Delhi - 110058. (ii) Profits earned by an Indian company from its branches in Singapore will be included while estimating National Income of India, as it is a factor income from abroad. 1. (iii) Scholarship given to Indian students studying in India by a foreign company. Attiguppe , Bengaluru - 560040, Now reach all our Branches with ease!!!! (ii) GNP (at FC): Gross National Product at factor cost. Final Expenditure It is the expenditure on the purchase of final goods and services during an accounting year. (iii) Capital gains to Indian residents from sale of shares of a foreign company. Calculate (All India 2009). Also, it indicates economic balance. Value Added by a Firm = Value of Output of the Firm Intermediate Consumption of the Firm. The problem of double counting can be avoided by the following two alternative ways: 835 arab. Thus, it eliminates the distorting effect of indirect taxes and subsidies, which can vary greatly across countries. = [700 + (-30)] 400 -20 + 50 Study of problem of unemployment in India or general price level is a macroeconomic study because they relate to Indian economy as a whole.Let it be known that an English economist J.M. Keynes whose book titled 'General Theory of Employment, Interest and Money', published in 1936 brought about a revolution in economic thought is called the Father of Modern Macroeconomics. Factor cost might have been used to calculate GDP at market prices, but Indian GDP was presented as GDP at . (ii) Payment of salaries to its staff by an embassy located in New Delhi will not be included in domestic income of India, as it is not a part of domestic territory of India. Ans. Such an increase along with deterioration of the capital stock value indicates economic stagnation. Government Spending3. (All India 2011), Ans. It is computed as follows: NNPFC = GNPMP Net Indirect Taxes Depreciation. (ii) Rent free house to an employee by an employer. Precautions While Using Income Method PRODUCT METHOD (Value added method): Theory-only the value of final goods is to be included; otherwise there arises a problem of double counting. The national income (NI) of a nation indicates its yearly economic growth. Aggregate demand is a measurement of the total amount of demand for all finished goods and services produced in an economy. It is calculated by subtracting the capital depreciation from the Gross Domestic Product (GDP), which is the sum of all goods and services produced in a country. (i) Profits earned by a branch of foreign bank in India. Some of our partners may process your data as a part of their legitimate business interest without asking for consent. Ask questions, doubts, problems and we will help you. Calculate Net National Product at Factor Cost and private income from the following (Delhi 2014), 34. = 850-520 Intermediate Goods Consumption of Fixed Capital Indirect Taxes 680 crore However, a wider gap between the GDP and NDP shows an increase in the value of obsolescence. (i) Income from illegal activities like smuggling, theft, gambling, etc, should not be included. (i) NDP (at MP) : Net Domestic Product at market price. 950 crore, (b) By Production Method Find out 1950 crore, 66. = 790-500-20+60 GDP = Total National Income + Sales Taxes + Depreciation + Net Foreign Factor Income. (ii) Net National Disposable Income (All India 2011), 57. You can learn more about it from the following articles . Download the PDF Question Papers Free for off line practice and view the Solutions online. NDP FC = GDP MP - Depreciation - Net Indirect Taxes NDP FC is also known as Domestic Income or Domestic factor income. The GNPMP is the value of overall goods or services manufactured by a nations residents. Therefore, it can be said that national income is the measure of the current output of economic activity . How will you treat the following while estimating domestic factor income of India? Meaning. (ii) Pension paid after retirement. This total final expenditure is equal to gross domestic product at market price, i.e. Particulars It is evaluated based on income, the addition of value, or expenditure. And by adding the NVA FC of all industries, we get the net domestic product at factor cost, which is represented as NDP FC. Computation of National Income (By Income Method). (ii) Interest on a car loan paid by a government owned company. small group of firms) but deals with the study of broad economy-wide aggregates like total output, size of national income, level of employment, aggregate consumption, aggregate saving, aggregate investment, general price level, balance of payment, rate of inflation, size of poverty etc. (iii) Purchase by a foreign tourists will be included while estimating National Income as it is consideredas exports of goods and services. = Rs. (a) Net Domestic Product at Factor Cost and (v) Expenditure on shares and bonds is not to be included in Total Expenditure. (i) Payment of fees to a lawyer by a firm. Hence, value of national income method should be the same as the one calculated by value added method. Ans. Imputed rent of owner occupied dwellings and value of production for self-consumption is included but value of self-consumed services like those of housewife is not Included. 