Net Factor income to abroad: 3,200. Methods of Calculating National Income, (i) Income method (i) Net Indirect Taxes So we use following Steps Step 1 Calculate Gross Domestic Fixed Capital Formation =Gross Fixed Capital formation =Net Fixed Capital formation +Depreciation =Net Fixed Capital formation +Consumption of Fixed Capital =350+50 =400 Step 2 Calculate Gross Domestic Capital Formation Gross Domestic Capital Formation Such an example would qualify as depreciation and replacement. = 4100- (600 + 700 + 700) 50 -100 = 3550-2850 = Rs. Income Method By this method, the total sum of the factor payments received during a given period is estimated to obtain the value of Domestic Income. Ans. National income is studied under macroeconomics; gross domestic product (GDP) and gross national product (GNP) are the two major components. (ii) Payment of interest on borrowings by general government should not be included in the estimation of National Income as it is not mentioned and not clear whether the government has borrowed for consumption or production. Calculate Personal Disposable Income: (Compartment 2014), Ans. Click to reveal (b) National Income = Gross Value Added (GVA) by A and B = (310 + 290) crores =Rs. Value Added by a Firm = Value of Output of the Firm Intermediate Consumption of the Firm. Let us have a look at the examples to understand the concept better. (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. (i) Payment of fees to a lawyer by a firm. Gross Value Added at Factor Cost (GVAFC) = Value of Output (Sales + Change in Stock)- Purchase of Raw Materials Indirect Tax (Sales Tax + Excise Duty) Suppose a countrys economy produces $100 million worth of goods and services in a year, and the depreciation of its physical capital is $20 million. Calculate 'Gross Domestic Product of Factor Cost' from the following data: We are given Net Domestics Capital Formation (and not gross), Step 1 Calculate Gross Domestic Capital Formation, =Net Domestic Capital formation +Depreciation, =Net Domestic Capital formation +Consumption of Fixed Capital, In this question, we have to calculate GNP FC, We are given Net Domrstic Fixed Capital Formaton, First we calculate Gross Domestic Fixed Capital formation, Step 1 Calculate Gross Domestic Fixed Capital Formation, =Net Fixed Capital formation +Depreciation, =Net Fixed Capital formation +Consumption of Fixed Capital, Step 2 Calculate Gross Domestic Capital Formation, =Expenditure on Fixed Assets +Expenditure on Stock, =Gross Fixed Capital formation + Inventory Investment, =Gross Fixed Capital formation +(Closing Stock-Opening Stock), In this question, we need to calculate NDP at FC, In this question, we need to calculate GNP MP, Personal final consumption Expenditure and Persona Consumption expenditure are Sam things, Govt Final Consumption Expenditure and Govt Consumption expenditure are different things, But we need to calculate Gross domestic Capital formation and Nest Exports, =Exports of goods and servives -Imports of goods and services, Step 2 We calculate Gross Domestic Capital Formation, Get live Maths 1-on-1 Classs - Class 6 to 12, CA Maninder Singh is a Chartered Accountant for the past 13 years and a teacher from the past 17 years. (vii) If intermediate purchases are given, then imports are not included. 950 crore, (b) By Production Method (ii) National debt interest. Computation of National Income (By Expenditure Method), 8. (ii) Net exports It is the total value of domestic production minus net indirect taxes. The value added by a firm is the difference between value of output and the value of intermediate products of each firm of the country. Attiguppe , Bengaluru - 560040, Now reach all our Branches with ease!!!! 9. Factor cost might have been used to calculate GDP at market prices, but Indian GDP was presented as GDP at . (b) Personal Disposable Income from the following data (All India 2011), 53.Calculate (i) Family members working free on the farm owned by the family should included as it is a part of mixed income. = 750+ (-30)-500-60-100 (i) The value of intermediate goods should not be included. = 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 (i) NDP (at MP) : Net Domestic Product at market price. (ii) Earning of shareholders from the sales of shares. (a) Gross Value Added (GVA) by A = Sales by A + Net Change in Stock of A IntermediateConsumption of A = 4300 400 61.Explain the problem of double counting in estimating national income, with thehelp of an example. = 750-450 = Rs. Switch; Flag; Net Value Added at Factor Cost (NVAFC) = Value of output (Sales + Change in Stock) Purchase ofRaw Materials Consumption of Fixed Capital + Subsidies (b) Expenditure method from the following data (All India 2009), Ans. = Rs. 830 crore An increase in NI does not always indicate growth but may result from rising commodity prices.2. (i) Payment of bonus by a firm. You must give reason in support of your answer. 