Chapter 4 –Measurement of National Income

LEARNING OBJECTIVES
4.1 INTRODUCTION
4.2 VALUE ADDED METHOD
4.3 INCOME METHOD
4.4 EXPENDITURE METHOD
4.5 RECONCILIATION OF THREE METHODS
4.6 TREATMENT OF DIFFERENT ITEMS IN NATIONAL INCOME
4.7 TREATMENT OF DIFFERENT ITEMS IN DOMESTIC INCOME
4.8 NATIONAL INCOME AT CURRENT PRICE AND CONSTANT PRICE
4.9 NOMINAL GDP AND REAL GDP 4.10 SOLVED PRACTICALS
4.10 SOLVED PRACTICALS

INTRODUCTION _______________________________________________________________
National income is considered as the most comprehensive measure of the performance of an economy
However, its measurement is an extremely complicated task.
 When the process of production takes place, then the factor incomes are paid to factors of production
for their factor services. It means, there is an ‘Income Flow’ corresponding to the ‘Output Flow’.
 Factors of production spend their income on purchase of goods and services by making consumption
‘Expenditure’.

Thus, production gives rise to income, income results in expenditure, which in turn, generates income
again. Similarly, National Income of a country can be measured by 3 different methods:
1. Value Added Method 2. Income Method
3. Expenditure Method
We have three different methods to measure the national income because production, income and
expenditure are three different phases of circular flow of income. Use of a particular method depends on
the availability of reliable data.
It must be noted that all the three methods give the same value of national income because they are used to
measure the same physical output at three different phases. In India, the task of estimating national income
is entrusted with the Central Statistical Organisation (CSO).

4.2 VALUE ADDED METHOD __________________________________________________

This method is used to measure national income in different phases of production in the circular flow. It
shows the contribution (value added) of each producing unit in the production process.
 Every individual enterprise adds certain value to the products, which it purchases from some other
firm as intermediate goods.
 When value added by each and every individual firm is summed up, we get the value of national
income.
Value added Method is also known as: (i) Product Method; (ii) Inventory Method; (iii) Net Output Method;
(iv) Industrial Origin Method; and (v) Commodity Service Method.

Concept of Value Added

Value added refers to the addition of value to the raw material (intermediate goods) by a firm, by virtue
of its productive activities. It is the contribution of an enterprise to the current flow of goods and services.
It is calculated as the difference between value of output and value of intermediate consumption.
Value Added = Value of Output - Intermediate Consumption

Example of Concept of Value Added

Suppose a baker needs only flour to produce bread. He purchases flour as inputs worth `500 from the miller
and then by virtue of its productive activities, converts the flour into bread and sells the bread for `700.

In the given example:

 Flour is an input (Intermediate goods) and its value of `500 is termed as value of ‘Intermediate
Consumption’.
 Bread is the Output and its value of `700 is termed as ‘Value of Output’.
 Difference between the value of output and intermediate consumption is termed as ‘Value Added’.
It means, that the baker has added a value of `200 to the total flow of final goods and services in
the economy.
 Value added by each producing enterprise is also known as the Gross Value Added at Market price
(𝐺𝑉𝐴𝑀𝑃 ). It means, value added by baker (`200) can be termed either as Value added or 𝐺𝑉𝐴𝑀𝑃 .
 Sum total of 𝐺𝑉𝐴𝑀𝑃 of all producing enterprises within the domestic territory of a country during
one year is equal to 𝐺𝐷𝑃𝑀𝑃 (Gross Domestic Product at Market Price), i.e. ∑ 𝐺𝑉𝐴𝑀𝑃 = 𝐺𝐷𝑃𝑀𝑃

Let us now understand ‘Intermediate Consumption’ and ‘Value of Output’ in detail.

Intermediate Consumption and Final Consumption

Intermediate Consumption refers to the expenditure incurred by a production unit on purchasing those
goods and services from other production units, which are meant for resale or for using up completely (i.e.
further production) during the same year. In the given example, expenditure on flour is intermediate
consumption.

Final Consumption refers to the expenditure on goods and services meant for final consumption and
investment. In the given example, expenditure on bread is final consumption.

As discussed in the previous chapter, intermediate goods include all those inputs, whose value is merged
with the value of final goods. For example, flour is an intermediate good as its value is merged in the value
of bread. However, any machinery purchased for making bread is not an intermediate good as its value will
not be included in the value of intermediate consumption.

Imports are not Separately Included

If value of intermediate consumption is given, then imports are not included separately as imports are
already included in the value of intermediate consumption. However, if domestic purchases are specifically
mentioned, then imports will also be included.

Let us understand this through following cases:

Calculate Intermediate Consumption in the following cases:
Case 1: (i) Intermediate Consumption = `1,200; (ii) Imports = `300
Ans. Intermediate Consumption = `1,200
As imports are already included in the value of intermediate consumption

Case 2: (i) Purchase of raw material from domestic firm = `500;

(ii) Imports = `100
Ans. Intermediate Consumption = `500 + `100 = `600
Imports are included as it is specifically mentioned that purchase of raw material is from domestic firm.
Case 3: (i) Purchase of raw material = `1,000; (ii) Imports `200
Ans. Intermediate Consumption = `1,000
Imports are not included as total purchase of raw material is given.

Value of Output
Value of output refers to market value of all goods and services produced during a period of one year.

How to Measure the Value of Output?

(i) When the entire output is sold in an accounting year, then: Value of Output = Sales
(ii) When the entire output is not sold in an accounting year, then the unsold stock is added to the value
of sales. Unsold stock is the excess of closing stock over opening stock and is termed as ‘Change in
Stock’.
It means, Value of Output = Sales + Change in Stock
Where, Change in stock = Closing stock - Opening stock

One More way to Calculate Value of Output

It can also be calculated as: Value of Output = (Quantity × Price) + Change in Stock
For example, if a firm manufactures 1,000 pairs of shoes annually and sells them @ `500 per pair (assuming
change in stock is nil), then: Value of Output = 1,000 × 500 = `5,00,000

Exports are not Separately Included

Like imports, exports are also not separately included in value of output if ‘Sales’ are given (and domestic
sales are not specifically mentioned. In case of an open economy, sales include both domestic sales and
exports. Let us understand this:

Calculate Value of Output:

Case 1: (i) Sales = `2,000; (ii) Exports = `400
Ans. Value of Output = `2,000
As exports are already included in the value of sales.

Case 2: (i) Domestic Sales = `700; (ii) Exports= `200

Ans. Value of Output = `700+ `200 = `900
Exports are included as domestic sales are specifically mentioned.
Before we proceed with the steps needed to estimate national income, let us first group the various
production units into distinct industrial groups or sectors. It is done because it is easier to estimate national
income of a group of similar production units as compared to estimating for each production unit separately.
 Industrial Classification of Producing Enterprises
All the production units of the economic territory are grouped into three broad groups:
1. Primary Sector: It includes production units exploiting natural resources like land, water,
subsoil assets, etc. For example, farming, fishing, mining, animal husbandry, forestry, etc.
It is primary as it is the source of basic raw materials for the secondary sector.
2. Secondary Sector: It includes production units which are engaged in transforming one good
into another good. Such an activity is called manufacturing activity. These units convert raw
materials into finished goods. For example, firms engaged in converting sugarcane into
sugar, construction companies, power generation, etc. It is called secondary because it
depends on primary sector for raw materials
3. Tertiary Sector: It includes production units engaged introducing services. For example,
transport, education, finance, government administration, etc. This sector finds third place
because its growth is primarily dependent on primary and secondary sectors.

Steps of Value Added Method

The main steps for estimating national income by Value Added Method are:
Step 1: Identify and classify the production units
The first step is to identify and classify all the producing
enterprises of an economy into primary, secondary and
tertiary sectors.

Step 2: Estimate Gross Domestic Product at Market

Price
In the second step, Gross Value Added at Market Price
(𝐺𝐴𝑉𝑀𝑃 ) of each sector is calculated and sum total of
𝐺𝐴𝑉𝑀𝑃 of all sectors give 𝐺𝐷𝑃𝑀𝑃 , i.e. ∑ 𝐺𝐴𝑉𝑀𝑃 = 𝐺𝐷𝑃𝑀𝑃

Step 3:Calculate Domestic Income (𝑁𝐷𝑃𝐹𝐶 )

By subtracting the amount of depreciation and net indirect
taxes from 𝐺𝐷𝑃𝑀𝑃 , we get domestic income, i.e. 𝑁𝐷𝑃𝐹𝐶 =
𝐺𝐷𝑃𝑀𝑃 - Depreciation - Net Indirect Taxes.

Step 4: Estimate net factor income from abroad (NFIA)

to arrive at National Income
In the final step, NFIA is added to domestic income to
arrive at National Income.
National Income (𝑁𝑁𝑃𝐹𝐶 ) = 𝑁𝐷𝑃𝐹𝐶 + NFIA

Precautions of Value Added Method

The various precautions to be taken in Value Added Method are:
1. Intermediate Goods are not to be included m the national income: since such goods are already
included in the value of final goods. If they are included again, it will lead to double counting.
2. Sale and Purchase of second-hand goods is not included: as they were included in the year in
which they were produced and do not add to current flow of goods and services. However any
 commission or brokerage on sale or purchase of such goods will be included in the national income
as it is a productive service.
3. Production of Services for self-consumption (Domestic Services) are not included: Domestic
services like services of a housewife, kitchen gardening, etc. are not included in the national income
since it is difficult to measure their market value. These services are produced and consumed at
home and never enter the market place and are termed as non-market transactions.
It must be noted that paid services, like services of maids, drivers, private tutors, etc. should be
included in the national income.
4. Production of Goods for self-consumption will be included: in the national income as they
contribute to the current output. Their value is to be estimated or imputed as they are not sold in the
market.
5. Imputed value of owner-occupied houses should be included: people, who live in their own
houses, do not pay any rent. But, they enjoy housing services similar to those people who stay in
rented houses. Therefore, value of such housing services is estimated according to market rent of
similar accommodation. Such an estimated rent is known as imputed rent.
6. Change in stock of Goods (inventory) will be included: Net increase in the stock of inventories
will be included in the national income as it is a part of capital formation.

Production for Self-consumption

 Goods Produced for self-consumption are included in National Income: All the
final goods produced within the country are not necessarily sold in the market. A
part of them is kept by the producer for his own use and consumption) For example,
farmers keep, a major part of their produce for self-consumption. Imputed value of
such goods is included in national income
 Services Produced for self-consumption are not included in National Income:
Services like housewife working in her own house, doctor treating his own child or
teacher teaching his own child will not be included in national income as it is difficult
to ascertain their market value and such services are not rendered for the purpose of
earning income.

Problem of Double Counting

In measuring the National Income, the value of only final goods and services is to be included. However,
the problem of double counting arises when value of intermediate goods is also included along with value
of final good. Double counting refers to counting of an output more than once while passing through
various stages of production.
A commodity passes through various stages of production before reaching the final stage. When value of
the commodity is taken at each stage, it is likely to include the cost of inputs more than once. This leads to
double counting.
Let us understand this through the famous example of Farmer, Miller and Baker.
• Farmer: Suppose, farmer produces 50 kg of wheat and sells it for `500 to miller (flour mill) For
farmer, wheat of `500 is a final product. (If intermediate cost for farmer to be zero, then his value
added will be `500).
• Miller: For miller, wheat is an intermediate good. Miller converts wheat into flour and sells it for `
700 to a baker. Now, flour of `700 is a final product for the Miller. (Value added by miller = 700 -
500 = `200)
• Baker: For baker, flour is an intermediate good. Baker manufactures bread from flour and sells the
entire bread to final consumers for `1,000. Bread of `1,000 is a final product for the baker. (Value
added by baker = 1,000 - 700 = `300)
Let us present the data in a chart

In the given example, wheat is a final product for farmer, flour for miller and bread for baker. As a general
practice, every producer treats his commodity as the final output. It means: Total value of output = 500 +
700 + 1,000 = `2,200.

However, a careful examination reveals that each transaction contains the value of intermediate goods.
 The value of wheat is included in the value of flour.
 The value of flour is included in the value of bread.

As a result, the values of wheat and flour are counted more than once. This causes the problem of double
counting. It leads to over estimation of value of goods and services produced. In order to know the correct
value of national income, we must avoid this problem of double counting.

How to Avoid Double Counting?

There are two alternative ways of avoiding double counting:
(i) Final Output Method: According to this method, value of only final goods should be added to determine
the national income. In the given example, value of bread of `1,000 sold to final consumers should be taken
in the national income.
(ii) Value Added Method: According to this method, sum total of the value added by each producing unit
should be taken in the national income. In the given example, value added by farmer (`500), miller (`200)
and baker (`300), i.e. total of `1,000 should be included in the National Income.

Sum of Value Added = Sum of Factor Incomes

 Production means addition of value to the inputs through combined efforts of various
factors of production (land, labour, capital and enterprise). It means, value added (or
𝑁𝑉𝐴𝐹𝐶 is nothing but the contribution made by different factors in the production
process.
 So, every individual factor has a right to get back a share for the value added to the
inputs.
  The producer distributes this NVAFC among the owners of factors of production as rent,
wages, interest and profit.
So, it is rightly said that Sum of Value Added = Sum of Factor Incomes. (Refer solved example
24 and unsolved practical 21 and 22)

4.3 INCOME METHOD ________________________________________________

Income Method measures national income from the perspective of factor incomes. Under this method,
incomes received by all the residents of a country for their productive services during a year are added up
to obtain the national income. According to this method, all the incomes that accrue to the factors of
production by way of images, profits, rent, interest, etc. are summed up to obtain the national income.

Income method is also known as ‘Distributive Share Method’ or ‘Factor Payment Method’.

Components of Factor Income

The sum total of all the factor incomes earned within the domestic territory of a country is known as
'Domestic Income (𝑁𝐷𝑃𝐹𝐶 )’. System of National Accounts (SNA) 1993 (joint publication of United
Nations and World Bank) has elaborated the following components of Income Method:
1. Compensation of Employees (COE): COE refers to amount paid to employees by employer for
rendering productive services. It includes all the payments and benefits, which the employees
receive, directly or indirectly, from the employer. Compensation of Employees consists of 3
elements:
(i) Wages and salaries in cash: It includes all monetary benefits, like wages, salaries, bonus,
dearness allowances, commission, etc.
Any reimbursement of business expenses incurred by the employees will be excluded from COE as
such expenses are part of intermediate consumption of business enterprises.
(ii) Wages and salaries in kind: It includes all non-monetary benefits, like rent free home, ‘free
car, free medical and educational facilities, etc. An imputed value of these benefits should
be included in national income.
However, it does not include any facility which is necessary for work and in which employees do
not have any discretion. For example, uniforms to be worn during work only or vehicles to be used
for work only. Such payments are intermediate consumption of business enterprise's.
(iii) Employers' contribution to social security schemes: It includes contributions made by
employer for the social security of employees. For example, contribution to provident fund,
gratuity, labour welfare funds, etc., The aim of such contributions is to ensure safety and
security of life of the employees.
Any contribution by third party (say, an insurance company) to an employee is not the part of COE
as the insurance company is not the employer of injured worker. Any contribution by employees is
also not included as such payments are made by the employees from COE only.

2. Rent and Royalty: Rent is that part of national income which arises from ownership of “ land and
building. Rental income includes both actual rent (rent of let out land) as well as imputed rent (rent
of self-occupied properties). Imputed rent of owner occupied houses is calculated on the basis of
market rental value of the house.
Royalty refers to income received for granting leasing rights of sub-soil assets. For example,
owners of mineral deposits like coal, iron ore, natural gas, etc. can earn income by giving rights of
mining to the contractors.
3. Interest: Interest refers to amount received for lending funds to a production unit. It includes both
actual interest as well as imputed interest of funds provided by the entrepreneur.
'Interest income' includes interest on loans taken for productive services only.
Interest income does not include:
(i) Interest paid by government on public debt and interest paid by consumers as such interest is
paid on loans taken for Consumption purposes.
(ii) Interest paid by one firm to another firm.

4. Profit: Profit is the reward to the entrepreneur for his contribution to the production of goods and
services. It is the residual income, which an entrepreneur earns after paying all the other factors of
production.
The profit earned by an enterprise is used for 3 purposes:
(i) Corporate Tax: It is the direct tax paid by an enterprise to the government on the total profit
earned by it. It is also known as Profit tax or Business tax.
(ii) Dividend: It refers to that part of profit, which is paid to the shareholders in the ratio of their
shareholding. It is also known as distributed profits.
(iii) Retained Earnings: It refers to that part of profit, which is kept as reserve to meet unexpected
contingencies or for business expansion. It is also known as Undistributed Profits or Savings
of Private Sector or Reserves and Surplus.
In short, Profit = Corporate Tax + Dividend + Retained Earnings

Operating Surplus
Operating surplus is another term used in factor payments. It refers to sum total of income from property
(rent + royalty + interest) and income from entrepreneurship (profit)

Operating surplus arises in both private and government enterprises. However, it does not arise in the
general government sector as it works with the motive of social welfare. Its basic aim is to operate for
the benefit of public. So, incomes like rent, interest and profit are nil in general government sector.

5. Mixed Income: It is the income generated by own-account workers (like farmers, barbers, etc.)
and unincorporated enterprises (like retail traders, small shopkeepers, etc. It is the term used for
any income that has elements of more than one type of factor income. Mixed income arises from
productive services of self-employed persons, whose income includes wages, rent, interest and
profit and these elements cannot be separated from each other. For Example, income of a doctor
running a clinic at his residence.
Reason for Concept of Mixed Income
  In certain situations, accounts of most production units are not available to the estimators
of National Income. Moreover, due to different accounting practices, it is not possible for
the estimators to clearly identify the components of different factor incomes.
 So, when total factor payments can be estimated, but cannot be segregated into separate
heads (COE, Rent and Royalty, Interest and Profits), then an additional factor payment,
known as ‘Mixed Income’ is added.
 This factor payment is also known as ‘Mixed Income of Self-Employed’ as this problem
arises mainly in case of self-employed people like doctors, chartered accountants,
consultants, etc.

Steps of Income Method

The various steps involved in estimating national income by Income
Method are:
Step 1: Identify and classify the production units.
All the producing enterprises employing various factors of
production are identified and classified into primary, secondary and
tertiary sectors.
Step 2: Estimate the factor income paid by each sector.
The factor incomes paid by each sector are classified under the
following heads: (i) Compensation of employees; (ii) Rent and
Royalty; (iii) Interest; (iv) Profit; and (v) Mixed Income.
Step 3: Calculate Domestic Income (𝑵𝑫𝑷𝑭𝑪 ).
When factor incomes of all the sectors are summed up, we get domestic income (𝑁𝐷𝑃𝐹𝐶 ). In short, 𝑁𝐷𝑃𝐹𝐶
- Compensation of Employees + Rent and Royalty + Interest + Profit + Mixed Income

Step 4: Estimate net factor income from abroad (NFIA) to arrive at National Income.
In the final step, NFIA is added to domestic income to arrive at National Income (𝑁𝑁𝑃𝐹𝐶 ), i.e. 𝑁𝑁𝑃𝐹𝐶 =
𝑁𝐷𝑃𝐹𝐶 + Net factor income from abroad.

