MP Board Class 12 Important Question-Answer

Unit 6: National Income Accounting

Note:
Section 1 - 01 Mark each for Objective Type Questions: - (Fill in the blanks,
MCQ, True/False, Match the following & One Word answer)
Section 2 – 03 Marks each for Short Answer type Questions: - Subjective
Questions (70-to-100-word limits)
Section 3 – 04 Marks each for Long Answer type Questions: - Analytical
Questions (125-to-150-word limits)
Choose the correct answers:
Question 1. Which method is employed to measure national income from
the options below:
(a) Production method
(b) Income method
(c) Expenditure method
(d) All of the above
Answer: (d) All of the above.
Question 2. Macro-economic encompasses the examination of:
(a) Principles or Theories of national income
(b) Consumer’s theory
(c) Production theory
(d) None of these.
Answer: (a) Principles or Theories of national income
Question 3. What falls within the primary sector?
(a) Land
(b) Forest
(c) Mines
(d) All of the above.
Answer: (d) All of the above
Question 4. Enterprises engaged in production are categorized into:
(a) Two sectors
(b) Three sectors
(c) Four sectors
(d) Five sectors.
Answer: (b) Three sectors
Question 5. Which of the following is not considered a flow?
(a) Capital
(b) Income
(c) Investment
(d) Depreciation.
Answer: (a) Capital
Question 6. The term for total national income divided by the total
population is:
(a) Private income
(b) Personal income
(c) Personal spendable income
(d) Per capita income.
Answer: (d) Per capita income
Fill in the blanks:
1. The total value of all final goods and services produced within the
domestic territory of a country during an accounting year is known
as…….
2. Pigou has divided welfare into ……… parts.
3. National income in India is calculated by ……….
 4. ……… is an index of economic development of the country.
5. Agriculture is included in the ……. sector.
6. Chinese product is included in the ………. area of the economy.

Answer:
1. GDP
2. Two
3. Central statistical organisation
4. National income
5. Primary
6. Secondary

State true or false:

1. The inclusion of electricity, LPG, and water supply in the primary

sector is incorrect.
Answer: False
2. The emergence of a parallel economy in the country is attributed to
black money.
Answer: True
3. The incorporation of income from gifts in the national income is
inaccurate.
Answer: False
4. The national income does not account for the sale of second-hand
goods.
Answer: True
5. The secondary sector does not make a major contribution to India's
national income.
Answer: False
 6. The income is relatively low as compared to developed countries,
India’s per capital.
Answer: True

Match the following:

Answer:
1. (e)
2. (a)
3. (d)
4. (c)
5. (b)

Answer the following in one word/sentence:

1. How frequently is national income calculated in a year?
Answer: Once
2. Under which branch of economics is national income analysed?
Answer: Macro-economics
3. Which goods and services' monetary value is included in the GNP
annually?
Answer: Final
4. A rise in national income signifies.
Answer: Economic progress
5. In N.I., which sector makes the highest contribution?
Answer: Tertiary
6. The term for the disparity between final stock and initial stock is
recognized as.
Answer: Change in stock

Very Short Answer Type Questions (SUBJECTIVE QUESTIONS)

Question 1. What defines final goods?

