(i) Gross National Product at Market Price (a) Gross National Product at Market Price and 1650 crore, (b) By Expenditure Method Gross National Product at Factor Cost (GNPFC) = Private Final Consumption Expenditure+ Government Final Consumption Expenditure + Net Domestic Capital Formation + Consumption of Fixed Capital + Net Exports Net Indirect Taxes + Net Factor Income from Abroad (ii) Interest received on debentures. (i) Interest on a car loan paid by an individual should not be included while estimating National Income as the loan is taken for consumption purpose. (a) Income method and But wealth tax and gift tax are excluded since they are deemed to be paid from past savings and wealth. The offers that appear in this table are from partnerships from which Investopedia receives compensation. I have written it for you to memorize it. Class 12 Computer Science Net domestic product (NDP) is an annual measure of the economic output of a nation that is adjusted to account for depreciation. Today its Indias top website and an institution when it comes to imparting quality content, guidance and teaching for IAS Exam. 1650 crore, 69. An example of data being processed may be a unique identifier stored in a cookie. Calculate NDP at FC from the following data: Direct purchases from abroad by residents households, Direct purchase by non-residents in domestic market, GDP at MP = 400 + 100 + 50 - 150 - 20 + 100 = 480 croresNDP at FC = 480 - 60 - 20 = 400 crores. Attiguppe , Bengaluru - 560040, Now reach all our Branches with ease!!!! 5. = 185+15 Ans. CFA And Chartered Financial Analyst Are Registered Trademarks Owned By CFA Institute. (ii) Expenditure on second hand goods is not to be included. Governments consider NI crucial for the following reasons: NI is the sum of the monetary value of all the goods and services produced during a financial yearan aggregation of production units belonging to a countrys residents. Required fields are marked *. (iii) Interest received by an Indian resident from its abroad firms. NDP FC = GDP MP - Depreciation - Net Indirect Taxes NDP FC is also known as Domestic Income or Domestic factor income. (iii) Expenditure on transfer payments by the government is not to be included. PRODUCT METHOD (Value added method): Theory-only the value of final goods is to be included; otherwise there arises a problem of double counting. It can be classified into following components: (iii) It is included in the estimation of GDPMPbecause it is a part of final expenditure by a firm. From the following data calculate Net Value Added at Factor Cost (Delhi 2008 C), Ans. (ii) Purchase of a tractor by a farmer is included in the estimation of National Income as it is capital formation or investment expenditure. It is represented by: GNPMP = NNPFC + Net Indirect Taxes + Depreciation. This is the market value of output, while income payments made to factors of production amount to Rs. (v) Transfer earnings like old age pensions, unemployment allowances, scholarships, pocket expenses, etc, should not be included. = NNPFC+ Net Indirect Tax + Consumption of Fixed Capital Net Current Transfer to Abroad = 685 + (120-20) + 35 -(- 15) Switch; Flag; = 200-[80+ 20+ (15 -5)] (a) Net Domestic Product at Factor Cost and Difference Between Monetary Policy and Fiscal Policy, Your Mobile number and Email id will not be published. Study of cotton textile industry is a microeconomic study. (a)Income method and Depreciation is the reduction in the value of physical capital due to aging, wear and tear, or obsolescence. NDPFC = Compensation of Employees + Profit + Rent & Royalty + Interest + Mixed income. Its main tools are demand and supply of particular commodity/factor. In recent years the US reported the following figures: Clearly, USs gross national income has been on the rise in recent years. 220 lakh, 22.Giving reason, explain how should the following be treated in estimating NationalIncome (Delhi 2012) National Income (NNPFC) = Compensation of Employees + Rent + Interest + Profit Net Factor Income to Abroad What do you understand by domestic income (NDP FC)? (b) Factor Income toAbroad from the following data (All India 2011), 63. Continue with Recommended Cookies, Chapter 2 National Income - Part 5 Expenditure Method. (a) Net National Product at Market Price Giving reason, explain the treatment assigned to the following while estimatingNational Income (All India 2011) = 100+10+ (20-5) + 75 720 arab, 35. Gross Domestic Product (GDP): Formula and How to Use It, What Is National Income Accounting? Calculate Gross Value Added at Factor Cost from the following data, Ans. 78. = 1000 + 250+150 + 640 -30=Rs. Gross National Product at Market Price (GNPMP). The total value of all goods and services produced within a countrys borders is adjusted for the depreciation of physical capital. NDP at MP = GDP at MP (+) NFIA [Net Factor Income from Abroad] 3. Estimate net factor income from abroad which is added to Domestic Income to derive National Income. Domestic income is the sum total of factor incomes generated by all the production units located within the domestic territory of a country during a period of account. 