CBSE Class 12 Economics National Income And Related Aggregates Worksheet Set C

Question . Define GDP at factor cost or gross domestic income.
Answer: GDP at factor cost or gross domestic income is the sum total of (i) compensation of employees, (ii) operating surplus, (iii) mixed income and (iv) consumption of fixed capital, within the domestic
territory of the country during the period of one year.

Question . Define NDP at factor cost or net domestic income.
Answer: NDP at factor cost or net domestic income refers to the sum total of factor incomes (rent+ interest +profit + wages) generated within the domestic territory of a country during a year.

Question . Define GNP at market price.
Answer: GNP at market price refers to market value of final goods and services produced during the year along with net factor income from abroad and consumption of fixed capital.

Question . Define NNP at factor cost.
Answer: NNP at factor cost refers to the market value of final goods and services produced within the domestic territory of a country during the period of an accounting year, inclusive of net factor income from abroad but exclusive of depreciation and estimated at factor cost.

Question . Define factor income from abroad.
Answer: aFbarcotoard i.n Ecoxmame frploem: S aablraoraieds ios fth Ine dfaicatnosr winocrokmineg e ainrn Reuds bsiya onu erm rebsaidsseyn itns w Inhdo iaar. e temporarily residing

Question . Define factor income to abroad.
Answer: Feascitdoirn gin inco omuer ctoou anbtrryo.a Edx iasm thpele :fa Scatloarr iiensc oofm Aem eearricnaends wbyo rnkoinng-r iens iIdnednitasn wehmob aasrsey itne mApmoerraircial.y

Question . What is an alternative name of value added?
Answer: Production.

Question. Define real GDP.
Answer: pRreoadl uGcDedP w(ailtshoi nca tlhleed d GoDmPe sattic c toenrsrtiatonrty p orfic ae sc)o ruenfetrrys tdou mrinargk aent vaaclcuoeu onft itnhge yfienaarl, gaos oedstsi manadte sde ruvsiicnegs the base year prices.

Question. Define externalities.
Answer: Externalities refer to positive and negative impact of an economic activity on the others without involving any price or penalty.

Question. Rajiv purchases a generator for his office. Giving reasons, answer the following questions:
(i) Purchase of a generator by Rajiv is an intermediate expenditure.
(ii) Expenditure on the maintenance of the generator is an intermediate expenditure.
Answer: (i) No, purchase of a generator by Rajiv is a final investment expenditure because generator is a fixed asset for the office/firm.
(ii) Yes, expenditure on the maintenance of the generator is an intermediate expenditure. yBeeacra uansed, tahrien tghse prueforcrhea,s terde afoterd r eaps ainirt earnmd emdaiaintet ecnoannscuem apreti ounse.

Case Study Questions Determination of Income and Employment Class 12 Economics

When an economy undergoes a deflationary shock, the implications can be both positive and negative for consumers and businesses.
There is a big difference between the terms disinflation and deflation, which we will first go over before getting into the causes and effects of deflationary shocks, and how these shocks can affect the economy, consumers and businesses.
Disinflation usually occurs during a period of recession and manifests itself by slowing down the rate at which prices increase; this occurs as a result of a decrease in consumer sales.
If the inflation rate drops to a lower level than before,technically that difference is disinflation. Deflation, on the other hand, can be thought as the opposite of inflation or as negative inflation and it occurs when the supply of goods or services rises faster than the supply of money.

Question: Which of the following statements stands true during deflationary gap?
(a) Actual output falls short of potential output
(b) Potential output falls short of actual output
(c) Actual demand is less than expected demand
(d) Expected demand is less than actual demand 

Answer: C

Question: What will be the impact on money supply during deflationary gap?
(a) Increase
(b) Decrease
(c) Remain constant
(d) Can’t be predicted 

Answer: B

Question: ……… helps to correct the situation of deflationary shock in a country through its credit control policy.
(a) Central bank
(b) Commercial bank
(c) Either (a) or (b)
(d) None of the above
Answer: A

Question: All types of physical goods imported and exported are known as ........... items.
(a) visible 
(b) invisible
(c) Both (a) and
(b) (d) None of these 

Answer: A

Question: Which of the following steps should be taken by central bank to boost demand in the economyduring deflationary gap?
(a) Decrease tax rate
(b) Deficit financing
(c) Decrease legal reserve requirements
(d) Increase foreign exchange reserve 

