Andhra Pradesh BIEAP AP Inter 1st Year Economics Study Material 8th Lesson National Income Accounting Class 11 Textbook Exercise Questions and Answers.
National Income Accounting Class 11 Questions and Answers AP Inter 1st Year Economics 8th Lesson
I. Multiple Choice Questions (1 Mark)
Question 1.
NNPMP is equal to:
(1) GDPMP – D
(2) GNPMP – D
(3) GDPMP – D + NFIA
(4) Both 2 & 3
Ans.
(4) Both 2 & 3
Question 2.
The difference between GNPMP and GDPMP is equals to:
(1) Net domestic investment
(2) Gross foreign investment
(3) Gross factor income from abroad
(4) Net factor income from abroad
Answer:
(4) Net factor income from abroad
Question 3.
The difference between indirect taxes and subsidies:
(1) Gross subsidies
(2) Gross indirect taxes
(3) Net indirect taxes
(4) Net exports
Answer:
(3) Net indirect taxes
Question 4.
Which of the following is not correct ?
(1) GDPMP = C + I + G + (X – M)
(2) GNPMP = C + I + G (X – M) + NFIA
(3) NNPMP = C + I + G + (X – M) + NFIA – D
(4) NNPFC = C + I + G + (X – M) + NFIA – D + I.T – S
Answer:
(4) NNPFC = C + I + G + (X – M) + NFIA – D + I.T – S
Question 5.
If Nominal GDP = Rs. 1000, Real GDP = Rs. 500, then GDP Deflator is equal to (in cr.):
(1) 1000
(2) 500
(3) 1500
(4) 200
Answer:
(4) 200
II. Fill in the Blanks (1 Mark)
Question 1.
Prabhas working in Australia and sends money to his parents in India. Which concept of national income covers this item …………….. .
Answer:
GNPMP
Question 2.
The goods and services produced within the boundaries of the country are known as …………… .
Answer:
Gross Domestic Product (GDP)
Question 3.
The market value of a rice is Rs. 40/kg. But in PDS system, the government is charged Rs. 1 i.e., the government is bearing Rs. 39/kg. This type of government expenditure is known as ……………… .
Answer:
Subsidies
Question 4.
The main difference between NNPMP and NNPFC is equal to …………. .
Answer:
Net Indirect Taxes (NIT)
Question 5.
In India, National Income is calculated in ………… and ………… methods.
Answer:
Output method and Income method
III. Answer the following questions in one word. (1 Mark)
Question 1.
The sum of Gross Domestic Product and net Factor Income from abroad is equal to:
Answer:
GNPMP
Question 2.
GDPpc minus Depreciation is equal to :
Answer:
NDPFC
Question 3.
The difference between GNPMP and NNPMP is equal to :
Answer:
Depreciation
Question 4.
GDP Deflator is equal to:
Answer:
\(\frac{\text { Nominal GDP }}{\text { Real GDP }}\) × 100
Question 5.
GVAMP minus Net Product Taxes is equal to :
Answer:
GVA at basic prices
IV. Briefly explain the following concepts in two to three sentences. (2 Marks)
Question 1.
GNP
Answer:
GNP refers to all the economic output produced by a nation’s normal residents, whether they are located within the national boundary or abroad.
GNPMP is the value of all the final goods and services that are produced by the normal residents of India and is measured at the market prices, in a year. Everything is valued at the market prices.
GNPMP = GDPMP + NFIA
Question 2.
Per capita Income
Answer:
Per capita income is the average income of an individual in a country. It is calculated by dividing national income by the population of the country. Per capita income is a good indicator of the average standard of living in a country.
Per capita income = \(\frac{\text { National income }}{\text { Population }}\)
Question 3.
Depreciation
Answer:
The country’s stock of fixed capital undergoes certain amount of wear and tear in producing goods and services over a period of time. This is called user cost or depreciation. It is the reduction in the value of fixed capital due to wear and tear or obsolescence.
Question 4.
Disposable Income
Answer:
Disposable income is the part of personal income which is left with the individual after all payments (or) Personal taxes are excluded from personal income to arrive at disposable income.
