\nThe GDP deflator is equal to
\ni) Real GDP-Nominal GDP
\n
![\"Plus](\"https:\/\/www.aplustopper.com\/wp-content\/uploads\/2019\/06\/Plus-Two-Macroeconomics-Chapter-Wise-Questions-and-Answers-Chapter-2-National-Income-Accounting-1M-Q2.png\")
\nAnswer:
\niii) \\(\\frac{{ No minal GDP }}{\\text { Real GDP }} \\times 100\\)<\/p>\n
Question 1.
\nGNP – depreciation is called
\n(a) GDP
\n(b) NNP
\n(c) PCI
\n(d) PI
\nAnswer:
\n(b) NNP<\/p>\n
Question 2.
\nThe GDP deflator is equal to
\ni) Real GDP-Nominal GDP
\n
\nAnswer:
\niii) \\(\\frac{{ No minal GDP }}{\\text { Real GDP }} \\times 100\\)<\/p>\n
Question 3. Question 4. Question 5. Question 6. Question 1. Question 2. Question 3. Question 4. Answer: b. Flow<\/p>\n Question 5. Question 1. Question 2. Answer:<\/p>\n Question 3. Question 4. Question 5. Question 6.<\/p>\n Answer: b. GDP deflator<\/p>\n Question 7. Question 8. 2. Net Indirect tax = NDPMP <\/sub>– NDPFC<\/sub> 3. NNPFC<\/sub> = NDPFC<\/sub> + NFIA Question 1. Answer:<\/p>\n Question 2. Answer:<\/p>\n Question 3. Question 4. Answer:<\/p>\n 1.<\/p>\n Question 5. Answer:<\/p>\n This is saving. The injection are the savings that the households, firms and the government take from the financial institutions as borrowings.<\/p>\n Question 6. Question 7. 1. The goods purchased by consumers do not represent all the goods which are produced in a country. GDP deflator takes into account all such goods and services.<\/p>\n 2. CPI includes prices of goods consumed by the representative consumer; hence it includes prices of imported goods. GDP deflator does not include prices of imported goods.<\/p>\n 3. The weights are constant in CPI – but they differ according to production level of each good in GDP deflator.<\/p>\n Question 8. 1. Distribution of GDP – how uniform is it: In such a case the welfare of the entire country cannot be said to have increased. If we relate welfare improvement in the country to the percentage of people who are better off, then surely GDP is not a good index.<\/p>\n 2. Non-monetary exchanges: This is a case of underestimation of GDP. Hence GDP calculated in the standard manner may not give us a clear indication of the productive activity and well-being of a country.<\/p>\n 3. Externalities: This was an example of negative externality. There can be cases of positive externalities as well. In such cases, GDP will underestimate the actual welfare of the economy.<\/p>\n Question 9. Question 10. Question 11. Answer: Question 12. Answer:<\/p>\n Question 13. Answer:<\/p>\n Question 14. Their identity can be shown in the following manner: Question 15. Answer:<\/p>\n Question 1. Answer: 2. NNP = GNP – Depreciation<\/p>\n 3. NNP at factor cost = National Income (NI) = NNP at market prices – (Indirect taxes – Subsidies)<\/p>\n 4. Personal income (PI) = NI – Undistributed profits – Net interest payments made by households – Corporate tax + Transfer payments to the households from the government and firms.<\/p>\n 5. Personal Disposable Income (PDI) = PI – Personal tax payments – Non-tax payments.<\/p>\n 6. Private Income = Factor income from net domestic product accruing to the private sector + National debt interest + Net factor income from abroad + Current transfers from government + Other net transfers from the rest of the world<\/p>\n 7. National Disposable Income = Net National Product at market prices + other current transfers from the rest of the world<\/p>\n Question 2. National income is the aggregate money value of all goods and services produced in a country during an accounting year. In this seminar paper, I would like to present various methods of measuring national income.<\/p>\n Content: 1. Value-added method: Therefore the value-added of a firm is the value of production of the firm – value of intermediate goods used by the firm. The value-added of a firm is distributed among its four factors of production, namely, labor, capital, entrepreneurship, and land.<\/p>\n Therefore wages, interest, profits, and rents paid out by the firm must add up to the value-added of the firm. Value-added is a flow variable.<\/p>\n 2. Expenditure Method: In this method we add the final expenditures that each firm makes. Final expenditure is that part of expenditure which is undertaken not for intermediate purposes.<\/p>\n 3. Income Method: This follows from the simple idea that the revenues earned by all the firms put together must be distributed among the factors of production as salaries, wages, profits, interest earnings, and rents. Conclusion: Question 3. Answer: Question 4.
