CBSE Class 12 Economics National Income Accounting Worksheet Set 03

Question. What is the difference between microeconomics and macroeconomics? 
Answer: (i) Microeconomics studies economic issues or economic problems at the level of an individual- an individual firm, an individual household or an individual consumer. On the other hand, macroeconomics studies economic issues or economic problems at the level of the economy as a whole.
(ii) Allocation of resources to different uses is the central issue in microeconomics. On the other hand, determination of the level of output and employment is the central issue in macroeconomics.
(iii) There is a smaller degree of aggregation in microeconomics. Example: We study output behaviour of an industry which is aggregate of all the firms producing a particular commodity. On the other hand, there is a larger degree of aggregation in macroeconomics. Example: We study national output which is aggregate of output of all the producing units in the economy.

Question. Describe the Great Depression of 1929. 
Answer: It was precisely in 1929 that great depression affected developed economies of the capitalistic world. Its impact continued almost for the entire decade of 30's. During that worldwide depression, there was a persistent fall in the level of employment and output. In USA, unemployment shot up from 3% to 25% between the period 1929-33. Fall in employment was accompanied with a fall in GDP. Between the period 1929-33, GDP in USA fell by about 33%.

Question. Describe the four major sectors in an economy according to the macroeconomic point of view.
Answer: An economy is generally classified into the following four sectors:
(i) Household sector, engaged in the consumption of goods and services.
(ii) Producing sector, engaged in the production of goods and services.
(iii) Government sector, engaged in such activities which are related to taxation and subsidies.
(iv) Rest of the world sector, engaged in exports and imports.

Question. Distinguish between stock and flow. Between net investment and capital which is a stock and which is a flow? Compare net investment and capital with flow of water into a tank.
Answer: Stock is that quantity of an economic variable which is measured at a particular point of time. Stock has no time dimension. Flow is that quantity of an economic variable which is measured during the period of time. Flow has time dimension as per hour, per day, per month.
Net investment is a flow variable and capital is a stock variable. Flow of water in a tank is flow because it is measured per unit of time period. Whereas, stock of water in a tank is stock because it is measured at a point of time. Capital is like a stock of water in the tank at a point of time.

Question. What is the difference between planned and unplanned inventory accumulation? Write down the relation between change in inventories and value added of a firm. 
Answer: Planned inventory accumulation refers to desired inventory stock. This is maintained by the producers with a view to exploiting potential demand for his product. Otherwise, the producer might suffer the loss of unfulfilled demand. Unplanned inventory accumulation refers to undesired inventory stock. It arises because demand for the product turns out to be lower than expected. Accordingly, unplanned inventory accumulation leads to losses.
Value Added = Sales, net of intermediate costs + Change in inventory stock (Closing inventory stock – Opening inventory stock)

Question. What are the four factors of production and what are the remunerations to each of these called?
Answer: The four factors of production are land, labour, capital and entrepreneurship. The remunerations to each of these are called compensation of employees (reward for labour), rent (reward for land), interest (reward for capital) and profit (reward for entrepreneurship).

Question. Distinguish between stocks and flows. Give an example of each. 
Or
Distinguish between stock and flow variables with suitable examples. 
Answer:
Stocks

(i) Stock is that quantity of an economic variable which is measured at a particular point of time.

(ii) Stock has no time dimension.

(iii) Stock is a static concept.

(iv) Examples: Quantity of money, wealth.

Flows

(i) Flow is that quantity of an economic variable which is measured during the period of time.

(ii) Flow has time dimension as per hour, per day, per month.

(iii) Flow is a dynamic concept.

(iv) Examples: Consumption, investment.

Question. Explain the precautions that should be taken while estimating national income by expenditure method. 
Or
What precautions should be taken while estimating national income by expenditure method? Explain. 
Answer: The following precautions are to be taken while estimating national income by expenditure method:

(i) Only final expenditure is to be taken into account to avoid error of double counting. Expenditure on intermediate goods (also called intermediate expenditure) is not to be considered.

(ii) Expenditure on second-hand goods is not to be included.

(iii) Expenditure on shares and bonds is not to be included.

(iv) Expenditure on transfer payments (called transfer expenditure) is not to be included.

(v) Expenditure on self-use of own produced goods (like the farmer using his production of wheat or the house-owner using his own house) should be included.

Briefly, expenditure on only final goods and services is to be taken account of. Expenditure on intermediate goods is to be considered only as intermediate consumption.

Question. Explain the precautions that are taken while estimating national income by value added method.
Or
What precautions should be taken while estimating national income by value added method? Explain. 
Answer: The following precautions are to be taken while estimating national income by value added method:

(i) Avoid double counting, by considering only the final goods.