70. Indirect Taxes. 730 crore, (b) Private Income = NNPFC Net Domestic Product at Factor Cost Accruing to Government+ Transfer Payments + National Debt Interest This method measures national income as sum total of final expenditures incurred by households, business firms, government and foreigners. In short, NDP FC = Compensation of Employees + Rent and Royalty + Interest + Profit + Mixed Income Step 4: Estimate net factor income from abroad (NFIA) to arrive at National Income: In the final step, NFIA is added to domestic income to arrive at National Income (NNP FC ), i.e. document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Copyright 2023 . Your IP: This information is crucial for policymakers and investors. (All India 2012) (ii) Interest paid by an individual on a car loan taken from a bank. Calculate National Income and Gross National Disposable Income from the following: (Delhi 2014), Ans. 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. 300 lakh, 19. How It Works and Examples, Nominal Gross Domestic Product: Definition and How to Calculate, What Real Gross Domestic Product (Real GDP) Is, How to Calculate It, vs Nominal, Aggregate Demand: Formula, Components, and Limitations. Class 12 Computer Science National Income equals Rent + Wages + Interest + Profit + Mixed-Income. Net domestic product (NDP) is an annual measure of the economic output of a nation that is adjusted to account for depreciation. Depending on the way, the income is earned. (iii) Interest on public debt. 60 lakh, 18.Calculate Net Value Added at Factor Cost from the following data, Ans. Total National Income - the sum of all wages, rent, interest, and profits. = Rs. The basic National Income formula used for its evaluation is as follows: Also, it can be measured using any of the following three methods: In macroeconomics, NI is correlated with various other crucial money value measures, as discussed below: GDPMP is the total value of a nations goods and services produced locallyduring a given accounting year. Calculate 37. (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. (ii) National debt interest. National Income (NNPFC) = Gross Value Added at Market Price by the Primary Sector+ Gross Value Added at Market Price by the Secondary Sector + Gross Value Added at Market Price by the Tertiary Sector-Net Indirect Taxes-Consumption of Fixed Capital + Net Factor Income from Abroad Hence, according to the value-added method: National Income = (NDP FC) + Net factor income from abroad. 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. + Private Final Consumption Expenditure + Gross Domestic Capital Formation Net Imports Net Indirect Tax (a) By Income Method 232, Block C-3, Janakpuri, New Delhi,
Ans. (ii) Payment of interest by a government firm should not be included in the estimation of National Income, as it is a transfer payment. National Income (NNPFC) = Private Final Consumption Expenditure + Government Final Consumption Expenditure + Net Domestic Capital Formation + Net Exports Net Indirect Taxes Net Factor Income to Abroad Gross National Product at Factor Cost (GNPFC) = Compensation of Employees + Profits + Rent+ Interest + Consumption of Fixed Capital + Net Factor Income from Abroad (All India 2010) Thus, it provides a clearer picture of a countrys economic performance. This would mean the purchased machine would qualify as a gain for the NDP. (ii) Interest received on debentures. The Income Method measures national income from the side of payments made to the primary factors of production in the form of rent, wages, interest and profit for their productive services in an accounting year. The NDP better assesses a countrys economic output by subtracting this value from GDP. In addition, NDP helps understand the number of resources available for consumption or investment. (All India 2009). (ii) Rent free house to an employee by an employer will be included while estimating National Income, as it is a part of compensation to the employee. It is study of the economy as a whole and its aggregates. It studies not an individual economic units like a household or a firm or an industry (i.e. 1600 crore 78. Net Domestic Product at Factor Cost (NDPFC) = Value of Output in Economic Territory-(Intermediate Purchase by Primary Sector+ Intermediate Purchase by Secondary Sector + Intermediate Purchase by Tertiary Sector)-Consumption of Fixed Capital Indirect Taxes 11. Computation of National Income (By Income Method). Net Domestic Product (NDP) measures the total value of all goods and services produced in a country, adjusted for the depreciation of physical capital. Estimate net factor income from abroad which is added to Domestic Income to derive National Income. You must give reason for your answer. 