12_NATIONAL INCOME AND RELATED AGGREGATES class 12

 

 

 

 

ECONOMICS (CLASS-XII)

 

Chapter-12

National Income and Related Aggregates

 

Following are the aggregates of economy :

1. GDP_MP 2.         GDP_FC
2. GNP_MP 4.         GNP_FC
3. NDP_MP 6.         NDP_FC
4. NNP_MP 8.         NNP_FC
5. GDP_MP : It is defined as money value of all the final goods and services produced within the domestic territory and valued at the market price within the given time period. It includes depreciation.
6. GDP_FC : GDP_FC is the value of the factor incomes received by the factors of production within the domestic territory in the given time period.

GDP_FC= GDP_MP – NIT

It includes depreciation but excludes NIT.

3. GNP_MP : GNP_MPis defined as the value of the final goods and services produced by the residents of an economy valued at market price in the given time period. It includes net factor income from abroad and depreciation.

GNP_MPÞ GDP_MP + NFIA

4. GNP_FC : It is defined as factor income received by all the residents factor of production of an economy in the given time period.

It includes NFIA and depreciation and excludes NIT.

 

5. NDP_MP : NDP_MP is defined as money value of all the final goods and services produced within the domestic territory valued at market price within the given time period. It excludes depreciation.

NDP_MP = GDP_MP – Depreciation

6. NDP_FC : NDP_FCis defined as the value of the factor income received by the factors of production within the domestic territory of the country in a given time period. It excludes depreciation. It is also known as domestic income.

NDP_FC = GDP_FC – Depreciation

7. NNP_MP : It is defined as money value of all the final goods and services produced by the residents of an economy valued at market price within the given time period. It excludes depreciation.

NNP_MP = GNP_MP – Depreciation

8. NNP_FC : NNP_FC is defined as the factor income received by the normal residents of an economy within the given time period. It excludes depreciation. It is also known as national income.

NNP_FC = NDP_FC + NFIA

 

MAIN FEATURES OF NATIONAL INCOME

1. It is expressed in money terms :

National income is expressed in money terms. Goods and services are expressed in different units such as meters, litres etc. Thus, in order to take sum total of all there goods and services, it is essential to express them in money terms.

2. It reflects the value of final goods and services :

In order to avoid the problem of double counting, it only include the value of final goods and services.

3. National income is a flow concept :

            It is a flow of goods and services as this concept is measured over a period of time.

4. It excludes domestic services :

Domestic services like cooking of foods and washing clothes by the housewife etc. are not included in production because

(a)        these activities have negligible impact on the rest of the economy.

(b)        these services are not produced for the market.

 

5. It excludes sale and purchase of second hand goods :

It excludes the value of second hand goods because nothing new is produced in the current year. However, brokerage or commission paid will be included in the national income because new factor income is generated.

 

6. Sale and purchase of financial assets :

            Like bonds, shares etc. These are not included because, it does not involve current production.        Only the ownership changes.

 

7. It includes net factor income from abroad :

The difference between the factor income received by the nationals of the country from abroad and the factor income occurring to foreigners is known as net factor income from abroad.

8. It excludes income from illegal activities.
9. It does not include transfer payments :

These are not includes as there is no flow of goods and services in response to the transfer payments.

Giving reasons, explain whether the following will be included in national income or not.

(a)        Old age pensions.

(b)        Sale of shares of private company.

(c)        Purchase of a new car.

(d)        Exp. Done on renovation of a house.

(e)        Gift sent to relative abroad.

(f)        Taxes paid to a govt.

(g)        Commission paid for purchase of second hand LCD.

 

DISPOSABLE INCOME

Private Income

Private income refers to the income which accrues to the private sector i.e. private enterprises and households.

It includes both factor income and transfer income.

“Private income refers to the total of the factor income from all sources and current transfers from the govt. and rest of the world accruing to the private sector”.

The main components are :

• Income from the domestic production accruing to the private sector.

Domestic income can be divided into that accruing to the private sector and government sector. By deducting the domestic income accruing to the government sector from total domestic income, domestic income (NDP_FC) accruing to private sector can be calculated.

Government sector is classified into –

• provider of government services
• departmental enterprises
• Non-departmental enterprises.

Income accruing to them are termed as :

• Income from property and enterprebeyrs accruing to government administrative department (from (a) and (b) above).
• Savings i.e., undistributed profits of non-departmental enterprises.

Income from domestic product accruing to the private sector = NDPFC – Income from property and entrepreneurship accruing to government administrative department – savings of non-departmental enterprises.

 

(b)        NFIA (Net Factor Income From Abroad).

(c)        Current Transfer : It is of two types :-

(i)         Current transfer income from government e.g. donations, old age pensions.

