National Income and Related Aggregates (Test Questions)

National Income and Related Aggregates! 

Q.1. Define the concept of value added.

Ans. Value Added is the excess of value of output over that of intermediate consumption.

Q.2. What are factor incomes?

Ans. Land, Labour, Capital and Entrepreneurship are the four factors of production and rent, wages, interest and profits are the respective factor incomes.

Q.3. When will national income be less than domestic income?

Ans. When net factor income from abroad is negative, national income will be less than the domestic income.

Q.4. What is the difference between Indirect taxes and Net Indirect taxes?

Ans. The difference between indirect taxes and net indirect taxes is of subsidies because.

Net Indirect Taxes = Indirect Taxes – Subsidies

Q.5. What is meant by production?

Ans. Production means any activity which creates value or increases the value of a commodity already produced.

Q.6. What is meant by consumption?

Ans. Using goods and services for satisfying human wants is called consumption.

Q.7. When can national income and domestic income be equal?

Ans. National Income and domestic income will be equal in a closed economy in which net factor income from abroad is zero.

Q.8. What is meant by net exports?

Ans. It is the difference between exports and imports of a country.

Net Exports = Exports – Imports

Q.9. What do you understand by double counting?

Ans. Counting the value of any good more than once while calculating the national income is called double counting.

Q.1O. What is the difference between factor cost and market price?

Ans. The difference between factor cost and market price is Net Indirect Taxes. Market Price – Net Indirect Taxes = Factor Cost.

Q.11. What are transfer payments?

Ans. Transfer payments are unilateral payments which are received without rendering any productive services. For example old age pension, scholarships etc.

Q.12. What are the two types of final goods?

Ans. The two types of final goods are:

(i) Consumption goods and

(ii) Capital goods.

Q.13. Define capital goods

Ans. Durable goods used in the production process are called capital goods.

Q.14. Define consumption goods?

Ans. Goods used for satisfying wants are called consumption goods.

Q.15. Define ‘depreciation’.

Ans. Depreciation means fall in the value of fixed capital goods due to normal wear and tear or foreseen obsolescence.

Q.16. What are intermediate goods?

Ans. Goods which are used for further production or for resale are called intermediate goods.

Q.17. What are final goods?

Ans. Goods which are used for final consumption purpose and/or final investment are called final goods.

Q.18. What is a circular flow?

Ans. Circular flow means the flow of money income and the flow of goods and services among different sectors of economy.

Q.19. What is product flow?

Ans. Product flow means flow of factor services and flow of goods and services.

Q.20. What are injections?

Ans. Additions to the circular flow of income are called injections.

Q.21. Give an example of injection?

Ans. Investment, Government expenditure and Exports.

Q.22. What are leakages?

Ans. Withdrawals from the circular flow of income are called leakages.

Q.23. Give an example of leakage.

Ans. Savings, Taxes and Import.

Q.24. What is economic territory?

Ans. The geographical area administered by a government in which there is free movement of goods, human resources and capital is called economic territory.

Q.25. Who is a normal resident?

Ans. A person who lives in a country and whose centre of economic interest also lies in the economic territory of that country is called a normal resident of that country.

Q.26. What is meant by net factor income from abroad?

Ans. The difference between factor income received from abroad and factor income paid to abroad is called net factor income from abroad.

Q.27. What are the broad groups in which the economic territory is divided?

Ans. The broad groups in which an economic territory is divided are:

(i) Primary Sector

(ii) Secondary Sector

(iii) Tertiary Sector

Q.28. What is meant by ‘Private Income’?

Ans. Income accruing to private sector from all sources i.e. by way of factor income as well as transfer income, is called private income.

Q.29. What is ‘Personal Income’?

Ans. Income received by individuals from all sources i.e. as factor income and transfer income is called personal income.

Q.30. When can private income be equal to personal income?

Ans. Private income will be equal to personal income if corporate tax and undistributed profits are nil.

Q.31. What is ‘Disposable Income’?

Ans. The part of personal income which is either spent on consumption by the household or saved is called disposable income.

Q.32. What is national disposable income?

Ans. The income of the residents of a country net of current transfers from rest of the world is known as national disposable income.

Q.33. Why is income from sale of second hand goods not included in national income?

Ans. Sale of second hand goods is not included in national income because their value has already been counted in the year in which they were produced.

Q .34. What is real national income?

Ans. National income at constant prices is called real national income.

Q.35. What is nominal national income?

Ans. National income at current prices is called nominal national income.

Q.36. What is meant by real gross domestic product.

Ans. GDP expressed in physical quantities is ‘real GDP’.

Q.37. Give the formula for converting national income at current prices into national income at constant prices.