73.Calculate National Income by Still, it only counts the value of the factors of production used to produce them, excluding indirect taxes and subsidies. Calculate sales from the following data (Delhi 2013), 3. It measures the output generated by a country's organizations located domestically or abroad. (Delhi 2010). (ii) Interest on a car loan paid by a government owned company. 1650 crore, 69. 2023 Zigya Technology Labs Pvt. Ans. Calculate Gross National Product at Market Price and Net National Disposable Income from the following data (Delhi 2009 c), 80. Part of the machinery in a factorys production line may need to be replaced while another set of similar machines continues to function within the same factory. (i) Income from illegal activities like smuggling, theft, gambling, etc, should not be included. 6. It is shown as: NDP FC = GDP MP - Net Indirect tax - Depreciation 5. Giving reason, explain how should the following be treated in estimation ofNational Income (Delhi 2012) Calculate However, a wider gap between the GDP and NDP shows an increase in the value of obsolescence. = 500 + (-20) 250 -40 + 30 (a) Gross National Product at Factor Cost and (ii) Expenditure on second hand goods is not to be included. NDPFC = Compensation of Employees + Profit + Rent & Royalty + Interest + Mixed income. 76. (iii) Expenditure on purchasing a car for use by a firm. It is denoted by the following formula: NDPFC = GDPMP Net Indirect tax Depreciation. Net Value Added at Factor Cost (NVAFC) = Sales + Change in Stock Purchase of Raw Materials- Consumption of Fixed Capital + Subsidies The formula for NDP can be expressed as follows: Depreciation = Depreciation of capital assets such as equipment, vehicles, housing, and more. It is computed as follows: NNPFC = GNPMP Net Indirect Taxes Depreciation. (b) Production method from the following data (Delhi 2011), Ans. 94.23.210.48 (Foreign 2014) = 500 + 10-200=Rs. (Python), Class 12 Computer Science 14. 220 lakh, 22.Giving reason, explain how should the following be treated in estimating NationalIncome (Delhi 2012) (i) Expenditure on free services provided by government should be Included in the estimation of National Income, as it is a final expenditure of the government. (a) Income method and He teaches Science, Economics, Accounting and English at Teachoo, Made with lots of love From the following data calculate Net Value Added at Factor Cost (Delhi 2008 C), Ans. (ii) Payment of salaries to its staff by an embassy located in New Delhi. It is considered a key indicator of economic growth of a country. = 1600-300-(-20)+ 30+ 40+0 This total final expenditure is equal to gross domestic product at market price, i.e. Only factor incomes which are earned by rendering productive services are included. 950 crore (ii) Pension paid after retirement. (ii) Payment of interest on loan taken by an employee from the employer. Thus, from the money value of NNP at market price or NNI we deduct the amount of indirect taxes to arrive at the net national income at factor cost. = Rs. (b) Expenditure method from the following data (Delhi 2009), Ans. Sum up all factor payments made within domestic territory to get Domestic Income (NDP at FC). NCERT Solutions for Class 6, 7, 8, 9, 10, 11 and 12, 1. 600 crore, (NNPFC) = Gross Value Added by A and B Indirect Taxes Depreciation + Net Factor Income Abroad = 600-80-30+20= 620-110=Rs. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. (iii) Expenditure by government on providing free education will be included while estimating NationalIncome, as it is a part of governments final consumption expenditure. Calculate Net National Product at Market Price and Gross National Disposable Income. NNP Fc = NDP Fc + Net factor income from abroad. = 3500 + 50 2000 500 350 Though GDP is frequently cited when assessing the economic health of a country, NDP puts into perspective the pace at which capital assets degrade and must be replaced. 60. (i) Payment of bonus by a firm is not Included in the estimation of National Income as it is not a part of factor income. (i) Remittances from non-resident Indians to a resident in India should not be included in the estimation of domestic factor income as it is not a part of domestic income and the income is not generated in domestic territory of India. Ans. (ii) Purchase and sale of second hand goods should not be included. (iii) Purchase by a foreign tourists will be included while estimating National Income as it is consideredas exports of goods and services. (iii) Profits earned by branches of a foreign bank in India as profit is earned in the domestic territory ofIndia. 