Tamilnadu State Board New Syllabus Samacheer Kalvi 12th Economics Guide Pdf Chapter 2 National Income Text Book Back Questions and Answers, Notes.
Tamilnadu Samacheer Kalvi 12th Economics Solutions Chapter 2 National Income
12th Economics Guide National Income Text Book Back Questions and Answer
PART – A
Multiple Choice questions
Question 1.
Net National Product at factor cost is also known as
a) National Income
b) Domestic Income
c) Per capita Income
d) Salary
Answer:
a) National Income
Question 2.
Primary sector is
a) Industry
b) Trade
c) Agriculture
d) Construction
Answer:
c) Agriculture
Question 3.
National income is measured by using ………… methods.
a) Two
b) Three
c) Five
d) Four
Answer:
b) Three
Question 4.
Income method is measured by summing up of all forms of
a) Revenue
b) Taxes
c) expenditure
d) Income
Answer:
d) Income
Question 5.
Which is the largest figure?
a) Disposable income
b) Personal Income
c) NNP
d) GNP
Answer:
d) GNP
Question 6.
Expenditure method is used to estimate national income in
a) Construction sector
b) Agriculture sector
c) Service sector
d) Banking sector
Answer:
a) Construction sector
Question 7.
Tertiary sector is also called as …………… sector
a) Service
b) Income
c) Industrial
d) Production
Answer:
c) Industrial
Question 8.
National income is a measure of the …………………. performance of an economy.
a) Industrial
b) Agricultural
c) Economic
d) Consumption
Answer:
c) Economic
Question 9.
Percapita income is obtained by dividing the National income by …………………..
a) Production
b) Population of a country
c) Expenditure
d) GNP
Answer:
b) Population of a country
Question 10.
GNP = ……………… + Net factor income from abroad.
a) NNP
b) NDP
c) GDP
d) Personal income
Answer:
c) GDP
Question 11.
NNP stands for ……………
a) Net National Product
b) National Net Product
c) National Net Provident
d) Net National Provident
Answer:
a) Net National Product
Question 12.
……………………. is deducted from gross value to get the net value.
a) Income
b) Depreciation
c) Expenditure
d) Value of final goods.
Answer:
b) Depreciation
Question 13.
The financial year in India is………………
a) April 1 to March 31
b) March 1 to April 30
c) March 1 to March 16
d) January 1 to December 31
Answer:
a) April 1 to March 31
Question 14.
When net factor income from abroad is deducted from NNP, the net value is ……………..
a) Gross National Product
b) Disposable Income
c) Net Domestic Product
d) Personal Income
Answer:
c) Net Domestic Product
Question 15
The value of NNP at the production point is called …………..
a) NNP at factor cost
b) NNP at market cost
c) GNP at factor cost
d) Per capita income
Answer:
a) NNP at factor cost
Question 16.
The average income of the country is …………….
a) Personal Income
b) Per capita Income
c) Inflation Rate
d) Disposal Income
Answer:
b) Per capita Income
Question 17.
The value of national income adjusted for inflation is called ………………..
a) Inflation Rate
b) Disposal income
c) GNP
d) Real national income
Answer:
d) Real national income
Question 18.
Which is a flow concept?
a) Number of shirts
b) Total wealth
c) Monthly income
d) Money supply
Answer:
c) Monthly income
Question 19.
PQLI is the indicator of
a) Economic growth
b) Economic welfare
c) Economic progress
d) Economic development
Answer:
b) Economic welfare
Question 20.
The largest proportion of national income comes from …………
a) Private sector
b) Local sector
c) Public sector
d) None of the above
Answer:
a) Private sector
PART-B
Answer the following questions in one or two sentences.
Question 21.
Define National Income.
Answer:
National Income means the total money value of all final goods and services produced in a country during a particular period of time (one year).
Question 22.
Write the formula for calculating GNP.
Answer:
GNP at market prices = C + I + G + (X – M) + (R-P) .