(ii) Sale of second-hand goods should not be considered.

(iii) Commission earned on second-hand goods is included in the estimation of 'value added'.

(iv) Own account production of goods of the producing units is taken into account while estimating value added.

(v) Production for self-consumption (like the farmer's family using their own farm output) must be considered.

(vi) Value addition should include imputed rent on owner-occupied houses, because imputed rent is taken as a part of factor income and factor income has got to be identical with value added.

Question. Will the following be included in the domestic product of India? Give reasons for your answer.
(a) Profits earned by foreign companies in India.
(b) Salaries of Indians working in the Russian Embassy in India.
(c) Profits earned by a branch of State Bank of India in Japan. 
Answer:
(a) Profits earned by foreign companies in India is a part of domestic product of India because the companies are within the domestic territory of India.
(b) Salary of Indians working in Russian Embassy in India is not included in the domestic product of India because Russian Embassy is not a part of domestic territory of India.
(c) Profits earned by a branch of State Bank of India in Japan is not a part of the domestic product of India because the branch of State Bank of India in Japan is not within the domestic territory of India.

Question. Will the following be included in the national income of India? Give reasons for your answer.
(a) Financial assistance to flood victims.
(b) Profits earned by the branches of a foreign bank in India.
(c) Salaries of Indians working in the American Embassy in India. 
Answer:
(a) Financial assistance to flood victims is not included in the national income of India. This is because financial assistance is a transfer income.
(b) Profits earned by the branches of a foreign bank in India is reflected in the national income of India as a negative component because it is a part of factor income to rest of the world.
(c) Salaries of Indians working in the American Embassy in India is included in national income of India because it is a part of factor income from rest of the world.

Question. Calculate National Income:
Items (Rs. in crore)
(i) Compensation of employees: 2,000
(ii) Rent: 400
(iii) Profit: 900
(iv) Dividend: 100
(v) Interest: 500
(vi) Mixed income of self-employed: 7,000
(vii) Net factor income to abroad: 50
(viii) Net exports: 60
(ix) Net indirect taxes: 300
(x) Depreciation: 150
(xi) Net current transfers to abroad: 30
Answer:
National Income \( = \text{Compensation of employees} + \text{Rent} + \text{Interest} + \text{Profit} + \text{Mixed income of self-employed} - \text{Net factor income to abroad} \)
\( = \text{Rs. } 2,000 \text{ crore} + \text{Rs. } 400 \text{ crore} + \text{Rs. } 500 \text{ crore} + \text{Rs. } 900 \text{ crore} + \text{Rs. } 7,000 \text{ crore} - \text{Rs. } 50 \text{ crore} \)
\( = \text{Rs. } 10,750 \text{ crore} \)
National income \( = \text{Rs. } 10,750 \text{ crore.} \)

Question. Calculate the Net National Product at Market Price:
Items (Rs. in crore)
(i) Mixed income of self-employed: 8,000
(ii) Depreciation: 200
(iii) Profit: 1,000
(iv) Rent: 600
(v) Interest: 700
(vi) Compensation of employees: 3,000
(vii) Net indirect taxes: 500
(viii) Net factor income to abroad: 60
(ix) Net exports: (-) 50
(x) Net current transfers to abroad: 20
Answer:
Net National Product at Market Price
\( = \text{Compensation of employees} + \text{Rent} + \text{Interest} + \text{Profit} + \text{Mixed income of self-employed} + \text{Net indirect taxes} - \text{Net factor income to abroad} \)
\( = \text{Rs. } 3,000 \text{ crore} + \text{Rs. } 600 \text{ crore} + \text{Rs. } 700 \text{ crore} + \text{Rs. } 1,000 \text{ crore} + \text{Rs. } 8,000 \text{ crore} + \text{Rs. } 500 \text{ crore} - \text{Rs. } 60 \text{ crore} \)
\( = \text{Rs. } 13,740 \text{ crore} \)
Net national product at market price \( = \text{Rs. } 13,740 \text{ crore.} \)

Question. Calculate the Gross National Product at Market Price:
Items (Rs. in crore)
(i) Compensation of employees: 2,500
(ii) Profit: 700
(iii) Mixed income of self-employed: 7,500
(iv) Government final consumption expenditure: 3,000
(v) Rent: 400
(vi) Interest: 350
(vii) Net factor income from abroad: 50
(viii) Net current transfers to abroad: 100
(ix) Net indirect taxes: 150
(x) Depreciation: 70
(xi) Net exports: 40
Answer:
Gross National Product at Market Price
\( = \text{Compensation of employees} + \text{Rent} + \text{Interest} + \text{Profit} + \text{Mixed income of self-employed} + \text{Depreciation} + \text{Net indirect taxes} + \text{Net factor income from abroad} \)
\( = \text{Rs. } 2,500 \text{ crore} + \text{Rs. } 400 \text{ crore} + \text{Rs. } 350 \text{ crore} + \text{Rs. } 700 \text{ crore} + \text{Rs. } 7,500 \text{ crore} + \text{Rs. } 70 \text{ crore} + \text{Rs. } 150 \text{ crore} + \text{Rs. } 50 \text{ crore} \)
\( = \text{Rs. } 11,720 \text{ crore} \)
Gross national product at market price \( = \text{Rs. } 11,720 \text{ crore.} \)