89. 42. It is that part of economic theory which deals with the individual parts of the economic system like individual households, individual firms, individual industries, etc. Simply put 'it is study of the economy as a whole'. (a) By Expenditure Method 31. (i) Dividend received by a foreigner from investment in share of an Indian company. (ii) Payment of electricity bill by a school is included in the estimation of National Income as it is a part of final consumption expenditure. Cookies collect information about your preferences and your devices and are used to make the site work as you expect it to, to understand how you interact with the site, and to show advertisements that are targeted to your interests. 555 crore, 83. (iii) Financial help received by flood victims are not included while estimating National Income, as it is akind of transfer payment. While that may take many years, barring unexpected damage or defects, there is a cycle of equipment failure and replacement. 4,000 crores + Rs. 5500 crore = 530-310 Call us @ 08069405205, Want to work at Insights IAS? This leads to over estimation of the value of goods and services produced. are excluded. NDP is a useful tool for long-term economic analysis, as it considers the decline in the value of physical capital over time, which is an important factor for sustained economic growth. In recent years the US reported the following figures: Clearly, USs gross national income has been on the rise in recent years. = 5000 + 2000 + 500 + (-30) + (-150) + 100-50- 800 = 7600-1030 = Rs. 39.Calculate Net Value Added at Factor Cost form the following data: 40. = [700 + (-30)] 400 -20 + 50 Ans. 62.Calculate(a) Gross Domestic Product at Market Price and Sales = Net Value Added at Factor Cost (NVAFC)+ Intermediate Consumption Change in Stock+ Indirect Tax + Depreciation Precautions While Using Expenditure Method. = Rs. 340 lakh, 20. 68.Calculate Gross National Product at Factor Cost from the following data by How should the following be treated while estimating National Income? = 30 + 5 = Rs. Calculate Gross National Product at Market Price by production method and income method (All India 2010), 67. (iii) Mixed income of self-employed, 3. Its distribution doesnt reflect the actual condition of the poor. Give two examples of macroeconomic studies. There are only two producing sectors A and B in an economy. Calculate 7. = Rs. (b) Net National Disposable Income from the following data (Delhi 2008), 82. Net Value Added at Factor Cost (NVAFC) = Value of Output (Sales + Change in Stock) Purchase ofIntermediate Goods Depreciation Net Indirect Taxes Find Net Value Added at Market Price (Delhi 2012), 7. (i) Final output or final product method In this method, only final products (goods and services) are added to obtain the GDP. = Rs. = 1760-110 = 790-500-20+60 Also explain, two alternative ways of avoiding the problem. 25.Giving reason, explain how should the following be treated while estimatingNational Income (All India 2012) (ii) Rent paid by embassy of Japan in India to a resident Indian. It is study of individual economic units of an economy. = 5500 + 250- 150 + 100 = 5850- 150 (Delhi 2008). To view the purposes they believe they have legitimate interest for, or to object to this data processing use the vendor list link below. Direct taxes such as income tax which are paid by the employees from their salaries and corporate tax, which is paid by the joint stock company from its profit, are included. 13. (iii) Scholarship given to Indian students studying in India by a foreign company. The total value of all goods and services produced within a countrys borders is adjusted for the depreciation of physical capital. Calculate NDP at FC Particular Rs. (ii) Net Current Transfers from Abroad (All India 2012), 49.Find out Gross Domestic Product at Market Price (GDPMP), Gross Domestic Product at Factor Cost (GDPFC), Net Domestic Product at Market Price (NDPMP), Net Domestic Product at Factor Cost (NDPFC), Gross National Product at Market Price (GNPMP), Gross National Product at Factor Cost (GDPFC), Net National Product at Market Price (PMP), Net National Product at Factor Cost (NNPFC). Value from GDP by a foreign company ( 600 + 700 ) 50 -100 = =. 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And sale of second hand goods should not be included 18.Calculate Net value at. Reach all our Branches with ease!!!!!!!!.