(ii)        Net current transfer income from the rest of the world i.e., current transfer from the rest of the world – current transfers payments made to the rest of the world. E.g. transfer of money, help at the time of natural calamities.

 

(d)        Interest on National Debt : Government borrows funds from the public to meet out its rising expenditure. So its pays interest on these debts known as national debt.

 

Private Income

Income from domestic product accruing to the private sector.

+ Current transfer income from government.

+ Net current transfers from the rest of the world.

+ Interest on national debt.

+ Net factor income form abroad.

Personal Income

The sum total of the income actually received by the households or individuals from all the sources is known as personal income.

Personal Income = Private Income – Corporate Tax – Undistributed Profits.

            Corporate Tax

It is the tax which is paid by the enterprise for the profits they earn.

Undistributed Profits/Retained Earnings/Savings of Private Corporate Sector.

These are the savings which are kept within the enterprises. Savings of foreign companies are not include here.

Personal Disposable Income

Personal disposable income is that part of the personal income which is either consumed or saved by the households freely.

PDI = Personal Income – Direct Taxes – Miscellaneous receipt of the govt. by the households.

PDI = Households (personal) Consumption + Households (personal) savings.

 

National Disposable Income

National disposable income is the total income in the hands of the nations that can be spent freely. It includes both earned and unearned income.

Net National Disposable Income :

Þ        NNP_FC + NIT + Net Current transfer from rest of the world.

It we add depreciation to net national disposable income, we will get gross national disposable income. It is also equals to the sum of national consumption expenses and net national savings.

Gross National Disposable Income :

• GNP_FC + NIT + Net Current transfer from rest of the world.

It equals to the sum of national consumption expenditure and gross national savings.

 

1. NVAFC includes

(a)      Sum of all factor payments

(b)      Sum of all current transfer payments

(c)      Sum of all capital transfer payments

(d)      Both (b) and (c).

2. Value of output equals

(a)      Sales – change in stock

(b)      Sales in domestic market + exports

(c)      Sales + change in stock

(d)      Sales + change in stock + production for self conception

3. The Sum of household’s income received is equal to

(a)      Private Income                          (b)      Domestic Income

(c)      Personal Income                        (d)      Personal disposable Income.

4. The sum of household consumption and household’s saving is called

(a)      Private Income                          (b)      Personal Income

(c)      National disposable Income       (d)      Personal disposable Income.

5. Which of the following will not be included while calculating national income by value added method.

(a)      Owner – occupied houses

(b)      Voluntary work

(c)      Own account production of fixed Asset

          (d)      Of production for self consumption.

6. Domestic income is greater than national income when,

(a)      NFIA is zero                              (b)      NFIA is negative

(c)      NFIA is positive                         (d)      NIT is negative.

7. Defense material used by army is

(a)      Capital good                              (b)      Consumer good

(c)      Intermediate goods                    (d)      Depends on situation.

8. Social welfare is the sum total of

(a)      Economic welfare                      (b)      Non-economic welfare

(c)      Both (a) and (b)                         (d)      None of the above.

9. National disposable income includes

(a)      Only current transfer from Row

(b)      Only current to Raw

(c)      Net current transfer from Row

(d)      Net current transfer from Government.

10. Which of the following is not a leakage?

(a)      Tax                                           (b)      Savings

(c)      Subsidies                                  (d)      Imports.

11. Books purchased for reselling purpose is an intermediate because

(a)      No income is generated

(b)      It is second hand

(c)      No new production has taken place

(d)      All of the above.

 

12. Interest on national debt is a part of

(a)      National income                        (b)      Private income

(c)      Personal income                        (d)      Domestic income

13. Private sector income is

(a)      Private income                          (b)      Personal income

(c)      NDPFC accruing to private sector        (d)      None of these.

14. Externalities are the

(a)      Benefits to the third party         (b)      Harm to the third party

(c)      Both either (a) or (b)                  (d)      Neither (a) nor (b).

15. Income earned from American Embassy by an India is

(a)      A part of domestic income of America

(b)      A part of National income of India

(c)      Both (a) and (b)

(d)      Neither (a) nor (b).

16. The value of machine which is outdated is

(a)      Depreciation of machine            (b)      Capital loss of machine

(c)      Loss in the value of fixed assets (d)      All of the above.

17. Market price is the amount

(a)      Which producer wants consumer to pay

(b)      Which Government wants consumer to pay

(c)      Which consumer actually pays

(d)      All of these.

18. GDP at constant prices means

(a)      Nominal GDP                            (b)      Real GDP

(c)      True GDP                                  (d)      All of the above.

19. Nominal GDP is greater than Real GDP whose

(a)      Current prices are lesser           (b)      Current prices are greater

(c)      Current quantity is greater       (d)      Current quantity is losses.

20. Capital formation is a ___________ concept.

(a)      Stock                                        (b)      Flow

(c)      Both                                         (d)      None of these.

