CBSE Class 12 Economics National Income And Related Aggregates Worksheet Set B

Important Questions for NCERT Class 12 Economics National Income And Related Aggregates

Question. The study of National Income is related to :
(a) Microeconomics
(b) Macroeconomics
(c) Both Micro & Macro
(d) None of the above 
Answer: B

Question. National Income is the sum of factor incomes accruing to :
(a) Nationals
(b) Economic territory
(c) Residents
(d) Both residents and non-residents 
Answer: C

Question. Goods purchased for the following purpose are final goods :
(a) For satisfaction of wants
(b) For investment in firm
(c) Both (i) and (ii)
(d) None of the above
Answer: C

Question. Which of the following affects national income ? 
(a) Goods and Services Tax
(b) Corporation Tax
(c) Subsidies
(d) None of the above
Answer: C

Question. Which of the following is a stock :
(a) Wealth
(b) Saving
(c) Exports
(d) Profits 
Answer: A

Question. Real GDP is considered as an index of :
(a) price level in the economy
(b) welfare of the people
(c) profit maximization
(d) none of these 
Answer: B

Question. GDP is not an appropriate indicator of welfare because of :
(a) externalities
(b) composition of GDP and Distribution of GDP
(c) Non-monetary transactions
(d) all of these
Answer: D

Question. Pollution created by factories / vehicles is an example of
(a) positive externalities
(b) negative externalities
(c) either (i) or (ii)
(d) neither (i) of (ii) 
Answer: B

Question. Foreign embassies in India are a part of India’s :
(a) Economic territory
(b) Geographical territory
(c) Both (i) and (ii)
(d) None of the above. 
Answer: B

Question. Which of the following is a stock :
(a) Savings
(b) Production
(c) Consumption of fixed capital
(d) Capital
Answer: D

Question. Which of the following is a flow :
(a) Deposits in a bank
(b) Capital
(c) Depreciation
(d) Wealth
Answer: C

Question. Disinvestment by government means :
(a) Selling of its fixed capital assets
(b) Selling of shares of public enterprises held by it
(c) Selling of its buildings
(d) All of the above
Answer: B

Question. Unforeseen obsolescence of fixed capital assets during production is :
(a) Consumption of fixed capital
(b) Capital loss
(c) Income loss
(d) None of the above
Answer: B

II . Fill in the blanks:

Question. goods will not pass through any more stages of production.
Answer: Final

Question. is the value of final goods and services produced with in the domestic territory of a country.
Answer: Domestic Product

Question. Real gross domestic product is the GDP measured at .
Answer: Constant prices 

Question. are the ‘economic assistance’ given by the government to the firms and households, with a motive of general welfare.
Answer: Subsidies

Question. are variables whose magnitude is measured over a period of time.
Answer: Flows

Question. is the flow of factor payments and payments of goods and services between households and firms.
Answer: Nominal Flow/ Money flow

Question. Addition made to the stock of capital during the year is known as .
Answer: Investment

Question. is an annual allowance for wear and tear of a capital good.
Answer: Depreciation

Question. Match the Following: 

Answer: 1. (e) Real Flow 2. (c) Money Flow 3. (d) Stock 4. (a) Flow 5. (b) Consumption of Fixed Capital

Question. Match the Following: 

Answer: 1. (e) Transfer payment, 2. (d) Kind of wages in kind, 3. (a) Forced transfer, 4. (c) Non-market activities, 5. (b) Kind of deferred wage.

Very Short Answer Type Questions

Question. What is full employment?
Answer: Full employment refers to a situation in which all those people, who are willing and able to work at the existing wage rate, get work.

Question. Define under-employment equilibrium.
Answer: Under-employment equilibrium refers to a situation when aggregate demand is equal to the aggregate supply at a level where the resources are not fully employed.

Question. Define Ex-ante investments.
Answer: Ex-ante investments refers to the amount of investments which investors plan to invest at different levels of income in an economy.

Question. What is the impact of excess demand?
Answer: Excess demand leads to inflation without any increase in output and employment as economy is already operating at the full employment level.

Question. “Marginal propensity to consume falls with successive increase in the level of income.” It is always true?
Answer: This may be true if there is equitable distribution of income. A rational consumer always attempts to save more as his income increases, but if bigger part of national income is concentrated in a few hands, the marginal propensity to consume will be high for a poor person as he needs to spends more to fulfill his basic requirements.

Question. Define involuntary unemployment.
Answer: Involuntary unemployment refers to a situation in which all those people, who are willing and able to work at the existing wage rate, do not get work.

Question. What is meant by effective demand?
Answer: The level of aggregate demand required to achieve full employment equilibrium is called effective demand.