C – consumption
I – Investment
G-Government
X – M – Net export
R-P – net factor income from abroad.
Question 23.
What is the difference between NNP and NDP?
Answer:
NNP:
- NNP refers to the market value of output.
- NNP at factor cost is the total income payment made to factors of production.
NDP:
- NDP is the value of the net output of the economy during the year.
- The country’s capital equipment wears out of becomes outdated each year during the production process.
Question 24.
Trace the relationship between GNP and NNP
Answer:
- GNP is the total measure of the flow of final goods and services at market value during a year.
- NNP is the value of the net output of the economy during the year.
- NNP = GNP – depreciation
Question 25.
What do you mean by the term Personal Income?
Answer:
Personal income is the total income received by the individuals of a country from all sources before payment of direct taxes in a year.
Question 26.
Define GDP deflator.
Answer:
The GDP deflator is an index of price changes of goods and services included in GDP.
Question 27.
Why is self-consumption difficult in measuring national income?
Answer:
- Farmers keep a large portion of food and other goods produced on the farm for self-consumption.
- The problem is whether that part of the product which is not sold in the market can be included in national income or not.
PART-C
Answer the following questions in one paragraph.
Question 28.
Write a short note on per capita income
Answer:
The average income of a person of a country in a particular year is called per capita income, per capita income is obtained by dividing national income by population.
Per capita income = \(\frac{\text { National Income }}{\text { Population }}\).
Question 29.
Differentiate between personal and disposable income.
Answer:
Personal income:
Personal income is the total income received by the individuals of a country from all sources before payment of direct taxes in a year.
Disposable income:
Disposable Income is also known as Disposable personal income. It is the individual’s income after the payment of income tax. This is the amount available for households for consumption.
Question 30.
Explain briefly NNP at factor cost.
Answer:
NNP refers to the market value of output, whereas NNP at factor cost is the total income payment made to the factor of production.
NNP at factor cost = NNP at market prices – Indirect taxes + subsidies
Question 31.
Give a short note on the Expenditure method.
Answer:
The Expenditure Method (Outlay method):
- The total expenditure incurred by the society in a particular year is added together.
- To calculate the expenditure of a society, it includes personal consumption expenditure, net domestic investment, government expenditure on consumption as well as capital goods and net exports.
Question 32.
What is the solution to the problem of double counting in the estimation of national income?
Answer:
- Double counting is to be avoided under the value-added method. Any commodity
which is either raw material or intermediate good for the final product should not be included. ‘ - For example, value of cotton enters value of yarn as cost, and value of yam in cloth and that of cloth in garments. At every stage value-added only should be calculated.
Question 33.
Write briefly about national income and welfare.
Answer:
National Income and Welfare:
National Income is considered as an indicator of the economic wellbeing of a country. The per capita income as an index of economic welfare suffers from limitations which are stated below:
- Economic welfare depends upon the composition of goods and services provided. The greater the proportion of capital goods over consumer goods, the improvement in economic welfare will be lesser.
- Higher GDP with greater environmental hazards such as air, water, and soil pollution will be little economic welfare.
- The production of war goods will show an increase in national output but not welfare.
- An increase in per capita income may be due to the employment of women and children or forcing workers to work for long hours. But it will not promote economic welfare.
Question 34.
List out the uses of national income.
Answer:
- To know the sectoral contribution.
- To formulate the national policies.
- To formulate planning and evaluate plan progress. !
- To build economic – models.
- To make international comparison.
- To know a country’s per capita income for various factors of production.
- To know the distribution of income for various factors of production.
- To arrive at many macroeconomic variables.
Question 35.
Explain the importance of national income.
Answer:
National income is of great importance for the economy of a country. Nowadays the national income is regarded as accounts of the economy, which are known as social accounts. It enables us:
1. To know the relative importance of the various sectors of the economy and their contribution towards national income; from the calculation of national income, we could find how income is produced, how it is distributed, how much is spent, saved or taxed.