Question. Distinguish between domestic product and national product. 
Answer:
Domestic Product (\( NDP_{FC} \))

(i) Domestic product/income is the sum total of factor incomes generated within the domestic territory of a country.

(ii) It includes income generated both by the residents as well as non-residents of a country.

(iii) It does not include net factor income from abroad.

National Product (\( NNP_{FC} \))

(i) National product/income is the sum total of factor incomes generated by normal residents of a country, no matter where this income is generated (within the domestic territory or in rest of the world).

(ii) It includes income generated only by the normal residents of a country.

(iii) It includes net factor income from abroad.

National Product = Domestic product + Net factor income from abroad

Question. Explain 'mixed income of self-employed' and give an example. 
Answer: Mixed income is the total income of the self-employed persons using their own labour, land, capital and entrepreneurship to produce goods and services. These incomes are a mixture of wages, rent, interest and profit. That is why it is called mixed income. Separate estimation of wages, rent, interest and profit is not possible owing to the fact that factors of production are not hired/purchased from the market. Only self-owned factors are used in household enterprises (or small enterprises run by the households).

Question. Calculate National Income:
Items (Rs. in crore)
(i) Profit: 1,000
(ii) Mixed income of self-employed: 15,000
(iii) Dividends: 200
(iv) Interest: 400
(v) Compensation of employees: 7,000
(vi) Net factor income to abroad: 100
(vii) Consumption of fixed capital: 400
(viii) Net exports: (-) 200
(ix) Net indirect taxes: 800
(x) Net current transfers to rest of the world: 40
(xi) Rent: 500
Answer:
National Income \( = \text{Compensation of employees} + \text{Rent} + \text{Interest} + \text{Profit} + \text{Mixed income of self-employed} - \text{Net factor income to abroad} \)
\( = \text{Rs. } 7,000 \text{ crore} + \text{Rs. } 500 \text{ crore} + \text{Rs. } 400 \text{ crore} + \text{Rs. } 1,000 \text{ crore} + \text{Rs. } 15,000 \text{ crore} - \text{Rs. } 100 \text{ crore} \)
\( = \text{Rs. } 23,800 \text{ crore} \)
National income \( = \text{Rs. } 23,800 \text{ crore.} \)

Question. Calculate National Income:
Items (Rs. in crore)
(i) Compensation of employees: 2,000
(ii) Profit: 800
(iii) Rent: 300
(iv) Interest: 250
(v) Mixed income of self-employed: 7,000
(vi) Net current transfers to abroad: 200
(vii) Net exports: (-) 100
(viii) Net indirect taxes: 1,500
(ix) Net factor income to abroad: 60
(x) Consumption of fixed capital: 120
Answer:
National Income \( = \text{Compensation of employees} + \text{Rent} + \text{Interest} + \text{Profit} + \text{Mixed income of self-employed} - \text{Net factor income to abroad} \)
\( = \text{Rs. } 2,000 \text{ crore} + \text{Rs. } 300 \text{ crore} + \text{Rs. } 250 \text{ crore} + \text{Rs. } 800 \text{ crore} + \text{Rs. } 7,000 \text{ crore} - \text{Rs. } 60 \text{ crore} \)
\( = \text{Rs. } 10,290 \text{ crore} \)
National income \( = \text{Rs. } 10,290 \text{ crore.} \)

Question. Give one example of negative externalities. 
Answer: Negative externalities occur when smoke omitted by factories causes air pollution, or the industrial waste is driven into rivers causing water pollution.

Question. What are capital goods? How are they different from consumption goods? 
Answer: Capital goods are those goods which are used as fixed assets by the producers in the production of other goods and services. These goods are repeatedly used in the production of other goods and services. Example: Plant & machinery.
Consumption goods, on the other hand, are those goods which satisfy the consumer's wants directly. These goods are used as final goods by their final users. Example: Pen, bread, butter, vegetables, etc.
Capital goods, as fixed assets of the producers, are to be treated as final goods whereas in case of consumption goods, it depends on their 'end-use'. Example: Kerosene oil used by households is a final good but when used by the firms to clean their machinery is to be treated as an intermediate good.

