CBSE Class–12 economics

Important Questions - Macro Economics 02

National Income Accounting

VERY SHORT ANSWER QUESTIONS (1 Mark)

Q1. Explain the meaning of non-market activities

a) Production
b) Non marketable
c) Involuntary
d) Economic

Ans. (b)

Q2. Nominal GNP is same as

a) GNP at constant prices

b) Real GNP
c) GNP at current prices
d) GNP less Net factor income from abroad

Ans. (c)

Q3. Real flow is the flow of

a) Money
b) Goods only
c) Services only
d) Goods and services

Ans. (d)

Q4. What is national disposable income?

Ans. National disposable is termed as that income which is available to the whole
economy for the spending purpose or for disposition.
It is calculated as NNP MP + Net Current Transfers from Abroad (NDI)
Q5. What is real flow?

Ans. Real flow refers to the flow of services and goods between different segments
of economy. For e.g. Flow sector services flow from household to firm and then
reverse, i.e. from firm to household again.

Q6. Define money flow.

Ans. Money flow refers to the flow of money between different sectors of the
economy such as firm, household, etc. For e.g. Income flow from firms to
household and consumption expenditure from household to firm back.

Q7. What must be added to domestic factor income to obtain national income?

Ans. Net factor income from abroad must be added to domestic factor income to
obtain the national income.

Q8. Explain the meaning of non market activities.

Ans. Non marketing activities are those things which get acquired of many final
goods and services. They are not through regular market transactions. For e.g.
vegetables grown in the kitchen garden of the house.

Q9. Define Real GNP.

Ans. GNP which is computed at constant prices i.e. through base year price is called
Real GNP in economics.

Q10. Money flow is the flow of

a) Factor payments
b) Goods only
c) Services only
d) Goods and services only
Ans. (a)
Q11. State which one of the following is true.
a) Bread is always a consumer good.
b) Gross domestic capital formation is always greater than gross fixed capital
formation.
c) Capital formation is a flow
d) Nominal GDP can never be less that real GDP
Ans. (c)

Q12. Which of the following in an example of macro economics

a) Price determination
b) Consumer’s equilibrium
c) Producer’s equilibrium
d) Inflation
Ans. (d)

Q13. Microeconomics is different from macroeconomics as

a) Microeconomics deals with economic behaviour
b) Microeconomics deals with individual behaviour
c) Microeconomics deals with prices only
d) Microeconomics deals with government’s decisions
Ans. (b)

Q14. Intermediate goods are those

a) Which are sold
b) Which capital can buy
c) Which are for long term use
d) Which are for resale
Ans. (d)
Q15. An example of transfer payments is
a) Free meals in the company canteen
b) Employers’ contribution for social security
c) Retirement pension
d) Old age pension
Ans. (d)

SHORT ANSWER QUESTIONS (3/4 Marks)

Q16. Distinguish between personal income and private income.

Ans. Following is the difference between the two:

Personal Income is the sum total of earned and transfer incomes received
by individuals from all the income sources comprises of within and outside
country. It is calculated as -

Personal Income = Private Income – Corporate Tax – Corporate Savings

(undistributed profits)

Private Income can be considered of factor and transfer income received

from all the private sources within and outside country.

Q17. Explain the main steps involving in measuring national income through
product method.

Ans. Here are the steps:-

1. First of all, classify the producing units into industrial sectors like primary,
secondary and tertiary sectors.
2. Then estimate the net value added at the factor cost.
3. In the third step, evaluate value of output by putting sales and change in
stock together.
 4. Appraise gross value added by value of output by subtracting intermediate
consumption from it.
5. Deduct depreciation and net indirect tax from gross value added at market
price to arrive at net value added at factor cost = NDP FC.
6. Finally add net factor income received from abroad to NDP FC to obtain
NNP FC which is again national income.

Q18. What is double counting in economy? How can it be avoided?

Ans. Calculating the value of commodities at each and every stage of production
more than one time is known as doubt counting.

It can be avoided by the following ways:-

a) By taking value added method while calculating national income

b) By taking value of final commodity only while calculating national income

Q19. Do you agree with the statement, ‘Machine purchased is always a final
good’. Give reason for your answer.

Ans. Yes, we agree with the statement stated here. Whether machine is a final
good or it depends on how it is used. If machine is bought by household, then
it is termed as final good. And on the other hand, if the machine is bought by
any industry, then also it is called final good. But if it is bought by firm for
resale, then it is called intermediate good.

Q20. What are the precautions to be taken while calculating national income
through product method, specially value added method?