2. To formulate the national policies such as monetary policy, fiscal policy and other policies; the proper measures can be adopted to bring the economy to the right path with the help of collecting national income data.
3. To formulate planning and evaluate plan progress; it is essential that the data pertaining to a country’s gross income, output, saving, and consumption from different sources should be available for economic planning.
4. To build economic models both in the short-run and long-run.
5. To make an international comparison, inter-regional comparison, and intertemporal comparison of growth of the economy during different periods.
6. To know a country’s per capita income which reflects the economic welfare of the country (Provided income is equally distributed)
7. To know the distribution of income for various factors of production in the country.
8. To arrive at many macroeconomic variables namely, Tax – GDP ratio, Current Account Deficit – GDP ratio, Fiscal Deficit – GDP ratio, Debt – GDP ratio, etc.
Question 36.
Discuss the various methods of estimating the national income of a country.
Answer:
There are three methods that are used to measure national income.
Product Method:
- Product method measures the output of the country. It is also called inventory
method. Under this method, the gross value of output from different sectors are obtained for the entire economy during a year. The value obtained is actually the GNP at market prices. - In this method Double counting should be carefully avoided.
Income Method:
This method approaches national income from the distribution side. Under this method, national income is calculated by adding up all the incomes generated in the course of producing national product.
Y = W + r + i + π + (R-P)
W – wages r – rent
i – interest π – profit
R- P – net factor income from abroad.
The Expenditure Method:
In this method, the total expenditure incurred by the society in a particular year is added together. To calculate the expenditure of a society, it includes personal consumption expenditure (c) net domestic investment (I), government expenditure on consumption (G) as well as capital goods and net export (X-M)
GNP = C+I+G+(X-M)
If the above methods are done correctly, the following equation must hold
Output = Income = Expenditure
Question 37.
What are the difficulties involved in the measurement of national income?
Answer:
In India because of various problems posed, a valuation of output is very difficult.
Transfer payments:
The government expenditure like pensions, unemployment allowance, subsidies etc are not included in the national income, Because they are paid without adding anything to the production process. Interest on national debt is also considered as transfer payment
Difficulties in assessing depreciation allowance :
It requires high degree of judgment to assess the depreciation allowance and other charges. Deduction of these from national income is not an easy task.
Unpaid services:
The service of housewife are not included in National income whereas the similar service performed by paid servants are included. Similarly there are number of goods and services which are difficult to be assessed in money terms are not included.
Income from illegal activities :
Income earned through illegal activities are not included in national income.
Production for self-consumption and changing price :
Farmers keep a large portion of their produce for self-consumption. The problem is whether they can be included in national income or not. National income by-product method is measured by the value of final goods and services at current market prices. But prices do not remain stable. To solve this constant price level is considered.
Capital Gains:
Capital gains arise when a capital asset is sold at higher price than was paid for it at the time of purchase, capital gains are excluded from national income.
Statistical problems:
Statistical data may not be perfectly reliable, when they are compiled from numerous sources, skill and efficiency of the statistical staff and cooperation of people at large are also equally important in estimating national income.
Question 38.
Discuss the importance of social accounting in economic analysis.
Answer:
National Income and Social Accounting:
- National income is also being measured by the social accounting method.
- Under this method, the transactions among various sectors such as firms, households, government, etc., are recorded and their interrelationships traced.
- The social accounting framework is useful for economists as well as policy makers, because it represents the major economic flows and statistical relationships among various sectors of the economic system.
- It becomes possible to forecast the trends of economy more accurately.
Social Accounting and Sector:
- Under this method, the economy is divided into several sectors.
- A sector is a group of individuals or institutions having common interrelated economic transactions.
- The economy is divided into the following sectors:
- Firms
- Households
- Government
- Rest of the world and
- Capital sector.
- “Firms” undertake productive activities. Thus, they are all organizations which employ the factors of production to produce goods and services.
- “Households” are consuming entities and represent the factors of production, who receive payment for services rendered by them to firms. Households consume the goods and services that are produced by the firms.