Answer:  C

Question: Assertion (A) Excess demand raises the market value of the output.
Reason (R) In situation of excess demand, output level remaining constant, higher demand leads to a rise in the general price level, implying a situation
where market value of the output increases in the economy.
Alternatives
(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, but Reason
(R) is not the correct explanation of Assertion (A).
(c) Assertion (A) is false, but Reason (R) is true
(d) Both the statements are false 

Answer: A 

In the simple Keynesian model of income determination, we assume that there is no government activity in the economy. If we remove this assumption to see how the equilibrium level of income can be determined in the presence of economic activity of the government, it can be seen that, the government collects money from the economy and spends money into the economy.
Government expenditures and receipts have an important effect on the economy.
Government budget has two sides viz. the expenditure side and the receipt side. Money inflows in the receipt side of the budget are of three types, i.e. taxation, public borrowing and sales of goods and services; money outflow in the expenditure side of the budget are also of three types i.e., purchase of goods and services, transfer payment and repayment of debts. Taxation is a compulsory contribution made by the people to the government against which no direct payments are made by the government.
A taxpayer becomes poorer by the amount of taxes.
Hence, the income available in the hands of the people is reduced by the amount of taxes paid.
Public borrowing is made through the sale of new government bonds, which people voluntarily purchase. Neither their income nor their wealth is deduted thereby. They simply alter the form and composition of wealth in the private sector.
An increase in the net indebtedness of the government to the central bank takes place through the creation of new money by the central bank.

Question: What will be the impact on aggregate demand, if the government increase tax rates as it is a main source of government’s revenue?
(a) Increase
(b) Decrease
(c) Remains constant
(d) Either increase or decrease 

Answer: B 

Question: If government increase its expenditure on infrastructural development project, how will this impact the aggregate demand?
(a) Increase
(b) Decrease
(c) Remains constant
(d) Increase in a three-sector closed economy 

Answer:  D   

Question: The Keynesian solution to deal with a problem of deficient demand or to correct recessionary gap is to 
(a) enhance the level of government expenditure
(b) lower the level of taxes
(c) Both (a) and (b)
(d) None of the above  

Answer: (c) Both (a) and (b)

Question: Which of the following statements is/are correct?
(i) Government raises money through sale of treasury bills and other securities.
(ii) Treasury bills are considered as risk free and the return so achieved is referred as risk free rate of return.
Alternatives
(a) Both are true
(b) Both are false
(c) (i) is true, but (iiis false
(d) (i) is false, but (ii) is true 

Answer: A

Question: Public borrowings by the government will lead to ………… money supply in the economy.
(a) increase
(b) decrease
(c) remains constant
(d) increase in a three-sector closed economy 

Answer:  A

Question: Assertion (A) Central Bank buys government securities in the open market to correct the situation of inflationary gap.
Reason (R) By buying the securities, the banks soaks liquidity from the market which is required to correct inflationary gap.
Alternatives
(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, but Reason (R) is not the correct explanation of Assertion (A).
(c) Assertion (A) is false, but Reason (R) is true
(d) Both the statements are false 

Answer: D

Short Answer Type Questions

Question. What are capital goods ? How are they different from consumption goods ?
OR
Distinguish between consumer goods and capital goods. Which of these are final goods.
Answer: Capital goods are those durable goods which are used in production of goods and services. 1½ Whereas, consumption goods are those goods which are used for satisfaction of wants by the consumers. 

Question. What are Non-Monetary Exchanges ? Give an example. Explain their impact on use of Gross Domestic Product as an index of welfare of the people.
Answer: Non-Monetary Exchanges refer to the goods and services produced but not exchanged through money, like the domestic services rendered by the members of a family to each other. The value of these service is many a times difficult to estimate and so it escapes national income estimation. These exchanges however have positive effect on the welfare of the people.

Question. Calculate Net Value Added at Factor Cost (Items) (₹ in crore)
(i) Consumption of Fixed Capital 600
(ii) Import Duty 400
(iii) Output Sold (units) 2,000
(iv) Price per unit of output 10
(v) Net Change in Stock (–) 50
(vi) Intermediate Cost 10,000
(vii) Subsidy 500
Answer: NVA_FC = (iv × iii) + (v) – (vi) – (ii) +(vii) – (i)
= [Output sold × Price Per Unit] + [Change in
stock] – [Intermediate Cost] – [Import Duty] +
[Subsidy] – Consumption of Fixed Capital. 1½
= [2,000 × 10] + [– 50] – [10, 000] – [400] + [500] – [600]
= 20,000 – 50 – 10,000 – 400 + 500 – 600
= [20,000 + 500] – [50 + 10,000 + 400 + 600] 
= [20,500] – [11,050]
NVAFC = ₹ 9,450 crore.