Question. Calculate (a) Operating Surplus, and (b) Domestic Income:
Items (Rs. in crore)
(i) Compensation of employees: 2,000
(ii) Rent and interest: 800
(iii) Indirect taxes: 120
(iv) Corporation tax: 460
(v) Consumption of fixed capital: 100
(vi) Subsidies: 20
(vii) Dividend: 940
(viii) Undistributed profits: 300
(ix) Net factor income to abroad: 150
(x) Mixed income: 200
Answer:
(a) Operating Surplus
\( = \text{Rent and Interest} + \text{Undistributed profits} + \text{Corporation tax} + \text{Dividend} \)
\( = \text{Rs. } 800 \text{ crore} + \text{Rs. } 300 \text{ crore} + \text{Rs. } 460 \text{ crore} + \text{Rs. } 940 \text{ crore} \)
\( = \text{Rs. } 2,500 \text{ crore} \)
Operating surplus \( = \text{Rs. } 2,500 \text{ crore.} \)
(b) Domestic Income
\( = \text{Compensation of employees} + \text{Operating surplus} + \text{Mixed income} \)
\( = \text{Rs. } 2,000 \text{ crore} + \text{Rs. } 2,500 \text{ crore} + \text{Rs. } 200 \text{ crore} \)
\( = \text{Rs. } 4,700 \text{ crore} \)
Domestic income \( = \text{Rs. } 4,700 \text{ crore.} \)

Question. Give any two examples of flow concept. 
Answer: (i) Income, and (ii) Investment.

Question. Define the problem of double counting in the computation of national income. State any two approaches to correct the problem of double counting. 
Answer: The counting of the value of commodity more than once is called double counting. This leads to overestimation of the value of goods and services produced. Thus, the importance of avoiding double counting lies in avoiding overestimating the value of domestic product.
To avoid the problem of double counting, following two methods are used:

(i) Final Output Method: According to this method, the value of intermediate goods is not considered. Only the value of final goods and services is considered.

(ii) Value Added Method: Another method to avoid the problem of double counting is to estimate the total value added at each stage of production.

Question. "Gross Domestic Product (GDP) does not give us a clear indication of economic welfare of a country." Defend or refute the given statement with valid reason. 
Answer: Often gross domestic product (GDP) is considered as an index of welfare of the people, but there are strong exceptions to this generalisation. Following are the reasons:

(i) If with every increase in the level of GDP, distribution of GDP is getting more unequal, welfare level of the society may not rise. Only fewer people tend to benefit from an unequal distribution. Hence, the gulf between haves and have-nots may increase which results in lesser welfare of the society.

(ii) Composition of GDP may not be welfare-oriented even when the level of GDP tends to rise. There is no direct increase in the welfare of the masses if GDP has risen owing largely to the increase in the production of defence goods.

Question. Given the following data, find the missing value of 'Government Final Consumption Expenditure' and 'Mixed Income of Self-employed'.
Items (Rs. in crore)
(i) National income: 71,000
(ii) Gross domestic capital formation: 10,000
(iii) Government final consumption expenditure: ?
(iv) Mixed income of self-employed: ?
(v) Net factor income from abroad: 1,000
(vi) Net indirect taxes: 2,000
(vii) Profits: 1,200
(viii) Wages and Salaries: 15,000
(ix) Net exports: 5,000
(x) Private final consumption expenditure: 40,000
(xi) Consumption of fixed capital: 3,000
(xii) Operating surplus: 30,000
Answer:
Government Final Consumption Expenditure
\( = \text{Rs. } 71,000 \text{ crore} - \text{Rs. } 40,000 \text{ crore} - \text{Rs. } 10,000 \text{ crore} - \text{Rs. } 5,000 \text{ crore} + \text{Rs. } 3,000 \text{ crore} + \text{Rs. } 2,000 \text{ crore} - \text{Rs. } 1,000 \text{ crore} \)
\( = \text{Rs. } 20,000 \text{ crore} \)
Mixed Income of Self-employed
\( = \text{National income} - \text{Wages and Salaries} - \text{Operating surplus} - \text{Net factor income from abroad} \)
\( = \text{Rs. } 71,000 \text{ crore} - \text{Rs. } 15,000 \text{ crore} - \text{Rs. } 30,000 \text{ crore} - \text{Rs. } 1,000 \text{ crore} \)
\( = \text{Rs. } 25,000 \text{ crore} \)
Government final consumption expenditure \( = \text{Rs. } 20,000 \text{ crore.} \)
Mixed income of self-employed \( = \text{Rs. } 25,000 \text{ crore.} \)