\nNFIA is included in:
\n(a) NNPFC<\/sub>
\n(b) NDPFC<\/sub>
\n(c) GDPFC<\/sub>
\n(d) All the above
\nAnswer:
\n(a) NNPFC<\/sub><\/p>\n
\nWhich among the following in a flow concept?
\n(a) export
\n(b) wealth
\n(c) capital
\n(d) foreign exchange reserve
\nAnswer:
\n(a) export<\/p>\n
\nWhen does net factor income from abroad become negative?
\n(a) NDP < NNP
\n(b) NNP < NDP
\n(c) NDP = NNP
\n(d) none of the above
\nAnswer:
\n(b) NNP < NDP<\/p>\n
\nWhen does GDP and GNP of an economy become equal?
\n(a) When net factor income from abroad is positive
\n(b) When net factor income from abroad is negative
\n(c) When net factor income from abroad is zero
\n(d) None ofthe above.
\nAnswer:
\n(c) When net factor income from abroad is zero<\/p>\nPlus Two Economics National Income Accounting Two Mark Questions and Answers<\/h3>\n
\nSame job is done by a servant and housewife, whose service is included in the national income calculation? Why?
\nAnswer:
\nService of a servant is included in the national income calculation, whereas, the service of housewife is not included in the national income. This is because the housewife is not paid for the service she does.<\/p>\n
\nFrom the following, classify the material into final goods and intermediary goods. Wheat, Bench, Bread, Wood, Rubber, Tyre.
\nAnswer:<\/p>\n\n\n
\n Final Goods<\/td>\n Intermediary goods<\/td>\n<\/tr>\n \n Bench<\/td>\n Wheat<\/td>\n<\/tr>\n \n Bread<\/td>\n Wood<\/td>\n<\/tr>\n \n Tyre<\/td>\n Rubber<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
\nDistinguish between real flow and money flow?
\nAnswer:
\nFlow of goods and services from firms to households is called real flow. Factors of production receive reward for their services in the form of money. Households use this money to buy goods and services produced by firms. This flow of money from firms to households and back to firms is called money flow.<\/p>\n
\nSome variables are given below. Classify them into Stock and Flow<\/p>\n\n
\na. Stock<\/p>\n\n
\n
\nGDP = C + I + G + (X – M) = C + S + T Derive the Budget Deficit and Trade Deficit equations from the above identity.
\nAnswer:
\nGDP = C + I + G + (X – M) = C + S + T
\nBudget deficit = G – T
\nTrade deficit = M – X<\/p>\nPlus Two Economics National Income Accounting Three Mark Questions and Answers<\/h3>\n
\n\u201cTransfer payments are not included in the national income calculation”. Do you agree? Justify your answer.
\nAnswer:
\nYes. Transfer payments like pension, old age pension, etc. are not included in the national income. This is because they are transfer earnings not generated by any economic activity. These payments are usually made by the government out of tax revenue collected from the public. Since these generated incomes are already included in national income calculation there is no need to include transfer payment in the national income calculation again.<\/p>\n
\nState whether the following are included or excluded in the national income.<\/p>\n\n
\n
\nProvide appropriate term.
\n![\"Plus](\"https:\/\/www.aplustopper.com\/wp-content\/uploads\/2019\/06\/Plus-Two-Macroeconomics-Chapter-Wise-Questions-and-Answers-Chapter-2-National-Income-Accounting-3M-Q3.png\")
\nAnswer:<\/p>\n\n
\nPoint out any 3 uses of national income accounting.
\nAnswer:
\nThe uses of national income accounting are given below.<\/p>\n\n
\nClassify the following under proper heads.
\nFlow of teacher services, Flow of subsidies and taxes, Flow of factor rewards, flow of finished goods, Flow of consumption expenditure, Flow of import goods.
