Eco Assignment

Q1 a. stock, flow

Q2 a. an Indian employed in WHO located in India

Q3 c. tractor

Q4 d. purchase of food grains by a hotel

Q5 c. fees paid to the lawyer by a producer

Q6 a. a machine purchased by a dealer of machines

Q7 b. capital

Q8 b. population

Q9 d. scholarship to students

Q10 d. income tax

Q11 b. difference between value of output and intermediate inputs

Q12 a. net national product at factor cost

Q13 c. normal wear and tear and foreseen obsolescence

Q14 b. capital loss

Q15 b. real flow

Q16 c. Branch of a foreign bank in India

Q17 c. capital is stock while investment is flow

Q18 a. capital good

Q19 d. NFIA and mixed income

Q20 a. indirect tax is less than subsidies

Q21 c. Output, Disposition

Q22 b. 4000,10400, 4000,4400

Reasoning Questions

Q1

a) Final goods as it is used for consumption.

b) Intermediate goods as these are used up in the process of value - addition during the year.

c) Final product because it is purchased for investment.

d) Intermediate products because these are purchased for resale.

e) Intermediate products because these are purchased for resale.

f) Intermediate Goods on maintenance of an office building will be considered as a raw material, so it
should be considered as intermediate good.

g) final expenditure. Expenditure on improvement of machine in a factory is a kind of capital

investment, so it should be considered as final expenditure.

h) Intermediate good since fertilizers is used as a raw material in agriculture.

i) Intermediate product because it is further used in the process of production of various products

j) Final product because it is purchased for investment.

k) Final goods as it is used for consumption.

l) Intermediate good as it is completely used up in the production of the books to make the final
product.

Q2

a) It will not be included as it is intermediate goods

b) It will not be included as it is intermediate goods

c) As the financial sale and purchase of shares do not contribute to the production of goods and
services of India, they will not be included in the domestic income of India.

d) These items are included in National Income because they are a part of the Government Final
Consumption Expenditure

e) School fees paid by students will be included in the national income as it is a factor income.

f) it will be included in the national income as it is a part of capital formation.

g) It will not be included as it is intermediate goods

h) It is a transfer payment by the firm to the Government. It is paid out of income and therefore not
to be separately added in the estimation of national income.

i) No, remittances made by non-residents of India are not included in India's national income.

j) lt will not be included in the national income accounting as it is assumed that the loan is taken for
consumption purpose and therefore treated as a transfer in cause.

k) No, it will not be included in domestic income because it is difficult to ascertain their market value.

l) not included in national income because the individual borrows for consumption and not for
production.

m) lt will not be included in the national income as it is considered a transfer payment made from an
individual to a bank

n) It will not be included as it is assumed that Government borrows for consumption Purpose.
Therefore it is treated as transfer income.

o) No this will not be included in the national income as it is a transfer income

p) It should be included in India's GDP as it represents a payment for goods that are produced
domestically within India
q) No, this will not be included in the domestic product as the branch of State Bank is located in
Singapore and thus, is not a part domestic territory of India.

r) Will be included in the domestic product of India as they lie within the domestic territory of the
country.

s) Yes the salaries will be a part of the national income as they are factor income from abroad.

t) No as it will be a part of domestic territory of America

u) Dividends received from a foreign company will be included in the total income of the
taxpayer and will be charged to tax at the rates applicable to the taxpayer.

v) they are not included in the National Income of the current year as Sale and Purchase of second-
hand goods are already included in the year when the original transaction of sale or purchase was
made.

w) It will not be included in the Domestic Income as Tata Industries is located outside the domestic
territory of India.

x) It will not be included in domestic product of India as this income is earned outside the domestic
(economic) territory of India.

y) Yes, it is included in the national income by Income Method since it is a part of wages in kind paid
to employees.

z) It will be included in national income as it is a part of the compensation of employees.

NUMERICALS

Q1 value of output = sales + change in stock

= 1200+(closing stock - opening stock) =1200 +200 = 1400

Gross Value Added at MP(GVA mp)

= value of ouput - purchase of raw material = 1400-300

= 1100

Net Value added at factor cost(FC)

= GVA mp -depreciation - net indirect taxes

= 1100 - 200 - (indiect tax - subsudies)

= 1100 - 200 - (150-50)

= 1100 - 200 - 100

= 800

Income earned =>

NDPfc = compensation of employees + Operating surplus + Mixed Income

= wages and salary +(interest + Dividend + undistributed profits +

corporate tax)+Rent

= 350 + 100 + 50 + 50+ 100 + 150

= 800

Q2 Opening surplus = 20 + 200 + 50 + 100 = 370 crores

NDPFC = GDPMP - dep - NIT

= 1800 - 200 - (250 - 50)