Question. Distinguish between stock and flow variables with suitable examples.
OR
Distinguish between stocks and flows. Give an example of each. U  OR Distinguish between stocks and flows. Give two examples of each.
Answer: 

Question. Find Net Value Added at Market Price. (Items) (₹ in crore)
(i) Depreciation 700
(ii) Output sold (units) 900
(iii) Price per unit of output 40
(iv) Closing Stock 1,000
(v) Opening Stock 800
(vi) Sales Tax 3,000
(vii) Intermediate Cost 20,000
Answer: NVA_MP = (iii × ii) + (iv) – (v) – (vii) – (i) 1½
= (40 × 900) + 1,000 – 800 – 20,000 – 700 = 36,000 + 1,000 – 800 – 20,000 – 700 
= ₹ 15,500 crore.

Question. Calculate Gross Value Added at Factor Cost (Contents) (₹ in crore)
(i) Units of Output Sold 1,000
(ii) Price Per Unit of Output 30
(iii) Depreciation 1,000
(iv) Intermediate Cost 12,000
(v) Closing Stock 3,000
(vi) Opening Stock 2,000
(vii) Excise 2,500 (viii) Sales Tax 3,500
Answer: GVAFC
= (i x ii) + (v)– (vi) – (iv) – (vii) – (viii) 
= (1,000 × 30) + 3,000 – 2,000 – 12,000
– 2,500 – 3,500 1
= ₹ 13,000 crore.

Question. Find Gross Value Added at Factor Cost : (Items) (₹ in crore)
(i) Units of Output Sold 2,000
(ii) Price per unit of output 20
(iii) Depreciation 2,000
(iv) Change in Stock (–) 500
(v) Intermediate Cost 15,000
(vi) Subsidy 3,000
Answer: GVAFC = (ii × i) + (iv) – (v) + (vi)
= [Units of Output × Price Per Unit] + Change in
Stock] – [Intermediate Cost] + Subsidy 1½
= [2,000 × 20] + [– 500] – [15,000] + [3,000]
= [40,000 – 500 – 15,000 + 3,000] 
= [43,000] – [15,500]
GVAFC = ₹ 27,500 crore.

Question. Distinguish between : (i) Final good and intermediate good. (ii) Consumption good and capital good. 
Answer: (i) Goods purchased for consumption or investment are final goods and goods purchased for completely using up in production during the year or for resale are intermediate goods. 2 (ii) Goods purchased for satisfaction of wants are consumer goods. Final goods that are used for producing other goods are capital good.
Consumer goods are those goods which satisfy the consumer’s wants directly. Consumer goods are used as final goods by their final users. Example : Pen, bread, butter, vegetables, etc. Capital goods, on the other hand, are those goods which are used as fixed assets by the producers in the production of other goods and services. These goods are repeatedly used in the production of other goods and services. Example : Building, machinery, tractors, etc. Capital goods, are fixed assets of the producers, and are to be treated as final goods whereas in case of consumer goods, it depends on their ‘end-use’. Example : Kerosene oil used by households is a final good but when used by the firms to clean their machinery is to be treated as intermediate good.

Question. Find Net Value Added at Factor Cost : (Items) (₹ in crore)
(i) Intermediate Costs 15,000
(ii) Output sold (units) 9,000
(iii) Price per unit of output 4
(iv) Consumption of Fixed Capital 2,000
(v) Excise Duty 4,000
(vi) Change in Stock (–) 1,000
A [Foreign Set-I 2012]
Answer: NVA_FC = (ii × iii) + (vi) – (i) – (v) – (iv)
= [Output × Price] + [Change in Stock] –
[Intermediate Cost] – [Excise Duty] – [Consumption
of Fixed Capital] 1½
= [9,000 × 4] + [– 1,000] – [15,000] – [4,000]
– [2,000]
= 36,000 – 1,000 – 15,000 – 4,000 – 2,000 
= 36,000 – 22,000
NVAFC = ₹ 14,000 crore

Question. Distinguish between intermediate goods and final goods. Give an example of each.
Answer: Goods purchased by a production unit from other production units for resale or for using them completely during the same year are intermediate goods, whereas goods purchased for consumption / investment are final goods. Intermediate goods : Raw material, etc. Final goods : Machine purchased for installation in a factory, etc. 