\n![\"Plus](\"https:\/\/www.aplustopper.com\/wp-content\/uploads\/2019\/06\/Plus-Two-Macroeconomics-Chapter-Wise-Questions-and-Answers-Chapter-2-National-Income-Accounting-3M-Q5.png\")
\nAnswer:<\/p>\n\n\n
\n Real Flow<\/td>\n Money Flow<\/td>\n<\/tr>\n \n Flow of teacher services<\/td>\n Flow of subsidies and taxes<\/td>\n<\/tr>\n \n Flow of finished goods<\/td>\n Flow of factor rewards<\/td>\n<\/tr>\n \n Flow of import goods<\/td>\n Flow of consumption<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \n
\na. Consumer price index<\/p>\n\n
\n
\nAssume that there are three goods produced in an economy and they are sold at different prices in dif-ferent years. Calculate GDP Deflator.
\n![\"Plus](\"https:\/\/www.aplustopper.com\/wp-content\/uploads\/2019\/06\/Plus-Two-Macroeconomics-Chapter-Wise-Questions-and-Answers-Chapter-2-National-Income-Accounting-3M-Q7.png\")
\nAnswer:
\n![\"Plus](\"https:\/\/www.aplustopper.com\/wp-content\/uploads\/2019\/06\/Plus-Two-Macroeconomics-Chapter-Wise-Questions-and-Answers-Chapter-2-National-Income-Accounting-3M-Q7.1.png\")
<\/p>\n
\nCalculate Depreciation, Net Indirect Tax and NNPFC from the below data.
\nGDPMP<\/sub> = 11300
\nNDPMP<\/sub> = 10300
\nNDPFC<\/sub> = 10000
\nNFIA = 1500
\nAnswer:
\n1. Depreciation = GDPMP<\/sub> – NDPMP<\/sub>
\n= 11300 – 10300
\n= 1000<\/p>\n
\n= 10300 – 10000 = 300<\/p>\n
\n= 10000 + 1500
\n= 11500<\/p>\nPlus Two Economics National Income Accounting Five Mark Questions and Answers<\/h3>\n
\nFind the odd one out. Justify your answer.<\/p>\n\n
\n
\nMatch the following.<\/p>\n\n\n
\n A<\/td>\n B<\/td>\n<\/tr>\n \n NNP<\/td>\n GDP – net factor income from abroad<\/td>\n<\/tr>\n \n GNP<\/td>\n Personal income – direct taxes<\/td>\n<\/tr>\n \n Value added<\/td>\n GNP-depreciation<\/td>\n<\/tr>\n \n GDP at market prices<\/td>\n value of output – intermediate consumption<\/td>\n<\/tr>\n \n Disposable income<\/td>\n GDP at factor cost – net indirect tax<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \n\n
\n A<\/td>\n B<\/td>\n<\/tr>\n \n NNP<\/td>\n GNP – depreciation<\/td>\n<\/tr>\n \n GNP<\/td>\n GDP – net factor income from abroad<\/td>\n<\/tr>\n \n Value added<\/td>\n Value of output- intermediate consumption<\/td>\n<\/tr>\n \n GDP at market prices<\/td>\n GDP at factor cost – net indirect tax<\/td>\n<\/tr>\n \n Disposable income<\/td>\n Personal income – direct taxes<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
\nCategorize the following into stocks and flows, wealth, salary, food grain stock, foreign exchange reserves, export, gross domestic saving, capital, change in money supply, quantity of money, capital formation.
\nAnswer:<\/p>\n\n\n
\n Stock<\/td>\n Flow<\/td>\n<\/tr>\n \n Wealth<\/td>\n Export<\/td>\n<\/tr>\n \n Foreign exchange reserves<\/td>\n Salary<\/td>\n<\/tr>\n \n Food grain stock<\/td>\n Gross domestic saving<\/td>\n<\/tr>\n \n Capital<\/td>\n Change in money supply<\/td>\n<\/tr>\n \n Quantity of money<\/td>\n Capital formation<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
\nThe phase of circular flow of income in a two sector economy is given below.
\n![\"Plus](\"https:\/\/www.aplustopper.com\/wp-content\/uploads\/2019\/06\/Plus-Two-Macroeconomics-Chapter-Wise-Questions-and-Answers-Chapter-2-National-Income-Accounting-5M-Q4.png\")
<\/p>\n\n
![\"Plus](\"https:\/\/www.aplustopper.com\/wp-content\/uploads\/2019\/06\/Plus-Two-Macroeconomics-Chapter-Wise-Questions-and-Answers-Chapter-2-National-Income-Accounting-5M-Q4.1.png\")
\n2. Circular flow of income:
\nThe concept that the aggregate value of goods and services produced in an economy is going around in a circular way. Either as factor payments, or as expenditures on goods and services, or as the value of aggregate production.<\/p>\n
\nSuppose that in a two sector economy the value of finished goods is equal to \u20b9100 crore and the income generated as factor rewards is also equal to \u20b9100 crore. The households spend only \u20b980 crore.<\/p>\n\n
\n
\n1. Estimate the NI of India and Pakistan from the data given below.
