CBSE Class 12 Economics National Income and Related Aggregates Assignment

Eg. Let firm A produces cotton and sells to firm B for ₹500 then firm B converts the same into yarn and sells it to firm C for ₹800 then firm C produces clothes and sells to firm D for ₹1000 and finally firm D produces shirts and sells to final consumer for ₹1500
In the above example, gross value of output is ₹3800 as the value of final product is ₹1500. If national income includes ₹3800 as the value of final product, then there will be double counting and overestimation of National income.

How to solve

The problem of double counting can be solved by the following two approaches: –
(i) Value added approach
(ii) Final product approach

In the final product approach, value of only final goods produced are taken and intermediate goods are not included but there is still possibility of double counting as every seller consider his product as a final product for sale, but the same product can be used as an intermediate for further production. So, this problem should be solved by value added approach.

In this approach, value added generated by all the producers at each stage of production is measured and the sum of value added of all the firms will estimate value of final product.
Value added by A= 500-0= 500
Value added by B= 800-500= 300
Value added by C= 1000-800= 200
Value added by D= 1500-1000= 500
Value of final product= 1500

Question . Define voluntary transfers.
Answer. Voluntary transfers are those transfers which flow on account of the free will of the payer and the recipient.

Question . Define forced transfers.
Answer. Forced transfers are compulsory payments, like income tax.

Question . Define current transfers.
Answer. Current transfers are those transfers which are paid from the current income of the payer and added to the current income of the recipient for consumption expenditure.

Question . Define NNP at market price.
Answer. NNP at market price refers to market value of final goods and services produced during the year, inclusive of net factor income from abroad but exclusive of depreciation.

Question . Define GNP at factor cost.
Answer. GNP at factor cost refers to the sum total of factor incomes (rent + interest + profit + wages) earned by normal residents of a country during the year, along with consumption of fixed capital.

Question . What is national debt interest?
Answer. National debt interest refers to the interest payments accruing to residents of the country on iascscuoiunng tb oofn bdosr lrikoew iNnagtsi obny atlh Sea gvoinvge rCnemrteinfitc.a Ttehs ei ng oInvedrina)m. ent borrows money from the people (by

Question . Give the meaning of non-market activities.
Answer. Non-market activities refer to those activities which are not performed through exchange or which hdoo unseowt ivinevs,o elvtec. sale of goods and services, e.g. , a teacher teaching his own son, services of ascscuoiunng tb oofn bdosr lrikoew iNnagtsi obny atlh Sea gvoinvge rCnemrteinfitc.a Ttehs ei ng oInvedrina)m. ent

Question . What is meant by tertiary sector?
Answer. Tertiary sector is that sector in which entrepreneurs provide servtces such as of banking, insurance, etc.

Question . Define the concept of value added.
Answer. Value added refers to addition of value to a thing with a view to generating income.

Question. Nominal GNP is the same as,
a. GNP at constant prices
b. Real GNP
c. GNP at current prices
d. GNP less net factor income from abroad
Answer. c

Question. Which of the following is an example of transfer payment?
a. Free meals in the company canteen
b. Employers’ contribution to social security
c. Retirement pension
d. Old-age pension
Answer. d. 

Question. What must be added to the domestic factor income to avail national income?
Answer. Net factor income from abroad must be added to the domestic factor income to avail national income.

Question. Define real GNP.
Answer. Gross national product calculated at constant prices i.e., via base year price is known as real GNP in economics

Question. In an economy, the value of indirect taxes is Rs. 200 crore and value of net indirect taxes is (-) Rs.250 crores. Identify the value of subsidies
a. Rs. 50 Crore
b. Rs. 450 Crore
c. Rs. (-) 450 Crore
d. Rs. 250 Crore
Answer. d

Question. If in an economy the value of Net Factor Income from Abroad is ₹200 crores and the value of Factor Income to Abroad is ₹40 crores. Identify the value of Factor Income from Abroad.
a) ₹ 200 crores
b) ₹160 crores
c) ₹240 crores
d) ₹180 crores
Answer. c

Question. Why are the intermediate goods not included in the National Income while measuring national income?
(a) To avoid double accounting
(b) It decreases income
(c) Intermediate goods are not good
(d) All of these
Answer. a

Question. Which of the following items are excluded from GNP measurement?
(a) Purely financial transactions
(b) Transfer of used goods and non-market goods and services
(c) Illegal activities and the value of leisure
(d) All of these
Answer. d

Question. Which one of the following is included in ‘Stock’?
(a) Quantity of Money
(b) Wealth
(c) Quantity of wheat stored in a warehouse
(d) All the above.
Answer. d

Question. Total national income divided by total population is known as:
(a) Private income
(b) Personal income
(c) Personal spendable income
(d) Per capita income.
Answer. d

Question. What is real flow?
Answer. Real flow refers to the flow of goods and services across different sectors of the economy. For example, factor services of Land, Labour, Capital and enterprise flowing from household to firms, and goods and services produced by the firms flowing from producer sector to households are real flow.