Ans. National Income at Constant Prices = National Income at Current Prices / Price Index of Current Year x Price Index of Base Year

Q.38. Give the formula for GNP Deflator.

Ans. GNP Deflator = Nominal GNP/ Real GNP x 100

Q.39. What is nominal GDP?

Ans. When GDP of a given year is estimated on the basis of price of the same year it is called nominal GDP.

Q.40. What is green GNP?

Ans. Green GNP is the GNP which would help to attain a sustainable use of natural environment and equitable distribution of benefit s of development.

Q.41. Define GDP_MP

Ans. GDP_MP is the market value of all final goods and services produced within the domestic territory of a country during one accounting year.

Q.42.Define flow variables.

Ans. Any variable whose magnitude is measured over a period of time is called a flow variable.

Q.43. Define stock variable.

OR

What are stock variables?

Ans. Stock variables are the variables whose magnitude is measured at a particular point of time.

Q.44. Give examples of Non Factor Inputs?

Ans. Raw Material, power, fuel, transportation, stationery etc.

Q.45. What is the name given to the cost incurred due on Non Factor Inputs?

Ans. Intermediate consumption.

Q.46. Name the Vital (Basic) Economic activities?

Ans. (a) Production

(b) Consumption, and

(c) Capital formation.

Q.47. In what kind of Economy is GNP = GDP

Ans. Closed Economy because in such economy NFIA = Nil.

Q.48. What are the final two uses of a commodity?

Ans. A commodity can either be consumed or used for investment purpose.

Q.49. How would you treat interest paid by Govt. on public debt (loan taken from public) while Estimating National Income.

Ans. No, It is not included In National Income because loan taken by govt. is treated as Consumption Borrowing.

Q.50. What are the Various Components of “All Current Transfers’?

Ans. (a) National Debt Interest

(b) Net current transfer within the country e.g., Scholarships, Old Age Pensions.

(c) Net current transfers from Rest of the World.

Q.51. How will you treat “Work in Progress” while estimating National Income?

Ans. Yes, it will be included in National Income because it is a part of capital formation.

Q.52. Name that Macro Economic variable which is obtained when Net Indirect Taxes are added with Net current transfers from Rest of the world and National Income.

Ans. Net National Disposable Income.

Q.53. Name the items which are excluded from domestic territory?

Ans. (a) Embassies (Territorial Enclaves) of foreign governments

(b) Offices of International Organisations like WHO, World Bank etc which are located within the political boundary of a country.

Q.54. Which areas are covered under the study of Gross Domestic fixed capital formation?

Ans. (a) Construction

(b) Machinery and Equipment’s.

Q.55. How are the following treated while estimating National Income? Give reasons also in brief.

Ans. (i) Interest on Debentures etc.:

Yes, it is included being a bilateral income and hence part of operating

(ii) Sale of Shares (old/new both):

Not included since it is just a financial transaction with mere change in ownership.

(iii) Money/gifts received from foreign relations:

Being unilateral transfer payments, these are excluded.

(iv) Dividends:

Yes, because it is a bilateral income and thus part of operating surplus.

(v) Retirement Pension:

Included as this is an account of services rendered earlier.

(vi) Production for Self Consumption:

Yes, imputed value of production for self consumption is included.

(vii) Old Age pension:

Being unilateral transfer payment, it is not considered.

(viii) Expenses by a firm on medical treatment of its employees families:

It is duly included as it is part of Compensation of Employees (COE).

(ix) Compensation for an injured worker:

Not accounted for since it’s a one way transfer payment.

(x) Income Tax:

Obviously not because it is a compulsory transfer payment.

(xi) Gift/Wealth Tax:

Excluded. In-spite of being direct taxes, they are considered to be paid from past savings/wealth.

(xii) Entertainment allowance to employees for entertaining clients:

No, since same can be reimbursed as business expense.

(xiii) Free ration to Defence Personnel:

Yes, being part of compensation in kind.

(xiv) Travelling expenses for sales personnel:

No, because these are expenses that get reimbursed. There is no income for the recipients.

(xv) National Debt Interest/Interest on public debt:

Outside the purview of NI as it is just a one way transfer payment.

(xvii) Destruction of Buildings/Machinery by earthquake etc.:

Not included as it’s just a capital loss that doesn’t impact flow of income.

(xviii) Self occupied house:

Yes, its imputed value is indeed part of NI.

(xix) Profit earned by a foreign bank in India:

Excluded as it is factor income getting paid to that bank abroad.

(xx) Rent from building rented out to foreign embassies:

Yes as it’s factor Income coming from abroad i.e. part of NFIA.