(i) Imputed rent of self occupied houses. Part of the machinery in a factorys production line may need to be replaced while another set of similar machines continues to function within the same factory. (a) Gross Value Added at Market Price by A and B (i) Gross National Product at Market Price (i) Interest paid by banks on deposits by individuals should be included in estimation of National Income as it will be treated as factor income. Cookies collect information about your preferences and your devices and are used to make the site work as you expect it to, to understand how you interact with the site, and to show advertisements that are targeted to your interests. (a) Net Domestic Product at Factor Cost (NDPFC) = Wages and Salaries + Rent + Interest Paid byProduction Units + Corporation Tax + Dividends + Undistributed Profits + Social Security Schemes by Employers (i) Expenditure on fertilisers by a farmer. Instead of expanding the sprawl of the city, older buildings might be torn down and replaced by new construction intended to fill the same use as the predecessor building. 2023 Zigya Technology Labs Pvt. = 1550 190 = Rs. 70. 30.Giving reason, explain how are the following treated in estimating NationalIncome method (Delhi 2010 c) (b) Net National Disposable Income from the following data (Delhi 2008 c), Ans. = 500+ (80-60)-350-90-50 9. Intermediate Goods Consumption of Fixed Capital Indirect Taxes (i) Capital gain on sale of a house will not be included while estimating National Income, as it is already included in the year when it is built. Save my name, email, and website in this browser for the next time I comment. (Delhi 2009). = 860 230 10. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Ans. Giving reason, explain whether the following are included in domestic product of India. 60. Displaying ads are our only source of revenue. = 1000+ 500 + 200 + 60 + (- 20) 80 + (-10) (Delhi 2009), 77. 2010 crore, 74. Suppose the agriculture sector experiences a decline in the value of physical capital of $2,000, and the manufacturing sector experiences a decline of $5,000. Step 4 The last step of calculating National Income through the Income Method is the estimation of Net Factor Income from Abroad (NFIA). This provides a more comprehensive picture of a countrys economic output, as it considers both the production of goods and services and the market prices at which they are sold, including the effect of government interventions. Thus, it eliminates the distorting effect of indirect taxes and subsidies, which can vary greatly across countries. (a) Gross National Product at Market Price and Calculation of Natinal Domestic Prodeuct (NDP) at Factor Cost (FC) 1. Calculate value of output from the following data (Delhi 2008), Ans. Precautions While Using Expenditure Method. (a) National Income (NNPFC) = Private Final Consumption Expenditure+ Government Final Consumption Expenditure + Net Domestic Capital Formation + Net Exports + Net Factor Income from Abroad Net Indirect Taxes (Indirect Taxes Subsidy) (ii) Expenditure on second hand goods is not to be included. 11. 835 arab. We and our partners use data for Personalised ads and content, ad and content measurement, audience insights and product development. = 4300 400 Scribd is the world's largest social reading and publishing site. (ii) Prize won in a lottery. (b) Expenditure method. = 2000 + 500 + 700 + 800 + 1500 It facilitates standard of living comparisons between different nations. Ans. Calculate intermediate consumption from the following data, Ans. Value of Output = Net Value Added at Factor Cost (NVAFC) + Depreciation = 100+10+ (20-5) + 75 To read more about such interesting concepts on economics for commerce, stay tuned to our website. (a) Net National Product at Market Price Ans. 39.Calculate Net Value Added at Factor Cost form the following data: 40. (i) Capital gain on sale of a house. (Delhi 2011), 56.Calculate 88.Giving reason, explain, how the following are treated in estimating National Income? Net Current Transfers to Abroad + National Debt Interest + Current Transfers by Government + Net Factor Income from Abroad (i) Salaries paid to Russians working in Indian Embassy in Russia. (Delhi 2008). difference between exports and imports during an accounting year. In recent years the US reported the following figures: Clearly, USs gross national income has been on the rise in recent years. 61.Explain the problem of double counting in estimating national income, with thehelp of an example. Its main tools are aggregate demand and aggregate supply of the economy as a whole. It is evaluated as follows: GDPMP = Net Domestic Product at FC (NDPFC) + Depreciation + Net Indirect Tax. 94.23.210.48 According to the formula, national income is calculated by adding together consumption, government expenditure, investments made within the country, net exports (exports minus imports), and foreign production by residents. (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 not a part of domestic territory of India. It ascertains the economic performance, wealth, and growth of a country. (i) Compensation of employees = 750-450 = Rs. Gross Value Added at Factor Cost (GVAFC) = Value of Output (Sales + Change in Stock)- Purchase of Raw Materials Indirect Tax (Sales Tax + Excise Duty) = Rs. (iii) It is included in the estimation of GDPMPbecause it is a part of final expenditure by a firm. Likewise, sale proceeds of shares and bonds are not included. GNP FC = GDP FC + NFIA Ans. + (Excise Duty Subsidy) + Intermediate Consumption NDP at MP = GDP at MP (+) NFIA [Net Factor Income from Abroad] 3. Performance & security by Cloudflare. (iii) Investment expenditure or gross domestic capital formation. In other words, the NDP-FC is calculated by subtracting the indirect taxes and adding the subsidies to the value of output, which is the value of all goods and services produced within a countrys borders. (ii) Payment of interest on loan taken by an employee from the employer will not be included in the estimation of National Income as it will be treated as transfer income, also loan is taken for consumption purpose. (i) National Income (iii) Capital gains to Indian residents from sale of shares of a foreign company will not be included whileestimating National Income in India, as it is a kind of transfer income. (b) Gross National Disposable Income from the following data, 47.Find out NNPfc = NDPfc + NFIA. = 750+ (-30)-500-60-100 Depreciation is the reduction in the value of physical capital due to aging, wear and tear, or obsolescence. For calculating domestic income, we will subtract the amount of depreciation and net indirect tax from the Gross Domestic Product at Market Price (GDPMP). = 1220-270 = Rs. 7. Your email address will not be published. Calculate Gross Value Added at Factor Cost (Delhi 2012), 5. Though GDP is frequently cited when assessing the economic health of a country, NDP puts into perspective the pace at which capital assets degrade and must be replaced. = 730-25 + (10 + 5) +15 = 760-25 (i) Dividend received by a foreigner from investment in share of an Indian company. Investment4. How will you treat the following while estimating National Income? Solved Example for You NFIA is added to domestic income (NDP FC) to get the National Income (NNP FC ). Calculate Net National Product at Market Price and Gross National Disposable Income. Ans. (a) Gross Domestic Product at Factor Cost (GDPFC) = Government Final Consumption Expenditure It refers to the market value of final goods aand servicess produced within the domestic territory of a country during the period of an accounting year, exclusiive of depreciation. Its distribution doesnt reflect the actual condition of the poor. Calculate National Income and Net National Disposable Income from the following data (Delhi 2008), Ans. (b) Gross National Disposable Income (GNDI) (ii) Interest received on debentures are not included in National Income as it is a transfer income. (All India 2010) =Rs. (b) GNP at factor cost = GNP at market price + net indirect tax (c) National income = Domestic income + Net factor income from abroad. It studies not an individual economic units like a household or a firm or an industry (i.e. This website is using a security service to protect itself from online attacks. Calculate sales from the following data (Delhi 2013), 3. This leads to over estimation of the value of goods and services produced. How should the following be treated while estimating National Income? Net Value Added at Factor Cost (NVAFC) = Value of Output [Sales + Change in Stock (Closing Stock Opening Stock)] Purchase of Raw Material Depreciation (Gross Capital Formation Net Capital Formation) + Subsidies (ii) Money received by a family in India from relatives working abroad will not be included while estimating National Income, as it is merely remittance from abroad and no flow of goods or services are involved. (i) Profits earned by a branch of foreign bank. Net Domestic Product at market price includes indirect taxes and subsidies, as well as the depreciation of physical capital. Value Added or Product Method: NI = GDP Depreciation Indirect Taxes + Overseas Net Factor Income., Following are the four components of NI accounts:1. National Income (NNPFC) = Gross Value Added at Market Price by the Primary Sector+ Gross Value Added at Market Price by the Secondary Sector + Gross Value Added at Market Price by the Tertiary Sector-Net Indirect Taxes-Consumption of Fixed Capital + Net Factor Income from Abroad (ii) National debt interest. Also, it does not account for indirect taxes and subsidies. This total final expenditure is equal to gross domestic product at market price, i.e. (i) Dividend received by a foreigner from investment in shares of an Indian company will be deducted from National Income as it is factor income to abroad. The resulting total is called Domestic Income or Net Domestic Product at FC (NDP FC)- By adding net factor income from abroad to domestic income, we get National Income (NNP FC)- Mind, in income method national income is measured at the stage when factor incomes are paid out by enterprises to owners of factors of productionland, labour, capital and enterprise. If you would like to change your settings or withdraw consent at any time, the link to do so is in our privacy policy accessible from our home page.. 30 crore 12. InsightsIAS Headquarters, The manufacturing sector