Question. A car purchased by a household is a _________. (Choose the correct alternative)
(a) single use capital good
(b) single use consumer good
(c) durable consumer good
(d) semi-durable consumer good
Answer. c

Question. Providing the reason, explain whether the following are included in the domestic product of India.
i. Profits earned by a branch of the foreign bank in India
ii. Payment of salaries to its staff by an embassy located in New Delhi
iii. Interest received by an Indian resident from its abroad firms
Answer. a. Profits earned by a branch of the foreign bank in India will be included in the domestic income of India because the profits are earned within the domestic territory of India
b. Payment of salaries to its staff by an embassy located in New Delhi will not be involved in the domestic income of India as it is not a part of the domestic territory of India
c. Interest received by an Indian resident from its abroad firms will not be included in the domestic income of India because it is the factor income from abroad.

Question. Giving reason explain how should the following be treated in estimating GDP at Market price?
i. Fees to a mechanic paid by a firm. ii. Interest paid by an individual on a car loan taken from a bank
iii. Expenditure on purchasing a car for use by a firm.
Answer. i. fees paid to mechanic by a firm is not included because it is an intermediate cost of the firm.
ii. Interest paid by an individual is not included because the loan is taken to meet the consumption expenditure and therefore interest paid for such a loan is not a factor payment. iii. Expenditure on purchase a car by a firm is included because it is investment expenditure, a final expenditure

Question. Giving reason explain how should the following be treated in estimating GDP National Income.
i. Payment of interest by a firm to a bank ii. Payment of interest by a bank to an individual.
iii. Payment of interest by an individual to a bank.
Answer. i. Payment of interest by a firm to a bank will be included in the estimation of National income, as it is a factor income. Also, firm take loans for investment purpose.
ii. Payment of interest by a bank to an individual will be included in the estimation of National Income as it a factor income.
iii. Payment of interest by an individual to a bank will be not included in the estimation of National Income as consumer take a loan for consumption purpose.

Question. ‘Payment of fees to a lawyer engaged by a firm.’ State with valid reason, should the given payment be included or not included in the estimation of national income of India. 
Answer. 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 will be deducted from the value of output of the firm to get the figure of value addition. So, it will not be included in national income.

Question. Meals given to a beggar will not be counted under national income accounts but will increase the welfare of the economy. Defend or refute the given statement with valid reason.
Answer. he given statement is correct. Meals to beggar is a unilateral transfer because beggars do not give anything in return to get meals. Such transactions are not included in national income accounts but these transactions help in fulfillment of basic requirements of those who cannot afford it. Therefore, these transactions will cause an increase in the welfare of the nation.

Question. “India's GDP is expected to expand 7.5% in 2019-20: World Bank” - The Economic Times. Does the given statement mean that welfare of people of India increase at the same rate? Comment with reason.
Answer. Generally, it is considered that an increase in the Gross Domestic Product (GDP) of any economy (India in this case) ensures increase in welfare of the people of the country. However, this may not always be correct. Some of the prime reasons for the same are: a) unequal distribution and composition of GDP, b) non-monetary transactions in the economy which are not accounted for in GDP, and c) occurrence of externalities in the economy (both positive and negative).

Question. ‘Real Gross Domestic Product is a better indicator of economic growth than Nominal Gross Domestic Product’. Do you agree with the given statement? Support your Answer with a suitable numerical example.
Answer. The given statement is correct. Real Gross Domestic Product (GDP) is a better indicator of economic growth than Nominal Gross Domestic Product (GDP) as it is not affected by changes in general price level. Numerical example:

Goods    Price of Current       Price of Base       Quantity of Current      Quantity of Current      Real GDP (P0Q1)
             Year (P1) (in₹)        Year(P0) (in₹)     Year (Q1) (in units)       Year (Q1) (in units)   
A           20                          10                      100                             2000                              1000
B           10                          5                        200                             2000                              1000
C          30                           20                       50                               1500                             1000
ΣP1Q1 =5,500
ΣP0Q1 =3,000

In the above example the difference between Real GDP (ΣP0Q1) and Nominal GDP (ΣP1Q1) is 5,500-3,000 = ₹2,500. This is only the monetary difference as the quantity sold in the market remains unchanged and the variation in the value of GDP is merely due to the change in the prices in the economy.