Question. Find Net Value Added at Factor Cost : (Items) (₹ lakh)
(i) Fixed capital good with a life span of 5 years 15
(ii) Raw materials 6
(iii) Sales 25
(iv) Net change in stock (–) 2
(v) Taxes on production 1
Answer: NVAFC = Sales + Net Change in Stock – Raw
Material – Depreciation
= 25 + (-2) - 6 - (15/5)
= 25 – 2 – 6 – 3
= ₹ 14 lakh.

Question. Find Gross Value Added at Factor Cost : (Items) (₹ in crore)
(i) Import Duty 1,000
(ii) Excise 2,000
(iii) Output Sold (units) 6,000
(iv) Price per unit of output 6
(v) Change in Stock 600 (vi) Intermediate Cost 16,000
(vii) Subsidy 500
Answer: GVA_FC
= (iii × iv) + (v) – (vi) + (vii) – (i) – (ii)
= [Output × Price] + [Change in Stock] – [Intermediate Cost] + [Subsidy] – [Import Duty – Excise] 
= [6,000 × 6] + [600] – [16,000] + [500] – [1,000] – [2,000] 1
= [36,000 + 600 + 500] – [16,000 – 1,000 – 2,000]
= [37,100] – [19,000]
GVA_FC = ₹ 18,100 crore.

Question. Explain ‘mixed income of self-employed’ and give an example.
Answer: There are some incomes which cannot be conveniently divided into distinctive factor incomes. Such income arises to the self-employed like practicing lawyers, doctors, etc. Take for example a practicing lawyer. The fees charged by the lawyer is not only his wages but also interest of capital employed by him, rent of his office and profit of his entrepreneurship. Since no data is available to sub-divide the lawyer’s fees into wages, rent, interest and profit, it is called mixed income.

Question. Why are net exports included in National Income ?
Answer: Exports form a part of National Income because exports are provided by the producers of the domestic territory of the country. Exports are as a matter of fact, part of domestic production.

Question. If the Nominal GDP is ₹ 1,200 and Price Index
(with base = 100) is 120, calculate Real GDP.
Answer: Given, Nominal GDP= ₹ 1,200
P. I. = 120
Real GDP = ?
Real GDP = Nominal GDP / PI /100
= 1200/120/ 100 = 1200 x 100/120
= ₹ 1,000

Question. Define intermediate goods and final goods. Can milk be an intermediate good ? Give reasons for your answer.
Answer: Goods purchased by a production unit from other production units for resale or for using them completely during the same year are intermediate goods. Goods purchased for consumption / investment are final goods. Milk purchased by a restaurant is an intermediate good, because it is purchased for reselling.

Question. If the Real GDP is ₹ 300 and Nominal GDP is ₹ 330, calculate Price Index (base = 100).
Answer: Given, Real GDP = ₹ 300
Nominal GDP = 330
Price Index = ? Real GDP = Nominal GDP / PI/100
∴ 300 = 330/PI / 100
or 300 = 330/1 X 100/PI
or PI = 330 X 100/300
PI = 110

Question. Giving reasons, classify the following into intermediate products and final products. (i) Furniture purchased by a school. (ii) Chalks, dusters, etc., purchased by school.
Answer: (i) Furniture purchased by school : Final Product. Reason : Schools buy furniture for long – term use and it is considered as an investment. 2 (ii) Chalks, Dusters, etc., purchased by school : Intermediate product. Reason : These are taken up to be used up completely during the same year.

Question. If Real income is ₹ 400 and Price Index is 105, calculate Nominal Income. 
Answer: Real Income = Nominal Income/Price Index X 100
400 = Nominal Income / 105 x 100
Nominal Income = 400 x 105/ 100 = ₹ 420

Question. Giving reasons, classify the following into intermediate products and final products : (i) Computers installed in an office. (ii) Mobile sets purchased by a mobile dealer.
Answer: (i) Computers installed in an office : Final Product Reason : Offices buy computers as long term durable products and are investment for them. 2 (ii) Mobile sets purchased by a mobile dealer : Intermediate products. Reason : A mobile dealer purchases mobile sets for the purpose of reselling in the market to earn profit. That is why they are considered as intermediate products.

