(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 Similarly, indirect taxes like sales tax, excise duties, which tend to increase market prices, are not included. The acquisition of new machines for the new factory would represent a gain because the demand was driven by the need to increase the scope of the operations, rather than serve as a replacement. 355 crore, 81. (i) Payment of bonus by a firm. (Delhi 2009) Identify enterprises which employ factors of production (land, labour, capital and enterprise). 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 (b) Net National Disposable income from the following data Likewise, sale proceeds of shares and bonds are not included. Ans. (a) By Expenditure Method This information is crucial for policymakers and investors. Intermediate products are ignored. 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. So, it is a part of domestic factor income. Value of Output = Net Value Added at Factor Cost (NVAFC) + Depreciation Hence, the problem of double counting is avoided. (iii) Interest received on loans given to a friend for purchasing a car. = 600 + 100 + 110-20-(120-20)-5 In lakhs GNP at MP 16,000 Subsidies 1,200 . Thus, it provides a clearer picture of a countrys economic performance. GNP FC = NNP FC + Depreciation OR. (i) Income from illegal activities like smuggling, theft, gambling, etc, should not be included. Calculate 30 crore 12. = 3550-2850 = Rs. 200 crore In recent years the US reported the following figures: Clearly, USs gross national income has been on the rise in recent years. Final Expenditure = GDP MP. Teachoo answers all your questions if you are a Black user! Governments consider NI crucial for the following reasons: NI is the sum of the monetary value of all the goods and services produced during a financial yearan aggregation of production units belonging to a countrys residents. (ii) Net exports This total final expenditure is equal to gross domestic product at market price, i.e. 735 crore, 84. 23.Giving reason, explain how should the following be treated in the estimation ofNational Income (Delhi 2012) (iii) Capital gains to Indian residents from sale of shares of a foreign company. 100 only. The total value of all goods and services produced within a countrys borders is adjusted for the depreciation of physical capital. The value-added at factor cost is equivalent to the NDP at factor cost. (ii) Interest paid by an individual on a loan taken to buy a car. (b) Gross National Disposable Income from the following data, 47.Find out (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. Computation of National Income (By Income Method). (i) Gross National Product at Market Price = 200-[80+ 20+ (15 -5)] Net Value Added at Factor Cost (NVAFC) = Value of Output (Sales + Change in Stock)- (Purchase of Raw Material + Import of Raw Material) Consumption of Fixed Capital + Subsidies Final Expenditure It is the expenditure on the purchase of final goods and services during an accounting year. difference between exports and imports during an accounting year. 42. As the price of wheat is included three time and that of floor two times. GNP FC = GDP FC + NFIA 7300 crore Copyright 2023 . The NDP also takes into account the other factors such as obsolescence and complete destruction of the asset. As a result, it provides a more accurate picture of the available resources for consumption or investment. You are free to use this image on your website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: Net Domestic Product (wallstreetmojo.com). (i) Profits earned by a branch of foreign bank in India. Calculate Net National Product at Factor Cost and Gross National Disposable Income from the following: (Delhi 2014), 38. (All India 2010) From the following data calculate Net Value Added at Factor Cost, Ans. Are the following a part of countrys Net Domestic Product at Market Price? Methods of Calculating National Income, (i) Income method 4,000 crores + Rs. Precautions While Using Expenditure Method. The net domestic product (NDP) is calculated by subtracting the value of depreciation of capital assets of the nation such as machinery, housing, and vehicles from the gross domestic product (GDP). The problem of double counting can be avoided by the following two alternative ways: 960 crore, (a) Gross Domestic Product at Market Price and =Rs. NDP, along with GDP, gross national income (GNI), disposable income, and personal income, is one of the key gauges of economic growth that is reported on a quarterly basis by the Bureau of Economic Analysis (BEA). = 5000 + 2000 + 500 + (-30) + (-150) + 100-50- 800 = 7600-1030 = Rs. Domestic income is the sum total of factor incomes generated by all the production units located within the domestic territory of a country during a period of account. The result provides a more accurate picture of a countrys economic output. (iii)Purchase of taxi by a taxi driver. = 4300 400 NDP FC refers to a total factor income earned by the factor of production within the domestic territory of a country during an accounting year. It is calculated by adding indirect taxes, subtracting subsidies, and including depreciation to the value of output, which is the value of all goods and services produced within a countrys borders. It does not matter whether the producer is the normal resident or foreigner. 