negative externality.
Reason (R): The profits of chemical industries is causing pollution which is harming the water and inturn leading the fishermen to catch less fish as the biodiversity of the water body is disturbed.
(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation  of Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.

Correct Answer is Option (a)
Chemical industry is recognized as one of the most powerful sources of environmental pollution. Production of oil and coal used as fuels and raw materials in chemical industry also charge the environment by destroying fertile land due to mining activities and oil extraction.

Question 8:
Assertion (A): Furniture purchased by a household is considered a final good.
Reason (R): Furniture will not be used for further production.
(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation  of Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.

Correct Answer is Option (a)
Final goods are used for direct consumption by consumers or producers.

Question 9:
Assertion (A): Leisure is not included in GNP.
Reason (R): It does not involve rendering of any factor service.
(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation  of Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.

Correct Answer is Option (a)
Leisure activities such as growing vegetables in one's own garden, voluntary work/service done for a community are not included in the GNP. This is because it is difficult to estimate the market value of these services.

Question 10:
Assertion (A): The cement purchased by the constructor is considered an intermediate good.
Reason (R): The cement is used for the construction of the building to be sold to the consumer.
(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation  of Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.

Correct Answer is Option (a)
Cement is a substance used for binding and hardening other materials. Water and cement set and harden through a chemical reaction known as 'hydration'. The process of hardening is described as 'curing', which requires particular conditions of temperature and humidity.

Question 11:
Assertion (A): Brokerage on the sale/purchase of shares and bonds is to be included.
Reason (R): They form the value of final goods and so need to be included with respect to the Value Added Method.
(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation  of Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.

Correct Answer is Option (b)
Value Added Method is used to measure national income in different phases of production in the circular flow. It shows the contribution (value added) of each producing unit in the production process.

• Every individual enterprise adds certain value to the products, which it purchases from some other firm as intermediate goods.
• When value added by each and every individual firm is summed up, we get the value of national income.

Question 12:
Assertion (A): Income from illegal activities like smuggling, theft, gambling, etc., should not be included.
Reason (R): Including illegal activities will cause the problem of double counting.
(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct explanation of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true, but Reason (R) is not the correct explanation  of Assertion (A).
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.

Correct Answer is Option (c)
Illegal activities like smuggling, theft, gambling, etc., are not considered legal economic activities.