Precautions of Income Method

Following precautions are to be considered while estimating national income by Income Method:
1. Transfer Incomes (like scholarships, donations, charity, old age pensions, etc.) are not included
in the National income because such receipts are not connected with any productive activity and
there is no value additional.
2. Income from sale of second-hand goods will not be included in national income as their original
sale has already been counted. If they are included again, it would lead to double counting.
However, any brokerage or commission received by brokers or commission agents on sale of such
~ goods, will be included as it is an income received for rendering productive service.
3. Income from sale of shares, bonds and debentures will not be included as such transactions do
not contribute to current flow of goods and services. These financial assets are mere paper claims
and involves a change of title only.
However, any commission or brokerage on such financial assets is included as it is a productive services.

Always Avoid Capital Gains

Capital gains refer to income from sale of second-hand goods (say, old car) and financial assets (bonds,
debentures, etc.). Any income arising from such transactions is not a factor income as these transactions
are not productive transactions and do not add to the current flow of goods and services in the economy.
4. Windfall gains (like income from lotteries, horse race, etc.) are not included as there is no
productive activity connected with them.
5. Imputed value of services provided by owners of production units will be include:
Imputed value of owner-occupied houses, interest on own capital, production for self- consumption,
etc. will be included as these are productive activities and add to the flow of goods and services .
6. Payments out of past savings (like death duties, gift tax, interest tax, etc.) are not include in the
National income because they are paid out of wealth or past savings and do not add to current flow
of goods and services..

4.4 EXPENDITURE METHOD________________________________________

Factor income earned by factors production is spent in the form of expenditure on purchase of goods and
services produced by firms
 This method measures national income as sum total of final expenditures incurred by households,
business firms, government and foreigners.
This total final expenditure is equal to gross domestic product at market price,
∑ Final Expenditure = 𝐺𝐷𝑃𝑀𝑃 .
 This method is also known as income ‘Disposal Method’

Components of Final Expenditure

Expenditure is undertaken by all the sectors of an economy: Households, Government, Firms and the
Foreign Sector.
The various components of final expenditure are:
Private Final Consumption Expenditure (PFCE): It refers to expenditure incurred by households and
private non-profit institutions serving households on all types of consumer goods, i.e. durable (except
houses**), semi-durable, non-durable goods and services.
 PFCE = Household Final Consumption Expenditure + Private Non-Profit Institutions Serving
Households Final Consumption Expenditure
 PFCE includes expenditures incurred by normal residents, whether in the domestic at territory or
abroad. So, expenditure incurred by residents during their foreign tour/travel will be added in PFCE.
However, any expenditure incurred by non-residents and foreign visitors in the domestic market will
be deducted from PFCE.
**Note: The expenditure incurred on purchase or construction of owner-occupied houses is treated as
capital formation (included under Gross Residential Construction Investment) and not as durable
consumption. Other costly consumer durables, like cars, air conditioners, washing machines, etc. are
included under PFCE.

Government Final Consumption Expenditure (GFCE): It refers to the expenditure incurred by general
government on various administrative services like defence, law and order, education etc. Government
produces goods and services with the aim of social welfare without any intention of earning profits.

Estimation of Government Final Consumption Expenditure (GFCE)

GFCE is equal to cost of goods and services produced by government for collective use by the public. The
services are valued at their cost to the government as they are not normally sold to the public. It means,
GFCE is calculated as:
Government Final Consumption Expenditure = Intermediate Consumption of government + COE paid
by government + Direct purchases from abroad for embassies and consulates located abroad - Sale of goods
and services produced by general government.
3. Gross Domestic Capital Formation (GDCF) or Gross Investment: It refers to the addition to
capital stock of the economy. It represents the expenditure incurred on acquiring goods for
investment by the production units located within the domestic territory. There are two components
of GDCF:
(i) Gross Fixed Capital Formation: It refers to the expenditure incurred on purchase of fixed assets.
This expenditure is generally divided into three sub-categories:
(a) Gross Business Fixed Investment: It includes expenditure on the purchase of new plants,
machinery, equipments, etc.
(b) Gross Residential Construction Investment: It includes expenditure on purchase or
construction of new houses by the households.
(c) Gross Public Investment: It includes expenditure on construction of flyovers, roads, bridges
etc. by the government
(ii) Inventory Investment: (Change in Stock): It refers to the physical change in the stock of raw
material, semi-finished goods and finished goods lying with the producers. It is included as an
investment item because it represents the goods produced but not used for current consumption. It
is calculated as the difference between the closing stock and the opening stock of the year,
It means,
GDCF = Gross Fixed Capital Formation + Inventory Investment; or
GDCF = Gross Business Fixed Investment + Gross Residential Construction Investment
+ Gross Public Investment + Inventory Investment.
It is important understand that purchase of shares and debentures, either old or new, is not included in
investment. For example, if I have purchased 500 shares of Reliance Industries, it may be an investment
from my point of view, but for economy, it is simply a transfer of purchasing power and not an investment.
Some Important Points about GDCF
 Any Increase in stock of consumer goods with households is excluded from inventory investment
as it is assumed that such goods are consumed, the moment they are purchased.
 Purchase of shares and debentures (either old or new) is not included in GDCF as it is simply a
transfer of purchasing power and there is no addition to flow of goods and services.
 Purchase of second hand goods (like old house or old machinery) is also not included in GDCF as
such goods have been already included in the year of original purchase.
4. Net Exports (X - M): It refers to the difference between exports and imports of a country during
a period of one year.
 Exports (X) refer to expenditure by foreigners on purchase of domestic products. The
exported goods have been produced within the country's domestic territory. So, they are
included in output of an economy.
 Imports (M) is the expenditure by residents on foreign products. Imports are deducted to
obtain domestic product as they are not produced within the domestic territory.
 Instead of treating exports and imports separately, the difference between the two is taken
and is termed as Net Exports.
Calculate Net Exports in the following cases:
Case 1: (i) Exports = `500; (ii) Imports = `300
Ans. Net Exports = `500 - `300 = `200
Case 2: (i) Exports = `600; (ii) Imports = `700
Ans. Net Exports = `600 - `700 = - `100
Case 3: (i) Exports = 0; (ii) Imports = `200
Ans. Net Exports = 0 - `200 = - `200
Case 4: (i) Net Exports = `500; (ii) Imports = `200
Ans. Net Exports = `500{As Net Exports are given, we will ignore imports}
Case 5: (i) Net Imports = `200
Ans. Net Exports = - `200{As Net Imports is positive, it means that Exports are less than Imports}
Case 6: (i) Net Imports = - `350
Ans. Net Exports = `350{As Net Imports is negative, it means that Exports are more than
Imports}
Comparison Between Net Exports and Net Factor Income from Abroad
 Basis Net Exports Net Factor Income from
Abroad
Meaning It refers to difference between It refers to difference between
exports and imports of goods and factor income received from
services. abroad and factor income paid
abroad.
Concept It is a domestic concept. It is a national concept.
Factor/Non-Factor Services It includes non-factor services. It includes factor services.

Steps of Expenditure Method

The steps involved in calculating National Income by Expenditure Method are:
Step 1: Identify the Economic Units incurring Final Expenditure
All the economic units, which incur final expenditure within the domestic territory, are classified under 4
groups: (i) Household sector; (ii) Government sector; (iii) Producing sector; (iv) Rest of the world sector.
Step 2: Classification of Final Expenditure
Final expenditures incurred by the above mentioned economic units are estimated and classified under the
following heads:
• Private Final Consumption Expenditure (PFCE)
• Government Final Consumption Expenditure (GFCE)
• Gross Domestic Capital Formation (GDCF)
• Net Exports (X-M).
The sum total of four components of final expenditure gives Gross
Domestic Product at Market Price (𝐺𝐷𝑃𝑀𝑃 ) ie. 𝐺𝐷𝑃𝑀𝑃 = PFCE +
GFCE + GDCF + (X-M)
Step 3: Calculate Domestic Income (𝑵𝑫𝑷𝑭𝑪 )
By subtracting the amount of depreciation and net indirect taxes
from 𝐺𝐷𝑃𝑀𝑃 we get domestic income,
i.e. 𝑁𝐷𝑃𝐹𝐶 - 𝐺𝐷𝑃𝑀𝑃 - Depreciation - Net Indirect Taxes.

Step 4: Estimate net factor income from abroad (NFIA) to

arrive at National Income
In the final step, NFIA is added to domestic income to arrive at
National Income.
National Income (𝑁𝐷𝑃𝐹𝐶 ) = 𝑁𝐷𝑃𝐹𝐶 + NFIA

Precautions of Expenditure Method

The various precautions to be taken while using the Expenditure
Method are:
1. Expenditure on Intermediate Goods will not be included in the national income as it is already
included in the value of final expenditure. If it is included again, it will lead to double counting of
expenditures.
2. Transfer Payments are not included as such payments are not connected with any productive
activity and there is no value addition.
3. Purchase of second-hand goods will not be include as such expenditure has already been included
when they were originally purchased. Such goods do not affect the current flow of goods and
services. However, any commission or brokerage on such goods is included as it is a payment made
for productive service.
4. Purchase of financial assets (shares, debentures, bonds etc.) will not be included as such
transactions do not contribute to current flow of goods and services. These financial assets are mere
paper claims and involves a change of title only.
However, any commission or brokerage on such financial assets is included as it is a productive
service.
5. Expenditure on own account production (like production for self-consumption, imputed value of
owner occupied houses, free services from general government and private non-profit institutions
serving households) will be included in the national income since these are productive services.

4.5 RECONCILIATION OF THREE METHODS _______________________________

Since all the three methods are used to measure the value of the same physical output, they will
provide the same National Income. The following chart shows the reconciliation of three methods
used for calculating National Income.

Example for Reconciliation of Three Methods

From the following data, calculate national income by (a) Value Added Method; (b) Income Method; and
(c) Expenditure Method.
Particulars `in crores

(i) Gross value added by Primary Sector 1,600

(ii) Gross value added by Secondary Sector 2,500
 (iii) Gross value added by Tertiary Sector 1,200
(iv) Compensation of employees 1,500
(v) Rent and Royalty 1,000
(vi) Interest 450
(vii) Mixed Income 600
(viii) Profit 550
(ix) Private final consumption expenditure 3,500
(x) Government final consumption expenditure 650
(xi) Gross domestic capital formation 1,300
(xii) Net Exports (-) 150
(xiii) Net Indirect taxes 700
(xiv) Depreciation 500
(xv) Net Factor income from abroad 100

4.6 TREATMENT OF DIFFERENT ITEMS IN NATIONAL INCOME________

National Income includes income earned, (i.e. only factor income, not transfer income) by normal residents
of the country as a reward for their productive services in the current year.
It means, transfer payments, financial transactions, income from sale and purchase of second-hand goods,
non-market activities, windfall gains, etc. are not included in the National Income.
Let us first discuss the various items ‘not included’ in the National Income.
No. Items not Included in Reason
National Income
 1. Transfer Incomes and Payments like They are not connected with any
scholarship, old age pension, unemployment productive activity and there is no value
allowance, gifts, expenditure on birthday addition.
/marriage, pocket money, Remittances from
abroad, financial help to victims of natural
calamity, meals to beggars, compensation
given to accident victims etc.
2. Compulsory Transfer Payments like They are transfer payments and
Interest Tax, capital gains tax and indirect
government does not make any promise of
taxes. providing services in return.
3. Sale and purchase of financial assets likeSuch transactions do not contribute to
shares, bonds, debentures etc. current flow of goods and services. These
financial assets are mere pager claims and
involves a change of title only.
4. Windfall Gains like winning from lottery, There is no productive activity involved
horse race, contests etc. with windfall gains.

5. Non-Market Transactions like domestic It difficult to ascertain their market

Services rendered by a housewife, kitchen value Such services are not
gardening, a parent teaching his child or leisure rendered for the purpose of earning
time activities like painting the house. income.
6. Intermediate Consumption Expenditure like Such expenditures are already
purchase of raw materials by a firm, vegetables included in the final expenditure.
purchased by a restaurant, milk purchased by a
dairy shop, electricity or advertisement expenses
of a production unit, purchase of cold drinks by a
school canteen, expenditure on the repair of assets
etc.
7. Sale or Purchase of second hand goods like They have already been included in
sale/purchase of an old house, old machinery, old the year of their original sale or
car etc. purchase.
8. Capital Loss like destruction of building, They do not affect the national
machinery etc. by earthquake product directly.
9. Capital Gains like profit due to increase in the They do not add to the flow of
price of land, building, shares or income from the goods and services in the economy.
sale of second hand goods and financial assets etc.
10. National debt interest or interest paid by Interest paid on the loans taken for
households to the commercial banks. consumption purposes is not
included,

Let us now discuss the various items ‘included’ in the National Income.
No. Items included in National Income Reason
1. Brokers’ Commission on the sale / purchase of Services rendered by the brokers
second-hand goods or financial assets are productive
 2. Services provided by the owners of production They contribute to the current
units like imputed rent of owner- occupied house, output goods, and services.
interest on own capital, production for self Imputed values will be includes in
consumption etc. the national income as they are
related to productive activities.
3. Capital Formation (Investment) like purchase of As they are a part of the o ross
machinery by a firm, construction of a new house, domestic capital formation.
water pump purchased by a farmer, construction of
a new bridge, expenditure on additional assets,
addition to stock, etc.
4. Payment of bonus, contribution to provident fund These are a part of the
by employer, free clothes given to workers, compensation given to employees
subsidized lunch served to workers, free medical by the employers for their
facilities provided to employees, house rent productive services.
allowance, rent free home given by the employer.

5. Payment of bus fare by households, examination As they area a part of the private
fees paid by students, insurance premium paid by final consumption expenditure.
employees, durable goods (T.V., scooter)
purchased by a household, Payment of telephone
bill etc.
6. Profit earned by in Indian company from its As they are a part of the factor
Branches abroad profits earned by a branch of an income from abroad.
Indian bank in London, wages received 'abroad.^j
by Indian
employees working in foreign embassies, rent
received by Indian residents on their buildings
rented out to foreigners.
7. Free services (dispensary, education) by They are a part of the Government
government, government expenditure on street final consumption expenditure.
lighting
8. Expenditure incurred As the exported goods are produced within the country’s
by a foreign tourist in domestic territory, they are included for determining the
the country output of the economy.
9. Interest on loans paid Interest is paid on loans taken by commercial banks for
by Commercial Banks. productive purposes,

Items included / excluded in National Income

1. Construction of a new house.
Yes, it will be included in the national income as it is a part of capital formation and leads to
production of goods and services in the economy.

2. Winning of a Lottery Prize or Crossword or Contests or other Windfall Gains.

No, it will not be included in the national income as it does not add to the flow of goods and services
in the economy.
3. Increase in the prices of stocks lying with a trader.
No, it will not be included in the national income as it does not amount to any flow of goods.

4. National debt interest. {CBSE, Delhi 2012 (III)}

OR
Interest on public debt. {CBSE, All India 2009 (II), Delhi Comptt. 2016 (III)}
No, it is not included in the national income as it is the interest paid on loans taken by government
to meet its consumption purposes.

5. Rent-free house given to an employee by an employer. {CBSE, Delhi 2008}

Yes, it is included in the national income by Income Method since it is a part of ‘wages in kind’
paid to employees.

6. Profits earned by the branches of a foreign bank in India. {CBSE, All India 2017 (II)}
No, it is not included in the national income as it is a part of the factor income paid abroad. It is
subtracted from domestic income to get national income.

7. Purchases by foreign tourists. {CBSE, Delhi2008, Delhi Comptt. 2016 (II)}

OR
Food purchased by a foreign tourist at a hotel in New Delhi.
Yes, purchases by foreign tourists are ‘exports’ and, therefore, they are included in the national
income through the Expenditure Method.

8. Rent received by Indian residents on their buildings rented out to foreigners in India.
Yes, it will be included in the national income as it is a part of the factor income from abroad.

9. Payment of fees to a lawyer engaged by a firm. {CBSE, Delhi 2008}

OR
Expenditure by a firm on payment of fees to a chartered accountant. {CBSE, Delhi 2015}
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 is deducted from the value of
output of the firm to arrive at the value added. So, it is not included in national income.

10. Free medical facilities by the employer. {CBSE, Foreign 2012 (III)}
OR
Free boarding and lodging provided to a domestic servant.
Yes, it will be included in national income as these free services are part of compensation to
employees.

11. Gifts received from abroad.

OR
Gift received from employer. {CBSE, All India Comptt. 2006}
No, it will not be included in national income as gifts received are transfer incomes.

12. Profits of Reliance Industries from its chemicals business in Australia.

Yes, it will be included in the national income as it is a part of the factor income from abroad.
13. Salaries received by Indian residents working in Russian Embassy in India.
{CBSE, Delhi 2009}
Yes, it will be included in the national income as it is a part of factor income from abroad.

14. Subsidized lunch served to workers in a factory.

OR
Firm incurred expenditure on medical treatment of employee’s family.
Yes, it is a part of the compensation of employees and, therefore, it will be included in the national
income.

15. Old age pension

No, it will not be included in the national income as it is a transfer payment made by the government
and a transfer income for the receiver.

16. Durable goods purchased by a household.

OR
Purchase of car by a household.
Yes, it will be included in the national income as it is a part of the private final consumption
expenditure.

17. Profits earned by an Indian bank from its branches abroad. {CBSE, Delhi 2009}
Yes, they will be included in the national income as they are a part of the factor income from abroad.

18. Earnings of shareholders from the sale of shares. {CBSE, All India 2008}
No, it will not be included in the national income as it is a financial claim and does not contribute
to any productive activity.

19. Expenditure on advertisement by a firm.

OR
Commodities used in scientific research.
No, it will not be included in the national income as it is a part of intermediate consumption
expenditure.

20. Receipts from sale of land. {CBSE, All India Comptt. 2016 (I)}
No, it will not be included as land is a free gift of nature and cannot be produced.

21. Financial help received by flood victims. {CBSE, All India 2009 (I, III)}
No, it will not be included in the national income as it is a transfer income.

22. Purchase of a machine by a factory. {CBSE, All India Comptt. 2006}

OR
Purchase of taxi by a taxi-driver. {CBSE, Foreign 2014}
Yes, it will be included in the national income as it is a part of the gross domestic capital formation.
23. Royalty
Yes, it will be included in the national income as royalty is a productive income.

24. Commission on sale of second-hand goods.

OR
Brokerage payment on sale of shares. {CBSE, All India Comptt. 2004}
Yes, it will be included in the national income as it is the income of a middleman for his productive
services to various parties.

25. Dividend received by an Indian from his investment in shares of a foreign company.
{CBSE, Delhi 2010}
Yes, it will be included in the national income as it is factor income from abroad.

26. Purchase of raw materials by a production unit.

OR
Milk purchased by a Sweet shop to make milk-cake.
No, it will not be included in the national income as it is a part of the intermediate consumption
expenditure.

27. Earnings of a self-employed doctor having a clinic at his own residence.

Yes, it will be included in the national income as it is a mixed income.

28. Money received from sale of second-hand goods. {CBSE, Delhi 2002}
No, it will not be included in the national income because receipts from the sale of second-hand
goods are by virtue of transfer of an already existing object.

29. Imputed rent of self occupied houses. {CBSE, All India 2009 (I, III)}
Yes, it will be included in the national income as people living in such houses enjoy housing services
similar to those in rented houses.

30. Contribution to provident fund by employer.

OR
Value of interest foregone on loans provided by employer to employee.
Yes, it will be included in the national income as it is a part of the compensation to employees.