60. = 4100- (600 + 700 + 700) 50 -100 Manage Settings Calculate = 1000 + 600+1400-200= 3000 -200 = Rs. (ii) Rent paid by embassy of Japan in India to a resident Indian. = Rs. Formula_Sheet Chapter 2 - Read online for free. = (800 + 50) (400 +100) 40 + 30 Calculate It refers to the sum total of factor . Personal Disposable Income = Private Income Corporation Tax Corporate Savings Direct Tax 50: Solution: GNP at MP = NDP at FC + Depreciation - Net Factor income from abroad + Indirect tax =3,200 + 400-50 + 70 = 3,620 crores. Keynes whose book titled 'General Theory of Employment, Interest and Money', published in 1936 brought about a revolution in economic thought is called the Father of Modern Macroeconomics. NDP = Net domestic product GDP = Gross domestic product Depreciation = Depreciation of capital assets such as equipment, vehicles, housing, and more As the NDP takes into account the depreciation of capital assets, it is considered to be superior to the GDP as a measure of well-being of a nation. Indirect Taxes. Ans. (ii) Profits earned by an Indian bank from its abroad branches is included while estimating National Income of India as it is a factor income from abroad. (b) Net National Disposable Income = GDPFC+ Net Indirect Tax Net Factor Income to Abroad Net Current Transfers to Abroad Depreciation The counting of the value of a commodity more than once while estimation of National Income is called double counting. (ii) Net National Disposable Income (All India 2012), 50. It is computed as follows: The net domestic product at factor cost is the value acquired by deducting the net indirect tax and depreciation from the gross market value of domestic goods and services. Ans. 4. You are free to use this image on your website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: Net Domestic Product (wallstreetmojo.com). (b) Private income from the following data (All India 2011), Ans. It discusses how equilibrium of a consumer, a producer or an industry is attained. Calculate intermediate consumption from the following data, Ans. 300 lakh, 19. (ii) Purchase and sale of second hand goods should not be included. Meaning of macroeconomics "Macroeconomics is the study of overall averages and aggregates covering the whole economy and examines the interrelationship among various aggregates." (iii) Interest received by an Indian resident from its abroad firms will not be included in domestic income of India as it is factor income from abroad. From the following information about firm X, calculate Net Value Added at Factor Cost (Delhi 2008 C), Ans. = 3950-50 = Rs. How should the following be treated in estimating National Income of a country? Ans. 30 crore, 12. Some of our partners may process your data as a part of their legitimate business interest without asking for consent. =610 +130-30 -10-40 = 600 + 100 + 110-20-(120-20)-5 Net Domestic Product at factor cost measures a countrys economic output considering the production of goods and services. = 400 +100 + 50 + (-20) + 10- (30 5) Investment4. This means NDPFC - Depreciation - Net Indirect Taxes. Calculate National Income and Gross National Disposable Income from the following: (Delhi 2014), Ans. Requested URL: byjus.com/commerce/income-method/, User-Agent: Mozilla/5.0 (iPhone; CPU iPhone OS 14_7_1 like Mac OS X) AppleWebKit/605.1.15 (KHTML, like Gecko) Version/14.1.2 Mobile/15E148 Safari/604.1. Formula value of output= Sales + change in stock Change in st. (iii) Interest received on loans given to a friend for purchasing a car. It does not matter whether the producer is the normal resident or foreigner. Call us @ 08069405205, Want to work at Insights IAS? (d) GDP at factor cost = NDP at factor cost - depreciation Answer: (c) See The Explanation (i) Interest paid by banks on deposits. = Rs. The resulting total is called Domestic Income or Net Domestic Product at FC (NDPFC)- By adding net factor income from abroad to domestic income, we get National Income (NNPFC)- Mind, in income method national income is measured at the stage when factor incomes are paid out by enterprises to owners of factors of productionland, labour, capital and enterprise. This total final expenditure is equal to gross domestic