National Income and Related Aggregates

NATIONAL INCOME
AND
RELATED AGGREGATES
(Unit 1 12 Marks)

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National Income and Related Aggregates

Introduction to Macro Economics

What is macro-economic?
 Branch of economics which studies economic activities at the level of economy as a whole
 Aggregate saving, aggregate demand, Theory of employment

Difference between Micro and Macro Economics

Basis Micro Economics Macro Economics

Purpose Study of individual economic units of Study of economy as a whole and its aggregates.
an economy

Basis The central problem of micro economics The central problem of macro economics is
Objective is price determination and allocation of determination of level of income and employment.
resources.

Tools Its main tools are demand and supply of Its main tools are aggregate demand and aggregate
the particular commodity supply of the whole economy.

Example Examples are individual demand, per Examples are aggregate demand, national income,
capital income, etc. unemployment etc

Some Basic Concepts Of National Income Accounting

Classification of goods

Types Of
Goods

Final
Intermediate Goods
Goods

Capital Consumer
Goods Goods

Intermediate Goods
 Refer to those goods which are used either for resale or for further production in the same year.
Intermediate Goods include:
a. Goods purchased for resale (like milk purchased by a Dairy Shop).
b. Goods used for further production (like milk used for making sweets).
 Intermediate goods are used up in the same year. If they remain for more than one year, then
they are treated as final goods.
Examples:
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National Income and Related Aggregates

(i) Steel sheets used for making automobiles and copper used for making
utensils are intermediate goods since they are purchased with the purpose of
using them completely during the same year for productionof steel
gates/utensils.
(ii) Mobile sets purchased by a mobile dealer are intermediate products because these are
purchased for resale.
(iii) Chalks, dusters, etc. purchased by a school are intermediate products because
these are used up completelyduring the same year in the production of
educational services.
(iv) Paper purchased by a publisher is an intermediate product because it is used as
raw material for productionof books in the same year.
(v) Purchase of rice by a grocery shop is an intermediate product because it is purchased for
resale.
(vi) Coal used by a manufacturing firm is an intermediate product because it is
used as a non-factor input forproduction of other commodities during the
same year.
(vii) Fertilisers used by the farmers are intermediate products because these are
used up completely forproducing grains during the same year.
(viii) Cotton used by a spinning mill is an intermediate product because it is used
for further production ofclothes during the same year.

Final Goods: - Final goods refer to those goods which are used either for consumption or for
investment
1. Goods purchased by consumer households as they are meant for final consumption (like milk
purchased by households).
2. Goods purchased by firms for capital formation or investment (like machinery purchased by a
firm).

Examples:
(i) Machine purchased by a firm for installation in factory is a final good because it is purchased
for investment.
(ii) Milk purchased by households is a final good as it is purchased for consumption.
(iii) Furniture purchased by a school is a final product because it is purchased for investment.
(iv) Computers installed in an office is a final product because it is purchased for investment.
(v) Printer purchased by a lawyer for office use is a final product because it is purchased for
investment.
(vi) Blackboard used in a school is a final good because it is for investment. It is
not used up completely in ayear but remains for production of educational
services.
(vii) Second hand car purchased by a house hold is a final good because it is purchased for
consumption.

Note: - Final goods are neither resold nor used for any further transformation in the process of
production

Can The Same Good May be Final or Intermediate?

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National Income and Related Aggregates

It is not possible to name one set of goods as final goods and another set as intermediate goods. The
same good may be final or intermediate good. The distinction depends on the end-use of the goods.
For example, sugar used as a raw material in the production of biscuits is an intermediate good. But,
sugar used by the households in milk or tea is a final good. Likewise, paper purchased by a student is a
final good. But when purchased by a publisher (for making books), it is an intermediate good.

Distinction between intermediate goods and final goods

Basis Intermediate goods Final goods
Meaning Intermediate goods refer to Final good refers to those
those goods which are used goods which are used either
either for resale or for further for consumption or for
production in the same year . investment.

Nature They are neither included in They are included in both

national income nor domestic national and domestic income.
income.

Demand They have a derived mind as They have a direct demand as

their demand depends on the they satisfy the wants
demand for final goods. directly.
Value addition They are not ready for use i.e They are ready for use by
some value has to be added to their final users i.e no value
the intermediate goods. has to be added to the final
goods.

production boundary They are still within the They have crossed the
production boundary. production boundary.
Transformation They are transformed in the They are not transform in the
process of production. process of production.
Example milk used in dairy shop for Milk purchased by
resale. households for consumption.

Consumer goods or consumption goods

These are final goods (Durable goods, Semi durable goods, Non-durable or perishable goods, Services)
directly used by ultimate consumer household for satisfaction of wants. For example: - sugar if used
by consumer to make biscuits is consumer good.

Consumption goods
1. Non-durable goods: Goods use in a single act of consumption Example:- coke, ice-cream
2. Semi-durable goods Use for some longer period of time Example:- tooth-paste
3. Durable goods Can be used for several years Example:- furniture, television
4. Services: - an Intangible thing which directly satisfies human wants Example: - doctor service,
mobile service.

Capital goods these are durable final goods used by the producers in the production process. They
do not change during production process. For example fixed assets like machines, plants and equipment
used in production process.

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National Income and Related Aggregates

Consumer goods or consumption goods Capital goods

These are directly used by ultimate consumer These are fixed assets used by the producers in
household for satisfaction of wants. the production process.
They are not used in production by producer. They help in production of other goods.
They may be changed during use by consumer They do not change during production process.
like tea leaves are used to make tea.
.e.g.: Durable goods- car, washing machine e.g.: machines, plants and equipment used in
production process.

Problem
Classify the following as intermediate good or final goods
a) Electricity consumption in our business.
b) Books purchased by a student.
c) Books purchased by a bookseller.
d) Coal purchased by a factory
e) Clothes purchase by individual.
f) Soft drinks purchased by the school canteen.
g) Machine purchased by a firm.
h) Seeds purchased for kitchen gardening.
i) Seeds purchased by a former to produce wheat.
j) Exhaust fan used for mall.
k) Car purchased by a household.
l) machines purchased by a dealer of machines.
m) Sewing machine purchased by a housewife.
n) Milk Purchased by a tea stall.
o) Bus purchased by a school.
p) Juice purchased by a student from the school Canteen.
q) Wheat and rice purchased by household
r) Purchase of ticket for train Journey by an individual.
s) Purchase of car by an employer for office use by his employees.

Concept of Investment
Investment:- Investment means additions made to the existing stock of capital during the year. It
increases productivity capacity of the production i.e I = Δ K ( I = Investment, K – Capital Stock)
Investment can be gross or net

Two types
1. Gross capital formation
2. Net capital formation

Gross capital formation/investment:- The total Addition of capital goods to the existing stock
of capital during a given time period is called cross investment stocks components of gross investment
are:
1. Gross fixed capital formation
2. Stock investment

A Gross fixed investment or capital formation

It is expenditure on the following :

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National Income and Related Aggregates

 gross business fixed investment. It is defined as expenditure on fixed assets like

machinery equipment factory building etc
 gross residential construction investment. It is amount spent on construction of flats
and residential houses by producer households and government sectors
 Gross public investment. It is expenditure by government on hospitals school roads
dams etc
B Inventory / stock investment
It is changing stock of finished goods, Semi finished goods and raw material
Calculation :
Inventory investment = closing stock of finished goods, Semi finished and raw materials -
opening stock of finished goods semi finished and raw materials

Net capital formation/investment:- Gross capital formation – depreciation / consumption of fixed

capital

Depreciation or consumption of fixed capital.-It is the loss in the value of fixed assets during use due
to
(a) Normal wear and tear and
(b) Expected obsolescence
It does not include capital loss due to unexpected obsolescence like natural calamities, theft or
accident

Depreciation is also known as :

 consumption of fixed capital.

 Replacement cost of fixed capital.
 Current replacement cost.
 Capital consumption.

Gross = Net + Depreciation

Depreciation = Gross – Net

Net = Gross - Depreciation

Consumption of fixed capital Capital Loss

It is loss in the value of fixed assets due to It is loss in the value of fixed assets due to natural
normal wear and tear and expected calamities and unexpected obsolescence.
obsolescence
It is expected loss in the value of asset It is unexpected loss in the value of asset.
Provision for depreciation is by maintaining Provision for capital loss is by getting insurance
depreciation reserve fund. done.

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National Income and Related Aggregates

Circular Flow of Income

Economic Sectors of the Economy

For the purpose of a proper and systematic study of the circular flow of income, we divide
an economy into four sectors. These are (i) Households, (ii) Firms, (iii) Government, and
(iv) Rest of the World.

Households Firms

Economic Sectors

Government Rest of the World

1. Household sector Its task is the consumption of goods and services. This sector is the
owner of Land, Labour, capital an organization and these factors are hired by producer
sector from the from this sector.

2. Production sector Its task is the production and sale of goods and services. This sector
is in the form of production firms and corporations. It hires factors of production like
land , labor, capital an entrepreneurial skills from the households.
3. The government sector Its task is activities concerning collection of taxes and
subsidies. It act as regulator between first two sectors. With the money received, it
undertakes public welfare and maintain law and order. Government sector is also
producer of goods and services in public sector.
4. Rest of the world sector Its task is exports of surplus and imports of necessary goods
and services. it is also called external sector. It makes possible the flow of capital
between domestic economy and rest of the world.

Circular Flow Of Income

Circular flow of income: - Refers to the Continuous flow of activities of production, income
generation and consumption in various sectors of the economy.

