(i) The value of intermediate goods should not be included. (iv) Income in terms of windfall gains should not be included. Today its Indias top website and an institution when it comes to imparting quality content, guidance and teaching for IAS Exam. The national income (NI) is an aggregate value of the total production of goods and services by a nations residents pertaining to a particular accounting year. (i) Payment of bonus by a firm is not Included in the estimation of National Income as it is not a part of factor income. Your email address will not be published. 42. We and our partners use data for Personalised ads and content, ad and content measurement, audience insights and product development. = 1600-300-(-20)+ 30+ 40+0 (i) Family members working free on the farm owned by the family. Income to Abroad + Consumption of Fixed Capital (v) Commission earned on account of sale and purchase of second hand goods is included. Giving reasons, explain how the following are treated while estimating National Income? The $80 million is the amount available for consumption or investment in the economy after accounting for the depreciation of physical capital. The problem of double counting can be avoided by the following two alternative ways: Also, it does not account for indirect taxes and subsidies. NNP Fc = NDP Fc + Net factor income from abroad. (i) Imputed rent of self occupied houses are included while estimating National Income, as it is a factor income. 2010 crore, 74. (ii) Expenditure on second hand goods is not to be included. 94 Views. Investopedia does not include all offers available in the marketplace. = (800 + 50) (400 +100) 40 + 30 In this theoretical example, the NDP considers the depreciation of physical capital, providing a more accurate picture of the countrys economic output. = 700+100+120+ (-20) -80-10 5500 crore Investment4. (iii) Profits earned by branches of foreign bank in India. 23.Giving reason, explain how should the following be treated in the estimation ofNational Income (Delhi 2012) =100 + 500+160 -20-130 = 920-110 = Rs. Net Value Added at Factor Cost (NVAFC) = Value of Output (Sales + Change in Stock) Purchase ofIntermediate Goods Depreciation Net Indirect Taxes How should the following be treated in estimating National Income of a country? Calculate national income or NNP at FC. (b) National Income. NDP at MP = GDP at MP (+) NFIA [Net Factor Income from Abroad] 3. Net Value Added at Factor Cost (NVAFC) = Value of output (Sales + Change in Stock) Purchase ofRaw Materials Consumption of Fixed Capital + Subsidies 830 crore = 520-490 = Rs. 730 crore, (b) Private Income = NNPFC Net Domestic Product at Factor Cost Accruing to Government+ Transfer Payments + National Debt Interest You can learn more about it from the following articles . While estimating National Income, how will you treat the following? When we divide NI by a countrys total population, we get residents per capita income. Delhi - 110058. (Python), Class 12 Computer Science The Income Method measures national income from the side of payments made to the primary factors of production in the form of rent, wages, interest and profit for their productive services in an accounting year. Gross National Product at Market Price (GNPmp) = NDPFC + Net Indirect Taxes Net Factor CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. Its central problem is price determination and allocation of resources. 14. Ans. = 600+100 +70+(-20)+ 10-30 = 780-50 You must give reason in support of your answer. 50: Solution: GNP at MP = NDP at FC + Depreciation - Net Factor income from abroad + Indirect tax =3,200 + 400-50 + 70 = 3,620 crores. The consent submitted will only be used for data processing originating from this website. Net Value Added at Factor Cost (NVA FC) = Sales + Change in Stock (Closing Stock- Opening Stock)- Purchase of Intermediate Goods - Consumption of Fixed Capital - Indirect Tax = 500+ (80-60)-350-90-50 = 520-490 = Rs. Sale and purchase of second-hand goods are excluded since they are not part of production of current year but commission paid on sale of second-hand goods is included as it is reward for rendering productive services. NDP FC = GDP MP - Depreciation - Net Indirect Taxes NDP FC is also known as Domestic Income or Domestic factor income. Calculate (b) Private Income from the following data (All India 2011), 52. Though GDP is frequently cited when assessing the economic health of a country, NDP puts into perspective the pace at which capital assets degrade and must be replaced. 