CBSE Class 12 Economics National Income Accounting VBQs Set 02

EXERCISE

1. Objective Type Questions (Remembering & Understanding based Questions)

A. Multiple Choice Questions

Choose the correct option:

Question. Market price of the final goods and services (including depreciation) produced within the domestic territory of a country during an accounting year, is called:
(a) GDP at market price
(b) GNP at market price
(c) GDP at factor cost
(d) GNP at factor cost
Answer: (a) GDP at market price

Question. National income is often estimated as:
(a) \( NDP_{FC} \)
(b) \( NNP_{MP} \)
(c) \( NDP_{MP} \)
(d) \( NNP_{FC} \)
Answer: (d) \( NNP_{FC} \)

Question. Domestic product is equal to:
(a) National product + Net factor income from abroad
(b) National product - Net factor income from abroad
(c) National product \(\div\) Net factor income from abroad
(d) National product \(\times\) Net factor income from abroad
Answer: (b) National product - Net factor income from abroad

Question. Net indirect taxes are estimated as:
(a) Indirect taxes + Subsidies
(b) Subsidies - Indirect taxes
(c) Indirect taxes - Subsidies
(d) both (b) and (c)
Answer: (c) Indirect taxes - Subsidies

Question. Which of the following is not correct?
(a) NNP at Market Price = GNP at market price + Depreciation
(b) NDP at Market Price = NNP at market price - Net factor income from abroad
(c) NDP at Factor Cost = NDP at market price - Indirect taxes + Subsidies
(d) GDP at Factor Cost = NDP at factor cost + Depreciation
Answer: (a) NNP at Market Price = GNP at market price + Depreciation

Question. Which one is correct?
(a) National Income = NDP at factor cost - Net factor income from abroad
(b) GNP at Factor Cost = GNP at market price + Net indirect tax
(c) National Income = Domestic income + Net factor income from abroad
(d) GDP at Factor Cost = NDP at factor cost - Depreciation
Answer: (c) National Income = Domestic income + Net factor income from abroad

Question. Basis of the difference between the concepts of market price and factor cost is:
(a) direct taxes
(b) indirect taxes
(c) subsidies
(d) net indirect taxes
Answer: (d) net indirect taxes

Question. Which one leads to factor cost?
(a) Market price - Indirect taxes
(b) Market price - Net indirect taxes
(c) Market price + Indirect taxes
(d) Market price + Net indirect taxes
Answer: (b) Market price - Net indirect taxes

Question. Which one includes depreciation?
(a) GNP at market price
(b) NNP at market price
(c) NNP at factor cost
(d) None of the options
Answer: (a) GNP at market price

Question. Which of the following is an example of normal residents of India?
(a) Foreign worker working in WHO located in India
(b) The German working as Director in IMF office located in India
(c) Ambassador in India from rest of the world
(d) Ambassador of India in rest of the world
Answer: (d) Ambassador of India in rest of the world

Question. National income includes:
(a) old-age pensions
(b) money sent by an NRI to his family in India
(c) transfer payments from rest of the world
(d) None of the options
Answer: (d) None of the options

Question. Financial help to a victim is:
(a) transfer payment
(b) factor income
(c) net factor income from abroad
(d) None of the options
Answer: (a) transfer payment

Question. The difference between national income and domestic income is that of:
(a) net indirect taxes
(b) net factor income from abroad
(c) consumption of fixed capital
(d) both (a) and (b)
Answer: (b) net factor income from abroad

Question. GNP at market price is measured as:
(a) GDP at market price - Depreciation
(b) GDP at market price + Net factor income from abroad
(c) GNP at market price + Subsidies
(d) NDP at factor cost + Net factor income from abroad
Answer: (b) GDP at market price + Net factor income from abroad

Question. National income refers to:
(a) factor incomes only
(b) income of only normal residents of the country
(c) the sum total of domestic income and net factor income from abroad
(d) All of the options
Answer: (d) All of the options

Question. National income (\( NNP_{FC} \)) is equal to:
(a) \( GNP_{FC} \) + Depreciation
(b) \( GNP_{FC} \) - Depreciation
(c) \( NNP_{MP} \) - Net indirect taxes
(d) both (b) and (c)
Answer: (d) both (b) and (c)

Question. Which of the following makes GDP an inappropriate index of welfare?
(a) Non-monetary transactions
(b) Externalities
(c) Composition and distribution of GDP
(d) All of the options
Answer: (d) All of the options

Question. The impact of an externality is:
(a) positive
(b) negative
(c) either positive or negative
(d) neither positive nor negative
Answer: (c) either positive or negative

Question. Real national income means:
(a) national income at current prices
(b) national income at factor prices
(c) national income at constant prices
(d) national income at average prices of the past 10 years
Answer: (c) national income at constant prices