- “The Government sector” refers to the economic transactions of public bodies at all levels, centre, state and local.
- The main function of the government is to provide social goods like defence, public health, education, etc.
- “Rest of the world sector” relates to international economic transactions of the country. It contains income, export and import transactions, external loan transaction, and allied overseas investment income and payments.
- “Capital sector” refers to saving and investment activities. It includes the transactions of banks, insurance corporations, financial houses, and other agencies of the money market.
12th Economics Guide National Income Additional Important Questions and Answers
I. Match the following
Question 1.
A) Noble laureate – 1. Banking
B) Primary sector – 2. Simon kuznet
C) Secondary sector – 3. Agriculture
D) Tertiary sector – 4. Industry
Answer:
d) 2 3 4 1
Question 2.
A) PQLI – 1. C + I + G + (X-M)
B) GNPMP – 2. GNP- depreciation allowance
C) NNP – 3. Economic welfare
D) GNP – 4. C + I + G + (X – M) + (R – P)
Answer:
b) 3 4 2 1
Question 3.
A) Disposable Income – 1. \(\text { 1. } \frac{\text { Nominal GDP }}{\text { Real GDP }} \times 100\)
B) Per capita Income – 2. GDP – Depreciation
c) GDP deflator – 3. Personal income – Direct Tax
D) NDP – \(\text { 4. } \frac{\text { National Income }}{\text { Population }}\)
Answer:
a) 3 4 1 2
II. Choose the correct pair
Question 1.
a) Disposable income – Consumption + saving
b) Per capita income – \(\frac{\text { National Income }}{\text { Disposable Income }}\)
c) Capital gains – Included in National Income
d) National income – Four methods
Answer:
a) Disposable income – Consumption + saving
Question 2.
a) Expenditure method – Value method
b) Income method – Output method
c) Product method – Factor Earning Method
d) Inputs – Factors of production
Answer :
d) Inputs – Factors of production
Question 3.
a)Transfer payment – Purchase of shares
b) Double counting – Value added method
c) National income – Y = w+r+i+(R-P)
d) Value of output – Cost x Quantity sold
Answer :
b) Double counting – Value added method
III. Choose the incorrect pair
Question 1.
a)Labour income – wages and salaries
b) Capital income – profit, dividend
c) National income – domestic factor income + gross factor income
d) Mixed income – farming, sole proprietorship
Answer:
c) National income – domestic factor income + gross factor income
Question 2.
a) w – wages
b) π – loss
c) r – rent
d) i – interest
Answer :
b) π – loss
Question 3.
a) C – Private consumption expenditure
b) I – Private Investment Expenditure
c) G – Government expenditure.
d) X-M – Net import
Answer:
d) X-M – Net import
Choose the best answer
Question 1.
Personal Income is
a) National Income – Direct taxes
b) National Income – Indirect taxes
c) National Income – (Social security “contribution and undistributed corporate profits) +Transfer payments
d) National Income – Net Income from abroad
Answer:
c) National Income – (Social security contribution and undistributed corporate profits) +Transfer payments
Question 2.
Real income is
a) National Income at current price + P1 /PO
b) National Income at the current price – P1/PO
c) National Income at current price x P1 /PO
d) National Income at current price ÷ P1/P0
Answer :
d) National Income at current price ÷ P1/P0
Question 3.
National income by income method is
a) Y = w + r + i + π + (R – P)
b) Y = w + r + i + π – (R – P)
c) Y = w + r + i + π + (R + P)
d) Y = w + r + π – i – (R – P)
Answer:
a)Y = w + r + i + π + (R-P)
Question 4.
………………………. is of great importance for the economy of a country?
(a) Personal Income
(b) National Income
(c) Industry Income
(d) Village Income
Answer:
(b) National Income
Question 5.
Transfer payments are
a) Pensions, unemployment allowance, and subsidies given by Government.
b) Pension, unemployment allowance, and subsidies given by private.
c) Pension, unemployment allowance, and subsidies given by N. G. O. S.
d) None of the above.