DPI = Personal income – Personal taxes (or) DPI = Consumption + Savings
Question 5.
Transfer payments
Answer:
Payments made in the form of pensions, interest on government bonds, etc. (or) Payments made for no return services. E.g.: pensions, scholarships, etc.
Question 6.
Circular Flow of Income
Answer:
The circular flow of income is a macroeconomic model that illustrates the continuous flow of money, resources, and goods and services between households and firms in an economy. It shows how income is generated from production, how it is spent, and how resources are supplied to create more goods and services.
Question 7.
Net Value Added
Answer:
The net contribution made by a firm is called ‘net value added’. Net Value Added (NVA) is a measure of the economic output of a production unit after deducting the costs of intermediate goods and capital consumption (depreciation).
Net value added = Value of output – Intermediary consumption
Question 8.
CSO definition of National Income
Answer:
According to the Central Statistical Organization (CSO), ‘National Income’ is the sum total of factor incomes generated by the normal residents of a country in the form of wages, rent, interest and profit in an accounting year.
Question 9.
GDP Deflator
Answer:
Ratio of nominal to real GDP. It is used to measure the level voice changes or inflation.
GDP Deflator = \(\frac{\text { Nominal GDP }}{\text { Real GDP }}\) × 100
Question 10
Intermediary consumption
Answer:
Intermediary consumption consists of the value of the goods and services consumed as inputs by a process of production, excluding fixed assets whose consumption is recorded as consumption of fixed capital, the goods or services may be either transformed or used up by the production processes.
Question 11.
Real GDP
Answer:
Real GDP is the total value of the goods and services measured at constant prices. Real GDP changes only when production changes. GDP in terms of constant prices of a selected base year is termed as real GDP or GDP at constant prices.
Question 12.
Production Taxes and Product Taxes
Answer:
Taxes on Production: Taxes on production are to be paid by a firm by virtue of production of a good or service. E.g. registration fee, factory license fee, stamp duties, pollution tax etc., they are unrelated to the quantum of production.
Product Taxes: Product taxes are related to the quantum of production or actual volume of production and are levied by the government on goods and services like excise duties, customs, sales tax, service tax, etc.
Question 13.
Compute National income from the given table.
| Sl. No. | Items | Amount (in cr.) |
| 1 | Consumption | 600 |
| 2 | Investment | 200 |
| 3 | Government Purchases | 100 |
| 4 | Exports | 100 |
| 5 | Imports | 200 |
Answer:
NI = C + I + G + (X – M)
NI = 600 + 200 + 100 + (100 – 200) ⇒ NI = 700
V. Write the answers briefly for the following questions. (4 Marks)
Question 1.
Explain any four factors that determine National Income.
Answer:
There are many factors that influence and determine the size of national income in a country. These factors are responsible for the differences in national incomes of various countries.
a) Natural resources: The availability of natural resources in a country, it’s climatic conditions, geographical features, fertility of soil, mines and fuel resources etc., influence the size of national income.
b) Quality and quantity of factors of production: The National Income of a country is largely influenced by the quality and quantity of a country’s stock of factors of production.
c) State of technology: National Income is influenced by the level of technical progress achieved by the country. Advanced techniques of production help in optimum utilization of a country’s national resources.
d) Political will and stability: Political will and stability in a country helps in planned economic development and for a faster growth of national income.
Question 2.
Distinguish.between GNP and GDP.
Answer:
| Gross Domestic Product (GDP) | Gross National Product (GNP) |
| i. The term ‘Domestic’ refers to the domestic territory of the country. | i. The term ‘National’ refers to normal residents of a country who may be within or outside the domestic territpry. |
| ii. GDP is a narrower concept than GNP. | ii. GNP is a broader concept than GDP. |
| iii. GDP excludes NFIA (Net factor income from abroad). | iii. GNP includes NFIA such as earnings of Indian corporations in overseas and Indian residents working in overseas. |
| iv. GDP includes earnings from current production in India that accrue to foreign residents (or) foreign-owned firms. | iv. GNP excludes earnings from current production in India accrue to foreign residents or foreign-owned firms. |
Question 3.