Question. Calculate ‘Depreciation on Capital Asset’ from the following data
SL NO      Particulars                         Amount (in ₹crores)
i             Capital value of the asset       1000
ii            Estimated life of the asset      20 years
iii           Scrap Value                           Nil
Answer. Depreciation on capital asset = cost of the capital asset−scrap value / estimated life of the capital asset
Depreciation = (1000−0/)20
Depreciation = 50 crores

Question. ‘Circular flow of income in a two sector economy is based on the axiom that one’s expenditure is other’s income’. Do you agree with the given statement? Support your Answer with valid reasons.
Answer. Yes, the given statement is correct. In a two sector economy, the firms produce goods and services and make factors payments to the households. The factor income earned by the households will be used to buy the goods and services which would be equal to income of firms. The aggregate consumption expenditure by the households in the economy is equal to the aggregate expenditure on goods and services produced by the firms in the economy (Income of the producers).

Question. State with valid reason, which of the following statement is true or false:
a. Gross Value Added at market price and Gross Domestic Product at market price are one and the same thing.
b. Intermediate goods are always durable in nature.
Answer. a. The given statement is false as Gross Domestic Product is the result of sum of Gross Value Added by all the producing units/firms in an economy, during an accounting year.
b. The given statement is false as intermediate goods are generally non-durable in nature. They are the goods used as raw material and they lose their identity in the production process for the creation of a new commodity, during an accounting year.

Question. “Domestic/household services performed by a woman may not be considered as an economic activity‟. Defend or refute the given statement with valid reason.
Answer. The given statement is defended; as it is difficult to measure the monetary value of the services performed by a woman (homemaker). Therefore, these activities may not be considered as an economic activity.

Question. “Compensation to the victims of a cyclone is an example of a welfare measure taken by the government‟. State with valid reason, should it be included/not included in the estimation of national income of India.
Answer. Compensation given to the victims of a cyclone is an example of a social welfare measure taken by the government. However, it is not included in estimation of national income as it is a transfer payment which does not lead to corresponding flow of goods and services.

Question. Suppose the Gross Domestic Product (GDP) of Nation X was ₹2,000 crores in 2018-19, whereas the Gross Domestic Product of Nation Y in the same year was ₹120,000 crores. If the Gross Domestic Product of Nation X rises to ₹ 4,000 crores in 2019-20 and the Gross Domestic Product of Nation Y rises to ₹ 200,000 crores in 2019-20. Compare the rate of change of GDP of Nations X and Y, taking 2018-19 as base year.
Answer.
Nations/Years      2018                 2019                     Growth Rate of GDP
                                                                                   = (𝑪𝒉𝒂𝒏𝒈𝒆 𝒊𝒏 𝑮𝑫𝑷/ 𝑩𝒂𝒔𝒆 𝒀𝒆𝒂𝒓 𝑮𝑫𝑷) x 100
                                                                                   (Base year = 2018-19)
X                   ₹2000 crores         ₹ 4000 crores          (2000/2000) x100 = 100%
Y                  ₹1,20,000 crores    ₹2,00,000 crores     (80000/120000) x100 = 66.67%

Nation X has registered a GDP growth rate of 100% and has performed better on the front of GDP rise as compared to Nation Y that has registered a GDP growth rate of 66.67%.

ASSERTION AND REASON QUESTION

Question. Assertion (A): The goods which are used either for resale or for further production in the same year are Intermediate goods.
Reason (R): Intermediate goods are included in National Income.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
c) Assertion (A) is true but Reason (R) is false.
d) Assertion (A) is false but Reason (R) is true.
Answer. c

Question. Assertion (A): Goods that meant for final use and will not pass through any more stages for production or transformation is called a final good.
Reason (R): It will not under go any further transformation at the hands of any producer, but many such final goods are transformed during their consumption.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
c) Assertion (A) is true but Reason (R) is false.
d) Assertion (A) is false but Reason (R) is true.
Answer. a

Question. Assertion (A): Purchase of a car always means a purchase of a final good.
Reason (R): It depends on the end-use of the car. If it is purchased by a household, it is a final good. It is like an investment by a producer, if it is purchased as taxi. If it is purchased for resale by a car dealer, then it is intermediate good.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
c) Assertion (A) is true but Reason (R) is false.
d) Assertion (A) is false but Reason (R) is true.
Answer. d

Question. Assertion (A): Purchase of wheat is whole sale market done by traders is to be treated as the purchase of the intermediate goods and by the household is to be treated as the purchase of final good
Reason (R): Both trader and household purchases wheat from the whole sale market in bulk, but trader are not the final user of wheat.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion (A)
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of Assertion (A)
c) Assertion (A) is true but Reason (R) is false.
d) Assertion (A) is false but Reason (R) is true.
Answer. a