Answer: Final goods refer to those products that have completed the
production process and are ready for consumption by the end-user. These
goods cannot be resold and are factored into the calculation of national
income. They are not suitable as raw materials for the production of other
goods.
Question 2. How are consumption goods characterized?
Answer: Consumption goods are items that directly fulfil human needs and
are not utilized in the production of other goods. Examples include milk,
vegetables, wheat, rice, etc.
Question 3. What constitutes capital goods?
Answer: Capital goods are products used in the manufacturing of other
goods, rather than being purchased by consumers. These goods have a
prolonged usage period, such as machinery and plots.
Question 4. How are intermediate goods described?
Answer: Intermediate goods are those incorporated within the production
process and are not yet prepared for end-user utilization. These goods can
serve as raw materials for the production of other goods but are excluded
from the calculation of national income.
Question 5. What does the term "Economic unit" mean?
Answer: An economic unit or economic agent refers to individuals or
institutions that make economic decisions. This can include consumers
determining what and how much to consume, producers deciding what and
how much to produce, and entities like government corporations and banks
making various economic decisions such as spending, interest rates on
credits, and taxation.
Question 6. How is Micro-economics defined?
Answer: Micro-economics is the study of the economic behaviours of
individual entities, such as a person, a specific firm, an individual
household, a producer, or a unit.
Question 7. What does Macro-economic encompass?
Answer: Macro-economics is a branch of economic theory that focuses on
the collective units of the economy, encompassing all firms and industries,
among other elements.
Question 8. What is meant by Gross Investment?
Answer: Gross Investment pertains to the funds allocated for acquiring or
constructing new capital goods. The capital stock encompasses fixed assets
and unsold inventory. Therefore, gross investment represents the spending
on procuring fixed assets and unsold inventory within the accounting
period.
Question 9. Define National income.
Answer: National income signifies the overall monetary value of goods and
services generated within a country throughout a year, encompassing all
economic activities. As per Professor Marshall, it encompasses the labour
and capital of a nation acting upon its natural resources, resulting in an
annual net aggregate of various commodities, both material and
immaterial, including various services. Professor Pigou defines it as the
portion of the community's objective income, inclusive of income derived
from abroad, that can be quantified in monetary terms.
Question 10. What does Depreciation mean?
Answer: Depreciation denotes the permanent and ongoing reduction in the
quality, quantity, or value of assets. It can be described as the systematic
decrease in the recorded cost of a fixed asset, such as buildings, office
equipment, and machinery. In the calculation of national income,
depreciation is subtracted from the gross national product.
Question 11. Elaborate on the concepts of Flow and Stock.
Answer: Stock is associated with a specific point in time, representing a
quantity measured at a particular moment that may have accumulated in
the past. In contrast, Flow is a quantity measured within a designated time
period, often resulting in price fluctuations as it is measured per unit of
time. Examples include interest on capital and the sale of rice.
Question 12. What principles underlie the circular flow of income?
Answer: The circular flow of income is governed by two fundamental
principles:
1. In any exchange process, the seller receives an amount equal to what
the buyer spends.
2. Goods and services flow in one direction, while the money payment to
acquire them flows in the opposite direction, creating a circular flow.
Thus, the movement of products from the seller to the buyer is
inherently connected to the flow of money (income) from the buyer to
the seller.
Question 13. Explain the concept of the circular flow of income.
Answer: The circular flow of income refers to the continuous cycle of
income generation within the production process, its distribution among the
factors of production, and its circulation from households to production
units. This circulation takes the form of consumption expenditure on goods
and services produced by these units.
Question 14. What are the various methods for measuring national income?
Answer: There are different methods for measuring national income:
1. Production method
2. Income method
3. Expenditure method
4. Combined method
5. Social accounting method.

Short Answer Type Questions (SUBJECTIVE QUESTIONS)

Question 1. Explain the distinction between National Income and Per Capita
Income.
Answer: National income denotes the total value of goods and services
generated by the residents of a country within a specific year. Per capita
income, on the other hand, represents the average income of an ordinary
resident of a country in a given year.
Differences between National Income and Per Capita Income:

Question 2. Illustrate the four major sectors in an economy from the

perspective of macroeconomics.
Answer: The four principal sectors are as follows:
1. Household:
 A household signifies either an individual making decisions about
their own consumption or a group of individuals collectively
determining consumption-related decisions.
2. Firms:
 In macroeconomics, production units organized under capitalist
principles are referred to as firms.
 3. Government:
 The government's role involves formulating laws, enforcing them,
and ensuring justice.
4. External Sector:
 The external sector pertains to other countries worldwide engaged
in trade with us. It encompasses import and export activities.

Question 3. What is the difference between Micro-Economics and Macro –

Economics?
Answer:

Question 4. What do you mean by Stock and Flow? Write three differences
between Stock and Flow.
Answer: Stock means that quantity of an economic variable which is
measured at a particular point of time whereas, flow is that quantity of an
economic variable which is measured during a period of time.

Question 5. Distinguish between National Income and National Wealth.

Answer: Differences between National Income and National Wealth:
National Income:
1. It refers to the money value of the aggregate of goods and services
produced during a particular period of time.
2. National income is measured over a period of time.
3. It is a flow variable.
4. National income is a flow because it is occurring continuously.
5. Increase and decrease of national income affect the standard of life of
people.
National Wealth:
1. National wealth is the aggregate of wealth possessed by all the
individuals in the country as well as collective or social wealth of the
society.
2. National wealth is measured at a point of time.
3. It is a stock variable.
4. National wealth is a stock which is accumulated at a particular time.
 5. Its increase and decrease affect the production capacity of goods.

Question 6. Describe the Great depression of 1929.