64. (i) No, it is not included while estimation of National Income as it is not a factor income. (a) Gross Domestic Product at Factor Cost (GDPFC) = Government Final Consumption Expenditure (ii) Value added method This approach or method is a way to avoid the problem of double counting. In other words, the NDP-FC is calculated by subtracting the indirect taxes and adding the subsidies to the value of output, which is the value of all goods and services produced within a countrys borders. National income is studied under macroeconomics; gross domestic product (GDP) and gross national product (GNP) are the two major components. (iii) Interest received on loans given to a friend for purchasing a car will not be included in the estimationof National Income as loan is given for consumption purpose. (ii) National debt interest. (a) Net National Product at Market Price = Rs. (vi) If sales are given, then exports are not included separately. It is measured by aggregating monetary values of final goods and services produced during that financial year. (ii) Net National Disposable Income (Delhi 2012), 48.Find out 14. (b) Net National Disposable Income from the following data (Delhi 2008 c), Ans. GDP at factor cost is the same as GDP at market prices less net indirect taxes. (All India 2012) Examples are: Individual income, individual savings, price determination of a commodity, individual firm's output, consumers equilibrium. (a)Income method and (ii) Corresponding to production for self consumption, the generation of income of economy to be taken into account. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Copyright 2023 . The formula for NDP can be expressed as follows: Depreciation = Depreciation of capital assets such as equipment, vehicles, housing, and more. Thus, national income is calculated by adding up factor incomes generated by all the producing units located within the domestic economy during a period of account. (a) Net Domestic Product at Factor Cost (NDPFC) = Wages and Salaries + Rent + Interest Paid byProduction Units + Corporation Tax + Dividends + Undistributed Profits + Social Security Schemes by Employers (a) Income method and (i) Net Indirect Taxes NDP is a more accurate measure of a countrys economic output, as it considers the wear and tear of physical capital, which is a key factor in long-term economic growth. = NNPFC+ Net Indirect Tax + Consumption of Fixed Capital Net Current Transfer to Abroad = 685 + (120-20) + 35 -(- 15) Calculate Gross Value Added at Factor Cost (Delhi 2012), 5. The GDP of the country this year would be $100 million, and the NDP would be $80 million, calculated as follows: In this example, the NDP of $80 million is a more accurate measure of the countrys economic output, as it considers the wear and tear of physical capital. = 700+100+120+ (-20) -80-10 It measures the output generated by a country's organizations located domestically or abroad. = 2600 + 1100 + 500+100 + (-100) + (-50) -250 Depreciation - cost allocated to a tangible asset over its useful life. 30 crore, 12. In other words, GDP measures the total value of all goods and services produced within a country. 13. (a) National Income (NNPFC) = Private Final Consumption Expenditure+ Government Final Consumption Expenditure + Net Domestic Capital Formation + Change in Stock Net Exports Net Indirect Taxes Net Factor Income to Abroad Net Domestic Product at Factor Cost(NDPFC) = Private Final Consumption Expenditure+ Government Final Consumption Expenditure + Net Domestic Fixed Capital Formation + Net Change in Stocks Net Imports Indirect Taxes Step 4 The last step of calculating National Income through the Income Method is the estimation of Net Factor Income from Abroad (NFIA). (iii) Expenditure on transfer payments by the government is not to be included. (iii) Expenditure by government on providing free education. Calculate National Income and Net