Circular flow with two sector economy ( Household and Firm)

A simple economy assumes the existence of only two sectors i.e. household sector and firm sector.
Households represent the owner of all factors of production and the consumers of goods and services.
On the other hand, firms produce and sell goods and services to the households.
The circular flow of income involves two basic principles:
1. One's expenditure is other's income—The income of the producer is the same amount that the buyer
or consumer spends and vice versa.
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National Income and Related Aggregates

2. Equality of Real and Nominal flow—Goods and services flow (real flow) in one direction
corresponded by equal money payments/incomes (nominal flow).

Circular Flow of Income

• Households supply factor services to the firms. (Flow 1)
• Firms make payments to factor services in the form of rent, wages, interest and profits. (Flow 2)
• The expenses incurred by the firms become the income of the households. This expenditure on
consumption of goods and services by households is known as consumption expenditure. Consumption
expenditure flows from households to firms. (Flow 3)
• Households use this income received from firms to purchase different goods and services produced by
firms for their own consumption. (Flow 4)
Thus, organisation of production process results in employment of factor services, generation of income
for factor services, production of different types of goods and services, and consumption of different
goods and services. It is a continuous, ongoing, never-ending process and is called circular flow of
income.
The output or product or real flow from the seller to the buyer necessarily creates the income or
payment or money flow from the buyer to the seller.

Three phases of circular flow

1. Production phase or generation phase it refers to production of goods and services by the
producers sector with the help of factor services.
2. Distribution phase it corresponds to the flow of factor income (rent, wages etc.) from the
producer or firm to the households.
3. Disposition (expenditure) phase it refers to expenditure on the purchase of goods and services
by the households and other sectors of the economy.

Production = income generated = expenditure = production (again)

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National Income and Related Aggregates

Real Flow and Money Flow

Real Flow (Physical flow):

It is the flow of factor services from the household sector to the producing sector and corresponding
flow of goods and services from the producing sector to the household sector . It is a real flow as flow
of goods and services actually happens. It is a continuous process. It can either be in form of:
(a) Flow of factors of production or services like labor, capital, Land from household to the
producer.
(b) Real flow of goods and services from producers to the households.
In this only two sectors are interdependent on each other i.e producers (firms) and households.

Money Flow (Nominal flow):

When the factor incomes rent, interest, profit and wages flow from the producing sector to the
household sector as monetary rewards for the services rendered by them it is said to be money flow .

Circular flow prevails when the household spends their income (Wages are salaries) on the goods and
services produced by the firms that is why the money goes back to the firms from households through
their expenditure

The basic principles of circular flow of income and products are

1. Real flow and money flow are opposite to each other which causes circular flow.
2. There should be continuous in and out.
3. Flow of income between different sectors always indicate that there is a payment and receipts
4. It should be mandatory for the firm to sell all that is produced to the households for the
household to spend their entire income on.
Difference between Real flow and Money flow
Basis Real flow Money flow
Meaning It refers to the flow of goods Picture close to the flow of
and services across different money across different sectors
sectors of the economy. of the economy.
Nature of transactions It is slow off physical output It is slow of monetary
among sectors. transactions among sectors.

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National Income and Related Aggregates

Nature of flow It is also known as physical It is also known as nominal

flow as other goods or services flow as only money is
are exchanged among sectors. exchanged among sectors.

Leakages and injections in the circular flow of income

A leakage in the circular flow of income happens when some money is withdrawn through some
macroeconomic variables such as saving, imports , taxes by the government and payment of old debts.
On the other hand, Injections in the circular flow of income are when there are some additions made
by some economic variables. For example investment spending, government spending and export
earning etc. In short injection boost up the speed of the economic activities and leakages splatter the
circular flow of income. The essence of macroeconomic equilibrium is that injection should be equal
to leakages as condition is C + S = C+I which means S= I or leakages = Injections
Difference between leakages and injections

Leakages Injections
These flow variables have a negative impact on These causes positive impact on the process of
the process of production production or income generation
These are patrols from the circular flow of These are additions to the circular flow of
income income
Leakages reduces flow of income and Injections add to the production capacity of the
production and reduces the demand of goods and economy and generate demand of goods and
services services
Example saving, taxation and imports Examples investment, exports

CONCEPT OF STOCK AND FLOW

Stock
Stock is the quantity measured at a particular point of time (no time dimension)
Example
 100 Cr population of India in 2001
 Balance sheet of the company As on 31st March 2010
 Stock of raw material in the Godown of a factory on 31st March 2010.
Flow

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National Income and Related Aggregates

Flow is the quantity measured at a particular period of time. (has time dimension)
Example
 Monthly wages of a labor.
 Profit and loss a/c of the company
 National income of a country

Difference between stock and flow

Basis Stock Flow
Meaning Stock variables are measured at a Flow variables are measured over a period of
particular point of time time,
Time Stock has no time dimension Flow has time dimension like per hour, per day,
per month and per year
Concept Stock is a static concept Flow is a dynamic concept
Example Examples Wealth, Balance sheet Examples Investment, Profit and loss account.
GPD
During a period of time, with inflows, stock will go up and with outflows, stock will come down.
Example: If we are determining net change in the population of a country during a given year, new
births (inflows) take place and a number of deaths (outflows) also take place. If number of births are
more than number of deaths in the country, the size of population (stock) will go up at the end of the
year and vice versa

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National Income and Related Aggregates

Home Assignment
Q.1 Explain the circular flow of income in our two sector economy with the help of suitable diagram.
Q.2 “circular flow of income in a two-sector economy is based on the axion that one’s expenditure
is other’s income.’ do you agree with the given statement? Support your answer with valid reasons.
Q.3 Import create leakages in the circular flow of income. Do you agree? How in your opinion the
leakages can be corrected?
Q.4 Government provides subsidies to producer and transfer payments to the households. It
increases government expenditure. How can this excessive expenditure be reduced?
Q.5 Distinguish between injection and leakages . Give two examples of each.
Q.6 Distinguish between the concept of stock and flow. Between net investment and capital which
is a stock and which is a flow ? Compare net investment and capital with flow of water into a tank.

National Income and Related

Aggregates
Concept Of National Income
National income is the sum total of factor incomes earned by normal residents of a country during
the period of an accounting year.
So national income includes
(i) Factor incomes only, and
(ii) Income of only the normal residents of a country.

Factor income vs Transfer income

(1) Factor Incomes: Factor incomes are the payments made by the producing units (firms) to
the households (owners of the factors of production) for the use of their factor services.
Factor incomes (or factor payments) are broadly classified as under:
(i) Compensation of employees (received by the households for rendering their services as
employees of the producing units).
(ii) Rent (received by the households for the use of their land by the producing units).
(iii) Interest (received by the households for the use of their capital by the producing units).
(iv) Profit (received by the households for the use of their entrepreneurial skills by the
producing units).
(2) Transfer Income: - is the earning for which no contribution is made to the flow of goods and
services. e.g. gift, donation, scholarship etc. In other words it is income received without
anything provided in return
In the estimation of national income, we include only these factor incomes (or factor
payments).

Factor Incomes are Different from Transfer Incomes Transfer incomes are those
incomes which are received by a person as help, donation or charity, etc. , whereas
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National Income and Related Aggregates

factor incomes are those incomes which are received by the factors of production by
rendering their factor services. In other words, while factor income is 'earned income',
transfer income is 'unearned income'. Since, transfer incomes are not earned as rewards
for rendering factor services, these are not included in the estimation of national
income.
Difference between factor income and transfer income
Factor income or Factor payment Transfer Income or Transfer payment
It is the income received in return for rendering It is the income received without any
factor services by the factors of production. corresponding services.

These are included in national income. These are not included in national income
Example: Rent, wages, interest, and profit. Example: old age pension, scholarship of
Retirement pension. students, unemployment allowance, remittances
from abroad, financial help to earthquake
victim,

Resident vs Citizenship
(1) Normal Resident:
A resident ( or normal resident ) of a country is a person or an institution who ordinarily
resides in the country and whose Centre of economic interest lies also lies in that country.
ordinarily resides means A person residing in a country for a period of one year (or more).
This person may or may not be the citizen of that country.
And Centre of economic interest lies in that country means he carry out all his economic
activities such as production, consumption or investment in that country.

Thus, the following points may be noted about the concept of normal resident:
 Normal residents refer not only to individuals but also to institutions : All production
units/enterprises (i.e., institutional units) located in the domestic territory of a country are
included as normal residents as their 'Centre of economic interest' lies in the country where
they are located.
 Normal residents include nationals and non-nationals, i.e., it is not necessary that a normal
resident of a country is also its citizen.
For example, there are a large number of Indian software engineers who visit US for a span of
two or three years. For that period, they become the residents of US but not the citizens of US.
 International organisations like WTO , WHO , IMF are not considered as normal resident of
any country , but the people working in those organisations are treated as normal residents of
that country to which they belong.
For example: Indian working in the office of WTO located in New Delhi will be normal resident
of India.

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National Income and Related Aggregates

An American working in UNO office located in India will be treated as normal resident of
America they are considered as the resident of the country to which they belong. But If that
American works in India for more than a year he is normal resident of India.
 Local employees working in foreign embassy are considered as normal resident of that country
For example Indian working in American embassy in India is the normal resident of India.and
Indian working in Indian embassy is also normal resident of india.
 Crew member, commercial travellers, seasonal workers of a country and any technician,
specialist from abroad for short visit in the country for installation or guidance will be treated a
normal resident of that country to which they belong.
For example commercial traveller from India in Japan and I.T programmer from India in USA
for installation of some program will be treated as normal resident of India as they belong to
India .
 Persons living in border areas who cross the border between two countries daily or regularly in
order to work in one country are the residents of the country in which they live. They are not the
residents of the country in which they are employed. (India and Nepal share open border and
many Nepalese cross the border day in and day out.)
 Medical patients and students remain the residents of their own country irrespective of the time
they live abroad.
 Officials, diplomats and members of the armed forces working in different parts of the world are
treated normal resident of that country to which he belong.
For example members of Indian armed forces deputed in Afghanistan will be treated as normal
resident of India as they belong to India.
 people staying in other country for the purpose of medical treatment, study ,to enjoy Holidays
or sports ,attending conferences will be normal resident of that country to which they belong.
For example member of Indian cricket team playing in South Africa will be treated as normal
resident of India as they belong to India.