Question. What are Ex-ante savings?
Answer: Ex-ante savings refers to the amount of savings which savers plan to save at different levels of income in an economy.

Question. Define investment.
Answer: Investment refers to the expenditure incurred on creation of capital assets.

Short Answer Type Questions

Question. Distinguish between domestic product and national product.
Answer: Sum of the value of final products that take place within the domestic territory of a country is called domestic product whereas the sum of contribution of residents of a country both within domestic territory or abroad is called national product.

Question. Find Net Value Added at Factor Cost : 
(i) Durable use producer goods with a life of 10 years 10
(ii) Single use producer goods 5
(iii) Sales 20
(iv) Unsold output produced during the year 2
(v) Taxes on production
Answer: NVA_FC = Sales + Unsold output – Single use producer goods – Depreciation – Taxes on production
= 20 + 2 - 5 -(10/10) - 1
= 20 + 2 – 5 – 1 – 1 = ₹ 15 lakh.

Question. What is real GDP ? State three limitations of GDP as an index of economic welfare.
Answer: When GDP represents quantities of final goods and services produced or when GDP is measured on the basis of constant prices, it is called real GDP. 1 Limitations : (i) It does not reflect distribution of income among people. (ii) It does not take into account non-monetary exchanges. (iii) It does not take into account externalities.

Question. ‘GDP as an index of welfare may understate or overstate welfare.’ Explain the statement using examples of a positive and a negative externally.
Answer: GDP doesn’t account for externalities. Positive Externality : e.g., saving commuting time due to construction of a fly-over, increases welfare, GDP as an index understates welfare. Negative Externality : e.g., pollution from factories, decreases welfare, GDP overstates welfare.

Question. Is Gross Domestic Product a true index of economic welfare of the people ? Give two reasons in support of your answer.
Answer: When Real GDP rises, flow of goods and services tends to rise. Other things remaining constant, this means greater availability of goods per person, implying higher level of welfare. But there are strong exceptions to this generalisation. Following observations may be noted in this context : (i) Distribution of GDP : If with every increase in the level of GDP, distribution of GDP is getting more unequal, welfare level of the society may not rise. In this situation, the bulk of the population may have even lesser goods than before (even when the overall level of GDP has tended to rise) (ii) Composition of GDP : 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. Distinguish between Real Gross Domestic Product and Nominal Gross Domestic Product. Which of these is a better index of welfare of the people and why ? 
Answer: When domestic product is valued at current prices ,it is called nominal domestic product and when it is valued at base year prices, it is called Real Domestic Product. Real Domestic Product is a better index of welfare of the people because it indicates the change in quantity of goods and services available to the people.

Question. Explain ‘non-monetary exchanges’ as a limitation of using gros domestic product as an index of welfare of a country.
Answer: Non Monetary Exchanges : are those activities in an economy which cannot be evaluated in terms of money due to non-availability of data, e.g. domestic services provided by family members at home, barter exchanges etc. Although these activities contribute to welfare, they are a major cause of understanding of GDP in the economy. Therefore, GDP may not give the true picture of welfare of a country.

Question. Government raises its expenditure on producing public goods. Which economic value does it reflect ? Explain.
Answer: If government raises its expenditure on producing public goods, it reflects that government is serving the objective of social welfare. Public goods are those goods which satisfy collective consumption needs, i.e., health, education, fresh air, civic amenities, etc. When government raises its expenditure on public goods, residents of a country are benefitted by being provided with these basic amenities. Healthy and educated people are more efficient which can lead to increase in GDP in future too.
Thus, it will improve the overall quality of life of the people in the country.

Question. Explain with the help of an example, the basis of classifying goods into final goods and intermediate goods.
OR
Explain the basis of classifying goods into intermediates and final goods. Give suitable examples.
Answer: Goods are classified as final goods and intermediate goods on the basis of the end use. If goods are purchased for consumption or investment, these would be classified as final goods. For example, machine purchased for use in a factory is a final good. Milk purchased by households is also final good as it is purchased for consumption. When a good is purchased for resale or for using it up completely in production during the year, it is called intermediate good. For example, raw material purchased for producing goods.

Question. Giving reasons, classify the following into intermediate and final goods. (i) Machine purchased by a dealer of machines. (ii) A car purchased by a household. I, 
Answer: (i) Machine purchased by a dealer of machines is an intermediate good because it is meant for resale to someone. 1½ (ii) A car purchased by a household is a final good as it is used for consumption.

Question. Government spends on child immunization programme. Analyse its impact on Gross Domestic Product and Welfare of the people.
Answer: As government spends on child immunization programme, it leads to increase in society’s welfare. It is in the sense that if complete immunization is provided to children of a nation, then it prevents them from the deadly diseases and there will be drastic reductions in the number of child falling ill. This, then checks absenteeism and drop out ratios from school. Complete vaccination also helps to reduce premature deaths. All these factors contribute to superior human capital, which ensures the better utilization of physical resources. With higher probability of getting employed, there would be greater participation in the production and output will be produced. Hence, it will raise the GDP and welfare of the country in long run.