\n![\"Plus](\"https:\/\/www.aplustopper.com\/wp-content\/uploads\/2019\/06\/Plus-Two-Macroeconomics-Chapter-Wise-Questions-and-Answers-Chapter-2-National-Income-Accounting-5M-Q6.png\")
\n2. Which method is used here?
\n3. What are the other methods of measuring national income?
\nAnswer:<\/p>\n\n
\nNational income of Pakistan = \u20b91860 crore<\/li>\n
\nWhat do you mean by GDP deflator? How far GDP deflator differs from Consumer Price Index?
\nAnswer:
\nThe ratio of nominal to real GDP is a well known index of prices. This is called GDP Deflator. GDP deflator differs from Consumer Price Index. The major points of difference are given below.<\/p>\n
\nWrite down some of the limitations of using GDP as an index of welfare of a country.
\nAnswer:
\nGDP is the sum total of value of goods and services created within the geographical boundary of a country in a particular year. It gets distributed among the people as incomes. So we may be tempted to treat higher level of GDP of a country as an index of greater well-being of the people of that country. But there are at least three reasons why this may not be correct. They are discussed below.<\/p>\n
\nIf 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.<\/p>\n
\nMany activities in an economy are not evaluated in monetary terms. For example, the domestic services women perform at home are not paid for. The exchanges which take place in the informal sector without the help of money are called barter exchanges.<\/p>\n
\nExternalities 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. Therefore, if we take GDP as a measure of welfare of the economy we shall be overestimating the actual welfare.<\/p>\n
\nAssume that GDP in the year 2007 was \u20b91,200 which rose to \u20b91,800 in 2008. Calculate GDP deflator.
\nAnswer:
\nGDP deflator = Current year GDP \/ Base year GDP x 100
\n= 1800\/1200 \u00d7 100
\n= 1.5 \u00d7 100
\n= 1.5 (in percentage terms 150)<\/p>\n
\nRelate and complete the identities\/equations in column A with column B.
\n![\"Plus](\"https:\/\/www.aplustopper.com\/wp-content\/uploads\/2019\/06\/Plus-Two-Macroeconomics-Chapter-Wise-Questions-and-Answers-Chapter-2-National-Income-Accounting-5M-Q10.png\")
\nAnswer:
\n![\"Plus](\"https:\/\/www.aplustopper.com\/wp-content\/uploads\/2019\/06\/Plus-Two-Macroeconomics-Chapter-Wise-Questions-and-Answers-Chapter-2-National-Income-Accounting-5M-Q10.1.png\")
<\/p>\n
\nEstimate the Gross National Product at market price and GNP at factor cost through the expenditure method.<\/p>\n\n\n
\n Item<\/td>\n Amount (in Crores)<\/td>\n<\/tr>\n \n Inventory investment<\/td>\n 15<\/td>\n<\/tr>\n \n Net factor income from abroad<\/td>\n 10<\/td>\n<\/tr>\n \n Personal consumption expenditure<\/td>\n 475<\/td>\n<\/tr>\n \n Gross residential construction investment<\/td>\n 48<\/td>\n<\/tr>\n \n Exports<\/td>\n 25<\/td>\n<\/tr>\n \n Government purchase of goods and services<\/td>\n 175<\/td>\n<\/tr>\n \n Gross public investment<\/td>\n 15<\/td>\n<\/tr>\n \n Gross business fixed investment<\/td>\n 38<\/td>\n<\/tr>\n \n Imports<\/td>\n 12<\/td>\n<\/tr>\n \n Net indirect tax<\/td>\n 8<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n
\nGNPMP<\/sub> = private consumption expenditure + govt, final consumption expenditure( gross fixed capital formation + change in stock or inventory investment) + net export + net factor income from abroad
\n= 475 + 175 + 101 (i.e., 48 + 15 + 38) + 15 + 13
\n= \u20b9779 crores.