Citizen: - Citizenship is a legal concept based on the place of birth of the person or some legal
provision allowing a person to become a citizen.

Economic territory
Economic Territory: - Geographical Territory Administered By A Government within Which
Persons, Goods And Capital Circulate Freely And Includes
• Political Frontiers Including Territorial Waters And Air Spaceships Aircrafts
• Fishing Vessels , Oil And Natural Gas Rigs
• Embassies, Consultants , Military Bases Etc

 Those parts of the political frontiers of a country where the government of that country does
Not enjoy the above “freedom” are not to be included in economic territory of that country.
One Example is “Embassies”.
 Government of India does not enjoy the above freedom in the foreign
Embassies located within India. So, these are not treated as a part of economic territory of India.
 They are treated as part of the economic territories of their respective countries.
 For example the U.S. embassy in India is a part of economic territory of the U.S.A. similarly; the
Indian embassy in Washington is a part of economic territory of India.

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National Income and Related Aggregates

Concept of
1. Net factor income from abroad
2. Factor cost and market price
3. Gross and net

Net factor Income from Abroad

Net factor Income from Abroad is the difference between the factor income earned from abroad by the
normal residents of a country and income paid for the factor services rendered by non-residents within
the domestic territory of the country. The concept of Net factor Income from Abroad is used to
differentiate between national income and domestic income.

Net factor Income from Abroad = Factor Income from abroad by the Normal residents – Factor
Income of Non-residents in the domestic territory

Components of Net factor Income from Abroad

(i) Net compensation of employees: - It is the difference between the compensation of resident employees
working temporarily in foreign countries and the compensation of non-residents foreign employees
working temporarily in domestic territory of the country.
(ii) Net income from property and entrepreneurship :- It is equal to the difference between the income
received by way of interest, rent and dividend by the residents of the country and similar payments made
to the rest of the world.
(iii) Net retained earnings of resident companies abroad :- It is the difference between the retained
earnings of the resident companies located abroad and retained earnings of foreign companies located
in a country.

Net factor Income from Abroad = Net compensation of employees + Net property and entrepreneurship income
from abroad + Net retained earnings of residents companies abroad

Significance: National Income = Domestic income + NFIA

Relation between national product and Domestic product.

Domestic product concept is based on the production units located within domestic economic
territory, operated both by residents and non-residents.

National product concept based on resident and includes their contribution to production both
within and outside the economic territory.
National product = Domestic product + Residents contribution to production outside the economic
territory (Factor income from abroad) - Non- resident contribution to production inside the economic
territory (Factor income to abroad)

Question: Can gross domestic product be greater than gross national product?
Ans:- Domestic product can be greater than national product if factor income paid to the rest of the
world is greater than the factor income received from the rest of the world is i.e. when net-factor
income received from abroad is negative.

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National Income and Related Aggregates

National product Domestic product

It is the value of all final goods and services It is the value of all final goods and services
produced by produced within domestic territory of a country
Normal Residents of a country by all producers during a financial year
within or outside domestic territory in a financial
year It does not include Factor income from abroad

It includes Factor income to abroad

It includes Factor income from abroad Factor income from abroad

Domestic product =National product- Net Factor

It does not include Factor income to abroad income from abroad

National product = Domestic product +Factor

income from abroad

Factor Cost & Market Price

Explain the concept of indirect Tax

Ans : It refers to the difference between Indirect Tax paid by the enterprises to the Govt. & the
Subsidies paid by the Govt. to some of the enterprises. This concept is used to obtain the national
income at factor cost or factor prices. The NIT is deducted from market price (MP) to get factor cost
(FC).Indirect Tax is the amount of burden whose impact falls on one person or a group and the
incidence falls on other person or group. Subsidies refer to the financial assistance or aid provided by
the state to the weak & sick units
(i) Factor cost refers to all factor payments made by the producing unit to the factors of production for
rendering productive services in the production of goods and services.

(ii) Market price is the price at which a commodity is sold and purchased in the market.

Subsidies: These are the cash grants given by the government to the enterprises to encourage production
of certain commodities or to promote exports or to sell goods at prices lower than the free market prices.

Significance: Market price = Factor cost + Indirect taxes – Subsidies.

Product at Factor Cost Product at Market Price

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National Income and Related Aggregates

It is the Income earned by all the factors of It is the Market Value of all final goods and
production in a financial year. services produced in a financial year

It does not include Indirect taxes It includes Indirect taxes

It includes subsidies It does not include subsidies

Product at Factor Cost= Product at Market Price Product at Market Price =Product at Factor Cost
– Net Indirect taxes +Net Indirect taxes

Consumption of Fixed Capital: Fall in value of fixed assets due to normal wear and tear, and expected
obsolescence is called consumption of fixed capital. Its two reason are (i) Normal wear and tear (ii)
Expected Obsolescence () loss of value to change in technology.

Significance: Net Product = Gross product – Depreciation

How to Calculate National Income from GDP at Market Price

GDP at Market Price

- Deprecation

+ Net factor income from abroad

- Net indirect taxes

National Income (NNP AT Factor Cost)

NUMERICALS PROBLEMS

Problem 1

NDP AT FC 5,000

Net Factor Income From Abroad 120

Calculate NNP At FC

Ans : NNP At FC = 5,120

Problem 2

GNPMP 8,000

Net Factor Income From Abroad 80

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National Income and Related Aggregates

Net Indirect Taxes 100

Calculate GDP FC

Ans: GDP FC = 7,820

Problem 3

NDP AT FC 7,000

Net Factor Income From Abroad 200

Depreciation 250

Net Indirect Taxes 150

Calculate GNP MP

Ans: GNP MP= 7,600

Problem 4

Particulars (Crores)

GDPMP 1,100

Net Factor Income From Abroad 100

Net Indirect Taxes(value of indirect taxes – Subsidy) 150

National Income (NNPFC) 850

Calculate Depreciation

Ans: 200 Crore

Problem 5

NDPFC 2,000

Net Factor Income From Abroad 150

Net Indirect Taxes(value of Indirect Taxes- Subsidy) 250

GNPMP 3,000

Calculate Depreciation

Ans: 600 Crore

Problem 6

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National Income and Related Aggregates

GDPFC 4,000

Depreciation 100

Net Indirect Taxes(value of Indirect Taxes- Subsidy) 300

NNPMP 4,500

Calculate Net Factor Income From Abroad

Ans: 300 Crore

Problem 7

GNPMP 4,000

Depreciation 150

Net Factor Income From Abroad 200

NDPFC 4,500

Calculate Net Indirect Taxes

Ans: 850 Crore

Problem 8

Calculate National income (NNPFC)

GDPMP 235
Consumption of fixed capital 40
Subsidies 10
Indirect taxes 25
Net factor income from abroad -10
(Ans =170)

Problem 9
Calculate (GNP at FC)
i. NDP A T MP 300
ii. Indirect taxes 60
iii. Consumption of fixed capital 25
iv. Net factor income to abroad 20
(Ans = 245)
Problem 10
Calculate (NDP at MP)
i. GDP AT FC 200
ii. Indirect taxes 60
iii. Depreciation 35
19
National Income and Related Aggregates

iv. Subsidies 10
v. Net factor income from abroad 10
(Ans = 215)
Problem 11
Calculate (GNP at MP)
i. GDP AT FC 500
ii. Indirect taxes 60
iii. Consumption of fixed capital 15
iv. Subsidies 10
v. Net factor income to abroad 30
(Ans = 520)

Problem 12
Calculate (NNP at FC)
i. GDP AT MP 400
ii. Net Indirect taxes 60
iii. Consumption of fixed capital 45
iv. Subsidies 10
v. Net factor income from abroad -50
vi. Factor income to abroad 10
(Ans = 245)
Problem 13
Calculate (GDP AT MP)
i. GNP AT FC 300
ii. Indirect taxes 60
iii. Consumption of fixed capital 5
iv. Subsidies 10
v. Net factor income to abroad 10
(Ans = 360)
Problem 14
Calculate.
GDPFC
i. GNPMP 500
ii. Net Indirect taxes 20
iii. Consumption of fixed capital 20
iv. Factor Income to Abroad 100
v. Factor Income from abroad 300
(Ans= 280)

Problem 15
Calculate.
NDPFC
GNPMP 14,000
Depreciation 600
Indirect taxes 1,000
Subsidy 200
Factor Income received from Abroad 400
Factor Income Paid to Abroad 500
(Ans = 12,700)
Problem 16
Calculate.
20
National Income and Related Aggregates

NNPMP
i. GDPMP 50,000
ii. Depreciation 5,000
iii. NFIA -(1,000)
(Ans 44,000)
Problem 17
GDPMP of an imaginary economy is 1,20,000 and its capital stock is worth 3,00,000. if capital stock
depreciation is @20% per annum, indirect taxes amount to 30,000 and subsidies are 15,000 What is
national income ? (Ans 45,000)

Problem 18
GDPMP of an imaginary economy is 4,000 and Add national income bars 2500 , net factor income paid
me to the rest of world was 400 and the value of Net indirect Taxes is 450 . Estimate the value of
consumption of fixed capital for the economy for a given data (Ans 650)

GDP: - The total market value of all final goods and services produced by all productive enterprises in
the domestic territory of a country in a year.