Answer:
a) Pensions, unemployment allowance, and subsidies given by Government.
Question 6.
Percapita income is
a) National income – Population
b) National income – Real income
c) National income – Population
d) National income – Disposable income .
Answer :
c) National income – Population
Question 7.
The Economy is divided into the ………………….. sectors?
(a) two
(b) three
(c) four
(d) five
Answer:
(d) five
v
Question 8.
Which method of calculating National income is called as Factor Earning Method?
a) Product method
b) Expenditure method
c) Income method
d) Inventory method
Answer:
c) Income method
Question 9.
NDP is
a) GNP – Depreciation
b) GNP – Taxes
c) GDP – Depreciation
d)GDP -NNP
Answer:
c) GDP – Depreciation
Question 10.
While assessing sectoral contribution to GDP, the economy is Sectors?
(a) two
(b) three
(c) four
(d) five
Answer:
(b) three
V. Choose the correct statement
Question 1.
a) J.M.Keynes introduced the concept of national income.
b) GDP is the total market value of final goods and services produced within the country during a year.
c) NDPis the value of net exports of the economy during the year.
d) Net National product refers to the value of the net imports of the economy during the year.
Answer:
b) GDP is the total market value of final goods and services produced within the country during a year.
Question 2.
a) Disposable Income is the amount available for households for investment.
b) The average income of a person of a country in a particular year is called National Income.
c) Real income is the buying power of nominal income.
d) Entire disposable income is spent on consumption.
Answer:
c) Real income is the buying power of nominal income.
Question 3.
a) There are three methods that are used to measure National Income.
b) Factor incomes are grouped as labour income, capital income, and national income.
c) Double counting is avoided under the Income method.
d) Capital sector relates to international economic transactions of the country.
Answer:
a) There are three methods that are used to measure National Income.
IV. Choose the incorrect statement
Question 1.
a) National income denotes the country’s purchasing power.
b) Product method measures the output of the country.
c) Double counting is avoided under the value-added method.
d) Income method is also called as inventory method.
Answer:
d) Income method is also called as inventory method.
Question 2.
a) Transfer payments are to be included in the estimation of national income.
b) Expenditure on intermediate goods is to be excluded from national income.
c) Interest on the national debt is considered as transfer payments.
d) PQLI includes standard of living, life expectancy at birth, and literacy.
Answer:
a) Transfer payments are to be included in the estimation of national income.
Question 3.
a) The Government sector refers to the economic transactions of public bodies at all levels.
b) Households undertake productive activities.
c) Rest of the world sector relates to the international economic transaction of the country.
d) Capital sector refers to saving and investment activities.
Answer:
b) Households undertake productive activities.
VII. Pick the odd one out:
Question 1.
a) Product method
b) Income method
c) Investment method
d) Expenditure method
Answer:
c) Investment method
Question 2.
a) Transfer payments
b) Social Accounting
c) Unpaid services
d) Capital gains
Answer:
a) Transfer payments
Question 3.
a) Factor income
b) Labour income
c) Capital income
d) Mixed income
Answer:
a) Factor income
VIII. Analyse the reason
Question 1.
Assertion (A): National income estimates are not very accurate in our country.
Reason (R): Proper valuation of output is very difficult because of the existence of a largely unorganised and non-monetized subsistence sector.
a) Both A and R are true and R is the correct explanation of A.
b) Both A and R are true but R is not the correct explanation of A.
c) Both A and R are false.
d) A is true but R is false
Answer:
a) Both A and R are true and R is the correct explanation of A.
Question 2.
Assertion (A): The income method approaches national income from the distribution side.
Reason(R): In this method, national income is calculated by adding up all the incomes generated in the course of producing the national products.
a) Both A and R are true and R is the correct explanation of A
b) Both A and R are true but R is not the correct explanation of A
c) A is true but R is false
d) A is false but R is true
Answer:
b) Both A and R are true but R is not the correct explanation of A
IX. Answer the following questions (2 Marks)
Question 1.
