Class XII – National Income and Its Measurement – PYQs

Ans. The given statement is refuted on the basis of the following reasons

(i) Domestic services are performed by woman out of love and affection.

(ii) Such services do not add to the flow of goods and services in the economy.

(iii) These services are for self-consumption, not for economy.

Ans. This statement is refuted because subsidies given to the producers should not be treated as transfer payments. Subsidies are given to reduce the market price of socially desirable goods such as fertilisers, LPG gas, etc. So, that they can be afforded by the poor section of society. Transfer payments, on the other hand, are given to fulfill social objectives. Examples of transfer payments are old age pension, unemployment allowance, etc.

Also, transfer payments are not taken into account while computing the GDP of the country, but subsidies are considered in the computation of GDP.

Ans. NNP_MP = NNP_FC + NIT

= 850 + 150 = ₹ 1,000 crore

GNP_MP = NFIA GDP_MP

= 100 + 1,100 = ₹ 1,200 crore

Depreciation= GNP_MP – NNP_MP

= 1,200 – 1,000 = 200 crore

Therefore, depreciation = ₹ 200 crore

Ans. Net Domestic Product at Factor Cos

(NDP_FC) = Compensation of Employees + Interest + Rent and Profit

= 3 000 + 700 + 700 

= ₹ 4 400 crore

Ans. GVA_MP = Value of Output − Intermediate Consumption

= 800 − 200 = ₹ 600 crores

NVA_FC = GVA_MP − Depreciation − Indirect Tax + Subsidies

NVA_FC = 600 – 20 – 30 + 50 = ₹ 600 crores

Ans. Gross Value Added at Market Price (GVA_MP)

= Value of Output − Intermediate Consumption

Value of Output = Sales + Change in Stock

Value of Output = (200 + 10) + (-) 10

=  210 – 10 = ₹ 200 

GVA_MP =  200 − 120

GVA_MP = ₹ 80 lakhs

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

Ans. Payment of interests by bank to its depositors should be included in estimation of national income as it will be treated as factor income.

(ii) Expenditure on old age pensions by government.

Ans. Expenditure on old age pensions by government is not a part of national income as it is a transfer payment.

(iii) Expenditure on engine oil by car service station.

Ans. Expenditure on engine oil by car service station is not a part of national income as it is an intermediate cost.

Ans. Net Value Added at Factor Cost (NVA_FC)

= Sales + Unsold Output Produced during the Year − Single use Producer Goods − Depreciation on Durable use Producer Goods − Taxes on Production

= 20 + 2 – 5 – 1 – 1

= ₹ 15 lakhs

Note Depreciation = Value of Durable Goods / Life Span = 10/10

= ₹ 1 lakh

Ans. Net Value Added at Factor Cost (NVA_FC)

= Sales + Change in Stock – Intermediate Consumption − Depreciation − Net Indirect Taxes 200 = 400 + (Change in Stock) – 100 – 40 − (0 – 100)

200 = 360 + Change in Stock − Change in Stock

= 360 − 200

Change in Stock = − 160 crores

∴ Decrease in Stock = ₹ 160 crores

Ans. Real gross domestic product is the sum total of the money value of all final goods and services produced in an economy during the year estimated at same given base year prices.

Ans. The above argument is refuted with respect to GDP as a welfare measure of the economy. It is because GDP is not a good measure of welfare as it fails to take in to the effect of externalities. Externality means good or bad impact of an activity without paying the price or penalty for that impact of externalities is not accounted in the index of social welfare in terms of GDP.

For example, oil refinery may pollute the nearby source of water. Such harmful effects to people and marine life is not be penalised. Thus it is not ensuring the welfare of the economy through GDP.

Ans. As the sale of petrol and diesel cars rises, it implies that the private consumption expenditure is also rising.

A rise in private consumption expenditure leads to a rise in the gross domestic product. So, an increase in the sale of petrol and diesel cars will lead to an increase in the gross domestic product of the country.

However, it will not lead to an increase in the welfare of the people because of the below mentioned reasons

(i) As the sale of petrol and diesel cars rises, then the level of pollution will also rise in the big cities.

(ii) With a rise in the number of cars, the traffic congestion on the roads will worsen.

(iii) A rise in the number of cars will increase the demand for petrol and diesel. This will lead to a rise in the prices of petrol and diesel.

(iv) The already depleted reserves of petrol and diesel will be subjected to further depletion.

Ans. It can be understood with the help of following points

(i) GDP measures only economic value of the current productive activity of a country.