NDPFC = 1400

Income method NDPFC = operating surplus + C.E. + Mixed 1400

= 370 + C.E. + 0

(ii) Compensation of employees = 1400 - 370 = 1030

Q3 By income method:

NDPfc= 700+100+100+50+50+100=Rs.1100

GDPfc=NDPfc+ Depreciation = 1100 + 20 = Rs. 1120 crores

By expenditure method

GDPmp=730+60+60+200+40+20+40−20=Rs.1130

GDPfc=GDPmp−NIT=1130−(20−10) = Rs. 1120 crores

Q4
Q5 Using Expenditure Method,

GDP at MP = Private Final Consumption Expenditure + Gross Fixed Capital Formation + Change in
stock + Government Final Consumption Expenditure + Net Exports (Exports - Imports)

= 51,177+13,248+3,170+7,351+(4,812−5,674)=74,084

NNP at FC = GDP at MP - Consumption of Fixed Capital + Net Factor Income From Abroad - (Indirect
Tax - Subsidies)

= 74,084−4,046+(−255)−(8,834−1,120)

= 62,069 crores

Using Income Method,

NDP at FC = Compensation of Employees + Rent, Interest and Profits + Mixed Income of the Self
Employed
= 24,420+9,637+28,267

= 62,324

NNP at FC = NDP at FC + Net Factor Income From Abroad

= 62,324+(−255)

= 62,069 crores

Q6 National income (income method) = Compensation of employees +

Profits + Rent + Interest + Mixed income of self employed - Net factor
income to abroad = 700 + 600 + 200 + 310 + 350 - 10 = 2150 crores

National income (expenditure method) = Govt. final consumption

expenditure+Net domestic capital formation+Net exports+Private final
consumption expenditure-Net indirect taxes-Net factor income to
abroad=750 + 385 - 15 + 1100 - 60 - 10 = 2150 crores.

Q7 GDP at MP or GVA at MP by firm A = Gross sales by firm A + Change in stock of firm A (Closing
stock - Opening stock) - Purchase by firm A = 100 - 5 (Closing stock of A = 20 - Opening stock of A =
25) - 40 = 55 Lakhs.

GDP at MP or GVA at MP by firm B = Gross sales by firm B + Change in stock of firm B - Purchase by
firm B = 200 - 10 (Closing stock of B = 35 -Opening stock of B = 45) - 60 = 130 Lakhs.

Q8

Q9
Q10 GDPFC = GDPMP - NIT

= 1,100 - 150 = 950 crores

GNPFC = GDPFC + NFIA

= 950 + 100 = 1050 crores

NNPFC + Depreciation = GNPFC

Depreciation = 1050 - 850 = 200 crores

3-4 marks questions

Q1 a) a consequence of an industrial or commercial activity which affects other parties without this
being reflected in market prices, such as the pollination of surrounding crops by bees kept for honey.

b) The operating surplus measures the surplus or deficit accruing from production before taking
account of any interest, rent or similar charges payable on financial

c) Consumption goods are those goods that are used by the consumers and have no use in future.

Q2 a) The GDP price deflator measures the changes in prices of all the goods and services produced
in an economy.

The GDP price deflector helps compare the rise in price levels of goods and services between years.

b)Precautions Taken While Applying the Expenditure Method

1) The transfer payments do not add value to the economy of a nation; hence, they should not be
included.

2) The purchase of second-hand goods is not included since they do not affect the total value of
produced goods and services.

Q3

Basic Positive externalities Negative externalities.

Meaning A positive externality exists when a A negative externality exists when a cost
benefit spills over to a third-party. spills over to a third party.
Example Pollination by bees from a Pollution from factories
neighbouring beekeeper

Q4 a) Defend as such activities are performed out of love and affection and hence their valuation is
not possible.

b) It is not included in the estimation of national income as it is a transfer payment that does not
lead to a corresponding flow of goods and services.

Q5 Rate of GDP of x = 2000 /2000 × 100 = 100%

Rate of GDP of y = 80000/120000 × 100 = 66.67%

Q6 a) False Gross domestic product refers to the sum of Gross Values Added of all the firms
producing in that particular year in the economy. Gross value added refers to the sum of value
additions by all the firms in an economy in a particular years.

b) False as intermediate goods are not durable in nature as they are used as raw materials for
production of final goods and therefore lose their identity during the production process.

Q7 No, this is not true. In the estimation of GDP, we include all expenditures on domestically
produced goods both by the residents as well as non-residents of a country.