Question. Given the following data, find the missing values of 'Private Final Consumption Expenditure' and 'Operating Surplus'.
Items (Rs. in crore)
(i) National income: 50,000
(ii) Net indirect taxes: 1,000
(iii) Private final consumption expenditure: ?
(iv) Gross domestic capital formation: 17,000
(v) Profits: 1,000
(vi) Government final consumption expenditure: 12,500
(vii) Wages and Salaries: 20,000
(viii) Consumption of fixed capital: 700
(ix) Mixed income of self-employed: 13,000
(x) Operating surplus: ?
(xi) Net factor income from abroad: 500
(xii) Net exports: 2,000
Answer:
Private Final Consumption Expenditure
\( = \text{Rs. } 50,000 \text{ crore} - \text{Rs. } 12,500 \text{ crore} - \text{Rs. } 17,000 \text{ crore} - \text{Rs. } 2,000 \text{ crore} + \text{Rs. } 700 \text{ crore} + \text{Rs. } 1,000 \text{ crore} - \text{Rs. } 500 \text{ crore} \)
\( = \text{Rs. } 19,700 \text{ crore} \)
Operating Surplus
\( = \text{National income} - \text{Wages and Salaries} - \text{Mixed income of self-employed} - \text{Net factor income from abroad} \)
\( = \text{Rs. } 50,000 \text{ crore} - \text{Rs. } 20,000 \text{ crore} - \text{Rs. } 13,000 \text{ crore} - \text{Rs. } 500 \text{ crore} \)
\( = \text{Rs. } 16,500 \text{ crore} \)
Private final consumption expenditure \( = \text{Rs. } 19,700 \text{ crore.} \)
Operating surplus \( = \text{Rs. } 16,500 \text{ crore.} \)

Question. Given the following data, find the missing values of 'Gross Domestic Capital Formation' and 'Wages and Salaries'.
Items (Rs. in crore)
(i) Mixed income of self-employed: 3,500
(ii) Net indirect taxes: 300
(iii) Wages and Salaries: ?
(iv) Government final consumption expenditure: 14,000
(v) Net exports: 3,000
(vi) Consumption of fixed capital: 300
(vii) Net factor income from abroad: 700
(viii) Operating surplus: 12,000
(ix) National income: 30,000
(x) Profits: 500
(xi) Gross domestic capital formation: ?
(xii) Private final consumption expenditure: 11,000
Answer:
Gross Domestic Capital Formation
\( = \text{Rs. } 30,000 \text{ crore} - \text{Rs. } 11,000 \text{ crore} - \text{Rs. } 14,000 \text{ crore} - \text{Rs. } 3,000 \text{ crore} + \text{Rs. } 300 \text{ crore} + \text{Rs. } 300 \text{ crore} - \text{Rs. } 700 \text{ crore} \)
\( = \text{Rs. } 1,900 \text{ crore} \)
Wages and Salaries
\( = \text{National income} - \text{Operating surplus} - \text{Mixed income of self-employed} - \text{Net factor income from abroad} \)
\( = \text{Rs. } 30,000 \text{ crore} - \text{Rs. } 12,000 \text{ crore} - \text{Rs. } 3,500 \text{ crore} - \text{Rs. } 700 \text{ crore} \)
\( = \text{Rs. } 13,800 \text{ crore} \)
Gross domestic capital formation \( = \text{Rs. } 1,900 \text{ crore.} \)
Wages and Salaries \( = \text{Rs. } 13,800 \text{ crore.} \)

Question. "Higher Gross Domestic Product (GDP) means greater per capita availability of goods in the economy." Do you agree with the given statement? Give valid reason in support of your answer. 
Answer: One needs to distinguish between GDP at current prices and GDP at constant prices (also called real GDP). Higher GDP would mean greater availability of goods in the economy only when there is a rise in real GDP, not when GDP rise is caused by a rise in the general price level. A rise in real GDP is a situation when the level of output in the economy tends to rise, leading to a rise in the flow of goods and services in the economy.