31. Wheat grown by a farmer but used entirely for family’s consumption. {CBSE, All India 2008}
Yes, it is included in the national income because it adds to the current flow of goods and services.
Therefore, its imputed value should be included.

32. Expenditure on the construction of a flyover by the government.

Yes, it will be included in the national income as it is a part of gross domestic capital formation.

33. Commission received by a dealer from the buyer and seller of a house. {CBSE, Delhi 2002}
Yes, it will be included in the national income as it is the income of the dealer for his productive
services.
34. Growing vegetables in a kitchen garden of the house.
No, it will not be included in the national income as it is difficult to estimate the value of production
(It is a non-market transaction).

35. Services rendered by family members to each other. {CBSE, Foreign 2008}
No, it will not be included in the national income as it is difficult to determine the value of services
provided by family members to each other.

36. Expenditure by government in providing free education. {CBSE, All India 2008}
OR
Expenditure on free services provided by government. {CBSE, All India 2012 (II)}
OR
Expenditure by government on providing free educational services.
{CBSE, Delhi Comptt. 2017}
OR
Expenditure on providing police services by the government. {CBSE, All India 2014}
OR
Government expenditure on street lighting. {CBSE, Delhi Comptt.2016 (I)}
Yes, it will be included in the national income as it is a part of the government final consumption
expenditure.

37. Insurance premium paid by an household.

OR
Fees received from student. {CBSE, Foreign 2010}
Yes, it is included in the national income as it is a part of the private final consumption expenditure.
38. Mineral wealth of a nation.
It is a part of National wealth and is not included in national income. However, that part of mineral
wealth which has been extracted during the current year will be included in national income under
the product method.

39. Value of wood purchased for manufacturing a table.

OR
Expenditures on the purchase of cold drinks by a school canteen from the manufacturer.
OR
Transport expenses by a firm. {CBSE, All India Comptt. 2006}
OR
Expenditure on engine oil by car service station.{CBSE, All India Comptt. 2017}
No, it will not be included in the national income as it is a part of intermediate consumption
expenditure.

40. Purchase of equipment’s for installation in a factory.

Yes, it will be included in the national income as it is a part of capital formation.

41. Payment of interest tax.

OR
Payment of Death duty.
 No, it will not be included in the national income as it is a compulsory transfer payment to the
government.

42. Goods and Services Tax received by the government.

No, it will not be included in the national income as it is an indirect tax and a compulsory transfer
payment received by the government.

43. Salaries paid to Russians working in Indian Embassy in Russia.{CBSE, Delhi 2009}
No, it is not included in the national income as it is a part of the factor income paid abroad. It is
subtracted from domestic income to get national income.

44. Capital gains to Indian residents from sale of shares of a foreign company.{CBSE, Delhi 2009}
No, capital gains will not be included in the national income as they do not add to the current flow
of goods and services in the economy.

45. Harish works in USA and sends money to his family in India.
No, it will not be included in the national income as it is a transfer payment.

46. Destruction of building due to an earthquake.

No, it will not be included in the national income as it will not affect national product directly.

47. HP uses its own new Laptops in its office for self-consumption.
Yes, it is included in the national income as it adds to current flow of goods and services. Therefore,
imputed value of laptops should be included.

48. Purchase of a truck to carry goods by a production unit. {CBSE, Foreign 2008}
Yes, it will be included in the national income as it is a part of the gross domestic capital formation.

49. Direct purchase made abroad by government.

Yes, it will be included in the national income as it is a part of the government final consumption
expenditure.

50. Earning from a part time job in McDonalds by a student.

Yes, it is included in the national income as it is a income received for productive services.

51. Receipt from sale of property, inherited from a relative.

No, it will not be included in the national income as receipt from sale of such property is by virtue
of transfer of an already existing object.

52. Entertainment allowance to an employee for entertaining business guests.

No, it will not be included in the national income as it is intermediate consumption expenditure of
the business.

53. Expenditure on the purchase of shares of a new company.

OR
Sale of bonds by a company.
OR
 Purchase of shares by a domestic firm. {CBSE, Delhi Comptt. 2016 (II)}
No, it will not be included in the national income as it is a financial claim and does not contribute
to any productive activity.

54. Goods lying within the production boundary.

No, such goods will not be included in national income as goods lying within the production
boundary are intermediate goods.

55. Money received by a family in India from relatives working abroad. {CBSE, Delhi 2010}
No, it will not be included in the national income as it is a transfer receipt.

56. Dividend received by a foreigner from investment in shares of an Indian company.

{CBSE, All India 2010}
No, it is not included in the national income as it is a part of factor income paid abroad. It is
subtracted from domestic income to get national income.

57. Sale of an old house. {CBSE, Delhi Comptt. 2016 (I)}

No, it will not be included as it does not result in any production. Its value already included when it
was newly constructed.

58. Expenditure on the purchase of an old house.

OR
Purchase of house by the tenant.
OR
Purchase of rented factory building by the factory owner.
No, it will not be included in the national income because payment for purchase of second-hand
goods is due to transfer of an already existing object.

59. Insurance money received from Oriental Insurance due to destruction of factory due to fire.
No, it is not included in the national income because it is a transfer receipt.

60. Payment of interest by banks to its depositors. {CBSE, All India Comptt. 2017}
OR
Payment of interest by a government firm. {CBSE, All India 2012 (II)}
OR
Payment of interest by a firm. {CBSE, Foreign 2012 (I)}
OR
Payment of interest by a firm to a bank. {CBSE, All India 2015}
Yes, it will be included in the national income as such interest is paid on loan taken for productive
purpose. It is a factor payment by a producer.

61. Interest received on loans given to a friend for purchasing a car. {CBSE, Delhi 2010}
OR
Interest payment on loan taken by an individual to buy a motor cycle.
{CBSE, All India Comptt. 2004}
OR
 Payment of interest on a loan taken by an employee from the employer. {CBSE, Delhi2012
(II)}

OR
Payment of interest by an individual to a bank. {CBSE, All India 2015}
OR
Payment of interest by an individual to a bank on a loan to buy a car. {CBSE, Delhi Comptt.
2017}
No, it will not be included in the national income because it is a non-factor receipt as the loan is not
used for production but for consumption.

62. Interest received on loan given to a foreign company in India. {CBSE, Foreign 2010}
Yes, it will be included in national income as it is a part of factor income from abroad.

63. Interest received on debentures. {CBSE, All India 2009 (I, III)}
Yes, it will be included in the national income as such interest received is a factor income because
debenture is a sort of loan taken by a production unit.

64. Expenditure on improvement of fixed capital asset.

OR
Expenditure on construction of a house. {CBSE, All India Comptt. 2006}
OR
Expenditure on adding a floor to the building. {CBSE, All India 2011 (III)}
Yes, it will be included in the national income as it is a part of capital formation.
Note: It must be noted that any expenditure on repairs of fixed assets will not be included in national
income.

65. Scholarship given to Indian students studying in India by a foreign company.

{CBSE, All India 2010}
OR
Financial assistance to flood victims. {CBSE, All India 2017 (II)}
No, it will not be included in the national income as it is a transfer payment.

66. Value of bonus shares received by shareholders of a company. {CBSE, Foreign 2010}
No, it will not be included in the national income as such bonus shares are mere paper claims and
do not contribute to the production of goods and services.

67. Purchase of uniforms for nurses by a hospital. {CBSE, Foreign 2015} No, it will not be
included in the national income as it is an intermediate cost for the hospital.

68. Expenditure on maintenance of building. {CBSE, All India 2011 (III)}

OR
Expenditure on maintenance by a firm. {CBSE, All India 2012 (I)}
No, it will not be included in the national income as it is a part of intermediate consumption
expenditure.
69. Payment of interest on borrowings by general government. {CBSE, All India 2011 (I)}
No, it will not be included in national income because it is a non-factor payment as general
government borrows only for consumption purpose.

70. Family members working free on farm owned by family. {CBSE, All India 2011 (I)}
Yes, Imputed salaries of these members will be included in national income.

71. Payment of bonus by a firm. {CBSE, Delhi 2012 (II)}

OR
Bonus paid to employees. {CBSE, Foreign 2014}
Yes, it will be included in the national income as it is a part of the compensation to employees.

72. Purchase of tractor by a farmer. {CBSE, Delhi 2012 (I)}

Yes, it will be included in the national income as it is a part of the capital formation or investment
by the farmer.

73. Expenditure on fertilizers by a farmer. {CBSE, Delhi2012 (I)}

No, it will not be included in the national income as it is intermediate cost for the farmer and
deducted from value of output while arriving at national income.

74. Purchase of furniture by a firm. {CBSE, All India 2012 (I)}

OR
Purchase of refrigerator by a firm for own use. {CBSE, Delhi 2015}
OR
Expenditure on purchasing a machine installed in a production unit.
{CBSE, Delhi Comptt. 2017}
Yes, it will be included in the national income as it is a part of the capital formation or investment
by the firm.

75. Expenditure on education of children by a family. {CBSE. All India 2012 (III)}
Yes, it is included in the national income as it is a part of the private final consumption expenditure.

76. Payment of electricity bill by a school. {CBSE, All India 2012 (III)}
OR
Electricity consumed by a firm. {CBSE, Delhi Comptt. 2013}
No, it will not be included in the national income as it is an intermediate cost and will be deducted
from the value of output while arriving at national income.

77. Dividend received by shareholders {CBSE, All India Comptt. 2016 (III)}
Yes, it will be included as it is a part of the profits of production units, which is distributed to
the owners.

78. Festival gift from an employer. {CBSE, Foreign 2012 (II)}

No, it will not be included in the national income as it is merely a transfer payment.
79. Contribution to provident fund by employees. (CBSE, Foreign 2012 (III)}
No, it is not included in the national income because such contribution is made by the employees
from compensation of employees only. So, it is not separately included in the estimation of national
income.

80. Addition to stocks during a year. {CBSE, Foreign 2014}

Yes, it will be included in the national income as it is a part of the gross domestic capital formation.

81. Payment of corporate tax by a firm. {CBSE, Delhi 2015}

No, it will not be included in the national income as it is a transfer payment to the government.

4.7 TREATMENT OF DIFFERENT ITEMS IN DOMESTIC INCOME

Domestic Income includes the income earned (i.e. only factor income, not transfer income) by all
production units (whether residents or non-residents), located within the domestic territory of the country,
as a reward of their productive services or contribution to the flow of goods and services in the current
year.
Let us discuss some examples for clarification of the concept of domestic income:

1. Profits earned by branches of foreign bank in India. {CBSE, Delhi 2009}

OR
Profits earned by foreign companies in India. {CBSE, All India 2017 (I, III)}
Yes, it will be included in the domestic factor income as profits are earned within the domestic
territory of India.

2. Profits earned by a resident of India from his company in Singapore.

No, it will not be included in the domestic factor income as the company is located outside the
domestic territory of India.

3. Profits earned by a company in India which is owned by a non-resident. {CBSE, Delhi 2004}
Yes, it will be included in the domestic factor income as profits are earned within the domestic
territory of India.

4. Profits earned by a branch of State Bank of India in Japan.

{CBSE, All India 2017 (I, III)}
OR
Profits earned by branches of country’s bank in other countries. {CBSE, Delhi 2017}
No, it will not be included in the domestic factor income as State Bank of India is located outside
the domestic territory of India.

5. Rent received by an Indian from his building in London.

No, it will not be included in the domestic factor income as the rent is earned outside the domestic
territory of India.

6. Compensation of employees to the residents of Japan working in Indian embassy in Japan.

 {CBSE, Delhi 2006, Sample Paper 2018} Yes, it will be included in the domestic factor income as
the Indian Embassy is a part of the domestic territory of India.

7. Rent received by an Indian resident from Russian Embassy in India.

{CBSE, Sample Paper 2018}
No, it will not be included in the domestic factor income as rent received be Indian resident from
Russian Embassy will be a part of factor income received from abroad as Russian Embassy is not
part of domestic territory of the country.

8. Salaries to Indian residents working in the Russian Embassy in India. {CBSE, Delhi2004}
No, it will not be included in the domestic factor income as the Russian Embassy is not a part of the
domestic territory of India.

9. Profits earned by Indian Employees working in the Pakistan Embassy in India.

No, it will not be included in the domestic factor income as the Pakistan Embassy is not a part of
the domestic territory of India.

10. Factor income from abroad. {CBSE, Delhi 2004}

No, it is not included in the domestic factor income because the factor income is earned outside the
domestic territory of India.

11. Scholarship given by the Government of India.

No, it is not included in the domestic factor income as it is a transfer income (and not an earned
income).

12. Expenditure on old age pensions by government. {CBSE, All India Comptt. 2017}
No, it is not included in the domestic factor income as it is a transfer payment.

13. Payment of bonus by a firm.

Yes, it will be included in the domestic factor income as it is a part of the compensation of
employees.

14. Consultancy fees paid to a foreign expert.

It will be included in the domestic income, if the foreign expert stays in the domestic territory.
However, if the foreign expert stays outside the domestic territory, then it will not be included in
the domestic income.

15. Financial sale and purchase of shares, bonds and debentures.

No, it is not included in the domestic factor income as it does not contribute to the production of
goods and services.

16. Compensation of employees paid by a foreign company located in India. {CBSE, All India
2002}
Yes, compensation paid will be included in the domestic factor income as foreign company is
located within the domestic territory of India.

17. Compensation of employees paid by American Embassy in India to resident Indians.

 {CBSE, All India 2002}
No, it will not be included in the domestic factor income as American Embassy is not a part of the
domestic territory of India.

18. Earnings of American Express Bank’s branch located in Chennai.

Yes, it will be included in domestic factor income as the Bank’s branch is located within the
domestic territory of India.

19. Broker’s Commission on the sale of an old car.

Yes, it is included in the domestic factor income because it is the income received by the broker in
return for rendering his productive services.

20. Profits earned by a company partly owned by residents and party owned by non-residents
and located in India. {CBSE, All India 2002}
Yes, it will be included in the domestic factor income as profits are earned within the domestic
territory of India.

21. Services rendered by housewives.

No, they are not included in the domestic factor income because it is difficult to find their market
value, i.e. they are non-market transactions.

22. Capital gains

No, capital gains are not included in the domestic factor income as they arise on account of rise in
the prices of assets and do not add to the flow of goods and services in the economy.

23. Windfall gains

No, windfall gains are not included in the domestic factor income because they do not add to the
flow of goods and services in the economy.

24. Remittances from non-resident Indians to their families in India. {CBSE, Delhi 2009}
No, they are not included in the domestic factor income because it is current transfer from abroad.

25. An Indian owned aero plane operating between Singapore and Dubai.
Yes, it will be included in domestic factor income as it is a part of the domestic territory of India.

26. Gifts given by an employer to his employees on independence day. {CBSE, Delhi2017}
No, it will not be included in the domestic product as it is a transfer payment.

27. Purchase of goods by foreign tourists. {CBSE, Delhi 2017}

Yes, it will be included in the domestic product as these are exports produced in the domestic
territory.
28. Payment of fees to a Chartered Accountant by a firm. {CBSE, Sample Paper2018}
No, it will not be included in the domestic factor income as payment of fees to a Chartered
Accountant is an intermediate expenditure for the firm. Hence, it is to be deducted from the value
of output of the firm to obtain value added.
29. Compensation given by insurance company to an injured worker. {CBSE, Sample Paper 2018}
No, it will not be included in the domestic factor income as compensation is given by insurance
company to employee and not by employer.

Domestic Income Us National Income

It is possible that an income, which is a part of domestic income of India, is not included in the national
income. Similarly, an income, which is a part of national income, may not be included in the domestic
income. It happens because national income includes the income of normal residents only (irrespective of
their place of earning), whereas, domestic income includes the income of both residents and non-residents
(but, within the domestic territory of the country).
Let us clear this point with the help of some examples:
Included in National Income, but not in Domestic Income
1. Salary received by an Indian employee working in the Japanese Embassy in India.
It will be included in the national income as he is a resident of India. However, such an income will
not be included in India’s domestic income as the Japanese Embassy is not a part of the domestic
territory of India.
2. Profits of a branch of State Bank of India (SBI) in England.
It will be included in the national income as it is a part of the factor income from abroad. However, it will
not be included in India’s domestic income as the SBI branch in England is not a part of the domestic
territory of India.
Included in Domestic Income, but not in National Income
1. Rent received by a company in India, which is owned by a non-resident.
It will be included in the domestic income as the rent is received within the domestic territory of
India. However, it will not be included in the national income as it is a part of the factor income
paid abroad.
2. Profits earned by a branch of a foreign bank in India.
It will be included in the domestic income as these profits are earned within the domestic territory
of India. However, it will not be included in the national income as it is a part of the factor income
paid abroad (Foreign Bank is not a resident of India).

4.8 NATIONAL INCOME AT CURRENT PRICE AND CONSTANT PRICE __

National Income at Current Price
It is the money value of final goods and services produced by normal residents of a country in a year,
measured at the prices of the current year. For example, measurement of India's National Income of 2018-
19 at the prices of 2018-19.
• It is also known as ‘Nominal National Income’.
• It does not show the true picture of economic growth of a country as any increase in nominal national
income may be due to rise in price level without any change in physical output.
So, in order to eliminate the effect of price changes, national income is also estimated at a constant price.
National Income at Constant Price
It is the money value of final goods and services produced by normal residents of a country in a year,
measured at base year price. Base Year is a normal year which is free from price fluctuations. Presently,
2011-12 is taken as the base year in India.
If we measure India's National Income of 2018-19 at the prices of 2011-12, then it is termed as 'National
Income at constant price'.
• It is also known as ‘Real National Income’.
• It shows the true picture of economic growth of a country as any increase in real national income is
due to increase in output only,

Why do we measure National Income at the prices of the Base Year?

The need for estimating national income at constant price arises because national income at current price
may give a misleading picture of economic performance if the prices are continuously rising or falling.
With high rate of inflation in India, nominal national income may create a false sense of economic growth.

Numerical Illustration
Let us understand this concept with the help of following hypothetical schedule:
Table 4.1: National Income at Current Price and National Income at Constant Price
Commodity Quantity Current Base Year Market Market
Produced Year Price Price (`) Value at Value at
(2018-19) (`) (2018-19) (2011-12) Current Base Year
Price (`) Price (`)
𝑸𝟏 𝑷𝟏 𝑷𝟎 𝑸𝟏 × 𝑷𝟏 𝑸𝟏 × 𝑷𝟎
Wheat (Kg) 1,000 12/kg. 7/kg. 12,000 7,000
Cloth (Metres) 500 10/metre 6 / metre 5,000 3,000
Milk (Litres) 250 12/litre 8 / litre 3,000 2,000
Total Market Value 20,000 12,000

As seen in Table 4.1, National income of 2018-19 at Current year prices is `20,000 and at base year prices
is `12,000 for the same level of output. The difference of `8,000 is not real. It does not give a true picture
of economic growth as the increase is merely due to rise in prices.
So, real growth of an economy can be measured only through National income at constant prices.