30 crore, 12. Depreciation. An example of data being processed may be a unique identifier stored in a cookie. Calculate intermediate consumption from the following data, Ans. Net Current Transfers to Abroad + National Debt Interest + Current Transfers by Government + Net Factor Income from Abroad (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) 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. NDP accounts for capital that has been consumed over the year in the form of housing, vehicle, or machinery deterioration. 59. (ii) Addition to stocks during a year. In other words, problem of double counting arise when the value of intermediate goods is also added in total output, e.g. It is included in National Income. = Rs. (ii) Pension paid after retirement is not included in the estimation of National Income as it is a kind of deffered payment to employees. = 1000 + 250+150 + 640 -30=Rs. (i) Social security contributions by employees. Ans. Net domestic product (NDP) is an annual measure of the economic output of a nation that is adjusted to account for depreciation. (ii) National debt interest. 232, Block C-3, Janakpuri, New Delhi, = [700 + (-30)] 400 -20 + 50 (b) Private Income from the following data (All India 2011), 52. = 1000 + 600+1400-200= 3000 -200 = Rs. If the country is unable to replace the capital stocks that are lost through depreciation, it experiences a fall in the GDP of the country. (i) Salaries paid to Russians working in Indian Embassy in Russia will not be included in estimation of National Income of India, as it is a factor income paid to abroad. 6,000 Crores Solution: NDP at FC = Compensation of employees + Operating surplus + Mixed income of self-employed + Income from domestic products accruing to public sector Net Factor income to abroad: 3,200. 68.Calculate Gross National Product at Factor Cost from the following data by (ii) Purchase of tractor by a farmer. Precautions While Using Value Added Method = Rs. If you would like to change your settings or withdraw consent at any time, the link to do so is in our privacy policy accessible from our home page.. Please login :). (i) Interest on a car loan paid by an individual should not be included while estimating National Income as the loan is taken for consumption purpose. Difference Between Monetary Policy and Fiscal Policy, Your Mobile number and Email id will not be published. Ans. (ii) Earning of shareholders from the sales of shares. Distinguish between microeconomics and macroeconomics. (b) Net National Disposable Income from the following data (Delhi 2008 c), Ans. Sum up all factor payments made within domestic territory to get Domestic Income (NDP at FC). (iv) Imputed value of expenditure on goods produced for self consumption should be taken into account. Consumption2. 660 crore, 54. It doesnt account for non-marketed goods or services. Ans. 1950 crore, (b) By Production Method = (800 + 50) (400 +100) 40 + 30 1. Calculate = 1450 + 400 + [200 + (- 50)] (-50) -100 = Rs. When you visit the site, Dotdash Meredith and its partners may store or retrieve information on your browser, mostly in the form of cookies. The GNPMP is the value of overall goods or services manufactured by a nations residents. Meaning of macroeconomics "Macroeconomics is the study of overall averages and aggregates covering the whole economy and examines the interrelationship among various aggregates." Net Domestic Product measures a countrys economic output that considers the depreciation of physical capital. The site owner may have set restrictions that prevent you from accessing the site. (vi) If sales are given, then exports are not included separately. 950 crore, (b) By Production Method In other words, GDP measures the total value of all goods and services produced within a country. NDP at FC = 480 - 60 - 20 = 400 crores. Estimate net factor income from abroad which is added to Domestic Income to derive National Income. As a result of the EUs General Data Protection Regulation (GDPR). No tracking or performance measurement cookies were served with this page. (ii) Payment of interest by a government firm should not be included in the estimation of National Income, as it is a transfer payment. Domestic Income or NDP at FC. (ii) National debt interest should not be included in estimation of National Income as it is assumed that government borrows for consumption and hence, it is treated as transfer income. (i) Remittances from non-resident Indians to their families in India. (i) The value of intermediate goods should not be included. 