Suppose the GDPMPof a country in 2023 – 24 was Rs. 1100 crores, Net Factor Income from Abroad (NFIA) was Rs. 100 Crores, the value of indirect taxes – subsidies were Rs. 150 crores and the value of depreciation was Rs. 200 crores then calculate the NNPFC?
Answer:
GDPMP = 1100 Crores (NFIA) = Rs. 100 Crores Indirect taxes =Rs. 150 crores Depreciation was Rs. 200 crores
NNPFC = GDPMP + Net Factor Income from Abroad – Depreciation – Net Indirect taxes.
NNPFC = 1100 + 100 – 200 – 150s
NNPFC = 1150
Question 4.
Calculate the National income by using the total expenditure approach.
Answer:
Given,
Consumption Expenditure (C) = 500
Investment Expenditure (I) = 80
Government Expenditure (G) = 100
Net Exports (X – M) = (-100)
NFIA = 50
Net Indirect Taxes = 30
NI using Expenditure Method
NNPFC or NI = GDPMP – Depreciation + Net Factor Income from Abroad – Net Indirect Taxes
GDPMP = C + I + G + (X – M)
GDPMP = 500 + 80 + 100 – 100
GDPMP = 580
NNPFC = GDP MP – Depreciation + Net Factor Income from Abroad – Net Indirect Taxes
NNPFC = 580 – 70 + 50 – 30
NNPFC = 530 Cr.
Question 5.
From the following data, compute the Gross National Product at Market Prices (GNPMP) by using value added method.
Answer:
Given,
Value of output in primary sector = 2000
Intermediate consumption in primary sector = 400
Value of output in secondary sector = 3500
Intermediate consumption in secondary sector = 500
Value of output in tertiary sector = 4600
Intermediate consumption in tertiary sector = 500
Net factor Income from Abroad = (- 200)
GDPMP = Value of output in Domestic territory – Value of Intermediate consumption
= Value of output in primary sector – Intermediate consumption in primary sector + Value of output in secondary sector – Intermediate consumption in secondary sector + Value of output in tertiary sector – Intermediate consumption in tertiary sector
= 2000 – 400 + 3500 – 500 + 4600 – 500
GDPMP = 8700
GNPMP = GDPMP + NFIA
GNPMP = 8700 – 200
GNPMP = 8500 Cr.
VI. Write an essay on the following questions. (8 Marks)
Quantity 1.
Describe the components of National Income.
Answer:
The following are the main components of national income. They are :
a) Consumption (C),
b) Gross domestic investment (I),
c) Government expenditure (G),
d) Net exports (X – M),
e) Net factor income from abroad (NFIA).
a) Consumption (C): It is the total expenditure made by households on goods and services. It includes both durable and non-durable goods like food grains, clothing, medical services etc. The level of consumption depends on the level of income.
b) Investment (I) : It is the expenditure by firms on goods and services. It includes expenditure on capital like machinery, roadways, bridges etc. which will help in the production of consumer goods in the future.
c) Government expenditure (G): It is the expenditure made by the government on infrastructural facilities for public use. It also includes expenditure on services like police, military and judiciary.
d) Net exports (X – M) : It is the income earned by a country through international trade. The difference between the value of Sexports and imports (either positive or negative) must be included to estimate the national income of a country. The net exports depend on the export-import policy of the Government and the comparative price level of the goods in domestic and international markets.
Y = C + I + G + (X – M)
e) Net Factor Income from Abroad (NFIA): Some of the nationals of a country working in other countries may be sending remittances to their country. Likewise, foreigners working in a country may be sending their income to their home country. Hence, the net factor income from abroad refers to the difference between the income received from abroad and payments made to abroad.
Question 2.
Explain the various methods of calculating National Income.
Answer:
There are three methods of calculating national income. They are :
1. Output method (or) Product method (or) Value added method
2. Income method
3. Expenditure method
Cairn cross says “National Income can be looked in any one of the three ways, as the National Income measured by adding up everybody’s income by adding up everybody’s output and by adding up the value of all things that people buy and adding in their savings.
