NCERT Solution National Income
1. What are the four factors of production, and what are the remunerations to each of these called?
Land, Labour, Capital and Entrepreneurship are the four factors of production.
i) Land - Rent is the remuneration paid for the use of land.
ii) Labour - The remuneration for labour is paid through wages or salary.
iii) Capital - The remuneration for capital is called interest.
iv) Entrepreneurship - The remuneration or reward of the entrepreneur is the profit that is gained after the product is sold.
2. Why should the aggregate final expenditure of an economy be equal to the aggregate factor payments? Explain.
The aggregate final expenditure of an economy is the sum of all the spending in the economy. In economics, factor payment denotes the wage, interest, rent and other payments done as a remuneration for the factors or production. The income earned is either spent on goods on services or saved. But, all savings can be counted as investments for future expenditure. Therefore, the aggregate final expenditure of an economy should be equal to aggregate factor payments.
3. Distinguish between 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.
The difference between stock and flow are as follows
4. What is the difference between planned and unplanned inventory accumulation? Write down the relation between change in inventories and value added of a firm.
Planned inventory accumulation is the planned accumulation of inventories and stocks. Firms often experience an accumulation in their inventories based on the expected fall in sales or projected fall in demand from consumers. Unplanned inventory accumulation happens when the inventories and stocks get accumulated due to an unexpected fall in sales and demand.
5.Write down the three identities of calculating the GDP of a country by the three methods. Also briefly explain why each of these should give us the same value of GDP.
The three methods of identifying the GDP of a nation are:
1. Expenditure Method
2. Income Method
3. Value-added Method or Product Method
Expenditure Method: In the expenditure method, national Income is calculated based on the expenditure done on the purchase of final goods and services that are produced in the economy.
The formulae for calculating GDP is
GDP = PFCE + GFCE + GDCF + (X – M)
Where,
PFCEC=Consumer spending on goods and services
GFCE= Government spending on public goods and services
GDCF= Gross Domestic Capital Formation
X= Exports
M= Imports
Now,
NNP at FC = GDP at MP - Dep + NFIA - NIT
NFIA = Net Factor Income from Abroad
Dep = Depreciation
NIT = Net Indirect Taxes
Income Method: Income Method: This method is used to determine national income generated from the factors of production like capital, labour, land and profits of an organisation. Another factor added is mixed-income which is income generated from self-employed persons, farming and sole proprietorship firms.
Therefore national income can be calculated as follows:
NDP at FC = COE + OS + MISE
Net Domestic Product at FC = Compensation of Employee +Operating Surplus(interest + Rent + Profit +) Mixed income
NNP at FC =Net Domestic Product at FC + NFIA
Product Method: In this method which is also known as the value-added method, the income is measured as per value addition by the products of firms. It is calculated as the summation of Gross Value Added in the primary, secondary and tertiary sectors.
GVA at MP = Sales + ∆ S - IC
NNP at FC =Net Domestic Product at FC + NFIA
6. Define budget deficit and trade deficit. The excess of private investment over saving of a country in a particular year was Rs 2,000 crores. The amount of budget deficit was (−) Rs 1,500 crores. What was the volume of trade deficit of the country?
Budget Deficit
A budget deficit is referred to a situation when the expenditure by the government exceeds its income.
Budget Deficit is mathematically represented as G − T
Where,
G is the expenditure by the government
T is the income earned by the government
Trade Deficit
When a country spends more on imports than on earning revenue through exports, such a situation is referred to as a trade deficit
Trade Deficit is represented as M − X
Where,
M expenditure on imports
X revenue earned from exports
As per the question
I − S = Rs.2000 crores.
Budget Deficit
G – T = (−) Rs.1500 crores.
Therefore, the trade deficit can be calculated as
Trade deficit = [I − S] + [G − T]
= 2000 + [−1500]
= Rs.500 crores.
7. Suppose the GDP at market price of a country in a particular year was Rs 1,100 crores. Net Factor Income from Abroad was Rs 100 crores. The value of Indirect taxes − Subsidies was Rs 150 crores and National Income was Rs 850 crores. Calculate the aggregate value of depreciation.
8.Net National Product at Factor Cost of a particular country in a year is Rs 1,900 crores. There are no interest payments made by the households to the firms/government, or by the firms/government to the households. The Personal Disposable Income of the households is Rs 1,200 crores. The personal income taxes paid by them is Rs 600 crores and the value of retained earnings of the firms and government is valued at Rs 200 crores. What is the value of transfer payments made by the government and firms to the households?
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