REAL GDP VS NOMINAL GDP

Nominal GDP
 It is the monetary value of all goods and services produced in an economy during a financial
year estimated using current market prices.

Real GDP
 It is the monetary value of all goods and services produced in an economy during a financial
year, estimated using base year prices.

Price index/ GDP deflator A Price index is a number showing the changes in the overall level of
prices. It shows a change in the general price level of an economy.

Price index/GDP deflator = Nominal GDP / Real GDP * 100

How Real GDP is derived?

Ans : Real GDP = Nominal GDP/Price Index X 100

Real GDP or Nominal GDP or

GDP at constant prices GDP at current year prices
It is the monetary value of all goods and It is the monetary value of all goods and services
services produced in an economy during a produced in an economy during a financial year,
financial year estimated using current market estimated using base year prices.
prices
Base year price is taken as constant. Market prices do not remain constant.

This GDP changes only due to change in output It changes due to change in both price and output
of the economy. So it is a reliable measure of of the economy. So it is not a reliable measure of
economic growth. economic growth.

21
National Income and Related Aggregates

Consumer price index:- Calculated by dividing the price of the basket of goods and services in a
given year by the price of the same basket in the base year multiplied by 100.

Consumer price index = Cost of Market Basket of Current Year / Cost of Market Basket of Base Year
* 100

Consumer price index GDP deflator

The goods purchased by consumers do not represent GDP deflator takes into account all such
all the goods which are produced in a country goods and services.
CPI includes prices of goods consumed by the GDP deflator does not include prices of
representative consumer, hence it includes prices of Imported goods.
imported goods

GDP- Reliable Measure of Economic Growth

Limitations of GDP as a measure of economic welfare)

GDP Is An Important But Not A Perfect Measure Of Countries Economic Well Being Into Account
The Following ………
1. Non-monetary transactions-
 GDP remains underestimated as non-monetary transactions like services of housewife, barter
exchanges, enjoyment from hobbies like gardening, painting etc. are not included in GDP.
Although they increase economic welfare.
 These activities may be left out from estimate of national income due to the non-availability of
data. But these activities do contribute to welfare of the people.
 Since GDP may not account for such activities, it may be underestimated. As a result welfare
of the people is also underestimated.
2. Distribution of GDP – If the GDP of the country is rising, the welfare may not rise as a
consequence. This is because the rise in GDP may be concentrated in the hands of very few
individuals or firms. For the rest, the income may in fact have fallen. In such a case the welfare
of the entire country cannot be said to have increased
3. Externalities. Externalities refer to the benefits (or harms) a firm or an individual causes to
another for which they are not paid (or penalized). Externalities do not have any market in
which they can be bought and sold
Positive Externalities
 The social benefits are referred to as positive externalities.
 For example, construction of a highway or flyover reduces transport costs &
journey time to those who have not contributed towards the cost of construction.
 This is not reflected in GDP, & thus welfare is underestimated.
Negative externality
 Is referred as social cost harms.
 Polluting river by oil refinery reduces welfare through negative effect on Health..
 Welfare is less than what is indicated by GDP.
 GDP overstates welfare

22
National Income and Related Aggregates

Meaning:-National income Accounting is the process whereby countries measure these flows. The
process of calculating National Income (Domestic Income + Net Factor Incomes earned from Abroad)
is different under all three methods but the Gross Domestic Income/Gross Domestic

Methods Of
Calculation Of Nation
Income

Expenditure Income Value Added

Method Method Method

Final expenditure method

Meaning: - Final expenditure of all consumer goods and services, business firms, general government
and foreigners in an economy during a year

Includes
1. Private Final Consumption Expenditure: - Household Sector Money Value of Goods And
Services Purchased By Household and Non-profit Institutions For Current Use During a Given
Period Durable Goods , Consumer Services , Non-durable Goods
2. Govt. Final Consumption Expenditure Sector Compensation Of Employees Paid By The
Government ,Net Purchased In The Domestic Market Producing Sector
3. Gross Fixed Capital Formation: - Business Fixed Investment, Residential Construction,
Change In Stock ( Closing Stock – Opening Stock
(Includes Depreciation, Net Business investment expenditure, Net Residential Building
investment expenditure and Net Public investment expenditure and change in stock)
4. Net Exports Difference between value of exports and value of import

Estimation of GDP at MP by adding

1. Private Final Consumption Expenditure
2. Govt. Final Consumption Expenditure
3. Gross Fixed Capital Formation
4. Net Exports
Note:-

Gross Domestic Capital Formation =

Gross Fixed Capital Formation + Change In Stock
If
Gross Fixed Capital Formation Is Given
Add Change in Stock to It
If
Gross Domestic Capital Formation Is Given
Ignore Change in Stock

23
National Income and Related Aggregates

Precaution in Expenditure Method

1. Expenditure on intermediate goods:-Do not include expenditure on intermediate goods and
services:-Intermediate expenditure is a part of final expenditure hence its inclusion leads to double
counting.
2. Expenditure on second hand goods; - Do not include expenditure on second- hand goods;-
Expenditure on these goods was accounted when they were purchased new.
3. Expenditure on shares and bonds: - Do not include expenditure on financial assets:-Purchasing
of financial assets only leads to transfer of money from one person or one institution to another
person or institution.
4. Production for self consumption:- Include imputed expenditure on own account produced output
used for consumption and investment:-The imputed value of owner occupied house, self consumed
output by farmers etc must be taken into account while estimating final expenditure.
5. Government expenditure on transfer payment :-Excluded:- does not lead to any production of
goods and services

Why are exports included in the estimation of domestic product by the expenditure method?
Ans. Expenditure method estimates expenditure on domestic product, i.e. expenditure on final goods
and services produced within the economic territory of the country. It includes expenditure by
residents and non- residents both. Exports, though purchased by non- residents, are produced within
the economic territory, and therefore, a part of domestic product.

Is net export a part of NFIA? Explain.

Ans. No, it is not.Net export, the difference between export and import (X- M), is a part of expenditure
on domestic product. While NFIA is the difference between income earned from abroad by the normal
residents of a country and income earned by non-residents in the domestic territory of that country. It
is not included in the domestic product rather it is a component of NI. Therefore both are different
concepts.
Numerical Ability Zone

1. Calculate Net National Product at Factor Cost (NNP at FC)

i. Consumption of fixed capital 1800
ii. Net Indirect taxes l 3700
iii. Imports 2000
iv. Exports 1000
v. Change in stock 2500
vi. Gross fixed capital formation 5000
vii. Govt. final consumption expenditure 3000
viii. Private final consumption expenditure 2500
ix. Net factor income from abroad 600
(Ans = 7100)
2. Calculate:-Net domestic product at factor cost
i. Private final consumption expenditure 600
ii. Govt. final consumption expenditure 80
iii. Gross domestic fixed capital formation 30
iv. Export of goods and services 20
v. Imports of goods and services 25
vi. Net addition to stock of goods 20

24
National Income and Related Aggregates

vii. Net indirect taxes 35

x. Consumption of fixed capital 10
(Ans =680)
3. Calculate Gross domestic product at market price Gross national product at Factor Cost
i. Personal final consumption expenditure 6500
ii. Govt. final consumption expenditure 4000
iii. Gross domestic fixed capital formation 3000
iv. Decrease in stock 300
v. Exports of goods and services 900
vi. Subsidies 500
vii. Depreciation 2000
viii. Net factor income from abroad (-) 400
xi. Net indirect taxes 1000
(Ans =14100,12700)

4. From the information given below calculate National income

i. Private final consumption expenditure 600
ii. Compensation of employees by general government 400
iii. Net purchase of goods and services by general government 500
iv. Exports 100
v. Imports 150
vi. Net factor income from abroad (-)20
vii. Gross fixed capital formation 200
viii. Consumption of fixed capital 60
ix. Change in stock 60
x. Net Indirect taxes 20
xii. Subsidies 10
(Ans =1610)
5. Calculate national income Expenditure method
i. Subsidies 5
ii. Private final consumption expenditure 1000
iii. Net factor income from abroad (-) 10
iv. Indirect taxes 25
v. Government final consumption expenditure 200
vi. Net domestic capital formation 300
vii. Net exports (-)5
xiii. Addition to stocks (-)5
Ans =1465)
6. Calculate GDP at MP and NNP at FC by Expenditure method
i. Govt. final consumption expenditure 4000
ii. Indirect taxes 380
iii. Gross fixed capital formation 600
iv. Change in stock 10
v. Exports of goods and services 30
vi. Imports of goods and services 40
vii. Private final consumption expenditure 19000
viii. Net factor income to abroad (-) 800

25
National Income and Related Aggregates

ix. Subsidies 80
xiv. Consumption of fixed capital 1200

(Answer =23600, 22900)

7. Calculate NNP at MP
i. Govt. final consumption expenditure 200
ii. Indirect taxes 20
iii. Gross business fixed investment 60
iv. Gross residential construction investment 60
v. Change in stock 20
vi. Exports of goods and services 40
vii. Imports of goods and services 20
viii. Private final consumption expenditure 700
ix. Net factor income to abroad 10
x. Subsidies 10
xi. Consumption of fixed capital 20
(Answer =1030)
8. Calculate
Calculate depreciation
i. Change in stock 250
ii. Gross fixed capital formation 5000
iii. Net domestic capital formation 4000 (Answer
=1250)

9 Calculate GNP at MP
i. Inventory investment 10
ii. Exports of goods and services 20
iii. Net factor income from abroad -5
iv. Private final consumption expenditure 350
v. Gross residential construction investment 30
vi. Govt. final consumption expenditure 100
vii. Gross public investment 20
viii. Gross business fixed investment 30
xv. Imports of goods and services 10 (Answer =545)

Some of the major items whether included or excluded in national income are as follows:
1. Construction of a new house.:-Yes, it will be included in the national income as it is a part of
capital formation and leads to production of goods and services in the economy.
2. Purchases by foreign tourists OR Food purchased by a foreign tourist at a hotel in New
Delhi.:-Yes, purchases by foreign tourists are ‘exports’ and, therefore, they are included in the
national income through the Expenditure Method.