Conversion of National Income at Current Price into Constant Price

This can be done by eliminating the effects of price change on national income with the help of a suitable
‘Price Index’. Price Index is an index number which shows the change in price level between two different
time periods. It indicates whether a rise or a fall in the national income from one year to another is real or
not.
It is done with the help of the following formula:
𝑁𝑎𝑡𝑖𝑜𝑛𝑎𝑙 𝐼𝑛𝑐𝑜𝑚𝑒 𝑎𝑡 𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑃𝑟𝑖𝑐𝑒
National Income at Current Price = × 100
𝐶𝑢𝑟𝑟𝑒𝑛𝑡 𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥
For example, if price index for the current year is 150 and national income at current price is `1,50,000
crores, then the national income at constant price will be:
1,50,000
National Income at Constant Price = × 100 = `1,00,000 crores
150

National Income at Current Price Vs National Income at Constant Price

Basis National Income at Current National Income at Constant
Price Price
 Meaning It refers to money value of final
goods and services produced by
normal residents of a country in
a year, measured at current year
prices.
Index of It is not a good tool for
Economic measuring the economic growth
Growth of a country.
Causes of change It is affected by change in both
price and quantity.
Comparison It is not a suitable tool for
comparing the national incomes
of different years.
Calculation Current Price (𝑷𝟏 × Current
Quantity (𝑸𝟏 )
Alternative name It is also known as Nominal
National Income.
It refers to money value of final
goods and services produced by
normal residents of a country in a
year, measured at prices of base
year.
It is a better tool for measuring
the economic growth of a
country.
It is affected by change in the
quantity only.
It is generally used for comparing
the national incomes of different
years
Base Year Price (𝑷𝟎 × Current
Quantity (𝑸𝟏 )
It is also known as Real National
Income.

4.9 NOMINAL GDP AND REAL GDP______________________________________

1. Nominal GDP or GDP at Current Price: When GDP of a given year is estimated on the basis of price
of the same year, it is called nominal GDP.

2. Real GDP or GDP at Constant Price: When GDP of a given year is estimated on the basis or price
of Base Year, it is called real GDP.
Real GDP is Real GDP is Real GDP is less
more than equal to Nominal GDP than Nominal GDP
Nominal GDP
Price level in base Price level in both the years is Price level in base year is less
year is more than same. than price level in current year.
price level in
current year.

Which is better: Nominal GDP or Real GDP?

Real GDP is better as compared to Nominal GDP because of following reasons:
1. Real GDP helps in determining the effect of increased production of goods and services as it is
affected by change in physical output only. On the other hand, Nominal GDP can increase even
without any increase in physical output as it is affected by change in prices also.
2. Real GDP is a better measure to make periodic comparison in the physical output of goods and
services over different years.
3. Real GDP facilitates international comparison of economic performance across the countries.
Therefore, Real GDP is better than Nominal GDP as it truly reflects the growth of an Economy.
Determination of Nominal GDP and Real GDP
Nominal GDP and Real GDP can be determined in the following manner:
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃
Real GDP = × 100
𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥

𝑅𝑒𝑎𝑙 𝐺𝐷𝑃 × 𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥

Or, Nominal GDP = 100
Example for Better Understanding: If Real GDP is `200 and Price Index (with base = 100) is 110,
Calculate Nominal GDP.
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃
Real GDP = × 100
110

𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃
200 = × 100
110
200 ×110
Nominal GDP = = 200
100

GDP Deflator (or Price Index)

As we have seen, Nominal GDP is affected by both changes in price and physical output. On the other
hand, Real GDP is affected by change in physical output only. To eliminate the effect of price changes and
to determine the real change in physical output, we can use ‘GDP Deflator’. GDP deflator measures the
average level of prices of all the goods and services that make up GDP.
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃
GDP Deflator (or Price Index) = × 100
𝑅𝑒𝑎𝑙 𝐺𝐷𝑃
For example, if nominal GDP is `15,000 crores and real GDP is `12,000 crores, then
15,000
GDP Deflator = 12,000 × 100 = `125
In the above example, we can also convert nominal GDP into real GDP with the help of GDP deflator:

𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃 15,000

Real GDP = 𝐺𝐷𝑃 𝐷𝑒𝑓𝑙𝑎𝑡𝑜𝑟 × 100 = × 100 = `12,000
125
Like GDP deflator, we can also estimate GNP deflator as follows:
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃
GNP Deflator = 𝑅𝑒𝑎𝑙 𝐷𝑒𝑓𝑙𝑎𝑡𝑜𝑟 × 100

GDP and Welfare

“GDP is often considered as an index of welfare of the people. Welfare means sense of material well-being
among the people. It depends on greater per head availability of goods and services. So, higher GDP is
generally taken as greater welfare of people.
However, this generalization may not be correct due to following limitations or reasons
1. Distribution of GDP: It is possible that with “rise in GDP, inequalities in the distribution of income
may also increase, i.e. the gap between rich and poor increases. GDP does not take into account
changes in inequalities in the distribution of income. So, welfare of the people may not rise as much
as the rise in GDP.
2. Change in prices: If increase in GDP is due to rise in prices and not due to increase in physical
output, then it will not be a reliable index of economic welfare.
3. Non-monetary exchanges: Many activities in an economy are not evaluated in monetary terms.
For example, non-market transactions like services of housewife, kitchen gardening, leisure time
activities, etc. are not included in GDP, due to non availability of data. However, such activities
influence the economic welfare.
4. Externalities: Externalities refer to benefits or harms of an activity caused by a firm or an
individual, for which they are not paid or penalised. Activities which result in benefits to others are
termed as positive externalities and activities which result in harm to others are termed as negative
externalities.
 Example and Impact of Negative Externality: Environmental Pollution caused by industrial plants.
Such pollution reduces the welfare through negative effect on health.
 Example and Impact of Positive Externality: Use of public parks by the people for pleasure for
which no payments are made by the public. It increases welfare through positive effect on health.
Such external effects do not form part of market transactions. GDP does not take into account externalities,
positive or negative.

5. Rate of population growth: GDP does not consider the changes in the population of a country. If
rate of population growth is higher than the rate of growth of GDP, then it will decrease the per
capita availability of goods and services, which will adversely affect the economic welfare.
Finally, it can be concluded that GDP may not be taken as a satisfactory measure of economic welfare due
to above mentioned limitations, yet it does reflect some index of economic welfare.

In this context, some economists and policy planners have suggested the concept of ‘Green GNP’. Green
GNP measures national income or output adjusted for the depletion of natural resources and
degradation of the environment. It will help to attain a sustainable use of natural environment and
equitable distribution of benefits of developments. A larger number signifies greater sustainability.

Before we proceed to Solved Practicals, let us first have a brief discussion on ‘How to Measure
Depreciation’ under different situations.

How to Measure Depreciation?

As discussed in the 2nd Chapter, the concept of Depreciation is very important to differentiate between
Gross value and the Net value. ‘Gross’ is inclusive of depreciation, whereas, ‘net’ excludes it.
Gross Value = Net Value + Depreciation.
Students must be very careful while dealing with Depreciation. Let us now understand calculation of
depreciation in the following cases:
Calculate Depreciation in the following cases:
Case 1: (i) 𝐺𝐷𝑃𝐹𝐶 = `5,000; (ii) 𝑁𝑁𝑃𝐹𝐶 = `4,700; (iii) Net Factor Income from Abroad = `100.
Ans. In the given case, we will first calculate 𝐺𝑁𝑃𝐹𝐶 by adding Net Factor Income from Abroad in 𝐺𝐷𝑃𝐹𝐶
and then we will subtract 𝑁𝑁𝑃𝐹𝐶 from it to arrive at Depreciation. It means,
Step 1. 𝐺𝑁𝑃𝐹𝐶 = 𝐺𝐷𝑃𝐹𝐶 + Net Factor Income from Abroad = `5,000 + `100
= `5,100
Step 2. Depreciation = 𝐺𝑁𝑃𝐹𝐶 - 𝑁𝑁𝑃𝐹𝐶 = `5,100- `4,700
= `400.

Case 2: (i) 𝐺𝐷𝑃𝑀𝑃 = `6,000; (ii) 𝑁𝑁𝑃𝐹𝐶 = `4,000; (iii) Net Factor Income from Abroad = `200;
(iv) Net Indirect Tax = `300.
Ans. In the given case, we will first calculate 𝐺𝑁𝑃𝐹𝐶 by adding Net Factor Income from Abroad and
subtracting Net Indirect Tax in 𝐺𝐷𝑃𝑀𝑃 and then we will subtract 𝑁𝑁𝑃𝐹𝐶 from it to arrive at
Depreciation. It means,
 Step 1. 𝐺𝑁𝑃𝐹𝐶 = 𝐺𝐷𝑃𝑀𝑃 + Net Factor Income from Abroad - Net Indirect Tax = `6,000 + `200 -
`300 = `5,900
Step 2. Depreciation = 𝐺𝑁𝑃𝐹𝐶 - 𝑁𝑁𝑃𝐹𝐶 = `5,900 - `4,000 = `1,900.

Case 3; (i) Gross Fixed Capital Formation (GFCF) = `3,700; (ii) Net Domestic Capital Formation (NDCF)
= `3,650; (iii) Change in Stock = `300.
Ans. In the given case, we will first calculate Gross Domestic Capital Formation (GDCF) by adding Change
in Stock in GFCF and then we will subtract Net Domestic Capital Formation (NDCF) from it to
arrive at Depreciation. It means,
Step 1. GDCF = GFCF + Change in Stock = `3,700 + `300 = `4,000
Step 2. Depreciation = GDCF - NDCF = `4,000 - * 3,650 = `350.

Case 4: (i) Value of Durable Use Producer Goods (or Fixed Assets) = `5,000; (ii) Estimated Life Span of
Durable Use Producer Goods or Fixed Assets = 10 Years.
Ans. In the given case, value of Durable Use Producer Goods (or Fixed Assets) is given along with their
Estimated Life Span. Depreciation = Value of Durable Use Producer Goods ÷ Estimated Life Span
= ` 5,000 ÷ 10 = `500.

4.10 SOLVED PRACTICALS__________________________________________

Important Formulae at a Glance
Value Added Method
National Income = Gross value added by Primary Sector + Gross value added by
Secondary Sector + Gross value added by Tertiary Sector -
Depreciation - Net Indirect Tax + Net Factor Income from Abroad
Value Added = Value of Output - Intermediate Consumption
Value of Output = Sales + Change in Stock
Change in Stock = Closing Stock - Opening Stock
Income Method
National Income = 𝑁𝐷𝑃𝐹𝐶 + Net Factor Income from Abroad
𝑵𝑫𝑷𝑭𝑪 = Compensation of Employees + Rent and Royalty + Interest + Profit +
Mixed Income
OR
𝑵𝑫𝑷𝑭𝑪 = Compensation of Employees + Operating Surplus + Mixed Income
Compensation of Employees = Wages and Salaries in Cash + Wages and Salaries in kind +
Employers’ Contribution to Social Security Schemes
Operating Surplus = Rent + Royalty + Interest + Profit Expenditure Method
National Income = 𝐺𝐷𝑃𝑀𝑃 -Depreciation-NetlndirectTax + NetFactorlncomefromAbroad
𝐺𝐷𝑃𝑀𝑃 = Private Final Consumption Expenditure + Government Final
Consumption Expenditure + Gross Domestic Capital Formation + Net
Exports
Gross Domestic Capital Formation =Gross Fixed Capital Formation + Change in Stock
OR
Gross Domestic Capital Formation = Net Domestic Capital Formation + Depreciation
Net Exports = Exports – Imports
 Practicals on Value Added Method
Example l. Calculate the value added by firm A and firm B.
Particulars ` in crores
(i) Domestic Sales by firm A 4,000
(ii) Exports by firm A 1,000
(iii) Purchase by firm A 200
(iv) Sales by firm B 2,940
(v) Purchase by firm B 1,300

Solution:
Value added by firm A
= Domestic Sales by firm A + Exports by firm A - Purchase by firm A
= 4,000 + 1,000 - 200
= `4,800 crores
Ans. `4,800 crores
Note: ‘Exports by firm A’ will be included as domestic sales are specifically mentioned.

Value added by firm B

= Sales by firm B - Purchase by firm B
= 2,940 -1,300
= `1,640 crores
Ans. 1,640 crores

Example 2. From the information given below, calculate:

 Value added by firm A and firm B;
 Gross Domestic Product at market price;
 Net Domestic Product at factor cost.
Particulars `in crores
(i) Sales by firm B to general government 100
(ii) Sales by firm A 500
(iii) Sales by firm B to households 350
(iv) Change in stock of firm A 20
(v) Closing stock of firm B 40
(vi) Opening stock of firm B 30
(vii) Purchases by firm A 320
(viii) Indirect Taxes paid by both the firms 75
(ix) Consumption of fixed capital 120
(x) Sales by firm A to B 200
Solution:
Value added by firm A
= Sales by firm A + Change in stock of firm A - Purchases by firm A
= 500 + 20 – 320
= `200 crores
Ans. `200 crores

Note: Total sales of firm A are given. So, sales by firm A to firm B of `200 crores are not taken separately
in value of output of firm A. However, it will be taken in Intermediate consumption of firm B.
Value added by firm B
= Sales by firm B to general government + Sales by firm B to households + (Closing stock of firm B -
Opening stock of firm B) - Purchases by firm B from firm A
= 100 + 350 + (40 - 30) - 200
= `260 crores
Ans. `260 crores

Gross Domestic Product at market price

= Value added by firm A + Value added by firm B
= 200 + 260
= `460 crores
Ans. `460 crores

Net Domestic Product at factor cost

= Gross Domestic product at market price - Consumption of fixed capital - Indirect Taxes paid by both the
firms
- 460 - 120 - 75
= `265 crores
Ans. `265 crores

Example 3. From the following data about a firm “X” for the year 2000-01, calculate the net “Value added
at market price during that year: {CBSE, Delhi 2003}

Particulars ` in crores
(i) Sales 90
(ii) Closing stock 25
(iii) Opening stock 15
(iv) Indirect taxes 10
(v) Depreciation 20
(vi) Intermediate consumption 40
(vii) Purchase of raw materials 15
(viii) Rent 5
Solution
Net Value Added at Market Price
= Sales + (Closing stock - Opening stock) - Intermediate consumption - Depreciation
= 90 + (25 - 15) - 40 - 20
= `40 crores
Ans. `40 crores
Note: ‘Purchase of raw materials ’is not included separately as it is already included in Intermediate
Consumption.
Example 4. From the following data about firm “X” calculate gross value added at factor cost by it:
Particulars ` in thousands
Sales 500
Opening stock 30
Closing stock 20
Purchase of intermediate products 300
Purchase of machinery 150
Subsidy 40
Solution:
Gross Value Added at Factor Cost
= Sales + (Closing stock - Opening stock) - Purchase of intermediate products + Subsidy
= 500 + (20 - 30) - 300 + 40
= `230 thousands
Ans. `230 thousands
Purchase of machinery’ is not considered as it is not a part of intermediate consumption

Example 5. From the following data, calculate “gross value added at factor cost”.
{ CBSE, Delhi 2006)
Particulars `in crores
(i) Sales 180
(ii) Rent 5
(iii) Subsidies 10
(iv) Change in stock 15
(v) Purchase of raw materials 100
(vi) Profits 25
Solution:
Gross Value Added at Factor Cost
= Sales + Change in stock - Purchase of raw materials + Subsidies
= 180 + 15 -100 + 10
= `105 crores
Ans. `105 crores

Example 6. From the following data relating to a firm, calculate its net value added at factor cost:
(CBSE, Sample Paper 2012)
Particulars `in Lakhs
(i) Subsidy 40
(ii) Sales 800
(iii) Depreciation 30
(iv) Exports 100
(v) Closing stock 20
(vi) Opening stock 50
(vii) Intermediate purchases 500
(viii) Purchase of machinery for own use 200
(ix) Import of raw material 60

Solution:
Net Value Added at Factor Cost
= (ii) + (v) - (vi) - (vii) - (iii) + (i)
= 800 + 20 - 50 - 500 - 30 + 40
= `280 Lakhs
Ans. `280 Lakhs
Note:
 It is assumed that exports are already included in Sales.
 Import of raw materials is not included separately as it is a part of Intermediate Purchases.
 Subsidy is added as indirect taxes are not given.

Example 7. Calculate value of output from the following data:

Particulars ` lakhs
(i) Net value added at factor cost 100
(ii) Intermediate consumption 75
(iii) Goods and Services Tax (GST)* 20
(iv) Subsidy 5
(v) Depreciation 10
*Excise Duty given in the question earlier has been replaced by GST.
Solution:
Value of Output
= Net value added at factor cost+ Intermediate consumption + Depreciation + (Goods – Subsidy)
= 100 + 75 +10 + (20 - 5)
= `200 lakhs
Ans. `200 lakhs
Note: ’Value of output’ always means gross value of output at market price, unless stated otherwise.

Example 8. Calculate 'intermediate consumption' from the following data: {CBSE, Delhi 2008 (II)}
Particulars ` lakhs
(i) Value of output 200
(ii) Net value added at factor cost 80
(iii) Goods and Services Tax (GST)* 15
(iv) Subsidy 5
(v) Depreciation 20
*Sales Tax given in the question earlier has been replaced by GST.
Solution:
Intermediate consumption
= Value of Output – Net value added at factor cost – Depreciation - (GST - Subsidy)
= 200-80-20-(15-5)
= `90 lakhs
Ans. `90 lakhs.

Example (8) Find net value added at factor cost:

Particulars ` lakhs
(i) Durable use producer goods with a life span of 10 years 10
(ii) Single use producer goods 5
(iii) Sales 20
(iv) Unsold output produced during the year 2
 (v) Taxes on production 1
Net Value Added at Factor Cost
= Sales + Unsold Output - Single use producer goods - Depredation - Taxes on production
= 20 + 2 - 5 -1* - V
= `15 lakhs
Ans. `15 lakhs

Example 10. Calculate Gross Value Added at Factor Cost: {CBSE, Delhi 2012 (I)}
Particulars ` lakhs
(i) Units of output sold (units) 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) Goods and Service Tax or GST*(`) 6,000
*Excise Duty and Sales Tax given in the questions earlier have been replaced by GST.
Solution:
Gross Value Added at Factor Cost
= ( i × 𝑖𝑖) + v – vi –iv – vii
= (1,000 × 30 ) +3,000 – 2,000 – 12,000-6,000
= `13,000 Ans. = `13,000
Example 11. From the following data, calculate Net value added at factor cost.
Particulars ` in Crores
(i) Total Sales 1,000
(ii) Decrease in Stock 70
(iii) Production for Self Consumption 120
(iv) Purchase of raw materials 300
(v) Exports 150
(vi) Electricity Charges 50
(vii) Income Tax 20
(viii) Goods and Services Tax (GST) 70
(ix) Subsidy 40

Solution:
Net Value Added at Factor Cost
= Total Sales + Production for Self Consumption - Decrease in Stock - Purchase of raw materials -
Electricity Charges - (GST - Subsidy)
= 1,000 + 120 - 70 - 300 - 50 - (70 - 40)
= `670 Crores
Ans. `670 Crores
Note:
 Exports will not be taken separately as it is a part of Total Sales.
 Income Tax is not taken in calculations as it is a direct tax.
 Production for Self Consumption will be separately included in value of output as it also adds to
current flow of goods and services and is not included in total sales.
 Intermediate Consumption is calculated as sum of (iv) and (vi) item.