Question. If Nominal Income is ₹ 500 and Price Index is 125, calculate Real Income.
Answer: Real Income = Nominal Income / Price Index x 100
Real Income = 500 x 100 = ₹ 400 

Question. Giving reasons, state how the following are treated in the estimation of national income. (i) Payment of interest by banks to its depositors. (ii) Expenditure on old age pensions by government. (iii) Expenditure on engine oil by car service station.
Answer: (i) Payment of interest by banks to its depositors is included in national income because it is factor income paid by a production unit. 1 (ii) Expenditure on old age pensions by government is not included because it is a transfer payment. 1 (iii) Expenditure on engine oil by car service station is not included because it is an intermediate cost.

Question. From the following data calculate Net Value
Added at Factor Cost : (Items) (₹ in crore)
(i) Net Factor Income from Abroad 30
(ii) Sales 3,500
(iii) Purchase of Intermediate Goods 2,000
(iv) Consumption of Fixed Capital 500
(v) Exports 400
(vi) Indirect Taxes 350
(vii) Change in Stock 50
Answer: Net Value Added at Factor Cost (NVA_FC) = Sales +
Change in Stock – Purchase of Intermediate Goods – Consumption of Fixed Capital – Indirect Taxes 
= 3,500 + 50 – 2,000 – 500 – 350
= 3,550 – 2850 1
= ₹ 700 crore.

Question. Giving reasons, state how the following are treated in the estimation of national income : (i) Payment of interest by an individual to a bank on a loan to buy a car. (ii) Expenditure by government on providing free educational services. (iii) Expenditure on purchasing a machine installed in a production unit.
Answer: (i) Payment of interest by an individual to a bank is not included because the individual is a consumer. 1 (ii) Expenditure by government on providing free educational services is included because it is a final expenditure.
(iii) Expenditure on purchasing a machine installed in a production unit is included because it is an investment expenditure.

Question. Give reason and identify whether the following are final expenditure or intermediate expenditure:
(i) Expenditure on maintenance of an office building. (ii) Expenditure on improvement of a machine in a factory.
Answer:
(i) Expenditure on maintenance of an office building—Final Expenditure. Reason – It is for consumption purpose, so it is considered as final expenditure.
(ii) Expenditure on improvement of a machine in a factory : Final expenditure. Reason – It is a kind of capital investment. So it is considered as final expenditure.

Question. Given nominal income, how can we find real income ? Explain.
Answer: Given nominal income other than base year, we can find real income by eliminating changes in price index. The effect of change in prices on the nominal income of current year can be eliminated in the following way :
Real Income = Nominal Income/Price Index x 100
Price Index plays the role of deflator deflating current price estimates into constant price estimate.

Question. Should the following be treated as final expenditure or intermediate expenditure ? Give reasons for your answer. (i) Purchase of furniture by a firm (ii) Expenditure on maintenance by a firm.
Answer: Reason : (i) It is a final expenditure because it is an investment expenditure. 2 (ii) It is an intermediate expenditure because it is an expenditure on single use producer goods.

Question. Find out Net Value Added at Market Price (Items) (₹ in crore)
(i) Intermediate Cost 10,000
(ii) Change in Stock 1,000
(iii) Output Sold (units) 750
(iv) Price per unit of output 40
(v) Import Duty 2,000
(vi) Consumption of Fixed Capital 3,000
Answer: NVA_MP = (iv × iii) + (ii) – (i) – (vi)
NVAMP = [Output Sold × Price Per unit] + [Change
in Stock] – Intermediate Cost – Consumption of
Fixed Capital
= [750 × 40] + [1000] – [10,000] – [3,000] 
= 30,000 + 1,000 – 10,000 – 3,000
= 31,000 – 13,000
NVAMP = ₹ 18,000 crore.

Question. Describe the expenditure method of calculating Gross Domestic Product at Market Price.
Answer: To calculate GDPmp by the expenditure method, we add up final expenditures on the goods and services produced by all the economic sectors of an economy. Expenditures incurred on consumption and investment are final expenditures. These are
classified into :
(i) Private final consumption expenditure.
(ii) Government final consumption expenditure.
(iii) Gross domestic capital formation.
(iv) Net exports = Exports less Imports The sum total of these expenditures is GDPMP.