26
National Income and Related Aggregates

3. Durable goods purchased by a household. OR Purchase of car by a household.:-Yes, it

will be included in the national income as it is a part of the private final consumption
expenditure.
4. Purchase of a machine by a factory. OR Purchase of a new taxi by a taxi-driver.:-Yes, it
will be included in the national income as it is a part of the gross domestic capital formation.
5. Money received from sale of second-hand goods. OR Money received by government
from sale of a public sector firm to a private owner. No, it will not be included in the
national income because receipts from the sale of secondhand goods are by virtue of transfer of
an already existing object.
6. Expenditure on the construction of a flyover by the government.-Yes, it will be included in
the national income as it is a part of gross domestic capital formation.
7. Expenditure by government in providing free education. OR Expenditure on free services
provided by government.:-Yes, it will be included in the national income as it is a part of the
government final consumption expenditure.
8. Mineral wealth of a nation. It is a part of National wealth and is not included in national
income. However, that part of mineral wealth which has been extracted during the current year
will be included in national income under the product method.
9. Purchase of equipment’s for installation in a factory.-Yes, it will be included in the national
income as it is a part of capital formation.
10. Destruction of building due to an earthquake.-No, it will not be included in the national
income as it will not affect national product directly.
11. Purchase of a truck to carry goods by a production Unit.:-Yes, it will be included in the
national income as it is a part of the gross domestic capital formation.
12. Direct purchase made abroad by government.-Yes, it will be included in the national
income as it is a part of the government final consumption expenditure.
13. Receipt from sale of property, inherited from a relative.:-No, it will not be included in the
national income as receipt from sale of such property is by virtue of transfer of an already
existing object.
14. Expenditure on the purchase of an old house. OR Purchase of house by the tenant. OR
Purchase of rented factory building by the factory owner. No, it will not be included in the
national income because payment for purchase of secondhand goods is due to transfer of an
already existing object.
15. Expenditure on improvement of fixed capital asset. OR Expenditure on construction of a
house. OR Expenditures on adding a floor to the building. :-Yes, it will be included in the
national income as it is a part of capital formation. It must be noted that any expenditure on
repairs of fixed assets will not be included in national income.
16. Scholarship given to Indian students studying in India by a foreign company. OR
Expenditure by the Government on scholarships to students.-No, it will not be included in the
national income as it is a transfer payment.
17. Purchase of tractor by a farmer.-Yes, it will be included in the national income as it is a part
of the capital formation or investment by the farmer.
18. Purchase of furniture by a firm.-Yes, it will be included in the national income as it is a part
of the capital formation or investment by the firm.

27
National Income and Related Aggregates

19. Expenditure on education of children by a family.-Yes, it is included in the national income

as it is a part of the private final consumption expenditure.

Income Method/Factor Payment Method/Distributed Share Method

National Income Is Measure In Terms Of Payments Made To Primary Factor of Production.

Components of income method

1. Compensation Of Employees:-Any human work done mentally or manually with the aim of
earning income is called labour. Thus income got in return for doing work in the production
process is called income from work.
i. Includes Wages And Salary (Both In Cash And Kind)
ii. Employers Contribution To Social Security Scheme

2. Income of self-employed ( Mixed income) :- Income of self-employed and household

enterprises is called mixed income because the same is mixture of income from his work
(compensation of employees) and income from his property (rent, interest and profit).

3. Income from property (operating surplus) :- Income from property is earned in two ways, (i)
by ownership, and (ii) by control of property. Income from ownership of property is called rent
and interest and that from control of property( entrepreneurship) as profit. Broadly, income from
property is called operating surplus which consists of rent, interest and profit.

Compensation Of Operating Surplus Mixed Income Of Self

Employees Employed

1. Income from property ex-Rent, 1. Income from own

1. Wages and salaries in Royalty and Interest. account workers
cash ex- wages, salaries, 2. Income from entrepreneurship like farmers,
bonus, D.A., commission ex-Profit barbers, and
etc. a. Corporate Tax incorporated
2. Wages and salaries in b. Dividend undistributed enterprises like
kind ex-rent free home, profit retail traders, small
rent free car, free medical c. Retained earnings shopkeeper.
and educational facilities (Saving of Private
etc corporate sector)

28
National Income and Related Aggregates

3. Employers contribution
to social security scheme
ex-GPF, gratuity, labour
welfare funds,
retirements pension etc.

Note - compensation of employees includes

Wages and salary in cash Compensation in kind Employers’ contribution to social
security scheme includes

Wages and salary in cash Free housing Provident fund

Basic pay Medical facilities Life insurance

Dearness allowances Free food Causality insurance

House rent allowances Free education to children Pension on retirement

Overtime allowances Free housing

Bonus and commissions Medical facilities

Note:-
 Employers Contribution to social security schemes is to be included because they are not
included in compensation employees
 Employees Contribution to social security schemes is not to be included because they are
already included in compensation employees

Compensation of employees does not includes

1. Compensation received by an employee from insurance company from insurance company in
lieu of accident will not be included
2. Travelling allowance of an employee for company’s business purposes are reimbursed by the
company( will not be included not a part of compensation of employee
3. Any uniform provided by the employers during the duty hours ( like Dress given to Nurses or
police are not the part of compensation of employees thus not included in National income
because they are treated as intermediate consumption
4. Loan advanced to employees will not be included

Treatment of interest
Interest paid in loan taken for consumption purposes (NOT INCLUDED)
1. Interest received on loans given to a friend for purchasing a car. OR Interest payment on
loan taken by an individual to buy a motor cycle. OR Payment of interest on a loan taken

29
National Income and Related Aggregates

by an employee from the employer. :- No, it will not be included in the national income
because it is a non-factor receipt as the loan is not used for production but for consumption.
2. Payment of interest by an individual to a bank:- Not Included- because the individual borrows
for consumption and not for production.
3. Interest paid by an individual on car loan from a bank Not Included-
because the individual borrows for consumption and not for production.
4. National debt interest. OR Interest on public debt.:-No, it is not included in the national
income as it is the interest paid on loans taken by government to meet its consumption
purposes.
5. Payment of interest on borrowings by general government.-No, it will not be included in
national income because it is a non-factor payment as general government borrows only for
consumption purpose.

Interest on loan paid for production purposes (INCLUDED)

1. Interest paid by banks on deposits by individuals. OR Payment of interest by a
government firm. OR Payment of interest by a firm:-Yes, it will be included in the national
income as such interest is paid on loan taken for productive purpose. It is a factor payment by a
producer.
2. Interest received on loan given to a foreign company in India.-Yes, it will be included in
national income as it is a part of factor income from abroad.
3. Interest received on debentures.:-Yes, it will be included in the national income as such
interest received is a factor income because debenture is a sort of loan taken by a production
unit.
4. Payment of interest by a firm to a bank:- Included –
Treated as factor payment by the firm because the firm
borrows money for carrying out production and therefore included in National Income.
5. Interest on purchasing a car for use by a firm: Treated as factor payment by the firm because th
e firm borrows money for carrying out production and therefore included in National Income.

Compensation of employees in kind which are to be included in national income

1. Rent-free house given to an employee by an employer.-Yes, it is included in the national
income by Income Method since it is a part of ‘wages in kind’ paid to employees.
2. Free medical facilities by the employer. OR Free boarding and lodging provided to a
domestic servant. Yes. It will be included in national income as these free services are part of
compensation to employees.
3. Subsidized lunch served to workers in a factory. OR Firm incurred expenditure on
medical treatment of employee’s family.-Yes, it is a part of the compensation of employees
and, therefore, it will be included in the national income.
4. Royalty:-Yes, it will be included in the national income as royalty is a productive income.
5. Earnings of a self-employed doctor having a clinic at his own residence. Yes, it will be
included in the national income as it is a mixed income.
6. Contribution to provident fund by employer. OR Value of interest foregone on loans
provided by employer to employee.-Yes, it will be included in the national income as it is a
part of the compensation to employees.