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. Net Domestic Product at Factor Cost(NDPFC) = Compensation of Employees + Interest + Rent+ Profits + Mixed Income of Self Employed Its central problem is determination of level of income and employment. Gross domestic product is the monetary value of all finished goods and services made within a country during a specific period. + Private Final Consumption Expenditure + Gross Domestic Capital Formation Net Imports Net Indirect Tax = 5500 + 250- 150 + 100 = 5850- 150 NDP AT FACTOR COST = NDP AT MARKET PRICE - Indirect Cases + Subsidies Net Domestic Factor Income: Wages, rent, interest, and profit received by the factors of production are the components of net domestic factor income. Ans. The frequency and scope of such replacements can vary by type of capital assets. Introductory Macroeconomics Subject Chosen. 76. (All India 2009). Calculate . For calculating domestic income, we will subtract the amount of depreciation and net indirect tax from the Gross Domestic Product at Market Price (GDPMP). 24. An increase in NDP signifies a growing economy, while a decrease denotes economic stagnation. (iii) Yes, it is included while estimation of National Income as it is an investment expenditure by the producer. 330 lakh, 21. (a) Income method and Calculate National Income from the following data (Delhi 2013), = Private Final Consumption Expenditure + Government Final Consumption Expenditure + Gross Domestic Capital Formation Net Imports Net Indirect Taxes Consumption of Fixed Capital + Net Factor Income from Abroad = 750 690 = Rs. It is represented by: GNPMP = NNPFC + Net Indirect Taxes + Depreciation. = Rs. = 520-490 = Rs. = 1000+100 + 130 + 50+100 + 20+200 = Rs. Step 4: Now, we will calculate net factor income from abroad (NFIA) to get national income. 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 Formula_Sheet Chapter 2 - Read online for free. Net domestic product (NDP) is an annual measure of the economic output of a nation that is calculated by subtracting depreciation from gross domestic product(GDP). 3 Marks Questions (i) No, it is not included while estimation of National Income as it is not a factor income. Net Domestic Product at factor cost measures a countrys economic output considering the production of goods and services. 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 (Foreign 2014) From the following data calculate Net Value Added at Factor Cost (Delhi 2011), Ans. = 500+ (80-60)-350-90-50 Ltd. Download books and chapters from book store. The sum of Value added by all the firms gives us the GDP of the country. = 3950-50 = Rs. (i) Wheat grown by farmer but used entirely for familys consumption. = 500 +200+120 + (-20) + 20-30 -100 -(-10) -20 This provides a more comprehensive picture of a countrys economic output, as it considers both the production of goods and services and the market prices at which they are sold, including the effect of government interventions. In other words, the NDP is calculated by subtracting the depreciation of physical capital from the GDP to give a more accurate picture of a countrys economic output that is available for consumption or investment. 13. = 860 230 document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Copyright 2023 . National Income equals Rent + Wages + Interest + Profit + Mixed-Income. 60 lakh, 18.Calculate Net Value Added at Factor Cost from the following data, Ans. This would mean the purchased machine would qualify as a gain for the NDP. = 310+ (20- 10)+ 15+ 25+ (- 5) It is represented as follows: GDPFC = GDPMP - Net Indirect Tax #3 - Net Domestic Product at Market Price (NDPMP) (iii) Interest received by an Indian resident from its abroad firms will not be included in domestic income of India as it is factor income from abroad. = 700+100+120+ (-20) -80-10 = 920-110 = Rs. (i) Wheat grown by farmer but used entirely for familys consumption will be included while estimating National Income, as the production is done for self-consumption purpose and relate to current production. suppose if we include the price of wheat, then the price of floor and finally price of bread. Manage Settings Give reasons for your answer. (a) Gross National Product at Market Price and NDP at FC = (d) GDP at factor cost = NDP at factor cost - depreciation Answer: (c) See The Explanation It is denoted by the following formula: NDPFC = GDPMP Net Indirect tax Depreciation. Ans. The formula for NDP-FC is: NDP-FC = Value of Output - Indirect Taxes + Subsidies 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 country's borders. 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