(ii) There are many activities which are not evaluated in monetary terms. In India, non-monetary transactions are present in rural areas where payments for farm labourers are made in kind rather than cash. But such transactions are not recorded.

(iii) Even while producing goods and services, lot of human cost is also involved. For example, sacrificing leisure hours by working but this is never included in total cost.

Therefore, GDP remains underestimated and hence loses its appropriateness as an index of welfare.

Ans. ‘‘Gross Domestic Product (GDP) is not the best indicator of the economic welfare of a country.’’ This statement is defended because of the following reasons

(i) Distribution of GDP: If the GDP of the country is rising, it is not necessary that the welfare will also rise. This is because with every increase in the level of GDP, it is not necessary that distribution of income is also equalable.

(ii) Non-Monetary Exchanges: In rural economy, barter system of exchange still prevails to some extent. Payments for farm labour are often made in kind rather than in cash. All such transactions remain unrecorded which causes underestimation of GDP.

(iii) Externalities: It refers to good and bad impact of an activity without paying the price or penalty for that activity. Impact of external entities are not accounted in the index of social welfare in terms of GDP.

Ans. The expenditure incurred by the government to popularise yoga among the masses will increase the government final consumption expenditure. With a rise in this component, the domestic income of the country will also rise. So, the expenditure incurred by the government to popularise yoga will lead to an increase in the Gross Domestic Product of the country.

This expenditure will also increase the welfare of the people, as is enumerated below

(i) As more and more people practise yoga, their health and immunity will improve. This will help in increasing their working capacity.

(ii) As people’s health improve, so government’s expenditure on the curative aspect of health issues will decrease.

(iii) People will develop a positive outlook and their well-being will increase in general.

Ans. Net Value Added at Market Price (NVA_MP)

= Sales + Net Change in Stock − Raw Materials − Depreciation on Fixed Capital Good

= 25 + (-2) – 6 – 3 = ₹ 14 lakh

Note Depreciation on Fixed Capital Good

= Value of Fixed Capital Good /Life Span

=  15/3 = ₹ 3 lakh

Ans. Sales = Output Sold × Price Per Unit

= 800 x 20 × = ₹ 16,000 crore

Now, Value of Output = Sales + Change in Stock

= [16 000 +(−500)] = ₹ 15,500 crore

Now, GVA_MP = Value of Output − Intermediate Cost

= (15,500 – 8,000) = ₹ 7,500 crore

Hence, NVA_MP = GVA_MP  − Depreciation

= (7,500 − 1,000)

= 6,500 crore

Ans. Here,

Net Value Added at Factor Cost (NVA_FC)

= Sales + Change in Stock (Closing Stock − Opening Stock) − Purchase of Intermediate Goods − Consumption of Fixed Capital − Indirect Taxes

= 500 + (80 – 60) – 350 – 90 – 50 

=  520 − 490 = ₹ 30 crore

Ans. The counting of the value of commodity more than once is called double counting. This leads to overestimation of the value of goods and services produced. Thus, the importance of avoiding double counting lies in avoiding overestimating the value of domestic product.

For example, a farmer produces one ton of wheat and sells it for ₹ 400 in the market to a flour mill. The flour mill sells it for ₹ 600 to the baker. The baker sells the bread to a shopkeeper for ₹ 800. The shopkeeper sells the entire bread to the final consumers for ` 900. Thus, Value of Output = 400 + 600 + 800 + 900 = ₹ 2,700

Infact, the value of the wheat is counted four times, the value of services of the miller thrice and the value of services by the baker twice. In other words, the value of wheat and value of services of the miller and of the baker have been counted more than once. The counting of the value of the commodity more than once is called double counting.

To avoid the problem of double counting, two methods are used

(i) Final Output Method: According to this method, the value of intermediate goods is not considered. Only the value of final goods and services are considered. In the above example, the value of final goods i.e., bread is ₹ 900.

(ii) Value Added Method: Another method to avoid the problem of double counting is to estimate the total value added at each stage of production. In the above example, the value added at each stage of production is 400 + 200 + 200 + 100 = ₹ 900

(i) Dividend received by a foreigner from investment in shares of an Indian company.

Ans. 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.

Ans. 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.

Ans. 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.