product at market price, i.e. =100 + 500+160 -20-130 (i) Expenditure on fertilisers by a farmer. = 900 + 400 + 250-30-100-20 + (-40) Gross Domestic Product at Market Price (GDPMP), Gross Domestic Product at Factor Cost (GDPFC), Net Domestic Product at Market Price (NDPMP), Net Domestic Product at Factor Cost (NDPFC), Gross National Product at Market Price (GNPMP), Gross National Product at Factor Cost (GDPFC), Net National Product at Market Price (PMP), Net National Product at Factor Cost (NNPFC). There are only two producing sectors A and B in an economy. difference between exports and imports during an accounting year. = Rs. Step 4: Now, we will calculate net factor income from abroad (NFIA) to get national income. Find Net Value Added at Market Price (All India 2012), 8. Ans. Net Value Added at Factor Cost (NVAFC) = Value of Output (Sales + Change in Stock)-Purchase of GDP = Value of Output + Indirect Taxes Subsidies, The measure of a countrys overall economic performance, The measure of a countrys economic output available for consumption or investment, Does not take into account the depreciation of physical capital, Does not take into account indirect taxes and subsidies, Commonly used as a broad indicator of economic activity, Provides a more accurate picture of a countrys economic output, useful in long-term economic analysis. = Rs. Gross domestic product is the monetary value of all finished goods and services made within a country during a specific period. (iii) Expenditure by government on providing free education will be included while estimating NationalIncome, as it is a part of governments final consumption expenditure. Teachoo gives you a better experience when you're logged in. Ans. Giving reasons, explain whether the following are included in National Income. (i) Private final consumption expenditure. (b) National Income (All India 2009), Ans. NDP at FC = Income from domestic products accruing to private sector + Income from domestic products accruing to public sector = Rs. 1360 crore, 45. (i) Remittances from non-resident Indians to a resident in India should not be included in the estimation of domestic factor income as it is not a part of domestic income and the income is not generated in domestic territory of India. Nanda Ashirwad Complex, 3rd Floor, 30 crore 12. Examples are: Individual income, individual savings, price determination of a commodity, individual firm's output, consumers equilibrium. It is useful in comparing the economic output of different countries. (ii) Operating surplus (rent, profit and interest) Computation of National Income (By Expenditure Method), 8. The net domestic product (NDP) is calculated by subtracting the value of depreciation of capital assets of the nation such as machinery, housing, and vehicles from the gross domestic product (GDP). (ii) Payment of interest on borrowings by general government. The frequency and scope of such replacements can vary by type of capital assets. (i) Fees to a mechanic paid by a firm. (ii) Interest paid by an individual on a loan taken to buy a car. Consumption2. NDP at FC = Compensation to Employees + Operating Surplus + Mixed-Income from Self-Employment. Ans. Giving reasons, explain how the following are treated while estimating National Income? = 500 +200+120 + (-20) + 20-30 -100 -(-10) -20 (i) Final output or final product method In this method, only final products (goods and services) are added to obtain the GDP. Calculate Gross National Product at Market Price and Net National DisposableIncome from the following: (Foreign 2014), 44. (iii) Entertainment tax received by government. Suppose a countrys economy produces $100 million worth of goods and services in a year, and the depreciation of its physical capital is $20 million. (i) National Income 7. In 2020, the gross national income of the US was $21,286,637,000,000.000. Intermediate Consumption = Value of Output Net Value Added = Rs. = 830-40-150-70 = Rs. (ii) Rent free house to an employee by an employer. The basic National Income formula used for its evaluation is as follows: Also, it can be measured using any of the following three methods: In macroeconomics, NI is correlated with various other crucial money value measures, as discussed below: GDPMP is the total value of a nations goods and services produced locallyduring a given accounting year. = 1220-270 = Rs. (ii) Expenditure method 730 crore, (b) Private Income = NNPFC Net Domestic Product at Factor Cost Accruing to Government+ Transfer Payments + National Debt Interest = 880-540 Similarly, indirect taxes like sales tax, excise duties, which tend to increase market prices, are not included. 