75. Calculate sales from the following data (Delhi 2013), 3. (i) Private final consumption expenditure. = 810 + 60 + 80-(-10) = 790-500-20+60 (i) Salaries received by Indian residents working in Russian Embassy in India will be included whileestimating National Income in India, as it is a factor income from abroad. Net national product (NNP) is the total value of finished goods and services produced by a country's citizens overseas and domestically, minus depreciation. (ii) National debt interest. Using this, they can better understand the resources available for consumption or investment in the country. (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 recent years the US reported the following figures: Clearly, USs gross national income has been on the rise in recent years. (i) Final output or final product method In this method, only final products (goods and services) are added to obtain the GDP. (b) Production method from the following data (Delhi 2011), Ans. It is used to measure the total economic output of a country, taking into account depreciation and capital consumption. The Department of Commerce releases NDP data for the U.S. economy at 8:30 a.m. EST on the last business day of the quarter. = 30 + 5 = Rs. We are not permitting internet traffic to Byjus website from countries within European Union at this time. 290 crore Calculate Net Value Added at Factor Cost from the following data, Ans. Net Exports. 600 crore, (NNPFC) = Gross Value Added by A and B Indirect Taxes Depreciation + Net Factor Income Abroad = 600-80-30+20= 620-110=Rs. In addition, it excludes the taxes and subsidies that distort the market price. Ans. (b) Gross National Disposable Income (GNDI) =NNPFC+ Net Indirect Taxes + Consumption of FixedCapital Net Current Transfer to the Rest of the World 5. 25.Giving reason, explain how should the following be treated while estimatingNational Income (All India 2012) (a) National Income (NNPFC) = Private Final Consumption Expenditure + Government Final Consumption 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.) 300 lakh, 19. = 2600 + 1100 + 500+100 + (-100) + (-50) -250 document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Copyright 2023 . It doesnt account for non-marketed goods or services. Particulars (ii) Payment of salaries to its staff by an embassy located in New Delhi will not be included in domestic income of India, as it is not a part of domestic territory of India. 515 crore, (b) Net National Disposable Income (NNDI) = NNPFC + Net Indirect Taxes + Net Current Transfers fromAbroad = 700+ (-20)+ 80+ 60+ 10 (i) National Income . This information is crucial for policymakers and investors. Income Method By this method, the total sum of the factor payments received during a given period is estimated to obtain the value of Domestic Income. (a) Gross Value Added at Market Price by A and B (ii) Rent free house to an employee by an employer. Ans. This is the market value of output, while income payments made to factors of production amount to Rs. (i) Social security contributions by employees. (b) GNP at factor cost = GNP at market price + net indirect tax (c) National income = Domestic income + Net factor income from abroad. Net Domestic Product at factor cost measures a countrys economic output considering the production of goods and services. 400. 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. Calculate Gross Value Added at Factor Cost (Delhi 2012), 5. (ii) Purchase and sale of second hand goods should not be included. Machinery that is put to regular use may need parts replaced regularly until the entire piece of equipment is no longer usable. 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. = 515+(30-5) +15 = 515+25+15 This differs from an expansion of factory operationsfor example, the opening of a new site, adding to the total number of factories. Net Factor income to abroad: 3,200. (Delhi 2009). National Income (NNPFC) = Gross Value Added at Market Price by the Primary Sector+ Gross Value Added at Market Price by the Secondary Sector + Gross Value Added at Market Price by the Tertiary Sector-Net Indirect Taxes-Consumption of Fixed Capital + Net Factor Income from Abroad (a) Net Domestic Product at Factor Cost (NDPFC) = Private Final Consumption Expenditure+ Government Final Consumption Expenditure + Net Domestic Capital Formation + Net Exports Net Indirect Taxes (Indirect Taxes Subsidies), NDPFC= 250+ 50+ 30+ (- 10)- (20- 10) crore = 330 -20 =Rs. However, a wider gap between the GDP and NDP shows an increase in the value of obsolescence. (i) Expenditure on fertilisers by a farmer. So, NNPfc = 2100 +(-50) = 2050 (in Arabs) In the question, they asked us to calculate NNPfc, but with income method we get . 7300 crore (ii) Payment of interest by a government firm. Ans. Economics Book Store. Intermediate products are ignored. (i) It is not included in the estimation of National Income as it does not involve any production of goods and services. = 185+15 From the following data calculate Net Value Added at Factor Cost (Delhi 2011 c) Step 4 The last step of calculating National Income through the Income Method is the estimation of Net Factor Income from Abroad (NFIA). 5700 crore, 46. (a) Net National Product at Market Price and Value Added Method/Product Method/Output Method By this method, the total value of all the final goods and services produced in an economy during a given time period are estimated to obtain the value of domestic income. Net Current Transfers to Abroad + National Debt Interest + Current Transfers by Government + Net Factor Income from Abroad By contrast, if a new housing community is developed, the construction of residences would be contributory to NDP. Suppose the agriculture sector experiences a decline in the value of physical capital of $2,000, and the manufacturing sector experiences a decline of $5,000. 555 crore, 83. (i) Profits earned by a branch of foreign bank will not be included while estimating National Income, as it is a factor income paid to abroad. 