Question. State the various components of the Expenditure
Method that are used to calculate National Income. 
Answer: Components of Expenditure Method :
(i) Private Final Consumption Expenditure (ii) Government Final Consumption Expenditure (iii) Investment Expenditure
(iv) Net Exports (X – M).
(i) Private Final Consumption Expenditure (C) : It
refers to expenditure on final goods and services
by the individuals, households and Non-profit Institution Serving Society. (ii) Government Final Consumption Expenditure (G) :
It refers to expenditure on final goods and
services by the government, like expenditure on
the purchase of goods for consumption by the
defence personnel.
(iii) Investment Expenditure (I) : It refers to expenditure on the purchase of final goods by the producers.
(iv) Net Exports (X – M) : It is the difference between exports and imports during an accounting year.

Question. From the following data, calculate Net Value Added at Factor Cost. (Items) (₹ in crore)
(i) Sales 300
(ii) Opening stock 40
(iii) Depreciation 30
(iv) Intermediate consumption 120
(v) Exports 50
(vi) Change in Stock 20
(vii) Net indirect taxes 15
(viii) Factor income to abroad 10
Answer: NVA_FC = (i)+(vi) − (iv) − (iii) − (vii)
= 300 + 20 − 120−30−15
= ₹ 155 crore

Question. Suppose in an imaginary economy GDP at Market Price in a particular fiscal year was ₹ 4,000 crore, National Income was ₹ 2,500 crore, Net Factor Income paid by the economy to rest of the world was ₹ 400 crore and the value of Net Indirect Taxes is ₹ 450 crore. Estimate the value of consumption of fixed capital for the economy from the given data. 
Answer: NNPfc = GDPmp – Consumption of Fixed Capital
– Net Factor Income to Abroad – Net Indirect
Taxes 2,500 = 4,000 – CFC – 450 – 400
2,500 = 3,150 – CFC
CFC = 650 (in ₹ crore)

Question. Find National Income from following using expenditure method : (₹ in crores)
(i) Current transfers from rest of the world 50
(ii) Net Indirect taxes 100
(iii) Net Exports – 25
(iv) Rent 90
(v) Private Final Consumption Expenditure 900
(vi) Net Domestic Capital Formation 200
(vii) Compensation of Employees 500
(viii) Net Factor Income from Abroad – 10
(ix) Government Final Consumption Expenditure 400 (x) Profit 220
(xi) Mixed Income of Self Employed 400
(xii) Interest 230
Answer: National Income by Expenditure Method
= Private Final Consumption Expenditure +
Government Final Consumption Expenditure +
Net Domestic Capital Formation + Net Exports
+ NFIA - NIT
National Income by Expenditure Method = v + ix + vi + iii + viii - ii
National Income by Expenditure Method = 900 + 400 + 200 + (-25 ) + (-10) - 100
National Income by Expenditure Method = 1365 crores

Question. Distinguish between Real and Nominal Gross Domestic Products.
Answer: Real Gross Domestic product : It is the total of the value of the goods and services calculated at constant price levels. Nominal Gross Domestic product : It is the total of the value of the goods and services calculated at current price levels. 

Question. How are the following treated while calculating national income ? Give reasons for your answer.
(i) Receipts from sale of land.
(ii) Profits earned by the branch of an Indian bank in France.
Answer: (i) Land is a free gift of nature and cannot be produced. So, sale of it is not included. 
(ii) It is included as factor income from abroad.

Question. If the Real GDP is ₹ 500 and Price Index (base = 100) is 125, calculate the Nominal GDP.
Answer: Given, Real GDP = ₹ 500
Price Index = 125 Calculate Nominal GDP. Real GDP = Nominal GDP/PI x 100
or 500 = Nominal GDP / 125 x 100
∴ Nominal GDP = 500 x 125/100 = 625
∴  Nominal GDP = ₹ 625

Question. From the following calculate “Net Value Added at Factor Cost.” (Items) (₹ in lakh)
(i) Sales 400
(ii) Change in stock (–) 20
(iii) Intermediate Consumption 200
(iv) Net Indirect taxes 40
(v) Exports 50
(vi) Depreciation 30
Answer: NVAFC = (i) + (ii) – (iii) – (iv) – (vi).
or = Sales + Change in Stock – Intermediate
consumption – Net direct Taxes –
Depreciation 2
= 400 + (–20) – 200 – 40 – 30 1½
= 400 – 20 – 270
= 400 – 290
NVAFC = ₹ 110 lakh.

Question. How should the following be treated while calculating national income ? Give reasons for your answer.
(i) Profits earned by a branch of foreign bank in India.
(ii) Salary received by Indian employees working in American embassy in India.
Answer: (i) It is factor income to abroad, so it is not included. 
(ii) It is included as factor income from aborad.