Example 12. From the following data, calculate: (a) Value of output; (b) Intermediate Consumption; (c)
Net value added at factor cost.
Particulars ` in Crores
(i) Purchase of raw materials from domestic market 400
(ii) Increase in the unsold stock 60
(iii) Import of raw material 120
(iv) Domestic Sales 1,200
(v) Replacement of Fixed Capital 50
(vi) Power Charges 20
(vii) Export 200
(viii) Import of Machinery 40
(ix) Goods and Services Tax (GST) 10
(x)Subsidy 30
(xi) Goods used for self Consumption 10

Solution:
(a) Value of Output
= Domestic Sales + Exports + Increase in the unsold stock + Goods used for self Consumption
= 1,200 + 200 + 60 + 10
= `1,470 Crores
Note:
 Exports will be included as domestic sales are given.
 Goods used for self Consumption will also be included as it adds to current flow of goods and
services
(b) Intermediate Consumption
= Purchase of raw material from domestic market + Import of raw material + Power Charges
= 400 + 120 + 20
= `540 Crores
(c) Net value added at factor cost
= Value of Output - Intermediate Consumption - (Goods and Services Tax - Subsidy) - Replacement of
Fixed Capital
= 1,470 - 540 - (10 - 30) - 50
= `900 Crores
Note: Replacement of Fixed Capital is another name for depreciation.

Example 13. From the following data, calculate Net Domestic Product at factor cost.
Particulars ` in Crores
 Primary Secondary Tertiary
Sector Sector Sector
(i) Sales 1,000 1,500 700
(ii) Net Indirect Taxes 50 30 —
(iii) Opening Stock 50 40 20
(iv) Intermediate Consumption 300 750 250
(v) Consumption of Fixed Capital 10 80 60

Net Domestic Product at factor cost

= Sales of all sectors - Opening Stock of all sectors - Intermediate Consumption of all sectors -
Consumption of Fixed Capital of all sectors - Net Indirect Taxes of all sectors
= (1,000 + 1,500 + 700) - (50 + 40 + 20) - (300 + 750 + 250) - (10 + 80 + 60) - (50 + 30 + 0)
= `1,560 Crores

Example 14. Firm A sells to firm B for `50 crores and for `70 crores to private consumption. Firm B sells
for `80 crores to firm C. Firm C sells for `100 crores to private consumption.
Calculate value added by Firm A, B and C.
Firm Value of output Intermediate Value Added
(VO) Consumption (IC) (VA = VO - IC)
A Sales to B: 50 Value of Inputs: 0 120
+ Sales to Pvt. Cons.: 70
B Sales to C: 80 Purchase from A: 50 30
C Sales to Pvt. Cons.: 100 Purchase from B: 80 20

Solution:
Value added: Firm A = `120 crores; Firm B = `30 crores; Firm C = `20 crores.

Note: Value of inputs of firm A is taken as zero as it is not given.

Example 15. Firm A buys from X inputs worth `500 crores and sells to firm B goods worth `1,000 crores
and to firm C goods worth `700 crores. Firm B buys from Y inputs worth `200 crores and sells to firm C
goods worth `1,500 crores and finished goods worth `2,000 crores to households. Firm C buys from Z
inputs worth `150 crores and sells finished goods worth 14,150 crores to households. Calculate value added
by firms A, B and C and 𝐺𝐷𝑃𝑀𝑃 .
Solution:
Firm Value of output (VO) Intermediate Value Added
Consumption (IC) (VA = VO - IC)
A Sales to B: 1,000 Purchase from X: 500 1,200
+ Sales to C: 700
B Sales to C: 1,500 Purchase from A: 1,000 2,300
+ Sales to 2,000 + Purchase from Y: 200
households:
 C Sales to households: 4,150 Purchase from A: 700 1,800
+ Purchase from B: 1,500
+ Purchase from Z: 150

Value added by firm A = 𝐺𝑉𝐴𝑀𝑃 of A = `1,200 crores

Value added by firm B = 𝐺𝑉𝐴𝑀𝑃 of B = `2,300 crores
Value added by firm C = 𝐺𝑉𝐴𝑀𝑃 of C = `1,800 cores
𝐺𝐷𝑃𝑀𝑃 = 𝐺𝑉𝐴𝑀𝑃 = 1,200 + 2,300 + 1,800 = `5,300crores

Example 16. In an economy, the following transactions take place:

 A sells goods of `20 crores to B, `30 crores to C, `40 crores to households and goods worth `10
crores remain unsold. Value of inputs of firm A is assumed to be zero.
 B sells his output worth `40 crores to C, `60 crores to D and `50 crores to final consumption.
 C sells his output worth `100 crores to D, `100 crores to households and exports worth `100 crores.
 D sells `300 crores to households and `100 crores to government.
Calculate: (i) Value Added by each firm; (ii) Total Value Added; (iii) Total Consumption
Firm Value of output Intermediate Consumption Value Added
(VO) (IC) (VA = VO - IC)
A Sales to B: 20 Value of Inputs: 0 100
+ Sales to C: 30
+ Sales to households: + Unsold 40
stock: 10
B Sales to C: 40 Purchase from A: 20 130
+ Sales to D: 60
+ Sales to households: 50
C Sales to D: 100 Purchase from A: 30 230
+ Sales to households: + Exports: 100 Purchase from B: 40
100
D Sales to households: 300 Purchase from B: 60 240
+ Sales to Government: 100 Purchase from C: 100
(i) Value Added by each firm
Value added by firm A = 𝐺𝑉𝐴𝑀𝑃 of A = `100 crores
Value added by firm B = 𝐺𝑉𝐴𝑀𝑃 of B = `130 crores
Value added by firm C = 𝐺𝑉𝐴𝑀𝑃 of C = `230 crores
Value added by firm D =𝐺𝑉𝐴𝑀𝑃 of D = `240 crores

(ii) Total Value Added

𝐺𝐷𝑃𝑀𝑃 = ∑ 𝐺𝑉𝐴𝑀𝑃 = 100 + 130 + 230 + 240 = `700 crores

(iii) Total Consumption Expenditure

= Sales to households by A + Sales to households by B + Sales to households by C + Sales to households
by D + Sales to government by D
= 40 + 50 + 100 + 100 + 300
= `590 crores
Note: Total Consumption Expenditure refers to expenditure incurred by households and government on
purchase goods and services from different firms.

Example 17. In an economy, industry P sells output to Q. Q sells output to R for `600. Q's value added is
1⁄ of P's value added. Assuming P's value of inputs are 0, calculate how much P sells to Q.
2
Solution: Suppose, Sales by P to Q = 𝑥

Firm Value of output Intermediate Consumption Value Added

(VO) (IC) (VA = VO - IC)
P Sales to Q: 𝒙 Value of inputs: 0 𝒙-0
Q Sales to R: 600 Purchase from P: 𝒙 600- 𝒙
Value added by firm P = 𝑥 - 0 = 𝑥
Value added by firm Q = 600 - 𝑥
Given, Q's value added is % of P's value added
1 3
It means: 600 –𝑥 = 2 𝑥 or 2 𝑥 = 600 or 𝑥 - `400 Ans. P sells to Q output worth `400
Example 18. Sales by Firm A are `80 crores and sales by firm B are `300 crores. Value added by B and C
are equal. Value of output of C and D are `280 crores each. Value added by D is `120 crores and 𝐺𝐷𝑃𝑀𝑃
is `520 crores. Assuming A's value of inputs are zero, calculate: (i) Value added by firm B and firm C; (ii)
Value of Inputs of firm B; (iii) Value of Inputs of firm C.
Solution:
Given: Value added by firm B = Value added by firm C
Let the value added by firm B = 𝑥
It means: Value added by firm B
= Value added by firm C
=𝑥
Value of Inputs of firm D
= Value of output - Value Added
= 280 -120
= 160
Value of inputs of firm B and firm C are taken as 𝑉𝐼𝐵 and 𝑉𝐼𝐶 respectively
Firm Value of output Value of Inputs Value Added
(VO) (VI) (VA = VO-VI)
A Sales: 80 Value of inputs: 0 80
B Sales: 300 Value of inputs: 𝑽𝑰𝑩 𝒙
C Sales: 280 Value of inputs: 𝑽𝑰𝑪 𝒙
D Sales: 280 Value of inputs: 160 120
𝑮𝑫𝑷𝑴𝑷 520

Value added by firm A = 80

Value added by firm B = 𝑥
Value added by firm C = 𝑥
Value added by firm D =120
𝐺𝐷𝑃𝑀𝑃 = 520
It means: 80 + 𝑥 + 𝑥 + 120 = 520
2𝑥 = 520 - 200 or 𝑥 = `160 crores
Value of Inputs of firm B
= Value of output - Value Added = 300 -160 = `140 crores

Value of Inputs of firm C

= Value of output - Value Added= 280 -160 = `120 crores
Ans. (i) Value added by firm B = Value added by firm C = `160 crores; (ii) Value of Inputs of firm B =
`140 crores; (iii) Value of Inputs of firm C = `120 crores

Example 19.Firm A spent `500 crores on non-factor inputs and sold goods worth `600 crores B and `300
crores to firm C. Firm B whose value added is `1,000 crores sold half its output to firm C and half to firm
D. Value added by firm C is 𝑥 of value added of firm D. Firm C and Firm D sold their entire output to
households. Value of Output of firm C is equal to firm B's value of output.
Calculate value of output of firm D.
Solution:
Firm Value of output Intermediate Consumption Value Added
(VO) (IC) (VA = VO - IC)
A Sales to B: 600 Non-factor inputs: 500 400
+ Sales to C: 300
B Sales to C: 800 Purchase from A: 600 1,000
+ Sales to D: 800
C Sales to households:1,600 Purchase from A: 300 500
+ Purchase from B: 800
D Sales to households: 1,800 Purchase from B: 800 1,000

B's Value of output = Value added + Intermediate consumption = 1,000 + 600 = 1,600
C's Value of output = B's Value of output = 1,600
1
C's Value Added = 500 = 2 of value added of D
So, D's Value Added = 500 x 2 = 1,000
D's Value of output = Value added + Intermediate consumption = 1,000 + 800 = 1,800
Ans. Value of output of firm D = `1,800 crores

Practicals on Income Method

Example 20. Calculate NDP at FC.
Particulars `in Crores
(i) Rent 400
(ii) Royalty 200
(iii) Interest 500
(iv) Compensation of Employees 1,000
(v) Profit 500
(vi) Mixed Income 1,000
Solution:
NDP at FC
= Rent + Royalty + Interest + Compensation of Employees + Profit + Mixed income
= 400 + 200 + 500 + 1,000 + 500 + 1,000
= `3,600 crores
Ans. `3,600 crores
Example 21. Calculate GNP at MP from the following data:
Particulars `in Crores
(i) Net indirect tax 900
(ii) Depreciation 400
(iii) Net Factor income from abroad -20
(iv) Rent 1,000
(v) Dividend 500
(vi) Mixed Income 200
(vii) Saving of private corporate sector X 400
(viii) Interest 200
(ix) Compensation of employees 100
Solution:
GNP at MP
= Rent + Dividend + Mixed income + Saving of private corporate sector + Interest + Compensation of
employees + Net indirect tax + Depreciation + Net Factor income from abroad = 1,000 + 500 + 200 + 400
+ 200 + 100 + 900 + 400 + (-) 20 = `3,680 crores
Ans. `3,680 crores

Example:22. Calculate National Income.

Particulars ` in Crores
(i) Compensation of employees 13,300
(ii) Wages in kind 200
(iii) Indirect taxes 3,800
(iv) Gross domestic fixed capital formation 6,200
(v) Operating surplus 5,000
(vi) Mixed income of self employed 16,100
(vii) Net factor income from abroad 300
(viii) Net exports (-)100
Solution:
National Income (𝑵𝑵𝑷𝑭𝑪 )
= Compensation of employees + Operating surplus + Mixed income of self employed + Net factor income
from abroad = 13,300 + 5,000 + 16,100 + 300 = `34,700 crores
Ans. `34,700 crores
Note:
 Wages in kind are not included separately as they are already included in compensation of
employees.
 Gross domestic fixed capital formation is given just to create confusion.
 Operating surplus is the sum total of income from property (rent + royalty + interest) and income i
entrepreneurship (profit).
Particulars ` in Crores
(i) Compensation of employees 800
(ii) Rent 200
(iii) Wages and salaries 750
(iv) Net exports (-) 30
(v) Net Factor income from abroad (-) 20
 (vi) Profit 300
(vii) Interest 100
(viii) Depreciation 50
Solution:
National Income (𝑁𝑁𝑃𝐹𝐶 )
=Compensation of Employees + Rent + Profit + Interest + Net factor Income from Abroad
= 800 + 200 + 300 + 100 + (- 20)
= 1,400 - 20 = `1,380 crores
Ans. `1,380 crores

Practical on Value Added and Income Method

Example 24. From the following information, estimate: (i) Value of output; (ii) Net value added (iii) Prove
that income generated is equal to net value added at factor cost.
Particulars `in Crores
(i) Increase in unsold stock - 600
(ii) Sales 10,625
(iii) Purchase of raw materials 2,625
(iv) Indirect Taxes 1,200
(v) Subsidies 400
(vi) Operating surplus 3,740
(vii) Mixed incomes ; 100
(viii) Wages and Salaries 3,460
(ix) Depreciation 500
Solution:
(i) Value of output
= Sales + Increase in unsold stock = 10,625 + 600 = `11,225 Crores
(ii) Net Value Added at Factor Cost
= Sales + Increase in unsold stock - Purchase of raw materials - Depreciation - (Indirect taxes -
Subsidies)
= 10,625 + 600 - 2,625 - 500 - (1,200 - 400)
= `7,300 Crores
(iii) To prove Income Generated = Net Value Added at Factor Cost Income Generated
= Operating surplus + Wages and Salaries + Mixed incomes
= 3,740 + 3,460 + 100
= `7,300 Crores
So, Net Value Added at Factor Cost = Income Generated = `7,300 crores

Practicals on Operating Surplus

Example 25. Calculate the Opening Surplus.
Particulars `in Crores
(i) Sales 4,000
(ii) Compensation of employees 800
(iii) Intermediate consumption 600
(iv) Rent 400
(v) Interest 300
(vi) Net indirect taxes 500
 (vii) Consumption of fixed capital 200
(viii) Mixed income 400
Solution:
Operating Surplus
= Sales - Intermediate consumption - Compensation of employees - Net indirect taxes - Consumption of
fixed capital - Mixed income
= 4,000 - 600 - 800 - 500 - 200 - 400
= `1,500 crores
Ans. `1,500 crores.
Before you Proceed Further
Operating Surplus can also be calculated in one more way:
We know, 𝐺𝐷𝑃𝑀𝑃 can be calculated as: =
𝐺𝐷𝑃𝑀𝑃 = Operating Surplus + Compensation of employees + Mixed Income + Consumption of fixed
capital + Net indirect taxes
OR
𝐺𝐷𝑃𝑀𝑃 = Value of output - Intermediate Consumption
{Where, Value of output = Sales + Change in stock}
Using (a) and (b), we get the following formula of Operating Surplus:
Operating Surplus = Value of Output - Intermediate Consumption - Compensation of employees -
Mixed Income - Consumption of fixed capital – Net indirect taxes

Example 26. Calculate the Operating Surplus.

Particulars `in Crores
(i) Value of output 70,000
(ii) Purchase of raw material 18,000
(iii) Net indirect tax 3,000
(iv) Wages and salaries 25,000
Solution:
Operating Surplus
= Value of output - Purchase of raw material - Net indirect tax - Wages and Salaries
= 70,000 - 18,000 - 3,000 - 25,000
- `24,000 crores
Ans. `24,000 crores
Practicals on Expenditure Method

Example 27. Calculate GDP at MP

Particulars `in crores
(i) Private Final Consumption Expenditure 1,200
(ii) Government Final Consumption Expenditure 200
(iii) Gross Fixed Capital formation 300
(iv) Change in stock 400
(v) Imports 500
(vi) Exports 600
Solution:
GDP & MP
= Private Final Consumption Expenditure + Government Final Consumption Expenditure + Gross Fixed
Capital formation + Change in stock + (Exports - Imports)
- 1,200 + 200 + 300 + 400 + (600 - 500)
= `2,200 crores
Ans. `2,200 crores
Particulars in crores
(i) Net Domestic fixed capital formation 350
(ii) Closing stock 100
(iii) Government final consumption expenditure 200
(iv) Net indirect taxes 40
(v) Opening stock 60
(vi) Consumption of fixed capital 50
(vii) Net exports -| (-) 10
(viii) Private final consumption expenditure 1,500

(ix) Imports 20
_
(x) Net factor income from abroad ( ) 30
Solution:

GNP at FC

= (i) + {(ii) - (v)} + (iii) + (viii) + (vii) + (vi) - (iv) + (x)

= 350 + {100 - 60} + 200 + 1,500 + (-) 10 + 50 - 40 + (-) 30

= `2,060 crores

Ans. `2,060 crores

Example 29. Calculate ‘Gross Domestic Product of Factor Cost’ from the following data:

{CBSE, Sample Paper 2008}

Particulars `in crores

(i) Private final consumption expenditure 800
(ii) Net domestic capital formation 150
(iii) Change in stock If 30
(iv) Net factor income from abroad (-) 20
(v) Net indirect tax 120
(vi) Government final consumption expenditure 450
(vii) Net Exports (-) 30
 (viii) Consumption of fixed capital 50

Solution:

Gross Domestic Product at Factor Cost (𝐺𝐷𝑃𝐹𝐶 )

= (i) + (vi) + (ii) + (vii) + (viii) - (v)

= 800 + 450 + 150 + (-30) + 50 -120

= `1,300 crores

Ans. `1,300 crores

Example 30. Calculate Gross Fixed Capital Formation from the following data:

{CBSE, Sample Paper 2010}

Particulars `in crores

(i) Private final consumption expenditure 1,000
(ii) Government final consumption expenditure 500
(iii) Net exports (-) 50
(iv) Net factor income from abroad 20
(v) Gross domestic product at market price 2,500
(vi) Opening stock 300
(vii) Closing stock 200
Solution:
Gross Fixed Capital Formation
= (v) - (i) - (ii) - (iii) - {(vii) - (vi)}
= 2,500 - 1,000 - 500 - (-) 50 - {200 - 300}
= `1,150 crores
Ans. `1,150 crores

Example 31. Calculate National Income by Income and Expenditure method.

Particulars ` in crores
(i) Final Consumption Expenditure 350
– Private Sector 100
– Government Sector 35
(ii) Mixed income of self employed 70
(iii) Gross domestic fixed capital formation 15
(iv) Opening stock 250
(v) Compensation of employees 25
(vi) Closing stock 20
(vii) Imports 75
(ix) Consumption of fixed capital 10
(x) Net indirect taxes 25
 (xi) Interest 25
(xii) Net factor income from abroad -5
(xiii) Exports 10
(xiv) Profit 100
Solution:
National Income by Income method
= Mixed income of self employed + Compensation of employees + Rent + Interest + Profit + Net factor
income from abroad
= 35 + 250 + 75 + 25 + 100 + (-5)
= `480 crores
Ans. `480 crores.
National Income by Expenditure method - Final consumption expenditure of Private sector + Final
consumption expenditure of Government sector + Gross domestic fixed capital formation + (Closing stock
- Opening stock) + Net Exports - Consumption of fixed capital + Net Factor Income from abroad - Net
Indirect tax
= 350 + 100 + 70 + (25 - 15) + (10 - 20) - 10 + (- 5) - 25
= `480 crores
Ans. `480 crores.