produces 50 units of goods with a value of $200 per unit for a total GDP of $10,000. (a) Income method and (i) Profits earned by a branch of foreign bank will not be included while estimating National Income, as it is a factor income paid to abroad. (Delhi 2009), Ans. The problem of double counting can be avoided by the following two alternative ways: Meaning of microeconomics Briefly, microeconomics is the study of individual economic units of an economy. You are free to use this image on your website, templates, etc., Please provide us with an attribution link. = Rs. NNP Fc = NDP Fc + Net factor income from abroad. We and our partners use cookies to Store and/or access information on a device. Net Value Added at Factor Cost (NVAFC) = Sales + Change in Stock (Closing Stock- Opening Stock)- Purchase of Intermediate Goods Consumption of Fixed Capital Indirect Tax (i) Final output or final product method In this method, only final products (goods and services) are added to obtain the GDP. When you visit the site, Dotdash Meredith and its partners may store or retrieve information on your browser, mostly in the form of cookies. 990 crore. Calculate Net Value Added at Factor Cost (Delhi 2012), 6. Its main tools are demand and supply of particular commodity/factor. The acquisition of the replacement machinery would be factored into the depreciation aspect of the NPI. Give two examples of macroeconomic studies. The formula for NDP-FC is: NDP-FC = Value of Output - Indirect Taxes + Subsidies In other words, the NDP-FC is calculated by subtracting the indirect taxes and adding the subsidies to the value of output, which is the value of all goods and services produced within a country's borders. = 850-520 (i) Wheat grown by farmer but used entirely for familys consumption. Please include what you were doing when this page came up and the Cloudflare Ray ID found at the bottom of this page. 2,000 crores = Rs. = 400 +100 + 50 + (-20) + 10- (30 5) So, NNPfc = 2100 +(-50) = 2050 (in Arabs) In the question, they asked us to calculate NNPfc, but with income method we get . Domestic Income or NDP at FC. = 5000 + 2000 + 500 + (-30) + (-150) + 100-50- 800 = 7600-1030 = Rs. (ii) Payment of corporate tax The national income (NI) of a nation indicates its yearly economic growth. (b) Gross National Disposable Income (GNDI) =NNPFC+ Net Indirect Taxes + Consumption of FixedCapital Net Current Transfer to the Rest of the World Final Expenditure = GDP MP. = 920-110 = Rs. 60 crore = 1760-110 (i) Social security contributions by employees is included in the estimation of National Income, as it is a part of compensation of employees and it is an earned income. Since net value added by an enterprise is the result of services of factors of production, therefore, the same is distributed in the form of money income (rent, wages, interest, etc.) (iii) Purchase by a foreign tourists will be included while estimating National Income as it is consideredas exports of goods and services. Calculate National Income and Gross National Disposable Income from the following (Delhi 2011), Ans. Gross domestic product is the monetary value of all finished goods and services made within a country during a specific period. = 500 + 10-200=Rs. Why is study of problem of unemployment in India a macroeconomic study? Net Value Added at Factor Cost (NVAFC) = Value of output (Sales + Change in Stock) Purchase ofRaw Materials Consumption of Fixed Capital + Subsidies 1650 crore, 69. Ans. (i) The value of intermediate goods should not be included. Expenditure + Net Domestic Capital Formation + Net Exports + Net Factor Income from Abroad- Net Indirect Taxes The NDP also takes into account the other factors such as obsolescence and complete destruction of the asset. Ans. (ii) Net National Disposable Income (Delhi 2012), 48.Find out Chapter Chosen. The Income Method measures national income from the side of payments made to the primary factors of production in the form of rent, wages, interest and profit for their productive services in an accounting year. (iv) Income in terms of windfall gains should not be included. = Rs. (b) Private Income from the following data (All India 2011), 52. Ans. (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. Its central problem is determination of level of income and employment. (iv) Imputed value of expenditure on goods produced for self consumption should be taken into account. 1650 crore, (b) By Expenditure Method Gross National Product at Factor Cost (GNPFC) = Private Final Consumption Expenditure+ Government Final Consumption Expenditure + Net Domestic Capital Formation + Consumption of Fixed Capital + Net Exports Net Indirect Taxes + Net Factor Income from Abroad National Income equals Rent + Wages + Interest + Profit + Mixed-Income. (b) Production method from the following data (All India 2011), Net Domestic Product at Factor Cost (NDPFC) = Wages and Salaries + Social Security Contribution byEmployers + Corporation Tax + Retained Earnings of Private Corporations + Dividend + Rent + Interest Calculate Gross Value Added at Factor Cost from the following data, Ans. 735 crore, 84. Briefly explain the following basic concepts related to NI: Is study of cotton textile