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National Income and Related Aggregates
1. GDP of a Nation rose by 6%, does it represent real Growth of the Country?
Ans . No, because inflationary growth must be discounted from it.
2. ―GDP does not include all the economic transactions in it‖. Comment,
Ans . Indian Economy is an underdeveloped economy. There occur several non-monetary transactions. In rural India, people exchange some goods with other goods or exchange goods with services without involving money. Money Value of such transactions is excluded from GDP. Thus GDP is not a true index of all the transactions of a nation.
3. National Income rose by 8% during the year 2010, Does it represent the growth of every Indian? Discuss
Ans . No, because national income includes the factor income of all the factors of the nation. It does not analyse the distribution of income of every Indian. Some people might have very high income while others income might be negligible. Thus 8% growth of national income does not mean equivalent growth of every Indian.
4. Does private income include Net Factor Income from Abroad
Ans . Yes, Private Income is private because it does not include income of public sector. Income of any Govt. Department or savings of public enterprises is excluded from it. However net foreign income of every factor earned from abroad is part of private income. Thus private income is a part of national income of a nation.
5. ―National Disposable Income has a greater value than national income‖. Do you agree?
Ans .Yes, because national disposable income includes some additional factors which national income does not include. These are:
I. Net Indirect Taxes.
II. Net Current Transfers from Abroad.
National Disposable Income does not distinguish factor income from transfer income. It can be disposed off by a nation, the way it likes.
6. ―The value of Private income is greater than Personal income and Personal Disposable Income‖. Comment.
Ans . Yes, the value of Private income is greater than Personal Income as well as Personal Disposable income in every nation because Private income has the following extra elements in it:
I. Private Income includes corporate Taxes as well as Corporate Savings where as personal income does not include these amounts.
II. Private income includes personal Taxes as well as Miscellaneous income where as Personal Disposable income does not include it
7. Why transfer income is not included in National income? Explain.
Ans . Transfer Income is any income of the people which is paid to them without providing any service. It is unearned income, received as a help from Govt. or from some other donor. National income, on the other hand is the income of all the factors for providing some service. It is the sum total of earned incomes.
8. Determine National income when the following data is given:
i. National Disposable income 12,000
ii. Net Indirect Taxes 150
iii. Net Current Transfers Income from Abroad 200
iv. Net Factor Income from Abroad (-)50
Ans . Rs. Crores
National Disposable income = 12000
(-) Net Indirect Taxes = 150
(-) Net Current Transfers Income from Abroad = 200
NATONAL INCOME = Rs. 11650 crores
9. How far Retained Earnings of National Thermal Plant Corporation (NTPC) Rs.1500 crs.is a part of national income?
Ans . It is an income of Public Sector Company, therefore, included in National income.
10. State Bank of India Earned Rs.500 crs from its branch at London. Is it a part of Indian National Income?
Ans .Yes, it is a part of income of India, since economic interest of SBI at London lies in India.
11. Although India‘s GDP is increasing but the welfare of the people is not increasing with that pace. Do you think the concept of ―Green GNP‖ should be followed?
Ans .Yes, the concept of Green GNP can be followed.
i. Green GNP measures national income or Output adjusted for the depletion of natural resources and degradation of the environment.
ii. It will help to attain a sustainable use of natural environment and equitable distribution of benefits of development. A large number signifies greater Sustainability
12. Old age pension by the Govt. Increases the welfare of the people. However it is not included in the estimation of national income. Why?
Ans .It is not included in the estimation of National income because it is a transfer payment.
13. Services of house wife and leisure time activities contribute to welfare of people. However they are not included in the estimation of national income. Why?
Ans .Such non-market transactions are not included in the national income because it is difficult to ascertain their market value and such services are not rendered for the purpose of earning income.
14. A City in Northwest India is hit by a massive earthquake causing huge loss of property. Life of people has come to a standstill. Govt. of India announces compensation to earthquake victims to meet the needs of their food, clothes and shelter.
a) Is this expenditure included in National income?
b) How does it impact life in the city?
Ans. a) This Expenditure by the Govt. is not included in National income as it is transfer Payment and does not correspond to the flow of goods and services
b) This Expenditure will help the people to get their lives back on track. It will add to their consumption expenditure. Also, if some expenditure is incurred to rebuild their houses, it will add to the capital formation in the city.
15. Measurement of national income suffers from various limitations which lead us to conclude that it is not an overall appropriate measure of welfare of people, still national income accounting is done and national income estimates are prepared. Justify.
Ans. i) National income Accounting helps in identifying specific economic achievements of a country.
ii) It provides an objective base of evaluation and review of policies implemented.
iii)It indicates specific contribution of each sector of the economy.
In spite of certain limitations, it is a measure of economic production if not overall welfare
16. Countries GDP and National income are increasing. Higher GDP is generally taken as greater welfare of people. However this generalization may not always be correct. Why? Give reasons.
Ans. If rise in National income is due to production of more of war time goods such as explosives, guns, bombs, etc. are due to production of more goods which are socially undesirable such as opium, liquor, etc. then increased GDP may not be welfare oriented.
If there is unequal distribution of income economic welfare may not increase.
17. Every rational producer makes provision for depreciation to replace fixed assets after expiry of expected life time. He takes care of physical capital, but in the pursuit of increasing production he must have been causing damage to natural capital (Resources and Environment). Suggest solution to the problem.
Ans. The producer should also make provision for loss caused to nature (in the form of exploitation of natural resources and environmental pollution) he should follow the concept of Green GNP (Green GNP is defined as GNP which would help to attain a sustainable use of natural environment and equitable distribution of National income)
Green GNP = GNP - Net fall in stock of Natural capital.