Write the Factor Incomes group?
Answer:
Factor incomes are grouped under labour income, capital income, and mixed-income.
- Labour income – Wages and salaries, fringe benefits, employer’s contribution to social security.
- Capital income – Profit, interest, dividend, and royalty.
- Mixed-income – Farming, sole proprietorship, and other professions.
Question 2.
Name some of the concepts used in measuring national income.
Answer:
- Gross Domestic Product (GDP)
- Gross National Product (GNP)
- Net National Product (NNP)
- Personal Income
- Per Capita Income
Question 3.
Define “Capital Gains”?
Answer:
The problem also arises with regard to capital gains. Capital gains arise when a capital asset such as a house, other property, stocks or shares, etc. is sold at a higher price than was paid for it at the time of purchase. Capital gains are excluded from national income.
Question 4.
What is per capita Income?
Answer:
The average income of a person of a country is a particular year is called per capita income.
per capita Income = \(\frac{\text { National Income }}{\text { Population }}\)
Question 5.
Define “National Income & Erosion of National Wealth”?
Answer:
For achieving higher GDP, larger natural resources are being depleted or damaged. This means a reduction of potential for future growth. Hence, it is suggested that while assessing national income, loss of natural resources should be subtracted from national income.
Question 6.
What are transfer payments?
Answer:
- Transfer payments are payments of the Government that are paid without adding anything to the production processes.
- Eg: Unemployment allowances, subsidies
Question 7.
What is Market Price?
Answer:
The Market Price is the price that consumers will pay for the product when they purchase it from the sellers.
Market Price = Factor Cost – Subsidies
Question 8.
What is meant by income from illegal activities?
Answer:
Illegal activities like gambling, smuggling, etc have value and satisfy the wants of the people but they are not considered as productive.
Income from these illegal activities is not included in National income.
Question 9.
What are capital gains?
Answer:
Capital gains arise when a capital asset such as a house, other property, stocks or shares, etc. is sold at higher price than was paid for it at the time of purchase.
Question 10.
What is meant by PQLI?
Answer:
The Physical Quality of Life Index (PQLI) is considered a better indicator of economic welfare. It includes standard of living, life expectancy at birth, and literacy.
Answer the following questions (3 Marks)
Question 1.
How is Gross National Product measured?
Answer:
- GNP is the total measure of the flow of final goods and services at market value resulting from current production in a country during a year, including net income from abroad.
- GNP = C + I+G + (X-M) + (R-P)
- C – Consumption
- I – Gross Investment G – Government expenditure
- X-M – Net export
- R-P – Net factor income from abroad
Question 2.
Explain the Expenditure Method (Outlay Method) precautions?
Answer:
Precautions:
- Second-hand goods:
The expenditure made on second-hand goods should not be included. - Purchase of shares and bonds:
Expenditures on the purchase of old shares and bonds in the secondary market should not be included. - Transfer payments:
Expenditures towards payment incurred by the government like old age pension should not be included. - Expenditure on intermediate goods:
Expenditure on seeds and fertilizers by farmers, cotton, and yam by textile industries are not to be included to avoid double counting. That is only expenditure on final products are to be included.
Question 3.
Write a note National Income in terms of US $?
Answer:
- The national income of a country in money terms describes the economic performance of a country.
- When Indian national Income is expressed in terms of US $, the former looks very low.
- If purchasing power parity (PPP) method is adopted India looks better.
Question 4.
What is a sector? Name its divisions.
Answer:
- A sector is a group of individuals or institutions having common interrelated economic transactions. The economy is divided into the following sectors:
- Firms: The organizations which employ the factors of production to produce goods and services.
- Households: They are consuming entities and represent the factors of production.
- The government sector: It refers to the economic transactions of public bodies at all levels, centre, state and local.
- Rest of the world sector: It relates to international economic transactions of the country.
- Capital sector: It refers to saving and investment activities.
Question 5.