Question. Explain the meaning of Real Gross Domestic Product and Nominal Gross Domestic Product, using a numerical example. 
Answer: Real Gross Domestic Product (GDP) is the market value of the final goods and services (Q) produced within the domestic territory of a country during an accounting year, as estimated using the base year prices (P*).
Nominal Gross Domestic Product (GDP) is the market value of the final goods and services (Q) produced within the domestic territory of a country during an accounting year, as estimated using the current year prices (P).
Suppose, the output of commodity-X during the year 2018 was 500 units. The market price of the commodity during the same year was Rs. 50 per unit while the price in the base year was Rs. 40 per unit. So, the nominal GDP and Real GDP would be:
Nominal GDP \( = 500 \times \text{Rs. } 50 = \text{Rs. } 25,000. \)
Real GDP \( = 500 \times \text{Rs. } 40 = \text{Rs. } 20,000. \)

Question. Define the following:
(a) Value addition.
(b) Gross domestic product.
(c) Flow variables.
(d) Income from property and entrepreneurship. 
Answer:
(a) Value addition is the difference between value of output of an enterprise and the value of its intermediate consumption.
Value Addition = Value of output - Intermediate consumption
(b) Gross domestic product is the market value of final goods and services produced within the domestic territory of the country (by resident and non-resident producers) within one year, inclusive of depreciation.
(c) Flow variables are those variables which are measured per unit of time period. It has time dimension as per hour, per day, per month.
Examples: Consumption, investment.
(d) Income from property and entrepreneurship is the income earned by property owners. It can also be termed as operating surplus. Income from property can be rent and interest while income from entrepreneurship are profits which are often split as corporation tax and undistributed profits.

Question. Given the following data, find the values of 'Gross Domestic Capital Formation' and 'Operating Surplus'.
Items (Rs. in crore)
(i) National income: 22,100
(ii) Wages and Salaries: 12,000
(iii) Private final consumption expenditure: 7,200
(iv) Net indirect taxes: 700
(v) Gross domestic capital formation: ?
(vi) Depreciation: 500
(vii) Government final consumption expenditure: 6,100
(viii) Mixed income of self-employed: 4,800
(ix) Operating surplus: ?
(x) Net exports: 3,400
(xi) Rent: 1,200
(xii) Net factor income from abroad: (-) 150
Answer:
Gross Domestic Capital Formation
\( = \text{Rs. } 22,100 \text{ crore} - \text{Rs. } 7,200 \text{ crore} - \text{Rs. } 6,100 \text{ crore} - \text{Rs. } 3,400 \text{ crore} + \text{Rs. } 500 \text{ crore} + \text{Rs. } 700 \text{ crore} - (-) \text{Rs. } 150 \text{ crore} \)
\( = \text{Rs. } 22,100 \text{ crore} - \text{Rs. } 7,200 \text{ crore} - \text{Rs. } 6,100 \text{ crore} - \text{Rs. } 3,400 \text{ crore} + \text{Rs. } 500 \text{ crore} + \text{Rs. } 700 \text{ crore} + \text{Rs. } 150 \text{ crore} \)
\( = \text{Rs. } 6,750 \text{ crore} \)
Operating Surplus
\( = \text{National income} - \text{Wages and Salaries} - \text{Mixed income of self-employed} - \text{Net factor income from abroad} \)
\( = \text{Rs. } 22,100 \text{ crore} - \text{Rs. } 12,000 \text{ crore} - \text{Rs. } 4,800 \text{ crore} - (-) \text{Rs. } 150 \text{ crore} \)
\( = \text{Rs. } 22,100 \text{ crore} - \text{Rs. } 12,000 \text{ crore} - \text{Rs. } 4,800 \text{ crore} + \text{Rs. } 150 \text{ crore} \)
\( = \text{Rs. } 5,450 \text{ crore} \)
Gross domestic capital formation \( = \text{Rs. } 6,750 \text{ crore.} \)
Operating surplus \( = \text{Rs. } 5,450 \text{ crore.} \)

Question. If in a locality, a new park is developed by the municipal corporation, it will have externalities, both positive and negative. State one example each of both types of externalities with reason. 
Answer:
Example of a Positive Externality: When the new park developed by municipal corporation raises welfare of people of the locality.
Example of a Negative Externality: When the new park developed by municipal corporation is used by anti-social elements and leads to insecurity of the residents.

Question. Given the following data, find the values of 'Government Final Consumption Expenditure' and 'Mixed Income of Self-employed':
Items (Rs. in crore)
(i) National income: 7,100
(ii) Government final consumption expenditure: ?
(iii) Gross domestic capital formation: 1,000
(iv) Mixed income of self-employed: ?
(v) Net indirect taxes: 200
(vi) Net factor income from abroad: 100
(vii) Private final consumption expenditure: 4,000
(viii) Consumption of fixed capital: 300
(ix) Profits: 120
(x) Wages and Salaries: 1,500
(xi) Net exports: 500
(xii) Operating surplus: 3,000
Answer:
Government Final Consumption Expenditure
\( = \text{Rs. } 7,100 \text{ crore} - \text{Rs. } 4,000 \text{ crore} - \text{Rs. } 1,000 \text{ crore} - \text{Rs. } 500 \text{ crore} + \text{Rs. } 300 \text{ crore} + \text{Rs. } 200 \text{ crore} - \text{Rs. } 100 \text{ crore} \)
\( = \text{Rs. } 2,000 \text{ crore} \)
Mixed Income of Self-employed
\( = \text{National income} - \text{Wages and Salaries} - \text{Operating surplus} - \text{Net factor income from abroad} \)
\( = \text{Rs. } 7,100 \text{ crore} - \text{Rs. } 1,500 \text{ crore} - \text{Rs. } 3,000 \text{ crore} - \text{Rs. } 100 \text{ crore} \)
\( = \text{Rs. } 2,500 \text{ crore} \)
Government final consumption expenditure \( = \text{Rs. } 2,000 \text{ crore.} \)
Mixed income of self-employed \( = \text{Rs. } 2,500 \text{ crore.} \)

