National Income and Its Measurement

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Questions:

Multiple Choice Question

5 x 1 = 5

In GNP calculation, which of the following should be excluded?

(a)

Rental incomes

(b)

Interest payments

(c)

Dividents

(d)

Government transfer payment

GNP Deflator = \(\frac { Nominal\quad GNP }{ ? } \times 100\)

(a)

Real GNP

(b)

Constant Price

(c)

Current Price

(d)

None of these

Real National Income means the National Income measured in terms of ........

(a)

constant prices

(b)

current prices

(c)

wholesale prices

(d)

retail prices

Transfer payments are ..........

(a)

payments transferred from Central Government account to State Government account

(b)

payments made to factors of production by an organiser

(c)

payments made for no return service

(d)

None of the above

Transfer payments are ..........

(a)

payments transferred from Central Government account to State Government account

(b)

payments made to factors of production by an organiser

(c)

payments made for no return service

(d)

None of the above

Generic 4

5 x 4 = 20

Are the following included in the estimation of National Income a country? Give reasons.
(i) Rent free house to an employee by an employer.
(ii) Purchases by foreign tourists.
(iii) Purchase of a truck to carry goods by a production unit.
(iv) Payment of wealth tax by a household.

How do you distinguish between old age pensions and retirement pensions in the context of estimation of National Income?

Differentiate between Gross Domestic Product at Market Price and Net National Product at Factor Cost.

Give the meaning of factor income to abroad and factor income from abroad. Also give an example of each.

10.

Are the following a part of country's Net Domestic Product at Market Price? Explain.

(i) Net Indirect Taxes

(ii) Net exports

(iii) Net Factor Income from Abroad

(iv) Consumption of fixed capital

Generic 6

4 x 6 = 24

11.

Estimate the following with the help of given data:
(i) GDP_MP
(ii) Net Value Added at factor cost; and
(iii) prove that it is equal to the income generated.

		(Rs. in Crores)
(i)	Increase in the stock of unsold goods	1000
(ii)	Sales	10,000
(iii)	Net indirect tax	8000
(iv)	Purchase of raw materials from other firms	1650
(v)	Purchase of fuel and power	850
(vi)	Consumption of fixed capital	500
(vii)	Rent	700
(viii)	Wages and salaries	3500
(ix)	Interest payment	10000
(x)	Dividend	1500
(xi)	Corporate gain tax	300
(xii)	Undistributed profit	200

12.

Are the following included in the estimation of National Income of India? Give reasons for each answer. (i) profits earned by Dabur India in U.K.
(ii) Money received from sale of shares.
(iii) Salary paid to Americans working in Indian embassy in America.
(iv) payment of electricity bill by a factory
(v) direct purchases of government in a foreign country.
(vi) Remittances from aboard

13.

Explain briefly the distinction between:
(i) GDP_FC and NNP_MP
(ii) National Income and Net National Disposable Income

14.

How will you treat the following while the following estimating National Income? Give reasons for your answer.

(i) Capital gain on sale of a house.

(ii) Prize won in a lottery.

(iii) Interest on public debt.

Generic 3

4 x 3 = 12

15.

State whether the following is a stock or flow:
(a) National capital,
(b) Exports,
(c) Capital formation, and
(d) Expenditure on food by households.

16.

State whether the following is a stock or flow:
(a) Wealth,
(b) Cement production,
(c) Saving of a household, and
(d) Income of household
(e) profit

17.

Calculate (a) Gross National Disposable Income and (b) Personal Disposable Income from the following data:

S.No.	Contents	Rs (in crore)
(i)	Consumption of Fixed Capital	100
(ii)	Net National Product at Market Price	800
(iii)	Domestic Product Accruing to Government	80
(iv)	Net Factor Income from Abroad	50
(v)	Net Current Transfer to Abroad	50
(vi)	National Debt Interest	75
(vii)	Personal Tax	90
(viii)	Corporation Tax	60
(ix)	Net Indirect Taxes	120
(x)	Current Transfers by Government	25

18.

Calculate 'Gross National Disposable Income' from the following data:

S.No.	Contents	Rs (in lakh)
(i)	Net Domestic Product at Factor Cost	3000
(ii)	Indirect Taxes	300
(iii)	Net Current Transfers from Rest of the World	250
(iv)	Current Transfers from the Government	100
(v)	Net Factor Income to Abroad	150
(vi)	Consumption of Fixed Capital	200
(vii)	Subsidies	100

Fill up / 1 Marks

7 x 1 = 7

19.

Name a product whose value is included in GDP but its consumption reduce welfare?

20.

When is gross domestic product of an economy equal to gross national product?

21.

Define National Income.

22.

Define circular flow of income.

23.

Define gross investment

24.

Define flow variable.

25.

Define stock variable.

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Answers Key:

Multiple Choice Question

5 x 1 = 5

(d)
Government transfer payment

(a)
Real GNP

(a)
constant prices

Generic 4

5 x 4 = 20

(i) It should be included in NI because it is a part of the compensation of employees (salary in kind).
(ii) It is included in NI because it is a part of the final consumption expenditure on domestic product.
(iii) It should be included in NI because it is an addition to the capital stock of the production unit.
(iv) It should not be included in NI because it is a compulsory transfer payment and paid from past savings of the tax payers.

Old age pensions are unilateral payments or transfer payments. These are not included in the estimation of National Income. On the other hand, retirement pensions are like a deferred wage. These are related to factor services rendered by the recipients prior to their retirement. Accordingly, these included in the estimation of National Income.