71. =Rs. Ans. The concept has the following drawbacks:1. 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. Only factor incomes which are earned by rendering productive services are included. (i) Expenditure on free services provided by government should be Included in the estimation of National Income, as it is a final expenditure of the government. 62.Calculate(a) Gross Domestic Product at Market Price and 4. 232, Block C-3, Janakpuri, New Delhi, (ii) Profits earned by a branch of Indian bank in Canada is factor income received from abroad. Value of Output = Net Value Added at Factor Cost (NVAFC) + Depreciation = 200-[80+ 20+ (15 -5)] What do you understand by domestic income (NDP FC)? Income Method: NI = Rent + Compensation + Interest + Profit + Mixed Income.2. 76. National income is studied under macroeconomics; gross domestic product (GDP) and gross national product (GNP) are the two major components. 28.Giving reason, explain the treatment assigned to the following while estimatingNational Income (All India 2011) (ii) Net exports This method measures national income as sum total of final expenditures incurred by households, business firms, government and foreigners. (iii) Purchase by a foreign tourists will be included while estimating National Income as it is consideredas exports of goods and services. In lakhs GNP at MP 16,000 Subsidies 1,200 . (iii) Purchase by foreign tourists. Gross Domestic Product (GDP) at Market Price (MP) = Private Final Consumption Expenditure (+) Private Final Investment Expenditure (+) Government Final Expenditure (+) Net Exports 2. as well as windfall gains (e.g., from lotteries) are excluded. This total final expenditure is equal to gross domestic product at market price, i.e. Value Added or Product Method: NI = GDP Depreciation Indirect Taxes + Overseas Net Factor Income., Following are the four components of NI accounts:1. 630 arab, (b) Net National Disposable Income (NNDI) (a) Gross Domestic Product at Factor Cost (GDPFC) = Government Final Consumption Expenditure It measures the output generated by a country's organizations located domestically or abroad. The NDP better assesses a countrys economic output by subtracting this value from GDP. (ii) Payment of interest on loan taken by an employee from the employer will not be included in the estimation of National Income as it will be treated as transfer income, also loan is taken for consumption purpose. It is a measure of the total value of all goods and services produced within a countrys borders, adjusted for the decline in the value of physical capital over time due to wear and tear, obsolescence, and other factors. Output, while Income payments made to factors of production amount to Rs known as Domestic Income or Domestic Income... Include all offers available in the marketplace -80-10 5500 crore Investment4 the in... Used to measure the total economic output by subtracting this value from GDP also known as Domestic or! 2012 ), 3 Delhi 2013 ), 5 NI = rent + Compensation interest! Reasons, explain how the following data ( Delhi 2012 ), 52 regularly until the piece. 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From this website rendering productive services are included while estimating National Income as! Better understand the resources available for consumption or investment in the marketplace after accounting for the depreciation of capital! At factor Cost ( Delhi 2012 ), 3 the marketplace for IAS Exam - -... Excludes the Taxes and subsidies that distort the market value of intermediate goods should be... Website and an institution when it comes to imparting quality content, guidance and teaching for Exam... Domestic product at market price interest by a farmer into account depreciation and consumption. Of goods and services subsidies that distort the market value of output, while Income payments made to factors production! The total economic output by subtracting this value from GDP are treated while National! Does not involve any production of goods and services Fc + Net Income! Is price determination and allocation of resources tourists will be included calculate sales the... 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Delhi 2011 ), 52, audience insights and product development using this, they can understand! An institution when it comes to imparting quality content, guidance and teaching for IAS Exam marketplace! ( -20 ) + 10-30 = 780-50 you must give reason in support of your answer = rent Compensation! Nnp Fc = NDP Fc is also known as Domestic Income or Domestic factor Income from ]. Calculate sales from the following figures: Clearly, USs gross National Income to Rs an increase in the of..., we get residents per capita Income price, i.e Profit + Income.2! The total economic output of a country, taking into account depreciation and capital consumption gap the! Physical capital country, taking into account depreciation and capital consumption the economy accounting! Better understand the resources available for consumption or investment in the country nnp Fc = NDP Fc NDP... Releases NDP data for the U.S. economy at 8:30 a.m. EST on the farm owned the... 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