Question. Given the following data, find the values of 'Operating Surplus' and 'Gross Domestic Capital Formation':
Items (Rs. in crore)
(i) Government final consumption expenditure: 2,000
(ii) Mixed income of self-employed: 1,500
(iii) National income: 12,000
(iv) Net factor income from abroad: 200
(v) Operating surplus: ?
(vi) Profits: 500
(vii) Private final consumption expenditure: 6,000
(viii) Net indirect taxes: 700
(ix) Net exports: 1,800
(x) Consumption of fixed capital: 600
(xi) Gross domestic capital formation: ?
(xii) Wages and Salaries: 6,000
Answer:
Operating Surplus
\( = \text{National income} - \text{Wages and Salaries} - \text{Mixed income of self-employed} - \text{Net factor income from abroad} \)
\( = \text{Rs. } 12,000 \text{ crore} - \text{Rs. } 6,000 \text{ crore} - \text{Rs. } 1,500 \text{ crore} - \text{Rs. } 200 \text{ crore} \)
\( = \text{Rs. } 4,300 \text{ crore} \)
Gross Domestic Capital Formation
\( = \text{Rs. } 12,000 \text{ crore} - \text{Rs. } 6,000 \text{ crore} - \text{Rs. } 2,000 \text{ crore} - \text{Rs. } 1,800 \text{ crore} + \text{Rs. } 600 \text{ crore} + \text{Rs. } 700 \text{ crore} - \text{Rs. } 200 \text{ crore} \)
\( = \text{Rs. } 3,300 \text{ crore} \)
Operating surplus \( = \text{Rs. } 4,300 \text{ crore.} \)
Gross domestic capital formation \( = \text{Rs. } 3,300 \text{ crore.} \)

Question. Given the following data, find the values of 'Operating Surplus' and 'Net Exports':
Items (Rs. in crore)
(i) Mixed income of self-employed: 700
(ii) Net factor income from abroad: 150
(iii) Private final consumption expenditure: 2,200
(iv) Profits: 200
(v) Net indirect taxes: 150
(vi) National income: 5,000
(vii) Gross domestic capital formation: 1,100
(viii) Wages and Salaries: 2,200
(ix) Net exports: ?
(x) Government final consumption expenditure: 1,300
(xi) Consumption of fixed capital: 200
(xii) Operating surplus: ?
Answer:
Operating Surplus
\( = \text{National income} - \text{Wages and Salaries} - \text{Mixed income of self-employed} - \text{Net factor income from abroad} \)
\( = \text{Rs. } 5,000 \text{ crore} - \text{Rs. } 2,200 \text{ crore} - \text{Rs. } 700 \text{ crore} - \text{Rs. } 150 \text{ crore} \)
\( = \text{Rs. } 1,950 \text{ crore} \)
Net Exports
\( = \text{Rs. } 5,000 \text{ crore} - \text{Rs. } 2,200 \text{ crore} - \text{Rs. } 1,300 \text{ crore} - \text{Rs. } 1,100 \text{ crore} + \text{Rs. } 200 \text{ crore} + \text{Rs. } 150 \text{ crore} - \text{Rs. } 150 \text{ crore} \)
\( = \text{Rs. } 600 \text{ crore} \)
Operating surplus \( = \text{Rs. } 1,950 \text{ crore.} \)
Net exports \( = \text{Rs. } 600 \text{ crore.} \)

Question. How is Real Gross Domestic Product (GDP) different from Nominal Gross Domestic Product (GDP)? Explain using a numerical example. 
Answer: Real GDP (Gross Domestic Product) is the 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. Base year is the year of comparison.
Nominal GDP (Gross Domestic Product) is the 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. Current year prices are the prices prevailing during the year of estimation.
\[ \text{Real GDP} = \frac{\text{Nominal GDP}}{\text{Price Index}} \times 100 \] If real GDP = 600 and price index = 110, then
\[ \text{Nominal GDP} = \text{Real GDP} \times \frac{\text{Price Index}}{100} \]
\( = 600 \times \frac{110}{100} = 660 \)

