Chapter -7 National Income

    

Sr. No.	Name of Chapter
1.	Introduction to Micro and Macro Economics
2.	Utility Analysis
3 A	Demand Analysis
3 B	Elasticity of Demand
4	Supply Analysis
5	Form of Markets
6	Index Numbers
7	National Income
8	Public Financial in India
9	Money Market and Capital Market in India
10	FOREIGN TRADE OF INDIA

Q. 1. Complete the following statements :

1) While estimating national income, we include only value of final goods and services in order to .........

a) make computation easier

b) avoid double counting

c) maximize national welfare of the people

d) evaluate the total economic performance of a  nation

2) NDP is obtained by .........

a) deducting depreciation from GNP

b) deducting depreciation from GDP

c) including depreciation in GDP

d) including depreciation in GNP

3) In India, national income is estimated using .........

a) output method

b) income method

c) expenditure method

d) combination of output and income method

Q. 2. Complete the Correlation :

1)  : C + I + G + (X-M) :: GNP : C + I + G + (X-M) + (R-P).

2) Output method :  :: Income method : Factor cost method

3) Theoretical difficulty : Transfer payments ::  : Valuation of Inventories

Q. 3. Choose the correct option :

1) Wrongly matched pair : 

a) National Income Committee – 1949

b) Financial year – 1st April to 31st March

c) Income method – National Income = Rent + Wages + Interest + Profit + Mixed income + Net Income from abroad

d) Expenditure method – National Income = Rent  + Wages + Interest + Profit

Options : 1) a 2) b 3) c 4) d

Q. 4. Identify and Explain the following concepts :

1) Vrinda receives monthly pension of Rs.5,000/- from the State Government.

2) Viru kept aside 100 kgs. out of 500 kgs. of wheat produced in his farm for his family.

3) Sheetal purchased wheat flour for her bakery from the flour mill.

4) Shobha collected data regarding the money value of all final goods and services produced in the country for the financial year 2018-2019.

5) Rajendra has a total stock of 500 gel pens in his shop which includes the 200 gel pens produced in the previous financial year.

Q. 5. Answer the following :

1) Explain the two sector model of circular flow of national income.

Ans: 

2) Explain the importance of national income.

3) Explain the features of national income.

4) Explain the concept of Green GNP.

Q. 6. State with reasons, whether you agree or disagree with the following statements :

1) There are many theoretical difficulties in the measurement of national income.

2) Under output method, value added approach is used to avoid double counting.

Q. 7. Answer in detail :

1) Explain the practical difficulties involved in the measurement of national income.

Ans: 

Practical Difficulties or Statistical Difficulties : 

 In practice, a number of difficulties arise in the collection of statistical data required for estimation of national income. Some of the practical difficulties are as follows : 

 1) Problem of double counting : The greatest difficulty in calculating national income is of double counting. It arises from the failure to distinguish properly, between a final and an intermediate product. For example, flour used by a bakery is an intermediate product and that by a household is final product. 

 2) Existence of non-monetized sector : In India, especially in rural areas, there exists the non-monetized sector. Agriculture, still being in the nature of subsistence farming, a major part of production is partly exchanged for other goods and services. It is excluded while counting national income. 

 3) Inadequate and unreliable data : Adequate and correct data on production and cost data relating to crops, fisheries, animal husbandry, forestry, construction workers, small enterprises etc., are not available in a developing country. Besides this, data on unearned incomes, consumption and investment expenditure of rural and urban population are also not available. This does not reveal the actual size of national income. 

 4) Depreciation : Depreciation refers to wear and tear of capital assets, due to their use in the process of production. There are no uniform, common or accepted standard rates of depreciation applicable to the various capital assets. Thus, it is difficult to make correct deductions for depreciation. 

 5) Capital gains or losses : Capital gains or capital losses, which accrue to the property owners by increase or decrease in the market value of their capital assets or changes in demand, are not included in the national income because these changes do not result from current economic activities. 

 6) Illiteracy and ignorance : Due to ignorance and illiteracy, small producers do not keep an account of their production. So they cannot give information about the quantity or value of their output. 

 7) Difficulties in the classification of working population : In India, working population is not clearly defined. For instance, farmers in India are not engaged in agriculture round the year. Obviously, in the off season, they engage themselves in alternative occupations. In such a case, it is very difficult to identify their incomes from a particular occupation.

8) Valuation of inventories : Raw materials, intermediate goods, semi-finished and finished products in the stock of the producers are known as inventories. Any mistake in measuring the value of inventory, will distort the value of the final production of the producer. Therefore, valuation of inventories requires careful assessment.  

2) Explain the income method and expenditure method of measuring national income.

Ans: 

 Income Method : 

 This method of measuring national income is also known as factor cost method. This method estimates national income from the distribution side.  

According to this method, the income payments received by all citizens of a country, in a particular year, are added up, that is, incomes that accrue to all factors of production by way of rents, wages, interest and profits are all added together, but income received in the form of transfer payments are ignored. The data pertaining to income are obtained from different sources, for instance, from income tax returns, reports, books of accounts, as well as estimates for small income. 

 GNP can be treated as the sum of factor incomes, earned as a result of undertaking economic activity, on the part of resource owners and reflected in the production of the total output of goods and services during any given time period. 

 Thus, GNP, according to income method, is calculated as follows: NI = Rent + Wages + Interest + Profit + Mixed Income + Net export + Net receipts from abroad. NI = R + W + I + P + MI + (X–M) + (R–P)

Expenditure Method : 

 This method of measuring national income is also known as Outlay Method. 

 According to this method, the total expenditure incurred by the society, in a particular year, is added together. Income can be spent either on consumer goods or on capital goods. Thus, we can get national income by summing up all consumption expenditure and investment expenditure made by all individuals, firms as well as the government of a country during a year. 

Thus, gross national product is found by adding up NI = C + I + G + (X–M) + (R–P) 1) Private Final Consumption Expenditure (C) : 

1) Private Final Consumption Expenditure (C) by households on non-durable goods, such as food, which are used immediately; expenditure on durable goods such as car, computer, television set, washing machine etc., which are generally used for a longer period of time; and expenditure on services like transport services, medical services, etc. 

2) Gross Domestic Private Investment Expenditure (I) : It refers to expenditure made by private businesses on replacement, renewals and new investment (I). 

3) Government Final Consumption and Investment Expenditure (G) : i) Government's final consumption expenditure refers to the expenditure incurred by government on various administrative services like, law and order, defence, education, health etc. ii) Government's investment expenditure refers to the expenditure incurred by government, on creating infrastructural facilities like construction of roads, railways, bridges, dams, canals, which are used by the business sector for production of goods and services in any economy (G). 

 4) Net Foreign Investment/Net Exports : It refers to the difference between exports and imports of a country during a period of one year. 

5) Net Receipts (R-P) : The difference between expenditure incurred by foreigners on domestic goods and services (R) and expenditure incurred abroad by residents on foreign goods and services (P).

1.	Choose the Correct Option	Solution	5 Marks
2	Complete the Correction	Solution	5 Marks
3	Give Economic Term	Solution	5 Marks
4	Find the Odd Word	Solution	5 Marks
5	Complete the following Statements	Solution	5 Marks
6	Assertion and Reasoning Questions	Solution	5 Marks
7	Identify and Explain the Concepts	Solution	6 Marks
8	Distinguish Between	Solution	6 Marks
9	Answer in Brief	Solution	12 Marks
10	State with Reasons, Do you Agree/ Disagree	Solution	12 Marks
11	Table, Diagram, Passage Based Questions	Solution	8 Marks
12	Answer in Detail	Solution	16 Marks