Depreciation

Fixed investment

From 1929 to 1933

Subsidies by government are grants that decrease the factor price of a commodity, whereas, indirect taxes are paid by a firm and households that increase the final factor price of a commodity. Hence, to derive Gross Domestic Product at Factor Cost from Gross Domestic Product at Market Price, we deduct indirect taxes and add subsidies.

National Income is the sum total of factor incomes earned by normal residents of a country during the period of one year. Net National Disposable Income, on the other hand, refers to income of normal residents of a country, which they can actually dispose-off during the year. Importantly, it includes besides National Income, net of current transfers from rest of the world and Net Indirect Taxes. i.e.

Net National Disposable Income = National Income \(\left( { NNP }_{ FC } \right) \) + Net Indirect Taxes + Net Current Transfers from Rest of the World

Following are the limitations of using GDP as an index of welfare of a country.

(i) With every increase in the level of GDP, distribution of GDP is getting more unequal, welfare level of the society may not rise.

(ii) Composition of GDP may not be welfare oriented even when the level of GDP tends to rise. i.e. rise in GDP may be concentrated in few hands.

(iii) Because of non-monetary transactions, GDP remains underestimated and therefore, there is no proper index of welfare.

(iv) Impact of externalities (positive or negative impact of an activity) is not accounted in the index of social welfare in terms of GDP.

(a) GDP_MP = GDP_FC + NIT
=25,215 + 1,575 = Rs 26,790 crores
(b) GNP_MP = GDP_MP + NFIA
=26,790 + 40 = Rs 26,830 crores
(c) NNP_MP = GDP_MP - D + NFIA
=26,790 - 1,000 + 40 = Rs 25,830 crores
(d) NNP_FC = NNP_MP - NIT
=25,830 - 1,575= Rs 24,255 crores
(e) NDP_MP = NNP_FC - NFIA + NIT
=24,255 - 40 + 1,575 = Rs 25,790 crores
(f) NDP_FC = NDP_MP  - NIT
=25,790 - 1,575 = Rs 24,215 crores

(i) Profits earned by a branch of foreign bank in India will be included in domestic income of India, as the profits are earned in domestic territory of India.

(ii) Payment of salaries to its staff by an Embassy located in New Delhi will not be included in domestic income of India, as it is the domestic territory of the country whose embassy it is.

(iii) Interest received by an Indian resident from firms abroad will not be included in domestic income of India, as it is factor income abroad.

(i) Profits earned by a branch of foreign bank will not be included while estimating National Income, as it is a factor income to abroad.

(ii) Interest paid by an individual on a loan taken to buy a car will not be included while estimating National Income, as loan is taken for consumption purpose.

(iii) Expenditure on machines for installation in a factory will be included while estimating National Income, as it is a final consumption expenditure by factory management.

(a) Personal Income = National Income - (vi) -(viii) + (ix) + (vii) + (iii) - (ii) - (v)
=2500-75-10+30+70+30-25-50
=Rs 2,470 crores
(b) Private Income = Personal Income + (ii) + (iv)
=2470+25+50
=Rs 2,545 crores
(c) Personal Disposable Income = Personal Income - Direct Personal Taxes
=2470-75
=Rs 2,395 crores

(i) Interest paid by banks on deposits by individuals is treated as "Factor Payment" so it will be included in estimating NI.
(ii) National Debt Interest, will not be included because it is treated as a transfer payment. 

 \(GNPdeflator=\frac { NominalGNP }{ RealGNP } \times 100\)
                          \(=\frac { 2,500 }{ 3,000 } \times 100\)
                          = 83.3%
No, the price level has not risen between the year and the year under consideration.In fact, it has fallen.

NDP_FC = (ii) + (ix) + (iv) - (iii) - (viii)
=800+200+100-(-20)-120
=Rs 1,000 crores
GNDI = NDP_FC + (vi) - (v) + (viii) - (i)
=1,000+50-10+120-15
=Rs 1,145 crores

Value of Output = \({ NVA }_{ FC }\) + Depreciation + (Excise Duty - Subsidy) + Intermediate Consumption
                        = 100 + 10 + (20 - 5) + 75 = 185 + 15 = Rs 200 crore

(a) National Income (\({ NNP }_{ FC }\))
= Private Final Consumption Expenditure + Government Final, Consumption Expenditure + Net Domestic Capital Formation + Net Exports - Net Indirect Taxes - Net Factor Income to Abroad
= 700 + 100 + 120 + (-20)  - 80 -10
= 920 -110 = Rs 810 crore
(b) Gross National Disposable Income
= \({ NNP }_{ FC }\)+ Consumption of Fixed Capital + Net Indirect Taxes - Net Current Transfers to Abroad
= 810 + 60 + 80 - (-10)
= Rs 960 crore

Net Value Added at Factor Cost (\({ NVA }_{ FC }\)) = Sales + Change in Stock - Purchase of Intermediate Goods - Depreciation - Net Indirect Taxes
                                                                = 750 + (- 30) - 500 - 60 -100 = 750 -690
                                                                = Rs 60 crore

Given, Indirect taxes = Rs 30, Personal tax = Rs 20,

Depreciation = Rs 50, Retained earnings = Rs 220

(i) \({ \therefore GDP }_{ MP }\) = Rs 500

(ii) \({ { NNP }_{ MP }=GDP }_{ MP }\) - Depreciation = 500 - 50 = Rs 450

(iii) \({ { NNP }_{ FC }=NNP }_{ MP }-NIT\) = 450 - 30 = Rs 420

(iv) Personal Income = \({ NNP }_{ FC }\) - Retained earnings

= 420 - 220 = Rs 200

(v) Personal Disposable Income = Personal Income - Direct Tax

= 200 - 20 = Rs 180

Personal Income = Personal Disposable Income + Personal Taxes + Miscellaneous Receipts of Government Administrative Departments

= 200 + 30 + 50 = Rs 280 crore

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

\({ NDP }_{ FC }={ GDP }_{ MP }\) - Consumption of Fixed Capital - Net Indirect Taxes

=2000 - 200 - 150 = Rs 1650 crore

Net National Disposable Income = Net Domestic Income (\({ NDP }_{ FC }\)) + Net Indirect Tax - Net Factor Income to Abroad + Net Current Transfers from Rest of the World

= Rs [1650 + (300-100) -150 + 250] lakh

= Rs 1950 lakh