CBSE Class 12 Economics National Income Accounting Worksheet Set B

Question. Output means……………unless stated otherwise
a) Gross output at MP
b) Net output at MP
c) Gross output at FC
d) None of these
Answer: Gross output at MP

Question. Which of the following is not a component of domestic income?
a) Operating surplus
b) Compensation of employees
c) Net factor income from abroad
d) Mixed income
Answer: Net factor income from abroad

Question. If factor cost is greater than marker price, it means that
a) Indirect taxes < subsidies
b) Indirect taxes > subsidies
c) Indirect taxes = subsidies
d) None of these
Answer: Indirect taxes < subsidies

Question. An Indian farmer produces wheat without incurring cost of inputs and sells for Rs. 1,000 to a miller who grinds wheat into flour and sells for Rs1,200 to baker. The baker sells bread to consumers for Rs. 1,600. Total value added is Rs.
a) 1600
b) 2200
c) 1000
d) 1400
Answer: 1600

Question. Which of the following is not true about final goods?
(a) Final gods satisfy wants of ultimate consumers and producers.
(b) Final goods have direct demand as they satisfy the wants directly.
(c) Final goods are subject to further transformation in the process of production.
(d) Final goods are neither used up as raw-material nor for resale in the same year.
Answer: C

Question. Following is an example of final good:
(a) Flour used by a banker in making biscuits
(b) Unsold stock of goods lying with the sellers
(c) Tyres purchased by a transport company
(d) Mobile sets purchased by a mobile dealer
Answer: Unsold stock of goods lying with the sellers.

Question. Which out of the following is not included in estimation of NI?
(a) Subsidized Lunch
(b) Old-age Pension
(c) Free Medical facilities
(d) Construction of a house
Answer: Old-age Pension

Question. Which of the following is included in compensation of employees?
(a) Dearness Allowance
(b) Tools given to employees to be used during work
(c) Payment by insurance company to an injured employee
(d) Contribution by employee to provident fund
Answer: Dearness Allowance

Question. ‘Commodity service method’ is another name for:
(a) Expenditure method
(b) Income method
(c) Value – added Method
(d) None of these
Answer: Value-added Method

Question. Which of the following statements is true?
(a) Bread is always a consumer good
(b) All producer goods are not capital goods
(c) Transfer income is received for providing a good or service in return
(d) Interest paid by a household on car loan from a bank is a factor payment
Answer: All producer goods are not capital goods

Question. When will GDP of an economy be equal to GNP?
Answer: GDP and GNP will be equal when the ‘net factor income from abroad’ is zero.

Question. When is the net domestic product at market price less than the net domestic product at factor cost?
Answer: When net indirect taxes are negative i.e., subsidies are more than indirect taxes.

Question. If NDPFC is Rs 1,0000 crores and NFIA is (-) Rs 500 crores, how much will be the national income?
Answer: National Income = 10000 + (-500)
= Rs 9500 Crore

Question. If the domestic factor income is Rs 50,000 crores and the national income is Rs 45,000 crores, how much will be the net factor income from abroad?
Answer: Net factor income from abroad = 45,000 – 50,000 = (-) Rs 5000 Crore

Question. If compensation of employees in a firm constitutes 65% of net value added at factor cost of a firm, find the proportion of operating surplus.
Answer: 100% – 65% = 35% (assuming mixed income is zero).

Question. What is the rationale for not taking into account the value of intermediate goods in the measure of GDP?
Answer: To avoid the problem of double counting.

Question. When is the net domestic product at market price less than the net domestic product at factor cost?
Answer: When net indirect taxes are negative i.e., subsidies are more than indirect taxes.

Question. What is Nominal GDP?
Answer: It is money value of final goods and services produced in a year at prices of the current year.

Question. What is GDP deflator?
Answer: It is measured as the ratio of nominal GDP to real GDP,multiplied by 100.
GDP Deflator=Nominal GDP/Real GDP*100.

Question. What is Green GNP?
Answer: It refers to estimation of GNP that accounts for or taken into consideration certain parameters like environmental pollution and exploitation of natural resources.

Question. Explain how ‘externalities’ are a limitation of taking gross domestic product as an index of welfare.
Answer: When the activities of somebody result in benefits or harms to others with no payment received for the benefit and no payment made for the harm done, such benefits and harms are called externalities.
Activities resulting in benefits to others are positive externalities and increase welfare; and those resulting in harm to others are called negative externalities, and thus decrease welfare.
GDP does not take into account these externalities.
For example, construction of a flyover or a highway reduces transport cost and journey time of its users who have not contributed anything towards its cost. Expenditure on construction is included in GDP but not the positive externalities flowing from it. GDP and positive externalities both increase welfare. Therefore, taking only GDP as an index of welfare understates welfare. It means that welfare is much more than it is indicated by GDP.
Similarly, GDP also does not take into account negative externalities. For examples, factories produce goods but at the same time create pollution of water and air. River Yamuna, now a drain, is a living example. The pollution harms people. The factories are not required to pay anything for harming people. Producing goods increases welfare but creating pollution reduces welfare. Therefore, taking only GDP as an index of welfare overstates welfare. In this case, welfare is much less than indicated by GDP.

