NIOS Class 12 Economics Chapter 24 National Income And Related Aggregates, Solutions to each chapter is provided in the list so that you can easily browse through different chapters NIOS Class 12 Economics Chapter 24 National Income And Related Aggregates and select need one. NIOS Class 12 Economics Chapter 24 National Income And Related Aggregates Question Answers Download PDF. NIOS Study Material of Class 12 Economics Notes Paper 318.
NIOS Class 12 Economics Chapter 24 National Income And Related Aggregates
Also, you can read the NIOS book online in these sections Solutions by Expert Teachers as per National Institute of Open Schooling (NIOS) Book guidelines. These solutions are part of NIOS All Subject Solutions. Here we have given NIOS Class 12 Economics Chapter 24 National Income And Related Aggregates, NIOS Senior Secondary Course Economics Solutions for All Chapters, You can practice these here.
National Income And Related Aggregates
Chapter: 24
Module – IX: National Income Accounting
TEXT BOOK QUESTIONS WITH ANSWERS
INTEXT QUESTIONS 24.1.
(i) Name four factor of incomes.
Ans. Rent, profit, interest and compensation of employees are four factors of income.
(ii) What are transfer payments?
Ans. Transfer payment is a redistribution of income in the market system. These payment are considered to be non exhaustive because they do not directly absorb resources or create output. In other words, the transfer is made without any exchange of goods or services. Examples of certain transfer payments include welfare, social security and government making subsidies for certain businesses (firms).
(iii) What is a closed economy?
Ans. It is self-sufficient, meaning that no imports are brought in and no exports are sent out. The goal is to provide consumers with everything that they need from within the economy’s borders. A closed economy is the opposite of an open economy, in which a country will conduct trade with outside regions.
(iv) Give any two examples each of stock and flow.
Ans. A stock variable is measured at one specific time and represents a quantity existing at that point in time which may have accumulated in the past. Eg. wealth and money supply. A flow variable is measured over an interval of time. Therefore, a flow would be measured per unit of time. Eg. National income and population growth.
INTEXT QUESTIONS 24.2.
Q. 1. Choose the correct alternative:
(i) The term ‘domestic territory’ in national. income is associated with:
(a) Economic territory.
(b) Geographical territory.
(c) Residents.
(d) Citizens.
Ans. (a) Economic territory.
(ii) By deducting intermediate consumption expenditure and net indirect taxes from the value of output we get:
(a) Gross value added at market price.
(b) Gross value added at factor cost.
(c) Net value added at market price.
(d) Net value added at factor cost.
Ans. (b) Gross value added at factor cost.
(iii) By deducting consumption of fixed capital and intermediate cost from the value of output we get:
(a) Gross value added at market price.
(b) Gross value added at factor cost.
(c) Net value added at market price.
(d) Net value added at factor cost.
Ans. (c) Net value added at market price.
(iv) Value added is a measure of the contribution of:
(a) A resident.
(b) A production unit.
(c) An entrepreneur.
(d) A worker.
Ans. (b) a production unit.
(v) The expenditure on goods and services purchased for resale by a production unit is:
(a) Intermediate cost.
(b) Value of final products.
(c) Value of output.
(d) Factor cost.
Ans. (a) Intermediate cost.
(vi) National income of a country is the same as:
(a) Gross National Product at market price.
(b) Net National Product at factor cost.
(c) Gross National Product at factor cost.
(d) Net National Product at market price.
Ans. (b) Net National Product at factor cost.
(vii) The difference between domestic income and national income is
(a) Net indirect taxes.
(b) Net factor income from abroad.
(c) Depreciation.
(d) Intermediate consumption expenditure.
Ans. (b) Net factor income from abroad.
INTEXT QUESTIONS 24.3.
Q. 1. Choose the correct alternative:
(i) Which of the following is not treated as compensation of employees?
(a) Payment of salary.
(b) Payment of bonus.
(c) Payment of travelling expenses on a business tour.
(d) Free accommodation.
Ans. (c) Payment of travelling expenses on a business tour.
(ii) Rent in national income estimates accrues to:
(a) Land used for production.
(b) Structure erected on land used for production.
(c) Land and structure both used for production.
(d) Land and structure used for residence.
Ans. (c) Land and structure both used for production.
(iii) The GVA at MP exceeds NVA at MP by the amount of:
(a) Indirect taxes.
(b) Subsidies.
(c) Consumption of fixed capital.
(d) Net factor income from abroad.
Ans. (c) Consumption of fixed capital.
(iv) National product exceeds domestic product by the amount of:
(a) Exports.
(b) Factor income received less factor income paid to abroad.
(c) Factor income received from abroad.
(d) Imports.
Ans. (b) Factor income received less factor income paid to abroad.
(v) The final expenditure is the expenditure on:
(a) Consumption only.
(b) Investment only.
(c) Both consumption and investment.
(d) Neither on consumption nor on investment.
Ans. (c) Both consumption and investment.
(vi) Domestic product at market price exceeds domestic product at factor cost by:
(a) Net factor income from abroad.
(b) Consumption of fixed capital.
(c) Net indirect taxes.
(d) Exports.