Question. (a) Define 'net factor income from abroad'. How is it different from 'net exports'?
(b) Calculate the value of "Rent" from the following data :
Items (Rs. in crore)
(i) Gross domestic product at market price: 18,000
(ii) Mixed income of self-employed: 7,000
(iii) Subsidies: 250
(iv) Interest: 800
(v) Rent: ?
(vi) Profit: 975
(vii) Compensation of employees: 6,000
(viii) Consumption of fixed capital: 1,000
(ix) Indirect tax: 2,000
Answer: (a) Net factor income from abroad refers to the excess of factor income earned by our residents from rest of the world over factor income earned by non-residents from the domestic territory of our country.
Net export, on the other hand, refers to the difference between exports and imports during an accounting year:
Net Exports = Exports - Imports
(b) Rent
= Gross domestic product at market price - Compensation of employees - Interest - Profit - Mixed income of self-employed - Consumption of fixed capital - Indirect tax + Subsidies
= Rs. 18,000 crore - Rs. 6,000 crore - Rs. 800 crore - Rs. 975 crore - Rs. 7,000 crore - Rs. 1,000 crore - Rs. 2,000 crore + Rs. 250 crore
= Rs. 475 crore
Rent = Rs. 475 crore.

Question. (a) Define 'value of output'. How is it different from 'value addition' ?
(b) Calculate the value of "Mixed Income of Self-employed" from the following data:
Items (Rs. in crore)
(i) Compensation of employees: 17,300
(ii) Interest: 1,200
(iii) Consumption of fixed capital: 1,100
(iv) Mixed income of self-employed: ?
(v) Subsidies: 750
(vi) Gross domestic product at market price: 27,500
(vii) Indirect taxes: 2,100
(viii) Profits: 1,800
(ix) Rent: 2,000
[CBSE 2019 (58/4/3)]
Answer: (a) Value of output refers to market value of the goods (or services) produced by a firm during an accounting year.
Value of Output = Sales + ΔStock
While value added refers to the market value of the goods produced minus market value of the goods used as inputs/raw material in the process of production.
Value Added = Value of output - Intermediate consumption
(b) Mixed Income of Self-employed
= Gross domestic product at market price - Compensation of employees - Rent - Interest - Profits - Consumption of fixed capital - Indirect tax + Subsidies
= Rs. 27,500 crore - Rs. 17,300 crore - Rs. 2,000 crore - Rs. 1,200 crore - Rs. 1,800 crore - Rs. 1,100 crore - Rs. 2,100 crore + Rs. 750 crore
= Rs. 2,750 crore
Mixed income of self-employed = Rs. 2,750 crore.

Question. Distinguish between net factor income from abroad and net exports. 
Answer: Net factor income from abroad is the difference between (i) factor income earned by our residents who are temporarily residing abroad, and (ii) factor income earned by non-residents who are temporarily residing in our country.
Net Factor Income from Abroad = Factor income earned by our residents from rest of the world - Factor income earned by non-residents from the domestic territory of our country
Net exports, on the other hand, refer to the difference between exports and imports during an accounting year. Exports are an expenditure by the foreigners on the domestically produced final goods and services, while imports are an expenditure on the goods and services produced abroad.
Net Exports = Exports - Imports

Question. Given the following data, find the values of 'Operating Surplus' and 'Net Exports':
Items (Rs. in crore)
(i) Wages and Salaries: 2,400
(ii) National income: 4,200
(iii) Net exports: ?
(iv) Net factor income from abroad: 200
(v) Gross domestic capital formation: 1,100
(vi) Mixed income of self-employed: 400
(vii) Private final consumption expenditure: 2,000
(viii) Net indirect taxes: 150
(ix) Operating surplus: ?
(x) Government final consumption expenditure: 1,000
(xi) Consumption of fixed capital: 100
(xii) Profits: 500
Answer: Operating Surplus
= National income - Wages and Salaries - Mixed income of self-employed - Net factor income from abroad
= Rs. 4,200 crore - Rs. 2,400 crore - Rs. 400 crore - Rs. 200 crore
= Rs. 1,200 crore
Net Exports
= National income - Private final consumption expenditure - Government final consumption expenditure - Gross domestic capital formation + Consumption of fixed capital + Net indirect taxes - Net factor income from abroad
= Rs. 4,200 crore - Rs. 2,000 crore - Rs. 1,000 crore - Rs. 1,100 crore + Rs. 100 crore + Rs. 150 crore - Rs. 200 crore
= Rs. 150 crore
Operating surplus = Rs. 1,200 crore.
Net exports = Rs. 150 crore.