Question. Government incurs expenditure to popularize yoga among the masses. Analyse its impact on Gross Domestic Product and welfare of the people.
Answer: GDP is considered as an index of welfare of the people. Welfare means sense of material well being among the people. Many activities in the economy are not evaluated in monetary terms. For example, leisure time activities are not included in GDP but they result in welfare of people in the country. When government incurs expenditure to popularize yoga among the masses, it will result in good health and well being of individuals. This will increase efficiency and lead to higher productivity in future in the country. Thus, inspite of being an activity to which it is difficult to put monetary value, yoga will surely result in better mental and physical health of people in the country resulting in overall welfare of the citizen of the country.

Question. Find Gross Value Added at Market Price : (Items) (₹ lakh)
(i) Depreciation 20
(ii) Domestic sales 200
(iii) Net change in stocks (–) 10
(iv) Exports 10
(v) Single use producer goods 120
Answer: GV_Amp
= [(ii) + (iv)] + (iii) – (v)
= [200 + 10] + (–10) – 120
= ₹ 80 lakh.

Question. Sale of petrol and diesel cars is rising particularly in big cities. Analyse its impact on Gross Domestic Product and Welfare.
Answer: As the sale of petrol and diesel cars is rising in big cities, it means people are demanding more cars. To meet the increasing demand of the people, producers will increase their level of production of cars leading to rise in GDP. Due to rising sale of petrol and diesel cars in big cities, the pollution level will increase. Due to increase in pollution level, people will suffer from respiratory diseases, lung cancer, etc. This will reduce the welfare of the people.

Question. How does increase in inequalities in distribution of income affect welfare of the society? Explain.
Answer: Increase in inequalities means that rich becomes richer and poor becomes poorer. Since utility of money is higher among poor and lower among the rich, any increase in inequalities may not lead to increase in welfare. 

Question. Suppose a ban is imposed on consumption of liquor. Examine its likely effects on (i) Gross domestic product and (ii) Welfare
Answer: (i) Ban on consumption of liquor will bring down the production of liquor. Since production of liquor is counted in gross domestic product, it will fall. 2 (ii) Fall in consumption of liquor will improve health causing rise in welfare.

Question. How does negative externalities affect the welfare of the people? Explain by taking an example.
Answer:  Pollution by factories, vehicles, etc. is an example of negative externalities, i.e., harm caused by a firm or a person to others for which they are not paid for. Gross domestic product does not take into account such harms caused.

Question. Which among the following are final goods and which are intermediate goods ? Give reasons.
(i) Milk purchased by a tea stall (ii) Bus purchased by a school (iii) Juice purchased by a student from the school canteen.
Answer: (i) Milk purchased by a tea stall is an intermediate good because it is purchased from another production unit for resale indirectly. 
(ii) Bus purchased by a school is a final good because expenditure on school bus is on investment expenditure. 1 (iii) Jucie purchased by a student from the school canteen is a final good because it is purchased by consumer for own use and not for resale.

Question. What is current replacement cost?
Answer: iCnu trhree netc orenpolmacye, mdeunritn cgo stth ree pfeerrsi otod tohfe a ens taicmcoatuendt ivnaglu yee aorf.

Question. Define stock variables.
Answer: Stock variables are those variables which are measured at a particular point of time.
Example: Wealth and capital.

Question. State whether the following are a stock or a flow?
(i) Income of a household.
( ii) Consumption expenditure of a household.
Answer: Both are flows, as these are measured per unit of time period.

Question. State which of the following is a stock and which is flow?
(i) Wealth.
(ii) Cement Production.
Answer: (i) Stock, (ii) Flow.

Question. Define flow variables.
Answer: Flow variables are those variables which are measured per unit of time period.
Example: Income and investment.

Question. Define real flow.
Answer: Rheea lc oflrorwe srpeofenrds itnog t hfleo wflo owf ogof faodcsto arn sde rsveircveisc efrso frmo tmh et hheo upsreohdouldci nsegc tsoerc ttoor t htoe tphreo hdouucisnegh oseldct oserc atonrd.

Question . What must be added to domestic factor income to obtain national income?
Answer: Net factor income from abroad.

Question . What is meant by primary sector?
Answer: Primary sector is that sector which produces goods by exploiting natural resources. It comprises agriculture, fishing, forestry and mining.

Question . What is meant by secondary sector?
Answer: Secondary sector is that sector in which production is done by using output of primary sector as input.