Example 32. Calculate National Income by Income and Expenditure method.

Particulars `in crores
(i) Compensation of employees 250
(ii) Imports 20
(iii) Mixed income of self employed 50
(iv) Gross fixed capital formation 120
(v) Private final consumption expenditure 550
(vi) Consumption of fixed capital 10
(vii) Net factor income from abroad 20
(viii) Indirect taxes 100
(ix) Change in stock 20
(x) Subsidies 20
(xi) Rent 100
(xii) Interest 200
(xiii) Profit 50
(xiv) Exports 10
(xv) Government final consumption expenditure 60

Solution:
National Income by Income method
= Compensation of employees + Mixed income of self employed + Rent + Interest + Profit + Net factor
income from abroad
= 250 + 50 + 100 + 200 + 50 + 20
= `670 crores
Ans. `670 crores.
National Income by Expenditure method
= Gross fixed capital formation + Change in stock + Private Final consumption expenditure + (Exports -
Imports) + Government final consumption expenditure - Consumption of fixed capital + Net factor income
from abroad - (Indirect taxes - Subsidies)
= 120 + 20 + 550 + (10 - 20) + 60 - 10 + 20 - (100 - 20)
= `670 crores
Ans. `670 crores.

Example 33. from the following data, calculate National Income by (a) Income method and (b) Expenditure
method: (CBSE, Delhi 2006)
Particulars `in
crores
(i) Private final consumption expenditure 2,000
(ii) Net capital formation 400
(iii) Change in stock on, 50
(iv) Compensation of employees 1,900
(v) Rent 200
(vi) Interest 150
(vii) Operating surplus 720
(viii) Net indirect tax 400
(ix) Employers’ contribution to social security schemes 100
(x) Net exports 20
(xi) Net factor income from abroad (-) 20
(xii) Government final consumption expenditures' 600
(xiii) Consumption of fixed capital 100
Solution:
National Income (𝑁𝑁𝑃𝐹𝐶 ) by Income method
= (iv) + (vii) + (xi)
= 1,900 + 720 + (-) 20
= `2,600 crores
Ans. `2,600 crores.
National Income (𝑁𝑁𝑃𝐹𝐶 ) by Expenditure method
= (i) + (ii) + (x) + (xii) - (viii) + (xi) NP - 3120
= 2,000 + 400 + 20 + 600 - 400 + (-)20 = `2,600 crores
Ans. `2,600 crore

Example 34 .From the following data, calculate National Income by Income and Expenditure methods:
(CBSE, Sample Paper 2012)
Particulars `in crores
(i) Government final consumption expenditure 100
(ii) Subsidies 10
(iii) Rent 200
(iv) Wages and salaries 600
(v) Indirect taxes 60
(vi) Private final consumption expenditure 800
(vii) Gross domestic capital formation 120
(viii) Social security contribution by employer 55
(ix) Royalty 25
(x) Net factor income paid to abroad 30
(xi) Interest 20
(xii) Consumption of fixed capital 10
(xiii) Profit 130
(xiv) Net exports 70
(xv) Change in Stock 50
Solution:
National Income (𝑁𝑁𝑃𝐹𝐶 ) by Income method
= (iv) + (viii) + (iii) + (ix) + (xi) + (xiii) - (x)
= 600 + 55 + 200 + 25 + 20 + 130 - 30
= `1,000 crores
Ans. `1,000 crores.
National Income (𝑁𝑁𝑃𝐹𝐶 ) by Expenditure method
= (vi) + (i) + (vii) + (xiv) - {(v) - (ii)} - (xii) - (x)
= 800 + 100 + 120 + 70 - {60 -10} -10 - 30
= `1,000 crores
Ans. `1,000 crores.

Example 35. Calculate national income by Income and Expenditure method from the following data:
Particulars `in crores
(i) Salaries and wages in cash 1,997
(ii) Transfer payments by government 25
(iii) Rent 132
(iv) Indirect taxes 200
(v) Subsidies 89
(vi) Compensation of workers in kind 95
(vii) Depreciation 81
(viii) Net increase in factor income from rest of the world 52
(ix) Interest 92
(x) Government expenditure on good and services 574
(xi) Personal consumption expenditure on goods and services 1,805
(xii) Corporate profit tax 10
(xiii) Income of the self employed 264
(xiv) Undistributed corporate profit 26
(XV) Dividends 201
(xvi) Export of goods and services 900
(xvii) Addition to stock 7
(xviii) Social security contributions by employer 54
(xix) Import of goods and services 323
(xx) Gross fixed investment 100
Solution:
National Income (𝑁𝑁𝑃𝐹𝐶 ) by Income method
= (i) + (iii) + (vi) + (viii) + (ix) + (xii) + (xiii) + (xiv) + (xv) + (xviii)
= 1,997 + 132 + 95 + 52 + 92 + 10 + 264 + 26 + 201 + 54
= `2,923 crores
Note: ‘Compensation of Employees’ is calculated as the sum total of (i), (vi) and (xviii).
• ‘Profit’ is calculated as the sum total of (xii), (xiv) and (xv).
National Income (𝑁𝑁𝑃𝐹𝐶 ) by Expenditure method
= (x) + (xi) + ((xx) + (xvii)} + {(xvi) - (xix)} - (vii) - {(iv) - (v)} + (viii)
= 574 + 1,805 + {100 + 7} + {900 - 323} - 81 - {200 - 89} + 52
= ` 2,923 crores
Note:
 ‘Government expenditure on good and services’ is another name for Government final consumption
expenditure.
 ‘Personal consumption expenditure on goods and services’ is another name for Private final
consumption expenditure.

Example 36. Calculate GNP at FC by Income and Expenditure method.

Particulars `in crores
(i) Compensation of employees 1,000
(ii) Operating surplus 500
(iii) Employers’ contribution to social security schemes 120
(iv) Net exports (-)30
(v) Net indirect taxes 40
(vi) Mixed income of the self employed 600
(vii) Net factor income to abroad 20
(viii) Consumption of fixed capital 40
(ix) Private final consumption expenditure 1,440
(x) Govt, final consumption expenditure 490
(xi) Gross fixed capital formation 250
(xii) Change in stock 30
(xiii) Interest on national debt 25
Solution:
GNP at FC by Income method
= (i) + (ii) + (vi) - (vii) + (viii)
= 1,000 + 500 + 600 -20 + 40
= `2,120
Ans. `2,120 crores.
Note Net factor income to abroad means that the paid amount is more than received amount.
GNP at FC by Expenditure method
= (ix) + (x) + (xi) + (xii) + (iv) - (v) - (vii)
- 1,440 + 490 + 250 + 30 + (-30) - 40 - 20
= `2,120 crores
Ans. `2,120 crores.

Example 37. Calculate NDP at FC by expenditure method and GDP at MP by income method.
Particulars `in crores
(i) Gross fixed capital formation 130
 (ii) Private final consumption expenditure 510
(iii) Mixed income of the self employed 280
(iv) Net factor income from ROW (-)5
(v) Exports 50
(vi) Imports 60
(vii) Compensation of employees 240
(viii) Government final consumption expenditure 70
(ix) Consumption of fixed capital 40
(x) Indirect tax 90
(xi) Subsidies 10
(xii) Rent, interest and profit 90
(xiii) Change in stock 30
(xiv) Interest on national debt 10
Solution:
NDP at FC by Expenditure method
= (i) + (xiii) + (ii) + {(v) - (vi)) + (viii) - (ix) - {(x) - (xi)}
= 130 + 30 + 510 + {50 - 60} + 70 - 40 - {90 -10}
= `610 crores
Ans. `610 crores.
GDP at MP by Income method
= (iii) + (vii) + (xii) + (ix) + {(x) - (xi)}- 280 + 240 + 90 + 40 + {90 - 10}
= `730 crores
Ans. `730 crores.

Example 38. From the following data, calculate National Income:

Particulars `in crores
(i) Net exports (-)70
(ii) Compensation of employees 800
(iii) Mixed income of self-employed 900
(iv) Net factor income from abroad (-) 50
(v) Net retained earnings of private enterprises 600
(vi) Rent 350
(vii) Profit 600
(viii) Consumption of fixed capital 200
(ix) Interest 450
(x) Corporation tax 350
(xi) Net indirect taxes 250

Solution:
National Income
= (ii) + (iii) + (vi) + (vii) + (ix) + (iv)
= 800 + 900 + 350 + 600 + 450 + (-) 50
= `3,050 Crores
Ans. `3,050 crores

Example 39. From the following data, calculate Gross National Product at Market Prices by
(a) Income method and (b) Expenditure method.
Particulars `in crores
(i) Government final consumption expenditure 250
(ii) Change in stocks 65
(iii) Net domestic capital formation 150
(iv) Interest 90
(v) Profits 210
(vi) Corporation tax 50
(vii) Rent 100
(viii) Factor income from abroad 20
(ix) Indirect taxes 55
(x) Factor income to abroad 40
(xi) Exports 60
(xii) Subsidies 25
(xiii) Imports 80
(xiv) Consumption of fixed capital 20
(xv) Private final consumption expenditure 500
(xvi) Compensation of employees 450
(xvii) Value of rent for free accommodation to employees 40
Solution:
Gross National Product at Market Price by Income method
= (iv) + (v) + (vii) + (xvi) + {(viii) - (x)} + (xiv) + {(ix) - (xii)}
= 90 + 210 + 100 + 450 + {20 - 40} + 20 + {55 - 25}
= `880 crores
Ans. `880 crores.
Gross National Product at Market Price by Expenditure method
= (i) + (iii) + {(xi) - (xiii)} + (xv) + {(viii) - (x)} + (xiv)
= 250 + 150 + {60 - 80} + 500 + {20 - 40} + 20
= `880 crores
Ans. `880 crores.
Note: Value of rent for free accommodation to employees’ is not included separately as it is already
included in Compensation of employees.
Particulars `in crores
(i) Net factor income from abroad -20
(ii) Net exports 10
(iii) Net indirect taxes 50
(iv) Rent and royalty 20
(v) Consumption of fixed capital 10
(vi) Private final consumption expenditure 400
 (vii) Corporate tax 10
(viii) Interest 30
(ix) Net domestic capital formation 50
(x) Dividends 22
(xi) Government final consumption expenditure 100
(xii) Undistributed profits 5
(xiii) Mixed Income 23

Solution:
(a) Domestic Income
= (ii) + (vi) + (ix) + (xi) - (iii)
= 10 + 400 + 50 + 100 - 50
= `510 crores
Ans. `510 crores.
(b) Compensation of employees
= 𝑁𝐷𝑃𝐹𝐶 - Rent and royalty - Interest - Corporate tax - Dividends - Undistributed profits - Mixed Income
= 510-20-30-10-22-5-23
= `400 crores
Ans. `400 crores.
Note: We know: 𝑁𝐷𝑃𝐹𝐶 (by Income method)
= Rent and royalty + Interest + Corporate tax + Dividends + Undistributed profits + Compensation of
employees + Mixed Income.
It means: Compensation of employees
= 𝑁𝐷𝑃𝐹𝐶 - Rent and royalty - Interest - Corporate tax – Dividends - Undistributed profits - Mixed Income.

Example 41. From the following data, calculate GNP at MP by Income and Expenditure method {CBSE,
Delhi 2004}
Particulars `in crores
(i) Mixed income of self-employed 400
(ii) Compensation of employees 500
(iii) Private final consumption expenditure 900
(iv) Net factor income from abroad (-) 20
(v) Net indirect taxes 100
(vi) Consumption of fixed capital 120
(vii) Net domestic capital formation 280

(viii) Net exports (-) 30

(ix) Profits 350
(x) Rent 100
(xi) Interest 150
(xii) Government final consumption expenditure 450

Solution:
GNP at MP by Income method
= (i) + (ii) + (ix) + (x) + (xi) + (vi) + (iv) + (v)
- 400 + 500 + 350 + 100 + 150 + 120 + (-) 20 + 100
= `1,700 crores
Ans. `1,700 crores.
GNP at MP by Expenditure method
= (iii) + (vii) + (viii) + (xii) + (iv) + (vi)
= 900 + 280 + (-) 30 + 450 + (-) 20 + 120
= `1,700 crores
Ans. `1,700 crores.

Example 42. Calculate “Gross National Product at Factor Cost” from the following data by (a) Income
method, and (b) Expenditure method: (CBSE, Delhi 2009}
Particulars `in crores
(i) Private final consumption expenditure 1,000
(ii) Net domestic capital formation 200
(iii) Profits 400
(iv) Compensation of employees 800
(v) Rent 250
(vi) Government final consumption expenditure 500
(vii) Consumption of fixed capital 60
(viii) Interest 150
(ix) Net current transfers from rest of the world (-) 80
(x) Net factor income from abroad (-) 10
Solution:
Gross National Product at Factor Cost by Income Method
= (v) + (viii) + (iii) + (iv) + (vii) + (x)
= 250 + 150 + 400 + 800 + 60 + (-10)
= `1,650 crores
Ans. `1,650 crores.
Gross National Product at Factor Cost by Expenditure Method
= (i) + (vi) + (ii) + (vii) + (xi) + (x) - (xii)
= 1,000 + 500 + 200 + 60 + (- 20) + (-10) - 80
= `1,650 crores
Ans. `1,650 crores.
Example 43.Calculate: (a) 𝐺𝐷𝑃𝑀𝑃 by Income method; and (b) Closing stock.
Particulars `in crores
(i) Private final consumption expenditure 450
(ii) Rent 120
(iii) Government final consumption expenditure 50
(iv) Indirect taxes 60
(v) Interest 150
(vi) Mixed income of self employed 20
(vii) Consumption of fixed capital 30
(viii) Opening stock 10
 (ix) Gross fixed capital formation 300
(x) Compensation of employees 200
(xi) Net exports (-)10
(xii) Net factor income from abroad (-)10
(xiii) Subsidies 10
(xiv) Profit 250

Solution:
(a) 𝑮𝑫𝑷𝑴𝑷 by Income method
= (ii) + (v) + (xiv) + (vi) + (x) + (vii) + {(iv) - (xiii)}
= 120 + 150 + 250 + 20 + 200 + 30 + {60 -10}
= `820 crores
Ans. `820 crores.
(b) Closing Stock
= 𝑮𝑫𝑷𝑴𝑷 - Private final consumption expenditure - Government final consumption expenditure - Gross
fixed capital formation + Opening stock - Net exports
= 820 - 450 - 50 - 300 + 10 - (-)10
= `40 crores
Note: We know: 𝐺𝐷𝑃𝑀𝑃 (by Expenditure method) = Private final consumption expenditure + Government
final consumption expenditure + Gross fixed capital formation + (Closing stock - Opening stock) + Net
exports It means: Closing stock = 𝐺𝐷𝑃𝑀𝑃 - Private final consumption expenditure - Government final
consumption expenditure - Gross fixed capital formation + Opening stock - Net exports

Example 44. Calculate National Income by output method and Income method.
Particulars `in crores
(i) Value of output 800
(ii) Value of intermediate consumption 400
(iii) Subsidies 10
(iv) Indirect taxes 60
(v) Factor income received from abroad 10
(vi) Factor income paid abroad 20
(vii) Mixed income of self employed 120
(viii) Rent and royalty 40

(ix) Interest and profit 20

(x) Wages and salaries 110
(xi) Consumption of fixed capital 50
(xii) Employers’ contribution to social security schemes 10
Solution:
National Income by Output Method
= (i) - (ii) - {(iv) - (iii)} + {(V) - (vi)} - (xi)
= 800 - 400 - {60 - 10} + {10 - 20} - 50
= `290 crores
Ans. `290 crores
National Income by Income Method
= (viii) + (ix) + (x) + (xii) + (vii) + {(v) - (vi)}
= 40 + 20 + 110 + 10 + 120 + {10 - 20}
= `290 crores
Ans. `290 crores

Example 45. Calculate National Income (𝑁𝑁𝑃𝐹𝐶 ) by income and output method.
Particulars `in crores
(i) Value of output of primary sector 1,000
(ii) Value of output of other sectors 400
(iii) Raw material of primary sector 500
(iv) Raw material of other sectors 300
(v) Factor income received from the rest of the world 10
(vi) Factor income paid to the rest of the world 15
(vii) Depreciation 55
(viii) Indirect taxes 100
(ix) Subsides 20
(x) Mixed income of the self employed 200
(xi) Compensation of employees 170
(xii) Rent 40
(xiii) Interest 30
(xiv) Profit 25
Solution:
National Income (𝑵𝑵𝑷𝑭𝑪 ) by Income Method
= (𝑥) + (𝑥𝑖) + (𝑥𝑖𝑖) + (𝑥𝑖𝑖𝑖) + (𝑥𝑖𝑣) + {(𝑣) – (vi)}
= 200 + 170 +40 + 30 25 + {10 – 15}
= `460 crores
Ans. `460 crores
National Income (𝑵𝑵𝑷𝑭𝑪 ) by Output Method
= {(i) – (iii) + {ii} – (iv) }+ {(v)- (vi)} – (vii) – {(viii) – (ix)}
= `460 crores
Ans. `460 crores
Example 46. Calculate National Income by expenditure and output method.
Particulars ` in crores
(i) Gross domestic capital formation 250
(ii) Net exports -50
(iii) Private final consumption expenditure 1,000
(iv) Value of output of primary sector 900
(v) Value of output of secondary sector 800
(vi) Value of output of tertiary sector 400
(vii) Intermediate consumption of primary sector 400
(viii) Intermediate consumption of secondary sector 300
(ix) Intermediate consumption of tertiary sector 100
(x) Consumption of fixed capital 80
(xi) Indirect taxes 100
 (xii) Government final consumption expenditure t^\ 100
(xiii) Subsidies 10
(xiv) Net factor income from abroad -20
Solution:
National Income by Output Method
- {(iv) - (vii)} + {(v) - (viii)} + {(vi) - (ix)} - (x) - {(xi) - (xiii)}+ (xiv)
= {900 - 400} + {800 - 300} + {400 -100} - 80 - {100 -10}+ (-20)
= `1,110 crores
Ans. `1,110 crores
National Income by Expenditure method
= (i) + (ii) + (iii) + (xii) - (x) - {(xi) - (xiii)} + (xiv)
= 250 + (-50) + 1,000 + 100 - 80 - (100 -10) + (-20)
= `1,110 crores
Ans. `1110 crores

Example 47. Calculate National Income from the following data: {CBSE, Delhi 2007}
Particulars ` in crores
(i) Current transfers by government 15
(ii) Private final consumption expenditure 400
(iii) Net indirect taxes 60
(iv) Government final consumption expenditure 100
(v) Net factor income from abroad (-) 10
(vi) Net domestic capital formation 80
(vii) Consumption of fixed capital 50
(viii) Net exports 40
Solution:
National Income
= (ii) + (iv) + (vi) + (viii) - (iii) + (v)
= 400 + 100 + 80 + 40 - 60 + (-) 10
= 550 crores Ans. `550 crores
Example 48. Calculate National Income and Depreciation from the following data:
Particulars `in crores
(i) Net indirect tax 5
(ii) Net domestic fixed capital formation 100
(iii) Net imports (-)20
(iv) Government final consumption expenditure 200
(v) Gross domestic fixed capital formation 125
(vi) Private final consumption expenditure 600
(vii) Change in stocks 10
(viii) Net factor income from abroad 5

Solution:
National Income
= (vi) + (iv) + {(ii) + (vii)} - (iii) + (viii) - (i)
= 600 + 200 + {100 + 10} - (-20) + 5-5
= `930 crores
Ans. `930 crores Depreciation
= Gross domestic fixed capital formation - Net domestic fixed capital formation
= 125 -100
= `25 crores
Ans. `25 crores
Note: ‘Net imports of `(-) 20 crores’ signifies that exports are more than imports.