Difference between Gross Domestic Product at Market Price and Net National Product at Factor Cost

Basis	Gross Domestic Product at Market Price	Net National Product at Factor Cost
Depreciation	It includes depreciation.	It excludes depreciation.
Area of production	It is produced within domestic territory by normal residents as well as non-residents.	It is produced within and outside the domestic territory by the normal residents only.
NFIA	It does not include Net Factor Income from Abroad.	It includes Net Factor Income from Abroad.
NIT	It includes Net Indirect Taxes.	It excludes Net Indirect Taxes.

Factor income to abroad is the factor income earned by non-residents, who are temporarily residing in our country, e.g. salaries of Americans working in Indian embassy in America. Factor income from abroad is the factor income earned by our residents, who are temporarily residing abroad, e.g. salaries of Indians working in Russian embassy in India.

10.

(i) Net Indirect Taxes are a part of \({ NDP }_{ MP }\), as we add Net Indirect Taxes to \({ NDP }_{ FC }\), to obtain \({ NDP }_{ MP }\).

(ii) Net exports are a part of \({ NDP }_{ MP }\), as when we calculate \({ NDP }_{ MP }\) by expenditure method, we include it.

(iii) Net Factor Income from Abroad is not a part of \({ NDP }_{ MP }\) as the income is not generated in domestic territory of the country.

(iv) Consumption of fixed capital is not a part of \({ NDP }_{ MP }\) as we subtract it from \({ GDP }_{ MP }\) to obtain \({ NDP }_{ MP }\).

Generic 6

4 x 6 = 24

11.

GDPMP = Sales + Increase in the stock - Purchase of raw materials - Purchase of fuel and power.
= 10,000 + 1000 -1650 -850
= 11,000 -2500
= 8500 Crores.
Net Value Added at factor cost = Sales + Increase in the stock - Purchase of raw materials
Purchase of fuel and power - Consumption of fixed capital - Net indirect tax.
= 10,000 + 1000 - 1650 - 850 - 500 – 800
= 11,000 – 3800 = 7200 Crores.
Income generated = Rent + Wages and salaries + Interest + Dividend + Corporate gain tax + Undistributed profit.
= 700 + 3500 + 1000 + 1500 + 300 + 200
= 7200 Crores.
Hence it is proved that Net Value Added at factor cost = Income Generated

12.

(i) Yes , it is a part of factor income earned from abroad.
(ii) No, it is only a transfer of paper claims.
(iii) No, this factor income belongs to non-residents.
(iv) No. it is intermediate consumption.
(v) Yes , it is government final consumption expenditure.
(vi) No, it is only a transfer payment. No commodity is sent or services rendered return for this.

13.

(i) Distinguishing GDP_FC from NNP_MP we First find that GDP_FC is a Gross value whereas NNP_MPis a Net value, i.e. depreciation is included in GDP_FC and not included NNP_MP .GDP_FC is a domestic aggregate whereas NNP_MP is a national aggregate i.e. net factor income from abroad (NFIA) is not included in GDP_FC whereas it is included in NNP_MP.Lastly GDP_FC does not include tHE value of net indirect taxes whereas NNP_MP includes the value of NIT.
(ii) National Income/NNP and Net National Disposable Income (NNDI)_FC and Net National Disposable Income (NNDI) NI is a national aggregate whereas NNDI is a disposable Income aggregate..NI is sum of actor incomes whereas N DI is a sum off actor incomes and also non-factor incomes. NI = NNP whereas, NNDI = NNPMP+ Net Current Transfer from_FC whereas, NNDI = NNP_MP+ Net Current Transfer from + Net Current Transfer from abroad
This also shows that 'NIT' are included in NNDI whereas they are not included in NI, which is always calculated at factor cost.

14.

(i) Capital gain on sale of a house is not included in the National Income estimation because it does not add to the flow of goods and services in the economy.

(ii) Prize won in a lottery is not included in National Income estimation because it is a part of transfer payments.

(iii) Interest on public debt is deemed as transfer payment. Hence, not included in the estimation of National Income.

Generic 3

4 x 3 = 12

15.

Stock – (a), since national capital is a variable measurable at a point of time.
Flow – (b), (c) & (d), since these are variables measurable over period of time

16.

Stock – (a) & (b), since these are variables measurable at a point of time.
Flow – (c), (d) & (e), since these are variables measurable over period of time.

17.

(a) Gross National Disposable Income = \({ NNP }_{ MP }\) + Consumption of Fixed Capital + Net Current Transfers from Abroad

= 800 + 100 + (-50) = Rs 850 crore

(b) Personal Disposable Income = \({ NNP }_{ MP }\) - Domestic Product accruing to Government - Net Indirect Taxes + Current Transfers by Government - Net Current Transfers to Abroad + National Debt Interest - Corporation Tax - Personal Tax

= 800 - 80 - 120 + 25 - 50 + 75 - 60 - 90

= 900 - 400 = Rs 500 crore

18.

Gross National Disposable Income = Net Domestic Product at Factor Cost + Indirect Tax - Subsidy + Net Current Transfers from Rest of the World - Net Factor Income to Abroad + Consumption of Fixed Capital

= 3000 + 300 - 100 + 250 - 150 + 200 = Rs 3500 lakh

Fill up / 1 Marks

7 x 1 = 7

19.