Ans. (c) Net indirect taxes.
INTEXT QUESTIONS 24.4.
Q. 3. Fill in the blanks with the help of the clues given below:
Net indirect taxes, Subsidies, Depreciation, Factor incomes earned by normal residents from rest of the world.
(i) GDPMP = NVAFC + Depreciation + ______________
Ans. Net indirect taxes.
(ii) NDPMP = GDPMP – ____________
Ans. Depreciation.
(iii) NNPFC = NDPFC + ___________ – Factor payments made to rest of the world.
Ans. Factor income earned from rest of the world.
(iv) GDPFC = GDPMP – Indirect Taxes + ____________
Ans. Subsidies.
(v) NDPFC = GDPMP – Depreciation – ____________
Ans. Net indirect taxes.
TERMINAL EXERCISE
Q. 1. Explain the concept of economic territory.
Ans. The concept of economic (domestic) territory: The concept of economic territory (or domestic territory) is a very important concept in national income accounting. It is derived from geographical territory by making certain adjustment. This concept is evolved in connection with the measurement of economic activity of a country.
Economic territory includes the following:
(i) Political frontiers of a country including its territorial waters.
(ii) Ships and aircrafts operated by the normal residents of a country between two or more countries, for example, Air India’s services between different countries.
(iii) Fishing vessels, oil and natural gas rigs and floating platforms operated by the residents of the country in the international waters or engaged in extraction in areas where the country has exclusive rights of operation.
(iv) Embassies, consulates and military establishments of a country located in other countries, for example, Indian embassy in U.S.A., Japan, etc. It excludes all embassies, consulates and military establishments of other countries and offices of international organisations located in India.
Thus, domestic territory may be defined as the political frontiers of the country including its territorial waters, ships, aircraft, fishing vessels operated by the normal residents, embassies and consulates located abroad, etc.
Q. 2. Explain the concept of residents.
Ans. The term resident is different from the term nationals (or citizens). A resident is a person who ordinarily resides in a country and whose economic interest also lies in that particular country. Normal residents include both nationals (such as Indians living in India) and foreigners (non-nationals living in India). For example, Nepalese living in India for more than one year and performing economic activities of production, consumption and investment in India, will be treated as normal residents of India.
On the other hand, Indian citizens, living abroad (say in Canada) for more than one year and performing their basic economic activities there will be treated as normal resident of that country where they normally reside. They will be considered as non-residents of Indian (NRIs).
Q. 3. Differentiate between intermediate products and final products. What is the significance of this distinction?
Ans. Difference between intermediate products and final products and the significance of this distinction.
Intermediate products: Intermediate products are those products which are meant either for reprocessing or for resale. Products used in the production process during an accounting year are known as intermediate products. These are non-durable products and services used by the producers such as raw materials, oil, electricity, coal, fuel, etc. and services of engineers and technicians, etc. Goods which are purchased for resale are also treated as intermediate products.
Final products: Products which are used either for final consumption by the consumer or for investment by the producers are known as final products. These products do not pass.through production process and are not used for resale. For example, bread, butter, biscuits etc. used by the consumer.
Significance: From the viewpoint of national income accounting the difference between intermediate products and final products is of special significance.
The significance of the distinction between intermediate products and final products can be explained with the help of an example. Suppose, the flour mill buys wheat worth Rs. 20,000 from the farmers. After grinding the wheat the mill sells the flour for Rs. 25,000 to the households. Flour is the final product to the households. In this example, the sale of output of wheat by the farmers is Rs. 20,000 while the sale of output of flour by the mill is Rs. 25,000. The total output of both the farmers and the mill is Rs. 45,000.
There is an element of double counting in the total output of Rs. 45,000. The output of wheat has been counted twice, once as a part of the output of the flour mill and other as farm product.
The double counting can be avoided by counting the value of final products only and ignoring the value of intermediate products. It is because the value of intermediate products is already included in the value of final products.
Q. 4. Explain the concept of value added by giving a numerical example.
Ans. Value added is the excess of the value of output over intermediate cost. The concept of value added can be explained with the help of a numerical.
Suppose a farmer produces cotton worth Rs. 500 and sells it to the cloth mill. The cloth mill produces cloth worth Rs. 1,500. (Say produces 300 metres of cloth and market price of cloth is Rs. 5 per metre). But in this value, value of cotton is also included and cotton used by cloth mill is an intermediate goods so value of cotton i.e., Rs. 500 will be intermediate cost.
Therefore value added will be Rs. 1000/-
Rs. 1500 – Rs. 500 = Rs. 1,000/-
Q. 5. The following information is given:
(a) Value of output.
(b) Indirect taxes.
(c) Intermediate cost.
(d) Consumption of fixed capital.
(e) Subsidies.
Derive the following measures of value added on the basis of the above information:
(i) GVA at MP.
(ii) GVA at FC.
(iii) NVA at MP.
(iv) NVA at FC.
Ans. (a) Value of output: Value of output is the sum of value added and intermediate products. Thus,
Value of output = Value added + Intermediate products.