30
National Income and Related Aggregates

7. Entertainment allowance to an employee for entertaining business guests.:-No, it will not

be included in the national income as it is intermediate consumption expenditure of the
business.
8. Pension paid after retirement.-Yes, it is a part of the compensation of employees and,
therefore, it will be included in the national income.
9. Payment of bonus by a firm.-Yes, it will be included in the national income as it is a part of
the compensation to employees.
10. Festival gift from an employer. yes be included in the national income as it is part of
compensation of employees

Steps to calculate national income (Income Method)

Precaution in calculation of national income in Income Method

1. Transfer Payment should: - Not Be Included: - these payment (old age pension,
unemployment allowances are unilateral and there is no flow of goods and services.
2. Profit on Sale of Fixed Assets/ Windfall Gain: - Not Be Included- such capital gain (income
from lotteries). No inputs are used and no pain is taken or effortless income.
3. Illegal Income: - Not Be Included – like (smuggling, black marketing, theft, dacoity not
included done by illegal activities.
4. Death Duties, Gift Tax, and Wealth Tax: - Not Be Included- because they are paid out of
past saving of the tax payers.
5. Imputed rent of the owners occupied houses:- be included;- on the basis of the existing
market price of rent of owner occupied houses

Numerical Ability Zone

Calculate Net national product at factor cost

I. Consumption of fixed capital 30
31
 National Income and Related Aggregates

II. Employers contribution to social security scheme 20

III. Rent 30
IV. Interest 15
V. Profits 35
VI. Royalty 5
VII. Wages and salary 200
VIII. Net indirect taxes 40
IX. Net factor income from abroad (-)5
xvi. Mixed income of self employed 25 (Answer =325)

Calculate GNP at MP
I. Wages and salary 700
II. Rent 100
III. Depreciation 50
IV. Net factor income from abroad -10
V. Mixed income 400
VI. Subsidies 100
VII. Profits 400
VIII. Employee contribution to Social security scheme 300
IX. Interest 40 (Answer =1580)

Calculate national income

I. Interest 30
II. Wages and salary 400
III. Net factor income from abroad 5
IV. Contribution to Social security scheme by employers 50
V. Operating surplus 130
VI. Rent 25
VII. Profit 35
VIII. Mixed income of self employed 70 (Answer =655)

Calculate NNP at MP
I. Compensation of employees 2000
II. Rent 200
III. Depreciation 150
IV. Net factor income from abroad 20
V. Mixed income 1000
VI. Net indirect taxes 100
VII. Subsidies 20
VIII. Profits 400
IX. Employers contribution to Social security scheme 500
X. Interest 10
XI. Royalty 40
(Answer =3770)

32
National Income and Related Aggregates

Value added method/Output Method

Value Added Method: - Value added refers to the difference between value of output and the value of
intermediate consumption of each producing units in the country. Sum total of value added by all the
producing unit within the domestic territory of the country is equal to domestic product.

Steps taken in estimating N.I. by product/ value added method?

Measures the national income by estimating the contribution of each individual enterprise at that
particular stage of production in the domestic territory of the country in an accounting year
1. Classify all the production units:- Locate the domestic territory into distinct industrial sectors ie
primary, secondary and tertiary sectors.

a) Primary sector:-Exploits natural resources and produce goods and services it includes all
agricultural and allied activities.
b) Secondary sector:-Converts one goods into another by creating more utility from it.
c) Tertiary sector:-Provides useful services to primary and secondary sector that smoothen their
working. Such as banking, insurance, communication etc.

2. Estimate value of output:- As sum of sales and change in stock of all the 3 sectors.
3. Estimate value of intermediate consumption:-A sum of value of intermediate consumption of all
the 3 sectors.
4. Estimate GVAmp:- Value of output – Intermediate consumption.
5. Estimate NVAmp:- Deduct the value of depreciation from GVAmp.(NVAmp= NDPmp).
6. Estimate NDPfc:- Deduct the value of Net Indirect Taxes from NDPmp.
7. Estimate NNPfc :- Add the value of Net Factor Income from Abroad with NDPfc to reach NNPfc
or the N.I.

Difference between value of output and value added

Value of output Value added

Market value of all goods and services Difference between value of output and the
produced by a firm in a accounting year value of intermediate consumption

= Sales + change in stock( closing stock – = Value of Output – Intermediate consumption

opening stock)

Bigger concept Part of value of output

33
National Income and Related Aggregates

1. Gross value of output:- value of output refers to the market value of the total output produced
by a firm during an accounting year
2. Intermediate consumption: - refers to the money value of raw materials used in the process
of production. Includes value of non-factor such as raw material etc.

Steps involved in production method/value added method

How to avoid problem of Double Counting

1. Final Output Method: - According to this method the value of intermediate goods is deducted from
the value of output. In other words value of final goods and services only is included in national income.
The value of the final output can be calculated by deducting the value of intermediate goods from the
value of output.

Value of Final Output = Value of Output – Value of Intermediate Goods

Note: - non marketed services are not included in national income

Certain goods and services which are not consumed by the household which are not purchased from
the market
Examples are:

34
National Income and Related Aggregates

1. Growing fruits and vegetables in kitchen garden , making paintings for one’s drawing room,
repairs on electrical equipments etc
2. Free services provided to family members such as father teaching to his own son
3. Domestic services by the housewives.

Precautions
1. Sale and purchase of second hand goods should not be included because it does not enter
into the current year’s production.
2. Commission and brokerage paid/received on sale of second hand goods should be included
3. Domestic services are not included. However production of services by paid employed
should be included
4. Own account production of fixed capital, firms and the government should be included
5. The value of intermediate goods should not be included in the national income
6. Value of production for self-consumption( farmers) should be included in national income

Numerical Ability Zone

1. An economy has two firms A and B. Find out Value Added by firms A and B
Gross Domestic Product at Market Prices
I. Exports by firm A 600
II. Imports by firm A 200
III. Sales to household by firm A 180
IV. Sales to firm B by firm A 90
V. Sales to firm A by firm B 50
VI. Sales to household by the firm B 200 (Answer = 620,160,780)

2. From the following data about a firm X calculate Gross Value Added at Factor Cost
i. Sales 350
ii. Opening stock 30
iii. Closing stock 20
iv. Purchase of machinery 150
v. Purchase of intermediate products 170
vi. Subsidy 40
vii. Depreciation 35 (Answer =210)

3. Calculate Value added by the firm A and B.

I. Sales by the firm B to general government 100
II. Sales by firm A 500
III. Purchase by household from the firm B 300
IV. Exports by firm B 50
V. Change in stock of firm A 20
VI. Change in stock of firm B 10
VII. Imports by firm A 70
VIII. Sales by firm C to firm A 250
IX. Purchase by firm B from the firm A 200 (Answer =200,260)

4. Calculate
35
National Income and Related Aggregates

a) Gross value added at market prices

b) National income by using the following data

a) Value of output
Primary sector 2000
Secondary sector 800
Tertiary sector 1000
b) Value of intermediate consumption
Primary sector 1000
Secondary sector 400
Tertiary sector 200
c) Indirect taxes paid by all sectors 40
d) Consumption of fixed capital of all sectors 40
e) Net factor income from abroad 10
f) Subsidies received by all sectors 30
(Answer =2160)

5. Find out
a) Value Added at A and B
b) GDP at FC
c) NNP at FC
I. Sales by firm A 1000
II. Purchase from firm A by the firm B 600
III. Purchase from firm B by the firm A 400
IV. Sales by firm B 2000
V. Depreciation 110
VI. Closing stock of firm A 200
VII. Closing stock of firm B 350
VIII. Opening stock of firm A 250
IX. Opening stock of firm B 450
X. Net factor income from abroad 40
XI. Indirect taxes paid by both the firm 300
(Answer =550,1300,1480)

6. Calculate Net Value added at factor cost :

I. Consumption of Fixed capital 600
II. Import duty 400
III. Output sold (units) 2000
IV. Price per unit of output 10
V. Net change in stock 50
VI. Intermediate cost 10000
VII. Subsidy 500

Ans. NVA FC = 9450

7. Find Net Value added at market price and NET value at FC

I. Output sold (units) 800
II. Price per unit of output 20
III. Excise 1600
IV. Import duty 400

36
National Income and Related Aggregates

V. Net change in stock - 500

VI. Depreciation 1000
VII. Intermediate cost 8000

Ans. NVAmp = Rs. 6500,

4500

8.Calculate Net Value added at factor cost:

I. Sales during the year 5000
II. Increase in stock 750
III. Purchase of fuel from other organizations 500
IV. Purchase of raw material from others firms 1000
V. Imports of raw materials 500
VI. Indirect taxes 250
VII. Depreciation of fixed assets 700

Ans. NVA FC = 2800

Some of the major items whether included or excluded in national income are as follows:
1. Increase in the prices of stocks lying with a trader.:-No, it will not be included in the
national income as it does not amount to any flow of goods.
2. Payment of fees to a lawyer engaged by a firm.:-It is an intermediate expenditure for the
firm because it involves purchase of services by one production unit (firm) from another
production unit (lawyer). So, it is deducted from the value of output of the firm to arrive at the
value added. So, it is not included in national income.
3. Expenditure on advertisement by a firm. OR Commodities used in scientific research.-
No, it will not be included in the national income as it is a part of intermediate consumption
expenditure.
4. Petrol used in police vehicles.:-No, it will not be included in national income as petrol is an
intermediate good in this case. It is used for the provision of the final product (maintenance of
law and order by the police).
5. Purchase of raw materials by a production unit. OR Milk purchased by a Sweet shop to
make milk-cake.:-No, it will not be included in the national income as it is a part of the
intermediate consumption expenditure.
6. .Expenditure on improvement of fixed capital asset. OR Expenditure on construction of a
house. OR Expenditures on adding a floor to the building. :-Yes, it will be included in the
national income as it is a part of capital formation. It must be noted that any expenditure on
repairs of fixed assets will not be included in national income.
7. Expenditure on maintenance of building. OR Expenditure on maintenance by a firm.-No,
it will not be included in the national income as it is a part of intermediate consumption
expenditure.
8. Expenditure on fertilizers by a farmer.:-No, it will not be included in the national income as
it is intermediate cost for the farmer and deducted from value of output while arriving at
national income.

37
National Income and Related Aggregates

9. Payment of electricity bill by a school.:-No, it will not be included in the national income as
it is intermediate cost for the school and deducted from value of output while arriving at
national income.