\nGNPC<\/sub> = GNPUD – net indirect taxes
\n= 779 – 8 = \u20b9771 crores<\/p>\n
\nSuppose that in a two sector economy, the value o finished goods is equal to \u20b9200 crore and the income generated as factor rewards is equal to \u20b9200 crore. The households spend only \u20b9180 crore. The remaing 20 crore economy saved then.<\/p>\n\n
\n
\nFill in the blanks<\/p>\n\n
\n
\nWrite down the 3 identities of calculating the GDP of a country by the 3 methods. Also briefly explain why each of those should give us the same value of GDP.
\nAnswer:
\nGross National Product (GNP) equals Gross National Income equals Gross National Expenditure, i.e.
\nGNP = GNI = GNE
\nThese are equal because national income is a circular flow of income. Aggregate expenditure is equal to aggregate output which in turn, is equal to aggregate income. However each method has some different items, yet they show exactly identical results.<\/p>\n
\nReconciling Three Methods of Measuring Gross<\/p>\n![\"Plus](\"https:\/\/www.aplustopper.com\/wp-content\/uploads\/2019\/06\/Plus-Two-Macroeconomics-Chapter-Wise-Questions-and-Answers-Chapter-2-National-Income-Accounting-5M-Q14.png\")
<\/p>\n
\nThe economic recession of 2008 affected the market economics in general and the US in particular. Thou-sands of Indians working abroad lost their job especially in IT and banking sectors and they returned to India. Evaluate its consequences on Indian economy with regard to the following macro variables.<\/p>\n\n
\n
Plus Two Economics National Income Accounting Eight Mark Questions and Answers<\/h3>\n
\nGiven below some macroeconomic indicators. Derive the equations of the following terms:<\/p>\n\n
\n1. GNP = GDP + Factor income earned by the domestic factors of production employed in the rest of the world – Factor income earned by the factors of production of the rest of the world employed in the domestic economy<\/p>\n
\nPrepare a seminar report on the topic \u2018Measurement of National Income\u2019.
\nAnswer:
\nMeasurement of National Income Respected teachers and dear friends,
\nThe topic of my seminar paper is \u2018measurement of national income or the methods of measuring national income\u2019. The concept of national income occupies an important place in economic theory.<\/p>\n
\nNational income can be measured in different ways. Generally, there are three methods for measuring national income. They are<\/p>\n\n
\nThe term that is used to denote the net contribution made by a firm is called its value-added. We have seen that the raw materials that a firm buys from another firm which are completely used up in the process of production are called \u2018intermediate goods\u2019.<\/p>\n
\nAn alternative way to calculate the GDP is by looking at the demand side of the products. This method is referred to as the expenditure method. The aggregate value of the output in the economy by expenditure method will be calculated.<\/p>\n
\nAs we mentioned in the beginning, the sum of final expenditures in the economy must be equal to the incomes received by all the factors of production taken together (final expenditure is the spending on final goods, it does not include spending on intermediate goods).<\/p>\n
\nThat is GDP = W + P + In + R<\/p>\n
\nThus it can be concluded that there are three methods for measuring national income. These methods are the value-added method, income method, and expenditure method. Usually, in estimating national income, different methods are employed for different sectors and sub-sectors.<\/p>\n
\nFrom the following data, calculate personal income and personal disposable income (\u20b9in Crores).<\/p>\n\n
\nPersonal income = NDPfc + Net factor income from abroad – undistributed profits – corporate taxes + transfer payments + net interest received from households.
\n= 8000 + 200-1000 – 500 + 300 (1500 -1200)
\n= 7,300 crores
\nPersonal disposable income = Personal income – personal tax
\n= 7,300 – 500 = 6,800 crores<\/p>\n
\nProduction generates income. Prove this statement with the help of a simple two sector model of circular flow of income.
\nAnswer:
\ncircular flow of income:
\nIt is a pictorial representation of interdependence or interrelationship between the various sectors of the economy. It is a concept associated with income earning and spending. The circular flow of income in a simple economy works on the basis of certain assumptions.
\nThey are as follows:<\/p>\n
![\"Plus](\"https:\/\/www.aplustopper.com\/wp-content\/uploads\/2019\/06\/Plus-Two-Macroeconomics-Chapter-Wise-Questions-and-Answers-Chapter-2-National-Income-Accounting-8M-Q4.png\")
<\/p>\n