Question. GDP Deflator =
(a) \( \frac{\text{Real income}}{\text{Nominal income}} \times 100 \)
(b) \( \frac{\text{Nominal income}}{\text{Real income}} \times 100 \)
(c) \( \frac{\text{Real income}}{\text{Population}} \times 100 \)
(d) None of the options
Answer: (b) \( \frac{\text{Nominal income}}{\text{Real income}} \times 100 \)

Question. Increase in price of commodities due to increase in taxes assumes relevance in the estimation of \( NNP_{MP} \) because:
(a) taxes are compulsory payments
(b) taxes are transfer payments
(c) taxes are paid out of income of the households
(d) taxes cause a rise in market price of the commodities which otherwise would have been sold at a lower price
Answer: (d) taxes cause a rise in market price of the commodities which otherwise would have been sold at a lower price

B. Fill in the Blanks

Choose appropriate word and fill in the blank:

Question. Domestic Income = National income - ________. (Net exports/Net factor income from abroad)
Answer: Net factor income from abroad

Question. ________ causes the difference between gross domestic product and net domestic product. (Depreciation/Indirect tax)
Answer: Depreciation

Question. A base year is the ________ year of a series of years in an economic index. (first/last)
Answer: first

Question. ________ on goods tend to raise the market price of the goods. (Direct taxes/Indirect taxes)
Answer: Indirect taxes

Question. GDP at Factor Cost = GDP at market price - ________. (Depreciation/Net indirect taxes)
Answer: Net indirect taxes

Question. ________ can increase only when the flow of goods and services increases in the economy. (Nominal GDP/Real GDP)
Answer: Real GDP

Question. Domestic factor income is greater than national income when net factor income from abroad is ________. (positive/negative)
Answer: negative

C. True or False

State whether the following statements are True or False:

Question. National income includes income of only the normal residents of a country.
Answer: True

Question. Indians employed in WHO located in India is normal residents of India.
Answer: True

Question. Transfer incomes are included in the estimation of national income as these are rewards for rendering factor services.
Answer: False

Question. Interest is received by the households for the use of their capital by the producing units.
Answer: True

Question. Nominal GDP = \( \frac{\text{Real GDP}}{\text{Price Index}} \times 100 \).
Answer: False

Question. GDP at current prices may lead to increase in the flow of goods and services in the economy.
Answer: True

Question. GDP deflator shows change in GDP owing to the change in the price level.
Answer: True

D. Matching the Correct Statements

I. From the set of statements given in Column I and Column II, choose the correct pair of statements:

Column I:
(a) \( NNP_{MP} \)
(b) GDP at constant prices
(c) Transfer income
(d) Crew members of foreign vessels
(e) Environmental pollution

Column II:
(i) \( GNP_{MP} \) + Depreciation
(ii) A good measure of welfare of people
(iii) Earned income
(iv) Normal residents of a country
(v) An example of positive externality

Answer: (b) GDP at constant prices—(ii) A good measure of welfare of people

II. Identify the correct sequence of alternatives given in Column II by matching them with respective items in Column I:

Column I:
(a) Factor income
(b) Domestic income
(c) Gross national product
(d) Domestic territory of a country
(e) Real GDP

Column II:
(i) Economic territory
(ii) NNP + Depreciation
(iii) Estimated using the base year prices
(iv) Included in the estimation of national income
(v) Generated within the domestic territory of a country

Answer: (a)—(iv), (b)—(v), (c)—(ii), (d)—(i), (e)—(iii)

E. 'Very Short Answer' Objective Type Questions

Question. Define gross domestic product at market price.
Answer: Gross domestic product at market price refers to market value of final goods and services produced within the domestic territory of the country within one year, inclusive of depreciation.

Question. Define net domestic product at market price.
Answer: Net domestic product at market price refers to market value of final goods and services produced within the domestic territory of the country within one year, exclusive of depreciation.

Question. Define domestic product at factor cost or domestic income.
Answer: Domestic product at factor cost or domestic income is the sum total of factor incomes generated within the domestic territory of the country during the period of one year along with depreciation or consumption of fixed capital.

Question. When is gross domestic product of an economy equal to its gross national product?
Answer: Gross domestic product of an economy is equal to its gross national product when net factor income from abroad is zero.

Question. Define factor income.
Answer: Factor income is the income received by owners of the factors of production in the form of rent, wages, interest and profit for the services rendered in the production process.

Question. What is meant by transfer incomes?
Answer: Transfer incomes are those incomes corresponding to which there is no value addition in the economy. Example: Gifts and donations.

Question. What is meant by nominal GDP?
Answer: Nominal GDP refers to market value of the final goods and services produced within the domestic territory of a country during an accounting year, as estimated using the current year prices. It may increase without any increase in the quantum of output in the economy.

Question. What is meant by real GDP?
Answer: Real GDP refers to market value of the final goods and services produced within the domestic territory of a country during an accounting year, as estimated using the base year prices. It increases only when there is increase in the quantum of output in the economy.