Explain the precautionary measures taken while calculating National income in the expenditure method.
Answer:
Second-hand goods:
The expenditure made on secondhand goods should not be included.
Purchase of shares and bonds:
Expenditures on the purchase of old shares and bonds in the secondary market should not be included.
Transfer payments:
Expenditures towards payment incurred by the government like old-age pensions should not be included.
Expenditure on intermediate goods:
Expenditure on seeds and fertilizers by farmers, cotton, and yarn by textile industries are not to be included to avoid double counting only expenditure on final products are to be included.
Question 6.
Explain the steps involved in the Income method.
Answer:
1. The enterprises are classified into various industrial groups.
2. Factor incomes are grouped under labour income, capital income, and mixed-income.
- Labour Income – Wages and salaries, fringe benefits, employer’s contribution to social security.
- Capital Income – Profit, internet, dividend, and royalty.
- Mixed-Income – Farming, sole proprietorship, and other professions.
3. National income is calculated as domestic factor income plus net factor income from abroad.
In short Y = w + r + i + n + (R-P)
W = Wages,
r – rent,
i = interest,
FI – Profits,
R = Export,
P=Import
XII. Answer the following questions (5 Marks)
Question 1.
How is National income calculated under the product method?
Answer:
The product method measures the output of the country. It is also called the inventory method. Under this method, the gross value of output from different sectors like agriculture, industry, trade and commerce etc., is obtained for the entire economy during a year.
To avoid double-counting, either the value of the final output should be taken into the estimate of GNP or the sum of values added should be taken.
In India, the gross value of the farm output is obtained as follows.
- Total production of 64 agriculture commodities is estimated. The output of each crop is measured by multiplying the area shown by the average yield per hectare.
- The total output of each commodity is valued at market prices.
- The aggregate value of total output of these 64 commodities is taken to measure the gross value of agricultural output.
- The net value of the agricultural output is measured by making deductions for the cost of seed, manures and fertilizers, market charge, repairs and depreciation from the gross value.
- Similarly, the gross values of the output of animal husbandry, forestry, fishery, mining and factory establishments are obtained by multiplying their estimates of total production with market prices.
Net value of the output in these sectors is derived by making deductions for cost of materials used in the process of production and depreciation allowances, etc., from gross value of output.
Question 2.
Explain the basic concepts of measuring National income.
Answer:
The following are some of the concepts used in measuring national income.
1. Gross Domestic Product (GDP)
GDP is the total market value of final goods and services produced within the country during a year.
GDP = C + 1 + G + (X-M)
2. Net Domestic Product (NDP)
NDP is the value of net output of the economy during the year.
NDP = GDP – Depreciation
3. Gross National Product (GNP)
GNP is the total measure of the flow of final goods and services at market value resulting from current production in a country during a year, including net income from abroad.
GNP = C+I+G+(X-M)+(R-P)
4. Net National Product (NNP)
NNP refers to the value of the net output of the economy during the year.
NNP = GNP – depreciation allowance
5. Personal Income:
Personal income is the total income received by the individuals of a country from all sources before payment of direct taxes in a year.
Personal Income = National Income – (Social security contribution and undistributed corporate profits) + Transfer Payments
6. Per Capita Income :
The average income of a person of a country in a particular year is called per capita income.
Per Capita income =\(\frac{\text { National Income }}{\text { Population }}\)
Questions 3.
Explain Gross Domestic Product by the sum of Expenditure, Factor Incomes, or Output.
Answer:
|
(Expenditure) |
(Factor Incomes) GDP |
(Value of Output) |
| 1. Consumption | Income from people in jobs and in self-employment. (eg. Wages and salaries) | 1. Value added from each of the main economic sectors |
| 2. Government Spending | Profits of private-sector business | 2. These sectors are
|
| 3. Investment Spending | 3. Rent income from the ownership of land | |
| 4. Change in value of stocks | ||
| 5. Exports | ||
| 6. Imports | ||
| 7. = GDP (Known as aggregate demand) |