National Disposable Income from the following (All India 2014), Ans. While estimating National Income, how will you treat the following? NDP = Net domestic product GDP = Gross domestic product Depreciation = Depreciation of capital assets such as equipment, vehicles, housing, and more As the NDP takes into account the depreciation of capital assets, it is considered to be superior to the GDP as a measure of well-being of a nation. (a) Gross Value Added at Market Price by each sector Only factor incomes which are earned by rendering productive services are included. Find out Net Value Added at Factor Cost (All India 2012), 10. It is used to measure the total economic output of a country, taking into account depreciation and capital consumption. This is important as failure to take action would result in a decrease in the country's GDP. 90 lakh, 15. 11. It is net money value of Goods and Services Produced in domestic territory after Depreciation It is also called Net Domestic Product at Factor Price (NDP FC ) Formula NDP FC = GDP FC - Depreciation Example Suppose total value of goods and services produced in DOMESTIC TERRITORY is 100 Depreciation on Maintaining Fixed assets is 20 Sale and purchase of second-hand goods are excluded since they are not part of production of current year but commission paid on sale of second-hand goods is included as it is reward for rendering productive services. 50: Solution: GNP at MP = NDP at FC + Depreciation - Net Factor income from abroad + Indirect tax =3,200 + 400-50 + 70 = 3,620 crores. (i) Interest paid by banks on deposits. It refers to the market value of final goods aand servicess produced within the domestic territory of a country during the period of an accounting year, exclusiive of depreciation. NDP is a measure of a countrys economic performance that considers the depreciation of physical capital, unlike GDP, which only reflects the sum of all goods and services produced within a countrys borders. = 560-45 = Rs. 1390 crore, 51. 2,000 crores = Rs. (ii) Interest paid by an individual on a loan taken to buy a car. Find Net Value Added at Market Price (Delhi 2012), 7. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. Home Economy National Income accounting Methods of estimating National Income Income method. What do you understand by domestic income (NDP FC)? Gross National Product at Market Price (GNPmp) = NDPFC + Net Indirect Taxes Net Factor Calculate National Income and Net National Disposable Income from the following data (Delhi 2008), Ans. (b) National Income = Gross Value Added (GVA) by A and B = (310 + 290) crores Give reasons for your answer. Formula value of output= Sales + change in stock Change in st. as well as windfall gains (e.g., from lotteries) are excluded. (i) National Income It is study of individual economic units of an economy. The total value of all goods and services produced within a countrys borders. = Rs. 2800 crore, 65. (a) Gross National Product at Market Price and Intermediate products are ignored. Net Domestic Product (NDP) measures the total value of all goods and services produced in a country, adjusted for the depreciation of physical capital. (Python), Different Sectors of Economy and Their Expenditures, Expenditure Method of calculating National Income, Expenditure Method - Calculating GDP FC,GNP FC, GNP MP, Expenditure Method - Calculating Missing Figures, Chapter 2 National Income - Part 6 Summary of Different Methods, Chapter 2 National Income Accounting - Basic Concepts, Chapter 2 National Income - Part 2 Concept of GDP and GNP, Chapter 2 National Income - Part 3 Value Added Method, Chapter 2 National Income - Part 4 Income Method, Chapter 2 National Income - Part 6 Summary of Different Methods, Chapter 4 Part 1 - AD,AS and Related Concepts, Chapter 4 Part 2 - Income Determination and Multiplier, Chapter 4 Part 3 - Excess Demand and Excess Supply, Chapter 6 Part 1 - Foreign Exchange Rates. (i) Capital gain on sale of a house. = Rs. Income Method: NI = Rent + Compensation + Interest + Profit + Mixed Income.2. Net Exports. The concept has the following drawbacks:1. (iii) Imputed value of self-consumed goods should be included, but self-consumed services should not be included. Displaying ads are our only source of revenue. Teachoo gives you a better experience when you're logged in. Net Factor income to abroad: 3,200. Expenditure Method: NI = C (household consumption) + G (government expenditure) + I (investment expense) + NX (net exports).3. How should the following be treated while estimating National