Question. With reasons state whether the followings will be included in the estimation of National Income of a country?
(a) Commission on sale of second-hand goods.
(b) Scholarship given by the government to the students.
(c) Income earned by an Indian resident working in Russian Embassy situated in India.
(d) Subsidized lunch served to workers in a factory.
Answer: (a) Yes, this will be included in the national income as it is a factor income
(b) No, it will not be included as it is transfer payments
(c) Yes, it will be included as the income is earned by Indian resident
(d) Yes, it will be included as it is a part of the compensation of employees

Question. Calculate National Income by
Income and Expenditure method.                 Items (Rs. In Crores)
(i) Gross fixed capital formation                                        300
(ii) Mixed income of self-employed                                    100
(iii) Net factor income from abroad                                    50
(iv) Private final consumption expenditure                       900
(v) Net exports                                                                 (-) 50
(vi) Subsidies                                                                       50
(vii) Government final consumption expenditure            150
(viii) Indirect taxes                                                               250
(ix) Rent                                                                                60
(x) Interest                                                                            200
(xi) Change in stock                                                            50
(xii) Profits                                                                           340
(xiii) Compensation of employees                                    400
(xiv) Consumption of fixed capital                                    50
Answer: Income Method:
NDPFC= Compensation of employees + Operating Surplus + Mixed income of self employed
NDPFC = xiii + (ix+x+xii) + ii
NDPFC = 400 + (60+200+340) +100
NDPFC = 1100 ------------------------------------------------- (i)
National Income or NNPFC = NDPFC + NFIA
= 1100 + 50
= 1150 ----------------------------------- (ii)
Expenditure Method:
GDPMP = C + I + G + (X-M)
GDPMP = iv + (i + xi) + vii + v
= 900+ (300+50) +150 -50
= 1350 ------------------------------------------------------ (iii)
National Income or NNPFC = GDPMP – CFC + NFIA – NIT
= 1350 – 50 + 50 – (250– 50)
= 1150 ---------------------------------- (iv)
∴The estimated National Income is Rs.1150 crores

Question. From the following data calculate GNP at FC by
(a) Income method        (b) Expenditure method
     ITEMS                                                            CRORE
(i) Net domestic capital formation                          500
(ii) Compensation of employees                            1850
(iii) Consumption of fixed capital                          100
(iv) Govt. final consumption expenditure             1100
(v) PVT. final consumption expenditure                2600
(vi) Rent                                                                    400
(vii) Dividend                                                           200
(viii) Interest                                                            500
(ix) Net Exports                                               (—) 100
(x) Profits                                                                1100
(xi) NFIA                                                             (–) 50
(xi) Net Indirect taxes                                             250
Answer: GNPFC (a) Income Method :
= (ii) + (vi) + (viii) + (x) + (xi)
NNPFC = 1850 + 400 + 500 + 1100 + (– 50) = 3800
GNPFC = 3800 + 100 = 3900 Crores
(b) Expd. Method = (i) + (iii) + (iv) + (v) + (ix) + (xi) – (xii)
500 + 100 + 1100 + 2600 + (– 100) + (– 50) – 250
= 3900 Crore

Question. Calculate (a) Gross domestic product at market price (GDPMP)
(b) Factor income from abroad.
                   Rs. (Crore)
(i) Profit                                                          500
(ii) Export                                                       40
(iii) Compensation of Employees               1500
(iv) Net current transfer from Row             2800
(v) Rent                                                          90
(vi) Interest                                                   300
(vii) Factor income to abroad                     400
(viii) Net indirect tax                                   120
(ix) Gross fixed capital formation              250
(x) Net domestic capital formation            650
(xi) Gross fixed capital formation              700
(xii) Change in stock                                   50
Answer: (a) GDPMP :
NDPFC = (iii) + (v) + (vi) + (vii)
= 1500 + 500 + 300 + 400
= 2700 Crores
GDPMP = NDPFC + CFC + NIT
CFC = (GFCF + S) – 650
= (700 + 50) – 650= 100
NIT = 250
GDPMP = 2700 + 100 + 250= 3050
(b) FIFA
GNPFC = GDPMP + NFIA – NIT
2800 = 3050 + NFIA – 250
NFIA = 0
NFIA = FIFA – FIPA
0 = FIFA – 120
FIFA = 120 Crores