Important Question

Question :- will the following be included in gross domestic product / Domestic Income of
India? Give reasons for each answer.
1. Consultation fee received by a doctor.
2. Purchase of new shares of a domestic firm.
3. Services charges paid to a dealer (broker) in exchange of second hand goods.
4. Interest free loan to bank employees from bank
5. Factor income from abroad.
6. Compensation of employees given to residents of china working in Indian embassy in China.

Solution
1. Yes, It is a factor income. It is his salary.
2. No, It is not included in GDP, because it is a merely financial transaction which does not help
directly in production.
3. It is included because it is his factor income (salary).
4. No, it is to be repaid.
5. No, because factor income is earned not within the domestic territory of a country but from
abroad.
6. Yes, because Indian embassy in China is a part of domestic territory of India.

Will the following be included in the country’s NDP at MP

1. Net indirect taxes
2. Net exports
3. Net factor income from abroad
4. Consumption of fixed capital

5. Yes indirect taxed are included in NDP at MP

6. Yes net exports are included ( expenditure method)
7. Net factor income from abroad are not included because NDP measures domestic product
only
8. Consumption of fixed capital is net included because NET is given

Question Are the following included in the estimation of National Income a country? Give
reasons.
Sr Cases solution

1 Services rendered by family Services rendered by family members to each other

members to each other. should not be included in NI because these are not
rendered for the purpose of earning income.

2 Wheat grown by a farmer but used Imputed value of self-consumed wheat grown by a farmer
entirely for family’s consumption. must be included in NI, because it adds in the flow of
goods.

38
National Income and Related Aggregates

3 Expenditure government on It should be included in NI because the government

providing free education. expenditure on the free services is considered as a part of
government final consumption expenditure.

4 Payment of fees to a lawyer Yes, as it is factor income against the service of lawyer.
engaged by a firm.

5 Man of the match award to a It should not be included in NI because it is a windfall

player of the Indian cricket team. gain and it does not add in the flow of goods and services.

6 Payment of the match fee to It should be included in NI of India because they render
players of Indian cricket team. productive services as professionals

7 Unemployment allowance under It is transfer payment received by those persons who are
National Rural Employment not employed; therefore it should not be included in NI.
Guarantee Act

8 Indirect tax (Sale tax/excise duty). It is not included in NI because it does not addition the
flow of goods and services.

9 Salary received by the workers It is included in NI because it is a factor income.

under National Rural Employment
Guarantee Act

10 Income tax. It is a part of compensation of an employee (income).

While calculating NI by income method, compensation of
employees is to be included while doing so, income tax to
be paid by them should not be included separately.

11 Corporation tax. It is a part of profit of corporate sector. While calculating

NI by income method, profit is to be included while doing
so, Corporation tax should not be included separately.

12 Travelling expenses paid to Travel expenses incurred by employees for business

salesman by the employer. purpose which are reimbursed by the employers are
excluded because these are a part of intermediate
consumption of the employers

13 Free Medical facility to employees Yes, as it is a supplementary income paid in kind and
by the employer. hence a part of compensation of employees.

14 Money received from sale of old No, as it has already been taken into account when the
house. house was constructed.

15 Government expenditure on street Yes, It is a part of Government final consumption

lighting. expenditure and it adds to flow of services.

39
National Income and Related Aggregates

16 Interest received by a household Yes, as it is payment for use of capital.

from a commercial bank.

17 Receipts from sale of land. No, as it does not add to flow of goods & services.

18 Interest on public debt. It should not be included in NI because public debt is a

loan taken on to meet consumption expenditure by the
government.

19 Profits earned by Dabur India in Yes, it is a part of factor income earned from abroad.
U.K.

20 Money received from sale of No, it is only a transfer of paper claims.

shares.

21 Salary paid to Americans working No, this factor income belongs to non-residents.
in Indian embassy in America.

22 Payment of electricity bill by a No. it is intermediate consumption.

factory

23 Direct purchases of government in Yes, it is government final consumption expenditure.

a foreign country.

24 Remittances from aboard. No, it is only a transfer payment. No commodity is sent or

services rendered return for this.

25 Services of owner occupied Yes, Imputed rent of owner occupied houses will be
houses. included in NI.

26 Purchase of new shares of a No, because it is a financial transaction which does not
domestic firm. help in production.

27 Purchase of second-hand machine No, because it is not related with current flow of goods
from a domestic firm. and services.

28 Consultancy fee paid to a foreign No, as it is a factor income paid abroad (it is earned by
expert. non-residents).

29 Dividend received on shares. Yes, dividends are a part of corporate profit and therefore,
include in NI.

30 Production for self consumption imputed value is included in national income

Question Are the following included in the estimation of National Income a country? Give
reasons.

40
National Income and Related Aggregates

Sr Cases solution

1 Sales and purchase of shares, Non included only paper claims

bonds and debentures

2 Broker commission Broker commission on sale and purchase of shares and

debentures because part of factor Income

3 Dividend on shares Included in national income because it is paid out of

corporate profits

4 Bonus to employees Included part of compensation of employees

5 Interest received by household Included because it is factor income

on saving bank account:-

6 Sales tax:- Not included they are unilateral charges by the government

7 Services of housewives:- Not included provided free of cost as a gesture of love and
affection

8 Traveling allowances paid by Not included such expenses are reimbursed

the company

9 Payment of electricity bill by a Not included part of intermediate consumption

factory

10 Government expenditure on Included part of government final expenditure

street light

11 Purchase of medicine by a Included part of household expenditure

patient

12 Tip to waiter in a hotel Included part of factor income

13 Tip to beggar Not included transfer payment

14 Free lunch to workers Included part of compensation of employees

15 Purchase of vegetable by a Not included part of intermediate consumption

restaurant

16 Pocket money to children by Not included part of transfer payment

parents

17 Income from the sale of old car Not included part of capital gain

18 Festival gift from employer Included part of compensation of employees

19 Corporate taxes Part of profit of the companies

41
National Income and Related Aggregates

20 Unemployment allowances Not included part of transfer payment

21 Death duties/wealth tax/gift Not included paid out of past savings

tax

22 Bonus received by employees. It should be included in NI because it is a part of the

compensation of employees (salary in cash).

23 Government expenditure on It should be included in NI because defence service is

defence. considered final service so far as it provides peaceful and
secure environment to the citizens.

24 Money sent by a worker It is included in NI because it is a part of NFIA.

working abroad to his family
staying for less than one year

25 Profit earned by a branch of It is included in NI of India because it is a part of NFIA.

Indian Bank in London.

26 Expenditure by government in Yes, it is a part of government final consumption

providing free education. expenditure.

27 Rent free house to an It should be included in NI because it is a part of the

employee by an employer. compensation of employees (salary in kind).

28 Purchases by foreign tourists. It is included in NI because it is a part of the final

consumption expenditure on domestic product.

29 Purchase of a truck to carry It should be included in NI because it is an addition to the

goods by a production unit. capital stock of the production unit.

30 Payment of wealth tax by a It should not be included in NI because it is a compulsory

household transfer payment and paid from past savings of the tax
payers.

42
 National Income and Related Aggregates

QUESTION BANK

OUTPUT METHOD
1.Find out the net value added at factor cost of a production unit from the following data:
i. Total sales 4000
ii. Closing stock 700
iii. Opening stock 500
iv. Indirect taxes 200
v. Subsidies 150
vi. Depreciation 300
vii. Purchase of raw material from other 1000
Ans: Rs.2850
2. Calculate Value Added at factor cost from the following.
i. Purchase of raw materials 30
ii. Depreciation 12
iii. Sales 200
iv. Excise tax 20
v. Opening stock 15
vi. Intermediate consumption 48
vii. Closing stock 10
Ans: 127

3. Calculate Net value added at factor cost from following data.

i. Sales 700
ii. Purchase of machinery for installation in the factory 100
iii. Subsidies 50
iv. Change in stock (-)30
v. Purchase of raw material 400
vi. Rent 60
vii. Consumption of fixed capital 20
Ans. Rs. 300 lakhs

4. Calculate sales from the following data.

i. Net value added at factor cost 300
ii. International Consumption 200
iii. Indirect tax 20
iv. Depreciation 30
v. Change in Stock (-) 50
Ans. Sales = Rs. 600 lakhs

5. Calculate net value added a factor cost from the following.

i) Depreciation 20
ii) Intermediate cost 90
iii) Subsidy 5
iv) Domestic Sales 140
v) Exports 7
vi) Change in Stock (-)10
vii) Imports of raw material 3
Ans. Rs. 29 lakhs

43
National Income and Related Aggregates

6. Calculate gross value added of factor cost:

I. Units of output gold (units) 1000
II. Price per unit of output 30
III. Depreciation 1000
IV. Intermediate cost 12000
V. Closing stock 3000
VI. Opening stock 2000
VII. Excise (Rs.) 2500
VIII. Sales Tax 3500

Ans. GVAFC = Rs.

13000

7. Calculate the value added by Firm A and Firm B from the following data: -

i. Purchase by Firm A from the rest of the world 40

ii. Sales by Firm B 100
iii. Purchases by Firm A from Firm B 60
iv. Sales by Firm A 120
v. Exports by Firm A 40
vi. Opening stock of Firm A 45
vii. Closing stock of Firm A 30
viii. Opening stock of Firm B 40
ix. Closing stock of Firm B 30
x. Purchases by Firm B from Firm A 60
Answer
Value Added by Firm A = Rs 5
Lakhs.
Value Added by Firm B = Rs 30
Lakhs.