(b) Indirect taxes: The term ‘market price’ means the price which the buyers pay to the production units (sellers). The sellers pay a part of this market price as ‘indirect taxes’ to the government. All taxes levied on production like sales tax, excise duties, octroi, etc., are called ‘indirect taxes’. These are called ‘indirect’ because these taxes are levied on the seller but shifted on the buyers by the sellers so these are indirectly paid by the buyers. These taxes are paid by the sellers to the government. It also means that the entire market price, that a seller gets, is not available for distribution of income among the factors of production.
(c) Intermediate cost: The expenditure incurred on the buying of intermediate products is called an intermediate cost. An intermediate cost is deducted from the value of output while calculating value added by a firm.
(d) Consumption of fixed capital: Production requires the use of fixed capital assets like machines, building, etc. The life of an asset is limited. For example, a machine installed in a factory may run only for 10 years. After 10 years the machine has to be replaced by a new machine. It means that every year there is a certain amount to wear and tear of an asset used in production. Such normal wear and tear is called consumption of fixed capital.
(e) Subsidies: In contrast to indirect taxes, subsidies are the financial help given by the government to the production units for selling the products at lower prices. Such help is given in case of those selected commodities whose use the government wants to encourage. If there was no subsidy the consumer may not buy at all or buy less because of high price.
(i) GVA at MP = Value of output – Inter- mediate cost
(ii) GVA at FC = Indirect tax – Subsidy
(iii) NVA at MP = GVA at MP – Consumption of fixed capital
(iv) NVA at FC = NVA at MP – Indirect taxes + Subsidies
Q. 6. Name different factor incomes and explain briefly their meanings.
Ans. Different factor incomes are wages, rent, profit and interest.
(a) Wages or compensation of employees: It includes all money receipts and benefits both in cash and in kind accruing to the employees. The employees get wages or salaries. In addition they may get many other benefits as employees like bonus, employer’s contribution to provident fund, free accommodation, free conveyance, free medical facilities, free holiday trips, etc.
In short, compensation of employees includes all monetary and non-monetary benefits that accrue to the employees on account of work performed.
(b) Rent: It accrues to the owners of land for the use of their land for production of goods and services.
(c) Interest: Interest is payment to those who provide funds to the production units. In national income estimation, the interest payments only against the funds provided to the production units for investment are treated as factor payments.
(d) Profit: Profit is the income accruing to the entrepreneur for his entrepreneurial services to the production units. It is a residual income left after factor payments out of the value added in the form of compensation of employees, rent and interest have been made.
Q. 7. What is mixed income? Why is there a need for such concept?
Ans. The received income which cannot be separated in form of wages, rent, profit and interest, is called mixed income. This happens in case of those entrepreneurs who provide their own land, labour and capital services to their production units and in return they get the consolidated income which included wages, rent, interest, etc. Suppose there is a small shopkeeper who has no employees. Also suppose that he has not borrowed any funds and used his own savings for investment in the shop. Further suppose that he is also the owner of the land on which the shop is built. The payment for these services get merged with profits and recorded as profit in the accounts. Such as income is not truly profit but includes owner’s salary, rent and interest also. In national income estimation it is treated as ‘mixed income’.
Q. 8. Name different final expenditures. Explain briefly their meanings.
Ans. A final expenditure is an expenditure on goods and services acquired for final consumption and investment and not for reselling. The final expenditure is classified into:
(a) Private Final Consumption Expenditure (PFCE): It includes purchases by the households and the non-profit institutions service households. The households purchase goods and services for satisfaction of wants of their family members. The non-profit institutions serving households provide free services to the households.
(b) Government Final Consumption Expenditure (GFCE): It is the expenditure on the free services provided to the people by the general government. The main examples of the free services are that of police, military, educational institutions, hospitals, roads, bridges and other government departments.
(c) Gross Domestic Capital Formation (GDCF): It is a measure of the total expenditure of investment by the production units within the economic territory of a country. This expenditure is of two types:
(i) On fixed assets like building, machines, instruments, furniture, transport vehicles, etc. and
(ii) On stocking of raw materials, semi-finished goods and finished goods.
The GDCF is called gross because the consumption of fixed capital has not been deducted from it. If the consumption of fixed capital is deducted from GDCF we get Net Domestic Capital Formation (NDCF). The NDCF is a measure of the net domestic investment during the year.
(d) Net Exports: In national income accounting any part of the final products produced during the year but not consumed within the economic territory of the country is treated as investment. By this criteria the exports are treated as investment abroad. Similarly, imports are treated as disinvestment. So, exports less imports, i.e. net exports, represent net investment abroad.
The sum total of PFCE, GFCE, GDCF and Net exports is a measure of total final expenditure of a country during a given year.
Q. 9. Name the related aggregates of national income.
Ans. The related aggregates of national income are as under:
(i) Gross Domestic Product at Market Price (GDPMP).
(ii) Gross Domestic Product at Factor Cost (GDPFC).
(iii) Net Domestic Product at Market Price (NDPMP).
(iv) Net Domestic Product at FC or (NDPFC).
(v) Net National Product at FC or (NNPFC).
(vi) Gross National Product at FC (GNPFC).
(vii) Net National Product at MP (NNPMP).
(viii) Gross National Product at MP (GNPMP).