Answer: The ‘Great Depression of 1929’ and the subsequent years saw the
output and employment levels in the countries of Europe and North
America fall by huge amount. Demand for goods in the market was low.
Many factories were lying idle, workers were thrown out of jobs. In USA
from 1929 to 1933 unemployment rate rose from 3 percent to 25 percent.
Over the same period aggregate output in USA fell by about 33 percent.
Question 7. How are micro-economics and macro-economic
interdependent?
Answer: Interdependence of macro-economics and micro-economics can be
studies as follows:
1. Macroeconomics depend on micro-economics:
Macro-economics and microeconomics depend on each other. Both are
interdependent, macroeconomics contributes to the micro-economics. For
example, the theory of investment belongs to micro-economics. It is derived
from the behaviour of the individual entrepreneur. The theory of aggregate
investment function can also be derived from micro-economics theory of
investment. Thus, we can say, that macro-economic depends on micro-
economics.
2. Microeconomics depend on macro-economic:
Microeconomics depend upon macro-economics to a certain extent. For
example, the rate of interest is a subject which belongs to micro-economics,
but it is influenced by macro-economic aggregates. Thus, micro-economics
depend upon macro-economics.
Conclusion:
Macro and micro-economics both are interdependent On each other.
Neither is complete without the other. We must study macro-economic
because it deals with average variables, such as national income and
national output. We must study micro-economics because national output
and national income are eventually the result of decision of millions of
business firms and individuals. Thus, we can conclude that both are
complementary to each other.
Question 8. Calculate national income from the given data:
1. Salary – Rs. 6,000
 2. Rent – Rs. 2,000
3. Profit – Rs. 2,000
4. Interest – Rs. 1,000
5. Consumption – Rs. 5,000.
Solution:
N.I. = Salary + Rent + Profit + Interest
= 6,000 + 2,000 + 2,000+ 1,000
N.I. = Rs. 11,000.
Question 9. Calculate National Income on the basis of the given data by
income method: Heads Rs. (In crores)
1. Salary and wages = Rs. 18,000
2. Interest = Rs. 7,000
3. Depreciation = Rs. 4,000
4. Rent = Rs. 6,000
5. Profit = Rs. 25,000.
Solution:
National Income = Salary and wages + Interest +Rent +Profit
= Rs. 18,000 + Rs. 7,000 + Rs. 6,000 + Rs. 25,000 = Rs. 56,000.
Question 10. On the basis of following data find out National Income by
income method:
1. Salary and wages – 30,000
2. Rent – 10,000
3. Prof – 50,000
4. Interest – 10,000
5. Depreciation – 2,000
6. Gross domestic investment – 60,000.
Solution:
National income (N.I.) = Salary and Wages + Rent + Profit + Interest
N.I. = 30,000 + 10,000 + 50,000 + 10,000
N.I. = Rs. 1,00,000.
Question 11. Calculate National Income from the following data:
1. Salary = Rs. 60,000
2. Rent= Rs. 20,000
3. Profit = Rs. 20,000
4. Interest = Rs. 10,000
5. Consumption = Rs. 50,000
6. Gross Domestic Product = Rs. 8,000.
Solution:
National Income = Salary + Rent + Interest + Profit
= Rs. 60,000 + 20,000 + 10,000 + 20,000
= Rs. 1,10,000
National Income = Salary + Rent + Interest + Profit
Question 12. Explain the relation between gross domestic product and
welfare.
Answer: Gross domestic product refers to the money value of goods and
services produced within the territorial boundaries of the country in a given
year. An increase in income leads to an increase in a person's consumption
expenditure, thereby enhancing material welfare. However, it is
inappropriate to directly associate GNP with welfare due to the following
reasons:
1. GDP indicates the total goods and services produced but does not
reveal the product's structure. An increase in GDP, driven by
increased production of war equipment, may not improve economic
welfare.
2. If GDP increases due to rising prices and not increased physical
output, it may not be a reliable index of economic welfare.
3. GDP does not consider changes in a country's population. If the
population grows faster than GDP, it can decrease per capita
availability of goods and services, negatively impacting economic
welfare.
Question 13. What is G.D.P.? List any four characteristics of G.D.P.
Answer:
Meaning of G.D.P: Gross Domestic Product is defined as the value of all
final goods and services produced by all the enterprises located within the
domestic territory of a country during an accounting year. It should be
noted that goods and services must be produced within the country. G.D.P.
is always the money value of goods and services produced within a year.
Special Features of G.D.P:
1. G.D.P. includes the value of all the goods and services produced
within the country in a particular year.
2. It includes depreciation value.
3. G.D.P. is measured in terms of market price.
4. G.D.P. includes the value of new goods only; it excludes the value of
second-hand goods.
5. It includes real capital, not financial capital.
6. Consumer and capital goods are classified into durable and non-
durable goods.
7. Goods may be from the private sector or public sector.
8. To avoid the defect of double counting, we include the value of final
goods and services.
Question 14. What precautions should be taken while calculating national
income by the income method?
Answer: Precautions taken while calculating national income by the income
method:
1. Transfer income should not be included.
2. Income from illegal activities should not be included.
3. Imputed rent should be included as it is part of rental income.
4. Production for self-consumption should be included.
5. Money received by the sale of shares/bonds, etc., should not be
included.
6. Income from the sale of second-hand goods should not be included.
7. Death duties, wealth tax, gift tax, etc., are not included in national
income.
 8. Corporation tax should not be recorded separately as it is a part of
profit.
Question 15. What are the difficulties in estimating national income by the
income method?
Answer: Estimating national income by the income method faces various
difficulties. The major difficulties are:
(i) It is difficult to estimate mixed income, which is earned by
an unincorporated sector, as obtaining reliable information
from such an unorganized sector is challenging.
(ii) Interest on the national debt is not included in national
income, assuming that government borrowings are used for
unproductive purposes. However, some economists object to
this assumption as a part of government borrowing is used
for productive purposes.
(iii) Incomes received are generally calculated from income-tax
returns, making the income method less useful in
underdeveloped countries where a small part of income
earners are tax payers. The income method of estimating
national income is useful as it provides information about
the distribution of national income among various factor
categories, such as the share of wages, profits, etc., in
national income.
Question 16. What do you mean by G.D.P. at constant price?
Answer: Gross Domestic Product at constant prices: Constant price means
the base year's price, which is an average standard of the previous year
where major economic changes have not occurred. Goods and services
produced during the year are either valued at the constant price of the base
year, or the value of goods and services at the current price is converted
into the value at the constant price.
Modern economies are inflationary, where prices of goods and services are
increasing at faster rates. It is advisable to convert the value of goods and
services at current prices into constant prices so that real Gross Domestic
Product (G.D.P.) can be understood. The calculation at constant prices
should be referred to as real G.D.P. The formula for converting G.D.P. at
current prices into G.D.P. at constant prices is as follows.
Question 17. Will a profit-maximizing firm in a competitive market ever
produce a positive level of output in the range where the marginal cost is
falling? Give an explanation.
Answer: A profit-maximizing firm in a competitive market will produce a
positive level of output in the range where the marginal cost is falling.
Falling marginal cost implies that the cost of producing an additional unit
of output decreases. In a competitive market, where the price is constant,
the difference between the firm's total revenue and total variable cost (TVC
= Σ MC) tends to increase as output increases. Therefore, a competitive
firm increases output when gross profit is rising.