Ans. NNP_FC = ₹ 71,000 (given) crores

GDP_FC = NNP_FC − Net Factor Income from Abroad + Depreciation + Net Indirect Taxes

= 71,000 – 1,000 + 3,000 + 2,000

= ₹ 75,000  crores

Now, Let government final consumption expenditure = x

GDP_MP = Private Final Consumption Expenditure + Government Final Consumption Expenditure + Gross Domestic Capital Formation + Net Exports

75,000 = (40,000 + x + 10,000 + 5,000)

∴ x = ₹ 20,000 crores

Also,

Let mixed income = y

NDP_FC = Wages and Salaries + Operating Surplus + Mixed Income

70,000 = (15,000 + 30,000 + y)

So, y = 25,000

Note NDP_FC = NNP_MP − NFIA = 71,000 – 1.000

= ₹ 70 000, crores

So, Government final consumption expenditure

= ₹ 20,000 crores

Mixed income = ₹ 25,000 crores

Ans. Private final consumption expenditure = y,

Operating surplus = x

We know,

NDP_FC = CoE + Operating Surplus + Mixed Income

Also, NDP_FC = NNP_FC – NFIA

            = 50,000 – 500 = ₹ 49,500 crores

            ∴ 49,500 = Wages and Salaries + x + 13,000

49,500 = 20,000 + 13,000 + x

49,500 = 33,000 + x

x = 49,500 − 33,000 = ₹ 16,500 crores

Also, GDP_MP = PFCE + GFCE + Gross Domestic Capital Formation + Net Exports

GDP_MP = NPP_FC + Depreciation + NIT

            = 49,500 + 700 + 1,000

            = 51,200 crores

∴ 51,200 = y + 12,500 + 17,000 + 2,000

∴ y = ₹ 19,700 crores

So, private final consumption expenditure

= ₹ 16,500 crores

Operating surplus = ₹ 19,700 crores

Ans. NNP_FC = ` 12,000 (Given)

Let Gross domestic capital formation = x

And Operating surplus = y

GDP_MP = NNP_FC + Depreciation − NFIA + NIT

GDP_MP = 12,000 + 600 – 200 + 700 = ₹13,100 crores

GDP_MP = Private Final Consumption Expenditure + Government Final Consumption Expenditure + Gross Domestic Capital Formation + Net Exports

13,100 = 6,000 + 2,000 + x + 1,800

X = 13,100 – 9,800 = ₹3,300 crores

Gross domestic capital formation = ₹ 3,300 crores

NDP_FC = NNP_FC − NFIA

NDP_FC = 12,000 – 200 = ₹11,800 crores

NDP_FC = Compensation of Employees + Operating Surplus + Mixed Income

11,800 = 6,000 + y + 1,500

y = 11,800 – 7,500 = ₹ 4,300 crores

Operating surplus = ₹ 4,300 crores

Ans. (i) NDP_FC = Compensation of Employees + Operating Surplus + Mixed Income

NDP_FC = Wages and Salaries + Social Security Contribution by Employers + Rent and Interest + Undistributed Profit + Corporation Tax + Dividends + Mixed Income

NDP_FC = 1,800 + 200 + 6,000 + 400 + 120 + 80 + 1,000

NDP_FC = 2,000 + 6,600 + 1,000 = ₹ 9,600 crores

NNP_MP = NDP_FC + Net Factor Income from Abroad + Net Indirect Taxes

NNP_MP = 9,600 + (-)70 + 100

NNP_MP = 9,600 – 70 + 100 =  ₹ 9,630 crores

(ii) GDP_FC = NDP_FC + Depreciation

GDP_FC = 9,600 + 50 = ₹ 9,650 crores

Ans. Difference between Net Export and Net Factor Income from Abroad (NFIA).

Net Factor Income from Abroad (NFIA) refers to the difference between factor income received from and paid to abroad.

Ans. By Income method

NDP_FC = COE + Operating Surplus* + Mixed Income …(i)

*Operating Surplus = Rent + Interest + Profits

and NDP GDP FC MP = − Depreciation − NIT

= 18,000 – 1,000 – (2,000 – 250)

= ₹ 15,250 crores

Now, putting values in eq. (i)

15,250 = 6,000 + Rent + 800 + 975 + 7,000

15,250 = 14,775 + Rent

∴ Rent = ₹ 475 crores

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.

26. i) Giving valid reasons, state how the services of a ‘school teacher’ will be undertaken in estimation of national income.

Ans. The services of a school teacher will be taken in the estimation of national income of the country as they provide services in consideration of some payment and adds to the current flow of services.

Ans. Difference between Real GDP and Nominal GDP