8. There are only two producing sectors A and B in an economy. Calculate :

Gross value added at market price by each sector, National income.
i. Net factor income from Abroad. 20
ii. Sales by A 1000
iii. Sales by B 2000
iv. Change in stock of B (–) 200
v. Closing stock of A 50
vi. Opening stock of A 100
vii. Consumption of fixed capital by A and B 180
viii. Indirect taxes paid by A and B 120
ix. Purchase of raw material by A 500
x. Purchase of raw material by B 600
xi. Exports by B 70
Ans. : Rs. 1370

INCOME AND EXPENDITURE METHOD

1. From the following information calculate gross national income by (a) income method (b) expenditure method.
(i) Factor income from abroad 10
(ii) Wages of employees 150
(iii) Net domestic capital formation 50
(iv) Private final consumption expenditure 220
(v) Factor income to abroad 15
(vi) Change in stock 15
(vii) consumption of fixed capital 15
(viii) Interest 40
(ix) Exports 20
(x) Imports 25
(xi) Indirect taxes 30
44
National Income and Related Aggregates

(xii) Subsidies 10
(xiii) Rent 40
(xiv) Government final consumption expenditure 85
(xv) Profit 100
Ans: (a) Rs.340 ; (b)
Rs.340 .
2. Estimate national income by (a) expenditure method (b) income method
1. Private final consumption expenditure 210
2. Govt: final consumption expenditure 50
3. Net domestic capital formation 40
4. Net exports (-) 5
5. Wages & Salaries 170
6. Employer’s contribution 10
7. Profit 45
8. Interest 20
9. Indirect taxes 30
10. Subsidies 05
11. Rent 10
12. Factor income from abroad 03
13. Consumption of fixed capital 25
14. Royalty 15
Ans: = 273

3. Calculate GNP at factor cost by income method and expenditure method. Rupees in
1. Private final consumption expenditure 1000
2. Net domestic capital formation 200
3. Profit 400
4. Compensation of employers 800
5. Rent 250
6. Gov.: final consumption expenditure 500
7. Consumption of fixed capital 60
8. Interest 150
9. Net current transfer from row (-)80
10. Net factor income from abroad (-)10
11. Net exports (-)20
12. Net indirect taxes 80
Ans: GNP FC = 1650

4. From the following data, calculate national income by (a) Income method (b) expd. method.
(i) Interest 150
(ii) Rent 250
(iii) Govt. Final Consumption Expd. 600
(iv) Pvt. Final Consumption Expd. 1200
(v) Profits. 640
(vi) Compensation of employees 1000
(vii) NFIA 30
(viii) Net Exports (–) 40
(ix) Net Indirect tax 60
(x) Consumption of Fixed capital 50
(xi) Net domestic capital formation 340
[Ans. : Rs. 2070

5. From the following data calculate GNP at FC by (a) Income method (b) Expenditure method.
(i) Net domestic capital formation 500
(ii) Compensation of employees 1850
(iii) Consumption of fixed capital 100
(iv) Govt. final consumption expenditure 1100
(v) PVT. final consumption expenditure 2600
(vi) Rent 400
(vii) Dividend 200
(viii) Interest 500
(ix) Net Exports (—) 100
45
National Income and Related Aggregates

(x) Profits 1100

(xi) NFIA (–) 50
(xi) Net Indirect taxes 250
[Ans. : Rs. 3900
6. From the following data, calculate (a) Gross Domestic Product at Factor Cost (GDPFC) and (b) Factor income to
abroad.
(i) Gross Domestic Capital formation 600
(ii) Interest 200
(iii) Gross national product at market price 2800
(iv) Rent 300
(v) Compensation of employees 1600
(vi) Profit 400
(vii) Dividend 150
(viii) Factor income from abroad. 50
(ix) Change in stock 100
(x) Net indirect taxes 400
(xii) Net Export (–) 30
[Ans. : (a) GDPFC = 2600 (b)
FIPA = 90

7. Calculate (a) Gross domestic product at market price (GDPMP) (b) Factor income from abroad.
(i) Profit 500
(ii) Export 40
(iii) Compensation of Employees 1500
(iv) Net current transfer from Row 2800
(v) Rent 90
(vi) Interest 300
(vii) Factor income to abroad 400
(viii) Net indirect tax 120
(ix) Gross fixed capital formation 250
(x) Net domestic capital formation 650
(xi) Gross fixed capital formation 700
(xii) Change in stock 50
[Ans. : GDPMP = 3050 (b)
FIRA = 120 ]

8. From the following data calculate (a) GDPMP and (b) Factor income from abroad.
(i) Gross national product at factor cost 6150
(ii) Net export (–) 50
(iii) Compensation of Employees 3000
(iv) Rent 800
(v) Interest 900
(vi) Profit 1300
(vii) Net Indirect tax 300
(viii) Net domestic capital formation 800
(ix) Gross fixed capital formation 850
(x) Change in stock 50
(xi) Dividend 300
(xi) Factor income to abroad. 80
[Ans. : GDPMP = 6400 ; FIFA
= 130 ]
9.Calculate NI by income and expenditure method:
(i) Subsidies 5
(ii) Private final consumption expenditure 100
(iii) NFIA (-) 10
(iv) Indirect Tax 25
(v) Rent 5
(vi) Government final consumption expenditure 20
(vii) Net domestic fixed capital formation 30
(viii) Operating surplus 20
(ix) Wages 50
(x) Net export (-) 5
46
 National Income and Related Aggregates

(xi) Addition to stock (-) 5

(xii) Social security contribution by employers 10
(xiii) Mixed income 40
Answer: - Income method Rs 110 Crores. Expenditure method= 110
Crores.

10. Estimate the following with the help of given data:

(i) GDPMP , (ii) Net Value Added at factor cost; and (iii) prove that it is equal to the income generated.

(i) Increase in the stock of unsold goods 1000

(ii) Sales 10,000
(iii) Net indirect tax 800
(iv) Purchase of raw materials from other firms 1650
(v) Purchase of fuel and power 850
(vi) Consumption of fixed capital 500
(vii) Rent 700
(viii) Wages and salaries 3500
(ix) Interest payment 1000
(x) Dividend 1500
(xi) Corporate gain tax 300
(xii) Undistributed profit 200
Answer
GDPMP = = 8500 Crores.
Net Value Added at factor cost = = 7200
Crores.
Income generated =7200 Crores.
Hence it is proved that Net Value
Added at factor cost = Income
Generated

11. From the data show that net value added at factor cost (NVAFC) is equal to the sum of factor incomes.
(i) Purchase of raw material and other input from the domestic market 600
(ii) Increase in stock 200
(iii) Domestic sales 1800
(iv) Import of raw material 100
(v) Exports 200
(vi) Depreciation of fixed capital 75
(vii) Salaries and wages 600
(viii) Interest payments 450
(ix) Rent 75
(x) Dividends 150
(xi) Undistributed profits. 80
(xi) Corporate profit tax 20
(xii) Indirect tax 50
[Ans.
: 1375 ]
12. From the following data calculate National Income by (a) income method and (b) expenditure method.

I. Compensation of employees 80
II. Private final consumption expenditure 1,200
III. Profit 500
IV. Rent 200
V. Government final consumption expenditure 800
VI. Interest 150
VII. Net factor income from abroad 20
VIII. Net indirect taxes 190
IX. Mixed income of self employed 630

47
National Income and Related Aggregates

X. Net exports (-) 30

XI. Net domestic capital formation 500
XII. Consumption of fixed capital 150
Ans. Rs. 2300 crs.

13. From the following data calculate National Income by Income and Expenditure method.
i. Government final consumption expenditure 100
ii. Subsidies 10
iii. Rent 200
iv. Wages and salaries 600
v. Indirect tax 60
vi. Private final consumption expenditure 800
vii. Gross domestic capital formation 120
viii. Social security contributions by employers 55
ix. Royalty 25
x. Net factor income paid to abroad 30
xi. Interest 20
xii. Net domestic capital formation 110
xiii. Profit 130
xiv. Net exports 70
Ans. Rs. 1000 crs.
14. from the following data, calculate net national product at factor cost by (a) income method (b) expenditure method.

i) Current transfers from rest of the world 100

ii) Government final consumption expenditure 1000
iii) Wages and salaries 3800
iv) Dividend 500
v) Rent 200
vi) Interest 150
vii) Net domestic capital formation 500
viii) Profits 800
ix) Employers contribution To social security schemes 200
x) Net exports (-) 50
xi) Net factor income from abroad (-)30
xii) Consumption of fixed capital 40
xiii) Private final consumption expenditure 4000
xiv) Net indirect tax 300
Ans. Rs. 5120 crores
15. From the following calculate National income by (i) Income method (ii) Expenditure method.
i) Net domestic capital formation 360
ii) Interest 200
iii) Rent 300
iv) Private final consumption expenditure 1300
v) Govt. Final consumption expenditure 730
vi) Net exports (-)20
vii) Net indirect taxes 70
viii) Net current transfers from rest of world 80
ix) Consumption of fixed capital 60
x) Net factor income from abroad (-)50
xi) Profit 600
xii) Compensation of employees 1200.

48
 National Income and Related Aggregates

Ans. 2250

16. Calculate National income with the help of income and Expenditure Method :
i) Private final consumption expenditure 210
ii) Government final consumption expenditure 50
iii) Net domestic capital formation 40
iv) Net exports (-)5
v) Wages and salaries 170
vi) Employer’s contribution towards Provident Fund 10
vii) Profits 45
viii) Interest 20
ix) Indirect tax 30
x) Economic Subsidies 5
xi) Rent 10
xii) Net factor income from Abroad 30
xiii) Consumption of fixed capital 25
xiv) Royalty 15
Ans. Rs. 300 crores

49