21. Gross domestic fixed capital formation incluses

(a)      Charge in stock                         (b)      Opening stock

(c)      Closing stock                            (d)      None of these.

22. Income method includes

(a)      Leave allowance                        (b)      Transport allowance

(c)      Dearness allowance                  (d)      Medical allowance

23. Net export is included in National income because

(a)      It is the sale of our country abroad

(b)      It is the production done within

(c)      It is income earned by the national of the country

(d)      All of the above.

24. Private final consumption expenditure includes

(a)      Exp. on durable goods by households

(b)      Exp. on non-durable goods by households

(c)      Exp. on both durable and non-durable by non-profit making organization

(d)      All of the above.

25. Economic territory includes

(a)      Land and water bodies

(b)      Territorial land, water bodies

(c)      Territorial land water bodies and local embassies

(d)      None of these.

26. GDP_MP – Depreciation + NFIA will give

(a)      NDP_MP                                       (b)      NNP_MP

(c)      NNP_FC                                       (d)      GDP_MP

27. When direct taxes and miscellaneous receipts are added to the personal disposable income, it will given

(a)      Private income                          (b)      Personal income

(c)      National disposable income       (d)      NDP_FC.

28. National consumption and National savings means

(a)      Private income                          (b)      Personal income

(c)      National disposable income       (d)      NDP_FC.

29. The value of intermediate consumption is ` ___________ if value added by all the firms is `1000­ and, total value of output is `1500.

(a)      ` 500                                         (b)      ` 2500

(c)      ` 1000                                       (d)      ` 1500.

 

30. Operating surplus is

(a)      NDP_FC – compensation of employee – mixed income of self employed.

(b)      Rent + Royalty + Interest + Profit

(c)      Income from property + Income from entrepreneurship

(d)      All of the above.

31. Income method is also known as

(a)      Distributive income method       (b)      Income disposable method

(c)      Industrial output method          (d)      None of these.

32. Which of the following is included in national income –

(a)      Winning from lottery                 (b)      Milk purchased by dairy shop

(c)      National debt interest               (d)      None of these.

33. Green GNP means national income or output which is adjusted as per the

(a)      Proper utilization of national resources

(b)      No degradation of environment

(c)      Sustainable development

(d)      All of the above.

34. GDP deflator measures the

(a)      Average level of prices               (b)      Average level of output

(c)      Both (a) and (b)                         (d)      None of these.

35. Net export is ___________ concept and NFIA is ___________ concept.

(a)      National, domestic                    (b)      National, national

(c)      Domestic, national                    (d)      Domestic, domestic.

 

36. Gross domestic capital formation is also known as

(a)      Gross capital                            (b)      Gross investment

(c)      Both (a) and (b)                         (d)      None of them.

 

37. When profit is distributed, it is known as

(a)      Savings of private corporate sector      (b)      Dividends

(c)      Corporate tax                            (d)      Retained earnings.

38. Problem of double counting can be solved by

(a)      Income method                         (b)      Exp. method

(c)      Output method                         (d)      None of these.

39. Production of services for self consumption is not included in national income because

(a)      It is transfer income

(b)      No new production has taken place

(c)      The value of such sources cannot be ascertained

(d)      All of the above.

40. Net current transfer from rest of the world is included in ___________ but not in ___________

(a)      Domestic income, national income

(b)      National income, domestic income

(c)      National disposable income, national income

(d)      Private income, personal income.

41. Depreciation of asset is mainly due to

(a)      Normal wear and tear               (b)      Passage of time

(c)      Expected obsolesce                    (d)      All of the above.

42. Single used goods and capital goods are

(a)      Consumer goods                        (b)      Producer goods

(c)      Both (a) and (b)                         (d)      None of these.

43. Single used producer goods are also known as

(a)      Intermediate goods                    (b)      Capital goods

(c)      Both (a) and (b)                         (d)      None of them.

 

44. A citizen in India is by

(a)      Birth                                        (b)      By low approval

(c)      By resident ship                        (d)      Only (a) and (b)

45. A normal resident is a person who

(a)      Resides in the country

(b)      Economic interest lies within the country

(c)      Both (a) and (b)

(d)      Either (a) or (b)

46. Which of the following is not a flow variable

(a)      Number of birth and death in a year

(b)      National wealth

(c)      National income

(d)      Wheat produced during the year.

47. In a closed economy, ___________ is not included

(a)      Households                               (b)      Firms

(c)      Government                              (d)      Rest of the world

48. Real flow is also known as

(a)      Nominal flow                             (b)      Physical flow

(c)      Money flow                               (d)      None the them.

49. In two sector model. Real flow refers to the flow of goods and sources ___________ to ___________

(a)      Firms, households                    (b)      Households to time

(c)      Government to firms                 (d)      Time to Government.