Ans. The following will be the steps:

a) Avoid production’s doubt counting method, one should always go with the

value added by each production unit.

 b) Output produced for self-consumption to be included.

c) One should never include sale and purchase of second hand goods.

d) Value of intermediate consumption should never be included

e) One must always include value of services rendered in sales.

LONG ANSWER QUESTIONS (6 Marks)

Q21. Calculate net value added at market price of a firm: -

Items Amount
Sale 300
Change in stock -10
Depreciation 20
Net in direct taxes 30
Purchase of machinery 100
Purchase of intermediate product 150

Ans. Value of output: - Sale + Change in stock (300+ (-) 10 = 290/-)

Gross Value added at MP= Value of output - Purchase of intermediate product.

290 - 150 = 140/-

Net Value added at MP = Gross Value added at MP - Depreciation

140 - 20 = 120/-

Hence the final answer is Rs. 120.

Q22. Calculate national income and gross national disposable income from the
following data

S.No Contents Rs. (in crores)

1 Net indirect tax 05

2 Net domestic fixed capital formation 100

3 Net exports (-) 20

4 Government’s final consumption expenditure 200

5 Net current transfers from abroad 15

6 Private final consumption expenditure 600

7 Change in stock 10

8 Net factor income from abroad 05

9 Gross domestic fixed capital formation 125

Ans. Putting the equation….

Net national income (NNP FC ) = Net disposable income (NNDP MP )

= (Govt. final consumption expenditure + private final consumption

expenditure +net domestic fixed capital formation +net exports)

= 200+600+100+10+ (-) 20

= 910-20= 890

So NDP mp = 890 crores

NNP FC = NNDP MP + (net factor income from abroad – net indirect tax)

= 890+5-5

So NNP FC = 890 crores

Depreciation = (Gross domestic fixed capital formation - Net domestic fixed

capital formation)

= 125-100= 25 crores

GNDI = (NNP FC + Net indirect tax+ Net current transfers from abroad+
Depreciation)

= 890+05+15+25

GDNI = 935 crores

Q23. Calculate NNP at market price by production method and income method.

S.No Contents Rs. (in crores)

Intermediate consumption

Primary sector 500

1
Secondary sector 400

Tertiary sector 300

Value of output of

Primary sector 1000

2
Secondary sector 900

Tertiary sector 700

3 Rent 10

4 Emoluments of employers 400

5 Mixed income 650

6 Operating surplus 300

7 Net factor income from abroad -20

8 Interest 05

9 Consumptive of fixed capital 40

10 Net indirect tax 10

Ans.

1. By Production Method:

Value added at MP = Value of output - Intermediate consumption

= (1000+900+700) – (500+400+300)

= 2600-1200

Hence GDP MP = 1400 crores

NNP MP = GDP MP - (Consumptive of fixed capital+ Net factor income from

abroad)

= 1400 – 40 = (-20)
 NNP MP is equal to 1380 crores

2. By Income Method:

NNP MP = Emoluments of employers+ Mixed income+ Operating surplus+ Net indirect

tax+ Net factor income from abroad

=400+650+300+10+ (-20)

NNP MP = 1350+10-20

= 1340 crores

Q24. Giving reason, explain whether the following are included in domestic product
of India.

1. Profits earned by a branch of foreign bank in India

2. Payment of salaries to its staff by embassy located in New Delhi

3. Interest received by an Indian resident from its abroad firms

Ans.

1. Profits earned by a branch of foreign bank in India will be included in

domestic income of India because the profits are earned within the domestic
territory of India.

2. Payment of salaries to its staff by embassy located in New Delhi will not be
included in domestic income of India as it is not a part of domestic territory
of India.

3. Interest received by an Indian resident from its abroad firms will not be
included in domestic income of India because it is factor income from abroad.

Q25. Calculate National Income and Private Income from the following data.

S.No Contents Rs. (in crores)

1 Net current transfers from rest of the world 10

2 Private final consumption expenditure 600

3 National debt interest 15

4 Net exports (-)20

5 Current transfers from government 5

6 Net domestic product at factor cost accruing to govt. 25

7 Government final consumption expenditure 100

8 Net indirect tax 30

9 Net domestic capital formation 70

10 Net factor income from abroad 10

Ans.

a) National Income (NNP FC ) = [Private final consumption expenditure+ Government

final consumption expenditure+ Net domestic capital formation+ Net exports+ Net
factor income from abroad- Net indirect tax]

= 600+100+70+ (-20) +10-30

= 780-50

= 730 crore

b) Private Income = NNP FC - Net domestic product at factor cost accruing to govt+
Transfer payments+ National debt interest

= 730-25+ (10+5) +15

= 760-25

= 735 crore