Example 49. Calculate Gross National Product at Market Price from the following data:
{ICBSE, Delhi 2008 (11)}
Particulars `in crores
(i) Net factor income from abroad (-) 25
(ii) Profits 70
(iii) Consumption of fixed capital 30
(iv) Rent 40
(v) Indirect tax 20
(vi) Interest 100
(vii) Royalty 10
(viii) Compensation of employees 600
(ix) Subsidy 5
Solution:
Gross National Product at Market Price (𝐺𝑁𝑃𝑀𝑃 )
= (ii) + (iv) + (vi) + (vii) + (viii) + (iii) + (i) + {(v) - (ix)}
= 70 + 40 + 100 + 10 + 600 + 30 + (-) 25 + {20 - 5}
= `840 crores
Ans. `840 crores

Example 50. Calculate National Income from the following data: CBSE, Delhi 2008 (III)
Particulars `in crores
(i) Subsidy 5
(ii) Net exports (-) 20
(iii) Private final consumption expenditure 400
(iv) Net factor income to abroad 10
(v) Government final consumption expenditure 100
(vi) Indirect tax 30
(vii) Net domestic capital formation 50
(viii) Change in stock 7
Solution:
National Income (𝑁𝑁𝑃𝐹𝐶 )
= (iii) + (v) + (vii) + (ii) - (iv) - {(vi) - (i))
- 400 + 100 + 50 + (-)20-10-{30-5}
= `495 crores
Ans. `495 crores

Example 51. Calculate Operating Surplus:

 Particulars ` in crores
(i) Compensation of employees 110
(ii) Net indirect taxes 150
(iii) Depreciation 50
(iv) Net factor income from rest of the world 155
(v) Income from entrepreneurship and property from rest of 75
the world
(vi) Gross domestic product at market price 1,050
(vii) Mixed income of self-employed 500
Solution:
Operating Surplus
= (vi) - (iii) - (ii) - (i) - (vii)
= 1,050-50-150-110-500
- `240 crores
Ans. `240 crores

Example 52. Calculate National Income:

Particulars `in crores
(i) Rent 60
(ii) Interest 40
(iii) Profits net of corporate profit tax 20
(iv) Corporate profit tax 5
(v) Net factor income received from abroad (-) 5
(vi) Compensation of employees 600
(vii) Indirect taxes 80
(viii) Subsidies 10
(ix) Dividend 7

Solution:
National Income
= (i) + (ii) + (iii) + (iv) + (vi) + (v)
= 60 + 40 + 5 + 20 + 600 + (-) 5
= `720 crores
Ans. `720 crores
Note: ‘Profits' are calculated sum total of (iii) and (iv) items. Dividend will not be separately included as
it is already included in (iii).

Example 53. (From the following data, calculate (a) Gross Domestic Product at Market Price; Subsidies.
Particulars `in crores
(i) Government final consumption expenditure 7,000
(ii) Indirect taxes 9,000
(iii) 𝑁𝑁𝑃𝐹𝐶 61,700
(iv) Mixed income of self employed 28,000
(v) Gross fixed capital formation M~) 13,000
(vi) Net addition to stocks 10,000
(vii) Compensation of employees 24,000
(viii) Depreciation 4,000
(ix) Private final consumption expenditure 44,000
(x) Exports of goods and services rj- m 4,800
 (xi) Imports of goods and services 5,600
(xii) NFIA (-)300
Solution:
(a) Gross Domestic Product at Market Price (𝐺𝐷𝑃𝑀𝑃 )
= (i) + (v) + (vi) + (ix) + {(x) - (xi)}
= 7,000 + 13,000 + 10,000 + 44,000 + {4,800 - 5,600}
= `73,200 crores
(b) Subsidies
= 𝑁𝑁𝑃𝐹𝐶 + Depreciation - NFIA + Indirect taxes - 𝐺𝐷𝑃𝑀𝑃
= 61,700 + 4,000 - (-)300 +9,000 - 73,200 ,
= `1,800 crores
Note: We know: 𝑁𝑁𝑃𝐹𝐶 = 𝐺𝐷𝑃𝑀𝑃 - Depreciation + NFIA - (Indirect taxes - Subsidies)
It means: Subsidies = 𝑁𝑁𝑃𝐹𝐶 + Depreciation - NFIA + Indirect taxes - 𝐺𝐷𝑃𝑀𝑃

Example 54. Calculate: (a) National Income; and (b) Consumption of fixed capital
Particulars ` in crores
(i) Private final consumption expenditure 210
(ii) Gross Domestic Product at Market Price (𝑮𝑫𝑷𝑴𝑷 ) 320
(iii) Wages and salaries 170
(iv) Employers’ contribution to provident fund 10
(v) Interest 20
(vi) Indirect taxes 30
(vii) Subsidies 5
(viii) Rent 10
(ix) Profit 45
(x) Royalty 15
(xi) Net factor income from abroad (NFIA) 3
Solution:
(a) National Income (𝑵𝑵𝑷𝑭𝑪 )
= (iii) + (iv) + (v) + (viii) + (ix) + (x) + (xi)
= 170 + 10 + 20 + 10 + 45 + 15 + 3
= `273 crores
Ans. `273 crores.
(b) Consumption of fixed capital
= 𝐺𝐷𝑃𝑀𝑃 + NFIA - (Indirect taxes - Subsidies) - 𝑁𝑁𝑃𝐹𝐶 = 320 + 3 - (30 - 5) - 273
= `25 crores
Note: We know: 𝑁𝑁𝑃𝐹𝐶 = 𝐺𝐷𝑃𝑀𝑃 - Consumption of fixed capital + NFIA - (Indirect taxes - Subsidies)
It means: Consumption of fixed capital = 𝐺𝐷𝑃𝑀𝑃 + NFIA - (Indirect taxes - Subsidies) - 𝑁𝑁𝑃𝐹𝐶

Example 55. From the following data, calculate (a) Gross Domestic Product at Factor Cost and (b) Factor
Income To Abroad: {CBSE, Delhi 2010 (I, III)}
Particulars `in crores
(i) Compensation of employees 800
(ii) Profits 200
(iii) Dividends 50
(iv) Gross national product at market price 1,400
 (v) Rent 150
(vi) Interest 100
(vii) Gross domestic capital formation 300
(viii) Net fixed capital formation 200
(ix) Change in stock 50
(x) Factor income from abroad 60
(xi) Net indirect taxes 120
Solution:
(a) Gross Domestic Product at Factor Cost
= Compensation of employees + Profits + Rent + Interest + Depreciation*
= 800 + 200 + 150 + 100 + 50 = `1,300 crores
Note Depreciation* = Gross domestic capital formation - (Net fixed capital formation + Change in stock)
Depreciation = 300 - (200 + 50) = `50 crores
(b) Factor Income To Abroad
= Factor income from abroad - {Gross national product at market price - (Gross Domestic Product at Factor
Cost + Net indirect taxes)}
= 60 - {1,400 - (1,300 + 120)}
= `80 crores

Example 56. From the following data, calculate (a) Closing Stock; (b) National Income; (c) Government
Final Consumption Expenditure.
Particulars ` in crores
(i) Private Final Consumption Expenditure 900
(ii) Net Domestic Fixed Capital Formation 2,100
(iii) Net Factor Income to Abroad 40
(iv) Net National Product at Market Price 5,230
(v) Net Indirect Taxes 150
(vi) Opening Stock 100
(vii) Gross Domestic Capital Formation 2,800
(viii) Consumption of Fixed Capital 550
(ix) Net Exports 700
Solution:
(a) Calculation of “Closing Stock”
Gross Domestic Capital Formation
= (ii) + {Closing Stock - (vi)} + (viii)
Closing Stock = Gross Domestic Capital Formation - (ii) + (vi) - (viii)
= 2,800 - 2,100 + 100 - 550 = `250 Crores
(b) Calculation of “National Income”
National Income = (iv) - (v)
= 5,230 - 150 = `5,080 Crores
(c) Calculation of "Government Final Consumption Expenditure (GFCE)'
National Income = (i) + GFCE + (vii) - (viii) + (ix) - (iii) - (v)
 GFCE = National Income - (i) - (vii) + (viii) - (ix) + (iii) + (v)
= 5,080 - 900 - 2,800 + 550 - 700 + 40 +150 = `1,420 Crores

Example 57. Find out Gross National Product at Market Price: {CBSE, Delhi 2012 (III)}
Particulars `Crore
(i) Net indirect tax 35
(ii) Private final consumption expenditure 500
(iii) Consumption of fixed capital 50
(iv) Closing stock 10
(v) Government final consumption expenditure 150
(vi) Net domestic fixed capital formation 100
(vii) Net factor income to abroad (-)15
(viii) Net imports 20
(ix) Opening stock 10
Solution:
Gross National Product at Market Price (𝐺𝑁𝑃𝑀𝑃 )
= ii + v + (vi + iv - ix + iii) - viii - vii
= 500 + 150 + (100 + 10 - 10 + 50) - 20 - (-15)
= `795 crore

Example 58. Compute Domestic Income: (CBSE, Sample Paper 2016)

Particulars (`crores)
(i) Rent 155
(ii) Government final consumption expenditure 2,500
(iii) Subsidies 120
(iv) Gross domestic fixed capital formation 1,190
(v) Net factor income to abroad 125
(vi) Net decrease in inventories 100
(vii) Net Exports (-) 420
(viii) Net Indirect Taxes 470
(ix) Private Final Consumption Expenditure 2,200
(x) Current replacement cost 145
Solution:
Domestic Income
= ix + ii + iv - vi + vii - x - viii
= 2,200 + 2,500 + 1,190 - 100 - 420 - 145 - 470
= `4,755 Crore

Example 59. Calculate (a) National Income by Expenditure Method; and (b) National Income by Income
Method.
Particulars `in crores
(i) Government final consumption expenditure 500
(ii) Change in stock 350
(iii) Consumption of fixed capital 50
(iv) Exports of goods and services 200
(v) Private final consumption expenditure 900
 (vi) Gross fixed capital formation 800
(vii) Subsidies 50
(viii) Imports of goods and services 350
(ix) Net property and entrepreneurship income from rest of the world (-)60
(x) Indirect taxes 200
(xi) Saving of the private corporate sector 30
(xii) Net compensation of employees from rest of the world (-)10
(xiii) Operating surplus 550
(xiv) Compensation of employees 800
(xv) Corporation tax 20
(xvi) Mixed Income of Self Employee 850
Solution:
(a) National Income by Expenditure Method
= (v) + (i) + (vi) + (ii) + {(iv) - (viii)} - (iii) - {(x) - (vii)} + {(ix) + (xii)}
= 900 + 500 + 800 + 350 + {200 - 350} - 50 - {200 - 50} + {(-)60 + (-)10}
= `2,130 crores
(b) National Income by Income Method
= (xiii) + (xiv) + (xvi) + {(ix) + (xii)}
= 550 + 800 + 850 + {(-) 60 + (-)10}
= `2,130 crores Note: NFIA is calculated as sum total of (ix) and (xii) item.
Example 60. Calculate (a) National Income by Income and Expenditure Method; (b) Gross Domestic
Product at Market Price.
Particulars `in crores
(i) Private final consumption expenditure 7,000
(ii) Compensation of employees 9,000
(iii) Operating surplus 3,000
(iv) Government final consumption expenditure 4,200
(v) Net fixed capital formation 1,700
(vi) Mixed income of the self-employed 1,000
(vii) Change in stocks 500
(viii) Indirect taxes 300
(ix) Export of goods and services 600
(x) Subsidies 100
(xi) Import of goods and services 800
(xii) Consumption of fixed capital 1,100
(xiii) Factor income from abroad 800
(xiv) Factor income to abroad 700
Solution:
(a) Calculation of “Closing Stock”
Gross Domestic Capital Formation = (ii) + {Closing Stock - (vi)} + (viii)
Closing Stock = Gross Domestic Capital Formation - (ii) + (vi) - (viii)
= 2,800 - 2,100 + 100 - 550 = `250 Crores
(b) Calculation of ‘National Income’
National Income = (iv) - (v)
= 5,230 - 150 = `5,080 Crores
(c) Calculation of “Government Final Consumption Expenditure (GFCE)”
National Income = (i) + GFCE + (vii) - (viii) + (ix) - (iii) - (v)
GFCE = National Income - (i) - (vii) + (viii) - (ix) + (iii) + (v)
= 5,080 - 900 - 2,800 + 550 - 700 + 40 +150
= `1,420 Crores

Example 57. Find out Gross National Product at Market Price: (CBSE, Delhi 2012 (III))
Particulars `Crore
(i) Net indirect tax 35
(ii) Private final consumption expenditure 500
(iii) Consumption of fixed capital 50
(iv) Closing stock 10
(v) Government final consumption expenditure 150
(vi) Net domestic fixed capital formation 100
(vii) Net factor income to abroad (-)15
(viii) Net imports 20
(ix) Opening stock 10
Solution:
Gross National Product at Market Price (𝐺𝑁𝑃𝑀𝑃 )
= ii + v + (vi + iv - ix + iii) - viii - vii = 500 + 150 + (100 + 10 - 10 + 50) - 20 - (-15)
= `795 crore

Example 58. Compute Domestic Income: (CBSE, Sample Paper 2016)

Particulars ( `crores)
(i) Rent 155
(ii) Government final consumption expenditure 2,500
(iii) Subsidies 120
(iv) Gross domestic fixed capital formation 1,190
(v) Net factor income to abroad 125
(vi) Net decrease in inventories 100
(vii) Net Exports (-) 420
(viii) Net Indirect Taxes 470
(ix) Private Final Consumption Expenditure 2,200
(x) Current replacement cost 145
Solution:
Domestic Income
= ix + ii + iv - vi + vii - x - viii
= 2,200 + 2,500 + 1,190 - 100 - 420 - 145 - 470
= `4,755 Crore

Example 59. Calculate (a) National Income by Expenditure Method; and (b) National Income by Income
Method.
Particulars `in crores
(i) Government final consumption expenditure 500
 (ii) Change in stock 350
(iii) Consumption of fixed capital 50
(iv) Exports of goods and services 200
(v) Private final consumption expenditure 900
(vi) Gross fixed capital formation 800
(vii) Subsidies 50
(viii) Imports of goods and services 350
(ix) Net property and entrepreneurship income from rest of the world (-)60
(x) Indirect taxes 200
(xi) Saving of the private corporate sector 30
(xii) Net compensation of employees from rest of the world (-)10
(xiii) Operating surplus 550
(xiv) Compensation of employees 800
(xv) Corporation tax 20
(xvi) Mixed Income of Self Employee 850
Solution:
(a) National Income by Expenditure Method
= (v) + (i) + (vi) + (ii) + {(iv) - (viii)} - (iii) - {(x) - (vii)} + {(ix) + (xii)}
= 900 + 500 + 800 + 350 + {200 - 350} - 50 - {200 - 50} + {(-) 60 + (-)10}
= `2,130 crores
(b) National Income by Income Method
= (xiii) + (xiv) + (xvi) + {(ix) + (xii)}
= 550 + 800 + 850 + {(-) 60 + (-)10}
= `2,130 crores Note: NFIA is calculated as sum total of (ix) and (xii) item.

Example 60. Calculate (a) National Income by Income and Expenditure Method; (b) Gross Domestic
Product at Market Price.
Particulars `in crores
(i) Private final consumption expenditure 7,000
(ii) Compensation of employees 9,000
(iii) Operating surplus 3,000
(iv) Government final consumption expenditure 4,200
(v) Net fixed capital formation 1,700
(vi) Mixed income of the self-employed 1,000
(vii) Change in stocks 500
(viii) Indirect taxes 300
(ix) Export of goods and services 600
(x) Subsidies 100
(xi) Import of goods and services 800
(xii) Consumption of fixed capital 1,100
(xiii) Factor income from abroad 800
(xiv) Factor income to abroad 700
Solution:
(a) National Income by Income Method = (ii) + (iii) + (vi) + {(xiii) - (xiv)}
= 9,000 + 3,000 + 1,000 + {800 - 700}
= `13,100 crores National Income by Expenditure Method
= (i) + (iv) + (v) + (vii) + {(ix) - (xi)} - {(viii) - (x)} + {(xiii) - (xiv)}
= 7,000 + 4,200 + 1,700 + 500 + {600 - 800} - {300 -100} + {800 - 700}
= `13,100 crores
(b) Gross Domestic Product at Market Price
= National Income + (xii) + {(viii) - (x)} - {(xiii) - (xiv)}
= 13,100 + 1,100 + {300 -100} - {800 - 700}
= `14,300 crores

Example 61. Calculate (a) Net National Product at Market Price, and (b) Gross Domestic Product at Factor
Cost:
Particulars ` in
crores
(i) Rent and Interest f 6,000
+
(ii) Wages and Salaries 1,800
(iii) Undistributed Profit 400
(iv) Net Indirect Taxes 100
(v) Subsidies 20
(vi) Corporation Tax +- 120
(vii) Net factor income to)abroad
(viii) Dividends 80
(ix) Consumption of Fixed Capital 50
(x) Social Security Contribution by Employers 200
(xi) Mixed Income 1,000
Solution:
(a) Net National Product at Market Price (𝑁𝑁𝑃𝑀𝑃 )
= (i) + (ii) + (x) + (iii) + (vi) + (viii) + (xi) - (vii) + (iv)
= 6,000 + 1,800 + 200 + 400 + 120 + 80 + 1,000 -70+ 100 =' 9,630 crores
(b) Gross Domestic Product at Factor Cost
= 𝑁𝑁𝑃𝑀𝑃 + (ix) + (vii) - (iv)
= 9,630 + 50 + 70 -100 = `9,650 crores

Example 62. Calculate: (a) Operating Surplus, and (b) Domestic Income: (CBSE, Delhi 2018)
Particulars `in crores
(i) Compensation of employees 2,000
(ii) Rent and interest 800
(iii) Indirect taxes 120
(iv) Corporation tax 460
(v) Consumption of fixed capital 100
(vi) Subsidies 20
(vii) Dividend 940
(viii) Undistributed profits 300
 (ix) Net factor income to abroad 150
(x) Mixed income 200
Solution:
(a) Operating Surplus
= (ii)+ [(iv) + (vii) + (viii)]
= 800 + 460 + 940 + 300
= `2,500 crores
(b) Domestic Income
= (i) + Operating Surplus + (x)
= 2,000 + 2500 + 200
= `4,700 crores

Example 63. Find National Income from following using expenditure method:{CBSE, Sample Paper
2018}
Particulars `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

Solution:
National Income by Expenditure Method
= Private Final Consumption Expenditure + Government Final Consumption Expenditure + Net Domestic
Capital Formation + Net Exports + Net Factor Income from Abroad - Net Indirect Taxes
= (v) + (ix) + (vi) + (iii) + (viii) - (ii)
= 900 + 400 + 200 + (-25 ) + (-10) - 100
Ans. `1,365 Crores