1. Output method or Product method: It is also known as inventory Tfiethod or commodity service method. In this method we find the market value of all final goods and services produced in a country during a given period of time. Under this method the entire economy is divided into various sectors.
The entire output of final goods and services of all sectors are multiplied by their respective market prices to find out the Gross Domestic Product (GDP). Later, depreciation allowance and net indirect taxes should be subtracted and net factor income from abroad should be added to get national income.
NI = (P1Q1 + P2Q2 + …….. PnQn) – D – NIT + NFIA
Where, NI = National Income, P = Price of the good or service, Q = Quantity of good or service produced, 1, 2 … n = various goods and services produced, NIT = Net indirect taxes, NFIA = Net factor income from abroad.
While in estimation of the national income, intermediate consumption which is the values of raw material, intermediary goods etc., should not be included. Only final goods, should be taken into account.
2. Income method: In this method, the incomes earned by all factors of production are aggregated to arrive at the national income of a country. The four factors of production receive incomes in the form of wages, rent, interest and profits. Then the net factor income from abroad should be added to arrive national income. This is also national income at factor cost.
NI-W + I + R + P + NFIA
NI = National Income; W = Wages, I = Interest, R = Rent, P = Profits, NFIA = Net Factor Income from Abroad.
3. Expenditure method: In this method, we add the personal consumption ex-penditure of households, expenditure of the firms, Government purchase of goods and services, net exports plus net income from abroad to get National income from expenditure side.
Here, National Income = Private final consumption expenditure (C) + Net domestic capital formation (on investment) (I) + Government final consumption expenditure (G) + Net exports (X – M) + Net factor income from abroad (NFIA).
NI = C + I + G + (X – M) + NFIA
Where, NI = National Income
C = Consumption expenditure (by households)
I = Investment expenditure (by business firms)
G = Government expenditure (by Government)
X – M = Net exports,
NFIA = Net Factor Income from Abroad.
Question 3.
Find the GDPMP, GNPMP and GNPFC from the following data on the economy.
Answer:
Given,
Value of output in primary sector = 600
Intermediate consumption in primary sector = 350
Value of output in secondary sector = 700
Intermediate consumption in secondary sector = 200
Value of output in tertiary sector = 900
Intermediate consumption in tertiary sector = 300
Net factor Income from Abroad = 30
Net Indirect Taxes = 10
GDPMP = Value of Output in Domestic territory – Value of Intermediate consumption
= Value of output in primary sector – Intermediate consumption in primary sector + Value of output in secondary sector – Intermediate consumption in secondary sector + Value of output in tertiary sector – Intermediate consumption in tertiary sector.
i) GDPMP = 600 + 700 + 900-350-200-300
GDPMP = 1350 Cr.
ii) GNPMP = GDP Mp+NFIA
GNPMP = 1350 + 30
GNPMP = 1380 Cr.
iii) GNPFC = GNPMP – Net Indirect Taxes
GNPFC = 1380-10
GNPFC = 1370 Cr.
Question 4.
Calculate GDPMP, GNPMP and GNPFC and NNPFC from the following data on the economy.
Answer:
Given,
Consumption Expenditure (Q) = 160
Investment Expenditure (I) = 40
Government Expenditure (G) = 90
Net Exports (X – M) = (30 – 50)= (- 20)
NFIA = 20
Transfer Payments = 30
Net Indirect Taxes = 40
Depreciation = 10
i) GDPMP = C +1 + G + (X – M) – Transfer Payments
GDPMP = 160+ 40 + 90 + (-20)-30
GDPMP = 220 Cr.
ii) GNPMP = GDPMP + NFIA
GNPMP = 220 + 20
GNPMP = 240 Cr.
iii) GNPFC = GNPMP – Net Indirect Taxes
GNPFC = 240 – 40
GNPFC = 200 Cr.
iv) NNPFC = GNPFC – Depreciation
NNPFC = 200-10
NNPFC = 190 Cr.