Question 18. From the following data, calculate Personal Income and
Personal Disposable Income.
Items (₹ In crores):
 Net domestic product at factor cost 8,000
 Net factor income from abroad 200
 Disbursed profit 1,000
 Corporation tax 500
 Interest received by households 1,500
 Interest paid by households 1,200
 Transfer income 300
  Personal tax 500.
Solution: Personal Income = (a) + (b) + (e – f) + (g) - (d) = 8000 + 200 +
(1500 - 1200) + 300 – 500 = 8000 + 200 + 300 + 300 – 500 = 8800 – 500 = ₹
8,300 Crores.
Personal Disposable Income = Personal Income – Personal Tax = 8300 –
500 = ₹ 7,800 Crore.

Question 19. In a single day, Ram, the barber, collects ₹ 500 from haircuts.
Over this day, his equipment depreciates in value by ₹ 50, of the remaining
₹ 450, Ram pays sales tax worth ₹ 30, takes home ₹ 200 and retains ₹ 220
for improvement and buying of new equipment He further pays 120 as
income tax from his income. Based on this information, complete Ram’s
contribution to the following measures of income:
(a) Gross domestic product
(b) NNP at market price
(c) NNP at factor cost
(d) Personal income
(e) Personal disposable income.
Answer:
(a) GDP = ₹500
(b) NNPMP=GDP – DeP
₹500 – ₹ 50 = ₹450
(c) NNfc = NNP – Sales tax
= ₹450 – ₹30 = ₹420
(d) PI = NNPfc – Retained earnings
= ₹ 420 – ₹ 220
= ₹ 200
(e) PDI = PI – Income tax
=₹ 200 – ₹ 20
= ₹ 180.
Long Answer Type Questions (ANALYTICAL QUESTIONS)
Question 1: Enumerate five aspects highlighting the significance of national
income.
 Answer: The importance of national income can be elucidated through the
following facets:
1. Insight into Economic Progress: By gathering data on national
income over several years, a nation's economic progress can be
assessed. An increase in national income signifies the country's
advancement. Comparing national income estimates over time allows
us to discern whether the economy is growing, stagnant, or declining.