Income? = Private Final Consumption Expenditure + Government Final Consumption Expenditure + Net Domestic Fixed Capital Formation + Change in Stock + Net Export + Consumption of Fixed Capital Net Factor Income to Abroad Net Indirect Tax How will you treat the following while estimating National Income of India? Net domestic product (NDP) is an annual measure of the economic output of a nation that is adjusted to account for depreciation. are excluded. = 360 -5 The NDP-FC provides a more accurate measure of a countrys economic performance. It will lead to the problem of double counting. Required fields are marked *. Calculate National Income and Gross National Disposable Income from the following (Delhi 2011), Ans. (i) Gross National Product at Market Price 600 lakh, 16.Calculate Net Value Added at Factor Cost from the following data, Ans. 85. Ans. = Rs. It helps to solve the central problem of full employment of resources in the economy.. = 1760-110 10. (i) Payment of bonus by a firm. Are the following a part of countrys Net Domestic Product at Market Price? Step 4: Now, we will calculate net factor income from abroad (NFIA) to get national income. Intermediate Consumption = Value of Output Net Value Added In lakhs GNP at MP 16,000 Subsidies 1,200 . (b) Personal Income from the following data (All India 2008), 86.Calculate (i) Dividend received by an Indian firm from its investment in shares of a foreign company will be included in the estimation of National Income, as dividend is a part of profit and treated as factor income from abroad which is added to domestic income. Give reasons for your answer. 3900 crore, 72. (Delhi 2009), 77. = Rs. (ii) Profits earned by an Indian bank from its abroad branches is included while estimating National Income of India as it is a factor income from abroad. (i) Dividend received by a foreigner from investment in shares of an Indian company will be deducted from National Income as it is factor income to abroad. Sum up all factor payments made within domestic territory to get Domestic Income (NDP at FC). Net Value Added at Factor Cost (NVAFC) = Value of Output (Sales + Change in Stock) Purchase ofIntermediate Goods Depreciation Net Indirect Taxes (iii) Expenditure on purchasing a car for use by a firm. Instead of expanding the sprawl of the city, older buildings might be torn down and replaced by new construction intended to fill the same use as the predecessor building. Explain. (iii) Capital gains to Indian residents from sale of shares of a foreign company will not be included whileestimating National Income in India, as it is a kind of transfer income. Ans. =610 +130-30 -10-40 (ii) Payment of interest on borrowings by general government. To view the purposes they believe they have legitimate interest for, or to object to this data processing use the vendor list link below. I have written it for you to memorize it. = 500 + (-20) 250 -40 + 30 Net Value Added at Factor Cost (NVA FC) = Sales + Change in Stock (Closing Stock- Opening Stock)- Purchase of Intermediate Goods - Consumption of Fixed Capital - Indirect Tax = 500+ (80-60)-350-90-50 = 520-490 = Rs. National income is the total value of all economic activities carried out in production capacities owned and run by a nations residents. (i) Capital gain on sale of a house will not be included while estimating National Income, as it is already included in the year when it is built. Write in to us at, Insta 75 days Revision Tests for Prelims 2022, Difference between economic growth vs economic development, The concept of demand and supply in an economy, Importance of quantifying economic growth, Various types of economic indicators or concepts related to measuring economic growth, Issues associated with National Income accounting in India, Possible solutions to Issues with National Accounting, Structure of Indian economy: a brief overview, Indian economy at the time of independence: Basic characteristics, Basic characteristics of the Indian economy in present times, Overall Solutions to achieve a New India by 2022, Historical evolution of planning in India, Genesis of Planning Commission and its objectives, Framework of planning under the commission, Growth of Indian economy under the various-five year plans of the Planning commission, Analysis of the working of Planning commission, Performance of the AYOG since its inception, Issues plaguing the AYOG and measures 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Intensive Prelims Booster Test Series (IPB) 2023. 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