5. Calculate National Income and Private Income from the following data (All India 2008), Ans. Displaying ads are our only source of revenue. In this theoretical example, the NDP considers the depreciation of physical capital, providing a more accurate picture of the countrys economic output. How should the following be treated while estimating National Income? (iii) Capital gains to Indian residents from sale of shares of a foreign company will not be included whileestimating National Income in India, as it is a kind of transfer income. In other words, the NDP-FC is calculated by subtracting the indirect taxes and adding the subsidies to the value of output, which is the value of all goods and services produced within a countrys borders. (b) Gross National Disposable Income (GNDI) =NNPFC+ Net Indirect Taxes + Consumption of FixedCapital Net Current Transfer to the Rest of the World (i) Social security contributions by employees is included in the estimation of National Income, as it is a part of compensation of employees and it is an earned income. While GDP measures the total value of all goods and services produced within a countrys borders, NDP provides a more accurate picture of a countrys economic output available for consumption or investment. (v) Expenditure on shares and bonds is not to be included in Total Expenditure. (Python), Class 12 Computer Science If the country is unable to replace the capital stocks that are lost through depreciation, it experiences a fall in the GDP of the country. = [700 + (-30)] 400 -20 + 50 (b) GNP at factor cost = GNP at market price + net indirect tax (c) National income = Domestic income + Net factor income from abroad. Solved Example for You Net Domestic Product measures a countrys economic output that considers the depreciation of physical capital. = [800 + (40 50)] 500 [200 -180] + 60 As a result, it provides a more accurate picture of the available resources for consumption or investment. Calculate Gross Value Added at Factor Cost (Delhi 2012), 5. = 300 + 600 +150 + 50-90 + (-20) 810 crore Here, final products are only those products which are ready for end use or consumption by their final users (consumers or producers). 70. We and our partners use cookies to Store and/or access information on a device. = 500 + (-20) 250 -40 + 30 The formula for Net Domestic Product (NDP) is as follows: GDP is the Gross Domestic Product, the total value of all goods and services produced in a country. Also, it does not account for indirect taxes and subsidies. Gross National Product: Gross National Product (GNP) is defined as the total market value of all final goods and services produced in a country during a specific period of time, usually one year. (iii) Financial help received by flood victims are not included while estimating National Income, as it is akind of transfer payment. Part of the machinery in a factorys production line may need to be replaced while another set of similar machines continues to function within the same factory. = 680 + 20+100- (-5) = Rs. Factor cost might have been used to calculate GDP at market prices, but Indian GDP was presented as GDP at . NDP, along with GDP, gross national income (GNI), disposable income, and personal income, is one of the key gauges of economic growth that is reported on a quarterly basis by the Bureau of Economic Analysis (BEA). (ii)Earning of shareholders from the sale of shares will not be included while National Income, as it will be considered as transfer payment. = 1200 + 600+ 340 + (-40)-60-30 Teachoo answers all your questions if you are a Black user! document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Copyright 2023 . NDP does not consider the effects of indirect taxes and subsidies, which can distort market prices. This is achieved by adjusting GDP, which measures the total value of all goods and services produced within a countrys borders, for the depreciation of physical capital. 28.Giving reason, explain the treatment assigned to the following while estimatingNational Income (All India 2011) (Foreign 2014) It is broadly classified into four categories: Machinery that is put to regular use may need parts replaced regularly until the entire piece of equipment is no longer usable. Net Value Added at Factor Cost (NVAFC) = Value of Output [Sales + Change in Stock (Closing Stock Opening Stock)] Purchase of Raw Material Depreciation (Gross Capital Formation Net Capital Formation) + Subsidies 39.Calculate Net Value Added at Factor Cost form the following data: 40. You can find out more about our use, change your default settings, and withdraw your consent at any time with effect for the future by visiting Cookies Settings, which can also be found in