2. Indicator of Economic Welfare: The economic well-being of a country

is contingent upon its national income. An upsurge in national income
corresponds to an augmentation in economic welfare, while a decline
in national income results in a decrease in economic progress.
3. Policy Formulation: National income plays a pivotal role in shaping a
country's policies. It is instrumental in devising policies such as
taxation and employment. Statistics on national income are valuable
for formulating plans and establishing targets.
4. Facilitator of Economic Planning: Economic planning can be
streamlined based on national income data. It aids in delineating the
areas that require planning and determining the nature of
investments—whether they should be long-term or short-term.
5. Comparative Analyses: National income data allows for comparing
the progress of two or more countries. It provides insights into
savings, investments, consumption, and more for different nations.
Comparative studies of the economic advancements and standards of
living among countries become feasible, offering a comprehensive
perspective on the economic welfare of their populations.

Question 2. Distinction between Gross Domestic Product and Gross

National Product.
Answer: Differences between Gross Domestic Product and Gross National
Product:

GDP GNP
Definition
The value of goods and services The value of goods and services produced by
produced within the geographical the citizens of a nation irrespective of the
boundaries of a nation in a financial geographical limits in a financial year is
year is termed as GDP. known as GNP.
What Does It Measure?
It measures only the domestic It measures only the national production.
production.
Emphasis
It emphasises on the production that is It emphasises on the production that is
obtained domestically. achieved by the citizens living in different
nations.
Highlights
It highlights the strength of the It highlights the contribution of the
country’s economy. residents to the development of the economy
Scale of Operations
Local scale International scale
Excludes
The goods and services that are being The goods and services that are produced by
produced outside the economy are the foreigners living in the country are
excluded. excluded.
Question 3. Write difference between National Income and Private Income.
Answer: Differences between National Income and Private Income:

National Income Private Income

Definition
National income is the total income that rivate income is the income generated by
is generated by all the economic activities any private individual or a household
taking place in an economy during a from engaging in any occupational
financial year activities or any type of income that is not
 received as salary or commission
Sectors Involved
It includes income that is generated from It includes income that is generated from
both public and private sectors the private sector only
Components
Consists of only factor incomes Consists of transfer earnings along with
factor incomes
Formula
National Income = Rent + Compensation Private Income = Income from domestic
+ Interest + Profit + Mixed income product accruing to private sector + Net
factor income from abroad + All types of
transfer incomes

Question 4. What are the causes of low national income in India?