industry a microeconomic study or macroeconomic study? This compensation may impact how and where listings appear. (Delhi 2014) It discusses how equilibrium of a consumer, a producer or an industry is attained. Gross National Product at Factor Cost (GNPFC) = Compensation of Employees + (Rent + Interest+ Profits) + Net Factor Income from Abroad + Consumption of Fixed Capital NDP at FC = Income from domestic products accruing to private sector + Income from domestic products accruing to public sector = Rs. It is represented as follows: The NDP MP is the value of total goods and services produced within the nation minus depreciation. The value-added at factor cost is equivalent to the NDP at factor cost. And by adding the NVA FC of all industries, we get the net domestic product at factor cost, which is represented as NDP FC. Calculate GDPMP = Net Domestic Product at FC (NDPFC) + Depreciation + Net Indirect Tax #2 - Gross Domestic Product at Factor Cost (GDPFC) It is the total value of domestic production minus net indirect taxes. Calculate Net Domestic Product at Factor Cost and Net National DisposableIncome from the following (Delhi 2014), 32. It is computed as follows: The net national product at factor cost is the value of overall goods or services manufactured by a nations residents, excluding indirect taxes and depreciation. Calculate (iii) Interest on public debt. Ans. 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Of indirect taxes Net Factor Income from the following ( Delhi 2011 ), 52 explain... All finished goods and services made within a country 850-520 ( i ) Wheat grown by but. Double counting in estimating National Income ( NI ) of a consumer, a producer or industry... A microeconomic study or macroeconomic study related to NI: is study of cotton textile a! Of shares and bonds are not included it is included in the estimation GDPMPbecause! ( - 20 ) 80 + ( -150 ) + depreciation + Net Factor from! The acquisition of the value of expenditure on goods produced for self consumption should taken. Over estimation of the NPI information on a device, with thehelp of an example included the..., 32: 40 study or macroeconomic study next time i comment Please provide US with an attribution link &! For familys consumption Scribd is the value of goods and services made within a country during specific... Greatly across countries explain the following data, Ans Imputed value of goods and services produced for Personalised and... Personalised ads and content measurement, audience insights and Product development of finished... Payment of corporate Tax the National Income ( NNP FC ) largest social reading and publishing site 5000 + +. Are included in the estimation of the value of expenditure on goods produced for consumption... Value Added at Factor Cost ( Delhi 2012 ), 48.Find out Chapter Chosen from its abroad branches how following! Gain on sale of a consumer, a producer or an industry ( i.e intermediate should... Delhi 2011 ), 77 expenditure by a foreign tourists will be included following data, Ans domestic capital.... Were doing when this page thus, it does not account for indirect taxes and subsidies, as as., wealth, and growth of a country its main tools are demand and supply... Machinery would be factored into the depreciation aspect of the poor + 100-50- 800 = 7600-1030 =.! Us with an attribution link ) Imputed rent of self occupied houses you treat the following be treated while National! Taken into account of double counting in estimating National Income ( NNP FC NDP. Net domestic Product at Market Price and Gross National Product at Market Price and Gross National Disposable Income the! At Factor Cost ( Delhi 2008 ), 5 nation indicates its yearly growth... As it is included in the estimation of the poor macroeconomic study not account for taxes... Save my name, email, and growth of a country yearly growth... Are demand and aggregate supply of the poor are not included Cost is to! Total goods and services produced for self consumption should be taken into account following while estimating National Income, thehelp! Firm or an industry ( i.e US reported the following are included in domestic Product of India capital on. Cotton textile industry a microeconomic study or macroeconomic study of output from the data! Solved example for you NFIA is Added to domestic Income ( NNP FC ) get... Is study of cotton textile industry a microeconomic study or macroeconomic study of... 20 ) 80 + ( - 20 ) 80 + ( -10 ) ( Delhi 2009 ), Ans and... Account for indirect taxes and subsidies, which can vary greatly across countries NI: is study of textile. Of India browser for the next time i comment = 7600-1030 = Rs iii ) Investment expenditure or domestic! Monetary value of all finished goods and services made within a country a... A specific period estimation of the poor the following ( Delhi 2008 ), Ans not included study! Be included while estimating National Income, with thehelp of an example would! What you were doing when this page ) the value of all finished goods and services made within a during... Compensation of employees = 750-450 = Rs has been on the rise recent. A whole central problem is determination of level of Income and Net National Income!