the footer of the site. (a) Income method and 3 Marks Questions (i) Expenditure on free services provided by government. The concept has the following drawbacks:1. It will lead to the problem of double counting. Classify factor payments into various categories like rent, wages, interest, profit and mixed income (or classify factor payments into compensation of employees, mixed income and operating surplus). It doesnt account for non-marketed goods or services. GNP FC = NNP FC + Depreciation OR. (i) Payment of fees to a lawyer engaged by a firm will not be included while estimating National Income, as it is a kind of intermediate expenditure for the firm. 11. Calculate NDP at FC Particular Rs. The $80 million is the amount available for consumption or investment in the economy after accounting for the depreciation of physical capital. 61.Explain the problem of double counting in estimating national income, with thehelp of an example. 64. (b) Gross National Disposable Income from the following data, 47.Find out Save my name, email, and website in this browser for the next time I comment. (b) Gross National Disposable Income (GNDI) =NNPFC + Consumption of Fixed Capital + Net IndirectTaxes Net Current Transfers to Abroad Since net value added by an enterprise is the result of services of factors of production, therefore, the same is distributed in the form of money income (rent, wages, interest, etc.) So, NNPfc = 2100 +(-50) = 2050 (in Arabs) In the question, they asked us to calculate NNPfc, but with income method we get . (b) By Expenditure Method NDP is a more accurate measure of a countrys economic output, as it considers the wear and tear of physical capital, which is a key factor in long-term economic growth. Calculate Gross National Product at Market Price by production method and income method (All India 2010), 67. This has been a guide to what is National Income. Total National Income - the sum of all wages, rent, interest, and profits. = [400+ (-40)]-250-(20+ 30) Calculation of Natinal Domestic Prodeuct (NDP) at Factor Cost (FC) 1. 68.Calculate Gross National Product at Factor Cost from the following data by The result provides a more accurate picture of a countrys economic output. Ans. Still, it only counts the value of the factors of production used to produce them, excluding indirect taxes and subsidies. 59. (b) Private Income from the following data (All India 2008), 87. 400. (a) Expenditure method and = 630 + 120 30 = Rs. (ii) National debt interest will not be included while estimating National Income by income method, as the government takes loan for both productive and non-productive activities. = 360 -5 among factors of production. Ask questions, doubts, problems and we will help you. (i) Profits earned by a branch of foreign bank in India. NNP Fc = NDP Fc + Net factor income from abroad. (i) Only final expenditure is to be taken into account to avoid error of double counting. 94.23.210.48 330 lakh, 21. Calculate Net National Product at Market Price and Gross National Disposable Income from the following: ( All India 2014). 2010 crore, 74. = 750-450 = Rs. Economics Book Store. In other words, problem of double counting arise when the value of intermediate goods is also added in total output, e.g. Clearly, USs Gross National Income, as it is useful in the! Now reach All our Branches with ease!!!!!!!! With ease!!!!! ndp at fc formula!!!!!!!!!!!! Are not included while estimating National Income by production method and 3 Marks questions ( i ) only final is. 400 +100 + 50 ) ( 400 +100 ) 40 + 30 calculate refers... Unique identifier stored in a cookie services made within a countrys economic output problem of double counting estimating. Of their legitimate business interest without asking for consent into account to error... 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The total Value of output Net Value Added = Rs table are from partnerships from which Investopedia receives Compensation after... = GDP MP - depreciation - Net Indirect Taxes and subsidies is Added to Domestic Income or Domestic Income... Market Price and Gross National Product at Factor Cost from the following data ( All India 2012 ) Ans. Income to derive National Income, individual firm 's output, e.g other words, problem double! Questions, doubts, problems and we will help you during a specific period + interest + Mixed Income and. A country during a specific period ) = Rs you a better experience when you 're logged in estimating Income. Specific period is to be included in total Expenditure ) interest paid embassy! Calculate Net Factor Income from abroad ( NFIA ) to get National (. 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