Or
Give reasons for slow growth rate of national income in India.
Answer: The causes of diminished national income in India are outlined
below:
1. Overpopulation: The current population exceeds 100 crores, serving
as a primary factor contributing to the low national income.
2. Unequal Income Distribution: A significant imbalance exists in the
distribution of national income, largely attributable to improper tax
policies.
3. Reliance on Agriculture: India's economy is predominantly
agriculture-based, subject to the inherent uncertainties associated
with agricultural produce, thereby resulting in a low national income.
4. Lack of Education: A considerable segment of the population lacks
education, impeding their ability to comprehend modern production
methods and policies.
5. Outdated Production Methods: Outmoded and obsolete production
methods are prevalent in the country, preventing the optimal
 utilization of resources and, consequently, contributing to lower
national income.
Question 5. Write five suggestions to increase national income in India.
Or
Write suggestions to increase national income.
Answer:
1. Enhance Agricultural Development: Given that agriculture serves as
the primary source of national income in India, it is imperative to
utilize superior seeds, fertilizers, and tools to bolster agricultural
productivity.
2. Promote Technical Education: Facilitating education among the
populace is crucial for increasing efficiency. A focus on technical
education can enhance the skill set of individuals.
3. Optimize Natural Resource Utilization: The comprehensive and
efficient utilization of natural resources has the potential to elevate
the nation's income.
4. Population Control Measures: Implementing measures to control the
population, particularly in rural areas, can contribute to an increase
in per capita income.
5. Develop Transport and Communication Infrastructure: Prioritizing
the development of transport and communication infrastructure is
essential. Strategic planning in this regard can stimulate both
domestic and international trade, thereby boosting national income.
6. Adopt Export-Oriented Trade Policies: Formulating trade policies
that promote exports and discourage imports can positively impact
national income. Aligning with five-year plans and development
programs, priority should be given to export promotion.
Question 6. Distinguish between Closed Economy and Open Economy.
Answer: Differences between Closed Economy and Open Economy:
Question 7. Explain different methods of measuring national income.
Answer: The various methods of measuring national income are:
1. Census of production method:
The gross national income is calculated by adding up the aggregate values
of productions of all the industries and sectors of the economy and net
income from abroad. By deducting depreciation from gross income, we get
national income.
2. Census of Income method:
By summing up the net incomes of all individuals and firms in a country
during a year, we get the national income.
3. Expenditure method:
People don’t spend their entire income. They save a part of it as saving. By
summing up all expenses and all incomes of all the people during a year, we
get the national income.
4. Combined use of production and income method:
This method is also known as ‘mixed method’. In this method, both
production and income methods are used together. In any country if due to
certain reasons one method cannot be used, there the mixed method can be
used.
5. Social accounting method:
This method was propounded by Prof. Richard Stone. In this method, the
entire society was divided into various sections such as; producers,
consumers, etc. The average income of some people of each section is
calculated and then it is multiplied with the total number of people in each
section.
Question 8.A farmer sold cotton of Rs. 500 to cotton mill by producing
himself. Cotton mill prepared garments and sold to garment factory at Rs.
600 garment factories sold it to a store on Rs.1000. Store owner sold it to
consumer on Rs. 1200. Find out increased value by each.
Solution:
Following is the increased price by Farmer, Cotton mill, Ready-made
garments factory and store:
1. Price raised by Farmer = Sale of cotton-to-cotton mill = Rs. 500.
2. Price raised by cotton mill = Sale to garment factory – Sale of cotton
from Farmer
= Rs. 600 – 500 = Rs. 100.
3. By ready-made garment = Sale price of dress to store – Price (Sell) of
cotton from factory cotton mill
= Rs. 1000 – 600 = Rs. 400.
4. By Store = Last sell price of consumer – Value of dress by ready-
made factory
= Rs. 1200 – 1000 = Rs. 200.
5. Total price rise = Farmer Cotton mill + Garment factory + Store
value
= Rs. 500 + 100 + 400 + 200 = Rs. 1200.

Question 9. Write the main characteristics of capitalistic economy.

Or
What are the important features of a capitalist economy?
Answer: Important features of a capitalist economy:
Following are important features or characteristics of a capitalist economy:
1. There is private ownership of means of production.
2. Production takes place for selling the output in the market.
3. There is sale and purchase of labour services at the price which is
called the wage rate.

Question 10.Explain in short G.D.P. at market price and G.D.P. at factor

cost
Answer:
(A) Gross Domestic Product at market price:
It is also called the current price or prevailing price in the market. In order
to calculate G.D.P. at current price final goods and services produced
during the year are valued in terms of prevailing price of that year. To
measure it we multiply the quantity of produced goods with their prices. It
can be explained like this:
Here GDP MP = P1 (Q) + P1 (S)
GDPMP = Gross Domestic Products at market price
P1 = Market price
Q = Quantity of final goods and services
S = Services
Increase in the value of Gross domestic product (G.D.P.) as compared to
the value of previous year shows economic development and happy trend. It
should be Carly studied whether the increase is due to increase in the
quantity of goods and services produced or increase in price. If the increase
has caused due to increase production, it should be taken as real increase.
We can calculate per capital Gross Domestic Product (G.D.P) if we divide
total G.D.P. with the population of the country.
(B) Gross Domestic Product at factor cost:
Gross Domestic Product at factor cost is the estimate of Gross Domestic
Product in terms of earnings of factors of production. It is the sum total of
earnings received by various factors of production in terms of wages,
interest, rent, profits, etc. within the domestic territory of a country in a
year.
It measures factor incomes generated with the domestic territory
irrespective of whether generated by residents or non-residents. Being gross
it marks no provision for the depreciation. As explained above market
value of goods and services differs from the earnings of factors of
production because of Net Indirect Taxes. Therefore, if we get gross
domestic product at factor cost. Thus,
G.D.P. FC = G.D.P MP – Indirect taxes.