Example 64. Calculate: (a) Gross domestic product at market price, and (b) National Income:
(CBSE, All India 2018)
Particulars `in crores
(i) Government final consumption expenditure 4,000
(ii) Private final consumption expenditure 3,500
(iii) Gross domestic capital formation 1,100
(iv) Net exports 500
(v) Net factor income from abroad 100
(vi) Net indirect taxes 300
(vii) Subsidies 40
 (viii) Change in stock 80
(ix) Consumption of fixed capital 120
Solution:
(a) Gross Domestic Product at Market Price
= (ii) + (i) + (iii) + (iv)
= 3,500 + 4,000 + 1,100 + 500
= `9,100 crores
(b) National Income
= 𝐺𝐷𝑃𝑀𝑃 (ix) + (v) - (vi)
= 9,100 - 120 + 100 - 300
= `8,780 crores
Example 65. Calculate Gross National Product at Market Prices by: (a) Expenditure Method and (b)
Income Method. (CBSE, Delhi Comptt. 2018)
Particulars `in crores
(i) Compensation of employees 100
(ii) Private Final Consumption Expenditure 200
(iii) Rent 20
(iv) Government Final Consumption Expenditure 50
(v) Profits 10
(vi) Interest 10
(vii) Gross Domestic Capital Formation 60
(viii) Net Imports 10
(ix) Consumption of fixed capital 20
(x) Net Indirect Taxes 30
(xi) Net factor income from abroad (—) 20
(xii) Change in stocks 10
(xiii) Mixed Income 110
Solution:
(a) Gross National Product at Market Prices (Expenditure Method)
= (ii) + (iv) + (vii) - (viii) + (xi)
= 200 + 50 + 60 - 10 + (-20)
= `280 crores
(b) Gross National Product at Market Prices (Income Method)
= (i) + (iii) + (v) + (vi) + (xiii) + (ix) + (x) + (xi)
= 100 + 20 + 10 + 10 + 110 + 20 + 30 + (-20)
= `280 crores
 REVISION OF KEY POINTS
 Three Methods of National Income: (1) Value Added Method; (2) Income Method; (3) Expenditure
Method.
 Value Added Method measures the market value of all final goods and services, produced by each
producing enterprise, within the domestic territory of the country.
(a) Value of Output refers to the market value of goods and services produced during a period of
one year.
(b) Intermediate Consumption refers to the value of non-factor inputs, which are used in the
production process.
(c) Double Counting refers to the repeated inclusion of the same products at different stages of
production.
(d) Two Ways to Avoid Double Counting: (i) Take the value of final output; (ii) Take value added
of each firm.
 Income Method measures national income in terms of payment made to the primary factors of
production. The main components of factor incomes are:
(a) Compensation of Employees refers to the amount paid to the employees for rendering
productive services.
(b) Rent refers to the rental or hiring charges for the use of capital assets like land, buildings,
machinery and other properties. Royalty refers to the income received for leasing the rights of
mining to others and for granting the rights of using patents, copyrights and trademarks.
(c) Interest refers to the amount received for lending funds to a production unit.
(d) Profit is the reward to the entrepreneur for his contribution to the production of goods and
services.
(e) Mixed Income refers to the income generated by own account workers and unincorporated
enterprises.

 Expenditure Method measures national income as the aggregate of all the final expenditure incurred
in an economy, during a year. The main components of final expenditures are:
(a) Private Final Consumption Expenditure refers to expenditure on the purchase of goods and
services by households and private non-profit institutions serving households.
(b) Government Final Consumption Expenditure is the expenditure incurred by general
government on various administrative services.
(c) Gross Domestic Capital Formation refers to the addition to the capital stock of the economy.
(d) Net Exports is the difference between exports and imports of a country, during the period of
one year. National Income at Current Price (or Nominal National Income) is the money value of
 final goods and services produced by normal residents of a country in a year, measured at the
prices of the current year.
 National Income at Constant Price (or Real National Income) is the money value of final goods and
services produced by normal residents of a country in a year, measured at base year price. It shows the
true picture of economic growth of a country as any increase in real national income is due to increase
in output only.
National Income at Current Price
National Income at Constant Price = × 100
Current Price Index
 Nominal GDP refers to production of goods and services valued at current prices.
 Real GDP refers to production of goods and services valued at constant prices. It is better than Nominal
GDP as it truly reflects the growth of an economy.
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃
Real GDP = × 100
𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥
 GDP Deflator measures the average level of prices of all the goods and services that make up GDP.
𝑁𝑎𝑡𝑖𝑜𝑛𝑎𝑙 𝐺𝐷𝑃
 GDP Deflator = × 100
𝑅𝑒𝑎𝑙 𝐺𝐷𝑃
 GDP and Welfare: GDP cannot be taken as a satisfactory measure of welfare of people due to
following limitations:
1. Distribution of GDP
2. Change in Prices
3. Non-Monetary Exchanges
4. Externalities
5. Rate of Population Growth
Synonyms or Similar Terms of this Chapter
Value Added Method  Product Method
 Inventory Method
 Net Output Method
 Industrial Origin Method
 Commodity Service Method
Income Method  Distributive Share Method
 Factor Payment Method
Compensation of Employees  Emoluments of Employees
Corporate Tax  Profit Tax
 Business Tax
 Corporation Tax
Dividend Distributed Profits
Retained Earnings  Undistributed Profits
 Savings of Private Sector
 Savings of Private Corporate Sector
 Corporate Savings
 Reserves and Surplus
Operating Surplus Income from Property and Entrepreneurship
Mixed Income  Income of Self-Employed
 Income of Own-account Workers
Expenditure Method Income Disposal Method
Government Final Consumption Expenditure Government Expenditure on Good and Services
Private Final Consumption Expenditure Personal Consumption Expenditure
 Gross Domestic Capital Formation  Gross Capital Formation
 Gross Investment
Inventory Investment Change in Stock
Net Factor Income from Abroad Net Earned Income from Abroad
National Income at Current Price Nominal National Income
National Income at Constant Price Real National Income
GDP Deflator Price Index
HOTS HIGHER ORDER THINKING SKILLS QUESTIONS
Q. 1. Mention the situations in which following equations will hold true:
(i) Value of Output is equal to Value Added. {CBSE, Sample Paper 20}
(ii) National income at Current Price = National income at Constant Price
(iii) Gross domestic capital formation = Gross domestic fixed capital formation
(iv) Operating Surplus = Rent + Royalty + Profit
Ans. (i) When intermediate consumption is zero.
(ii) When Price in the base year = Price in the current year.
(iii) When change in stock (or inventory investment) is zero.
(iv) When there is no income in the form of interest.

Q. 2. Whether the following items will be included in National Income? Give reasons for your answer.
(i) Payment of electricity bill by a factory.
(ii) Dividend on shares.
(iii) Increase in stock of consumer goods with households.
(iv) Bus fare paid by a passenger.
(v) Gains from sale of shares.
(vi) Rent earned by Reliance from its building in USA.
(vii) Gifts from Abroad.
(viii) Retained earnings of resident companies from abroad.
(ix) Expenses of foreign visitors in India.
(x) Gifts to a trust from Japan.
(xi) Purchase of books by a student.
(xii) Bonus to employees.
(xiii) Interest paid by an individual on loan taken.
(xiv) Expenditure on repair of fixed capital asset.
(XV) Free medical facilities by the employer.
(xvi) Financial help to flood victims.
(xvii) Payment of telephone bill.
(xviii) Employers’ contribution to Provident Fund.
(xix) Rent received by an Indian from Building rented to Chinese Embassy.
(xx) Free meals to employees.
(xxi) Free meals to beggars.
(xxii) Wages received by an Indian working in British Embassy.
(xxiii) Medical facilities to government employees.
(xxiv) Purchase of vegetables by a restaurant.
(xxv) Government Expenditure on street light.
(xxvi) Purchase of a second hand machine from a domestic firm.
(xxvii) Interest received on loans taken by government.
(xxviii) Leave travel allowance paid to employees by a company.
(xxix) Direct purchases made by resident households.
(xxx) Interest received on debentures by debenture-holders.
(xxxi) Monthly allowance received by a college student from home.
 (xxxii) Expenditure incurred by a firm on sponsoring a Reality show.
(xxxiii) Expenditure incurred by normal residents on foreign travel.
(xxxiv) Prize won in a lottery.
(xxxv) Expenditure by government in providing free education.
(xxxvi) Money received by people from their family members who are permanently settled abroad.
Ans. (i) No, it is a part of intermediate consumption expenditure.
(ii) Yes, as it is a part of profits.
(iii) No, as it is assumed that such goods are consumed, the moment they are purchased.
(iv) Yes, it is a part of private final consumption expenditure.
(v) No, as it is a capital gain.
(vi) Yes, it is a factor income from abroad.
(vii) No, it is a transfer income.
(viii) Yes, it is a factor income from abroad.
(ix) Yes, it is a part of Net Exports.
(x) No, it is a current transfer from rest of the world.
(xi) Yes, it is a part of private final consumption expenditure.
(xii) Yes, it is a part of COE.
(xiii) No, as it is a non-factor payment since the loan is not used for production but for
consumption.
(xiv) No, it is a part of intermediate consumption expenditure.
(xv) Yes, it is a part of COE.
(xvi) No, it is a transfer payment.
(xvii) Yes, it is a part of private final consumption expenditure.
(xviii) Yes, it is a part of COE.
(xix) Yes, it is a factor income from abroad.
(xx) Yes, it is a part of COE.
(xxi) No, it is a transfer payment.
(xxii) Yes, it is a factor income from abroad.
(xxiii) Yes, it is a part of Government final consumption expenditure.
(xxiv) No, it is a part of intermediate consumption expenditure.
(xxv) Yes, it is a part of Government final consumption expenditure.
(xxvi) No, as it has already been included in the year of its original purchase.
(xxvii) No, as such interest is treated as a transfer income because government generally borrows
money to meet its consumption expenditure and no productive activity is linked with such
loan.
(xxviii) Yes, as it is a part of COE.
(xxix) Yes, it is a part of private final consumption expenditure.
(xxx) Yes. Interest received is a factor income because debenture is a sort of loan taken by a
production unit.
(xxxi) No, it is a transfer income.
(xxxii) No, it is a part of intermediate consumption expenditure.
(xxxiii) Yes, it is a part of private final consumption expenditure.
(xxxiv) No, as it is a windfall gain and there is no productive activity involved in it.
(xxxv) Yes, it is a part of Government final consumption expenditure.
(xxxvi) No, it is a transfer income.

Q. 3. Mention any three items that are excluded from GNP?

Ans. Three items excluded from GNP are:
(i) Purely financial transactions, like sale and purchase of securities, bonds or transfer
payments.
(ii) Transfer of second-hand goods.
 (iii) Non-market transactions, like services of housewife, kitchen gardening, leisure time
activities.

Q. 4. Are the following a part of a country’s ‘net domestic product at market price’? Explain.
{CBSE, Delhi Comptt. 2008}
(i) Net indirect taxes
(ii) Net exports
(iii) Net factor income from abroad
(iv) Consumption of fixed capital.
Ans. (i) Yes, net indirect taxes will be included because market price = Factor cost + Net indirect
taxes.
(ii) Yes, net exports (a component of expenditure method) will be included as it includes goods
and services produced within the domestic territory of a country.
(iii) No, it will not be included as 𝑁𝐷𝑃𝑀𝑃 is confined to domestic product only.
(iv) No, it will not be included because Net Product = Gross Product - Consumption of Fixed
Capital.

Q. 5. Which of the following items is part of compensation of employees? Give reasons for your answer.
(i) Entertainment allowance to an employee to entertain business guests.
(ii) Employers’ contribution to gratuity fund of the employees.
(iii) Employee’s contribution to provident fund.
(iv) Payment of claim of insurance claim by LIC to the injured worker.
(v) Old age pension.
(vi) Medical expenses of a firm on treatment of employee’s family.
Ans. (i) It is not a part of compensation of employees (COE) as it is paid for the benefit of business and
not for the employee. In fact, it is intermediate consumption expenditure.
(ii) It is a part of compensation of employees as such contribution is for the benefit of employees
and is paid for his productive services.
(iii) It is not a part of compensation of employees as such contribution is made by the employee
from COE only.
(iv) It is not a part of compensation of employees as UC is not the employer of injured worker.
(v) It is not a part of compensation of employees as it is paid to old people due to their old age and
not because of any productive contribution. Moreover, it is paid by agency other than employer.
In fact, it is a transfer payment.
(vi) It is a part of compensation of employees as such expenditure is incurred by the firm in return
of productive services of employee.

Q. 6. How are the following treated while estimating private final consumption expenditure? Give reasons
for your {CBSE, All India 2002}
(i) Exports.
(ii) Direct purchases made abroad by resident households.
(iii) Final consumption expenditure of non-profit institutions serving households.
(iv) Change in stocks.
Ans. (i) Exports will not be included in private final consumption expenditure as exports do not reflect
consumption expenditure by residents.
(ii) It will be included in private final consumption expenditure as such purchases are meant for
consumption.
(iii) It will be included in private final consumption expenditure as non-profit institutions serving
households are a component of household sector.
(iv) It will not be included in private final consumption expenditure as it is a component of capital
formation.
Q.7. Ananya makes the following transactions. Discuss the impact of each transaction on the National
Income of the country.
(i) She sells her car for `80,000.
(ii) She pays `5,000 as commission to the broker on sale of car.
(iii) She imports an Apple i-pod for `7,000.
(iv) She buys a new car for `9,00,000.
(v) She purchases an antique painting for `4,500.
(vi) She purchased shares of Reliance Industries for `12,000.
(vii) She pays interest of `2,000 on loan taken from ICICI to buy the new car.
Ans. (i) No impact as transactions of second hand goods are not part of National Income.
(ii) Yes, this amount will be included in National as it is the income of broker for his productive
services.
(iii) National Income will be less by this amount of import.
(iv) Yes, it will be included as it is a part of private final consumption expenditure.
(v) No impact as it is not a transaction involving goods produced in the current year.
(vi) No impact as it involves a change of title only and does not contribute to any productive activity.
(vii) No impact as it is a non-factor payment because the loan is not used for production but for
consumption.

Q. 8. Manish buys a second hand car from a car broker for `3,25,000. The broker receives `16,500 as
commission for his services from Manish. How will this transaction affect the national income of the
country? Give reason for your answer.
Ans. The commission of `16,500 received by broker will be added in the national income of the country
as it is the income of broker for his productive services to Manish. The amount paid for purchase of
car will not be included as it is the payment for purchase of an already existing object and there is no
addition to current flow of goods and services.

Q. 9. Classify the following into gross fixed capital formation and change in stocks.
(i) Expenditure on construction of Metro by DMRC.
(ii) Rise in number of cattles in a poultry farm.
(iii) New machines purchased by a sugar manufacturing company.
(iv) Construction of a new house by a consumer.
(v) Decrease in the level of stock of wheat in a year.
Ans. Items (i), (iii) and (iv) are part of gross fixed capital formation as they add to the capital stock of the
economy. Items (ii) and (v) are part of change in stock.

Q. 10. The vegetables grown in kitchen gardening are final goods, yet their value is not considered in
estimating national income. Why?
Ans. Such transactions (termed as Non-Market Transactions) are not considered in estimating national
income because it is difficult to ascertain their market value. Moreover, such transactions are not
done for the purpose of earning income.

Q. 11. How would the following transactions affect the national income?
 Particulars ` in crores
(i) Sale of an old house 10,00,000
(ii) Commission to broker on sale of old house 20,000
(iii) Purchase of Shares 2,000
(iv) Interest on national debt 2,000
(v) Salary to doctor of private hospital 25,000
(vi) Purchase of a new car by a firm 3,25,000
(vii) Payment of bonus to employees 5,000
(viii) Payment of old age pension 7,000
Ans.
Particulars `in crores
(i) ‘Sale of old house’ will not be included as it has already —
been included in the year of its original sale.
(ii) ‘Commission to broker’ will be included as it is the 20,000
income for his productive services.
(iii) ‘Purchase of Shares’ will not be included as it is a —
financial claim and does not contribute to any productive
activity.
(iv) ‘Interest on national debt’ will not be included as the —
interest is paid on loans taken for consumption purposes.
(v) ‘Salary to Doctor of private hospital’ will be included as 25,000
it is a part of compensation to employees.
(vi) ‘Purchase of a new car’ will be included as it is a part of 3,25,000
gross domestic capital formation.
(vii) ‘Payment of bonus to employees’ will be included as it 5,000
is a part of compensation to employees.
(viii) ‘Payment of old age pension’ will not be included as it is —
a part of transfer payment.
National Income will increase by = `3,75,000

Q.12. How will you treat the following in the calculation of Gross Domestic Product of India? Give reasons
for your answer. {CBSE, All India Comptt. 2012}
(i) Profits earned by a branch of foreign bank in India.
(ii) Salaries of Indian employees working in embassy of Japan in India.
(iii) Salary of residents of Japan working in Indian embassy in Japan.
Ans. (i) Yes, it will be included in the Gross Domestic Product of India as profits are earned within the
domestic territory of India.
(ii) No, it will not be included in the Gross Domestic Product of India as the embassy of Japan is not
a part of the domestic territory of India.
(iii) Yes, it will be included in the Gross Domestic Product of India as the Indian Embassy is a part
of the domestic territory of India.

Q.13. Classify the following expenditures as intermediate consumption expenditure and final consumption
expenditure.
(i) Expenditure on research and development by Tata.
(ii) Insurance premium paid by a firm to an insurance company.
 (iii) Insurance premium paid by households to an insurance company.
(iv) Expenditure on repairs and maintenance of plant and machinery.
(v) Expenditure incurred by a firm on purchase of equipment’s.
(vi) Advertising expenditure incurred by Airtel on promotion of its products.
(vii) Business expenses of the employees on tour and entertainment.
Ans. Intermediate Consumption Expenditure: (i), (ii), (iv), (vi), (vii); Final Consumption Expenditure:
(iii), (v).

Q.14. Increase in per capita real income means increase in per capita availability of goods and services.
Does it necessarily mean rise in the welfare of the people of the country? Give any one argument in
support of your answer and explain the same. {CBSE, Sample
Paper 2014}
Ans. Increase in per capita availability of goods and services does raise the standard of living and
consequently welfare. But it may not necessarily always be so. For example, manufacturing etc. does raise
output but at the same time also leads to water and air pollution which reduces welfare of the people. Such
a reduction in welfare may outweigh the increase in welfare and thus lead to overall reduction in welfare.

Q.15. Giving reason explain how should the following be treated in estimating gross domestic product at
market price? {CBSE, Delhi 2014}
(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.
Ans. (i) It is not included because it is an intermediate cost of the firm.
(ii) It is not included because the loan is taken to meet consumption expenditure and therefore
interest paid on such a loan is not a factor payment.
(iii) It is included because it is an investment expenditure, a final expenditure.

Q.16. 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. {CBSE, Foreign 2014}
Ans. 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
services 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.

Q. 17. Define externalities. Give an example of negative externality. What is its impact on welfare?
{CBSE, Delhi 2014}
Ans. Externalities refer to the benefits (or harms) a firm or an individual causes to another for which it is
not paid (or penalised)
Example: Polluting river by an oil refinery.
Impact: Reduces welfare through negative effect on health.

Q.18. Give an example of a positive externality and its impact on welfare of the people.
Ans. Use of public parks by the people for pleasure for which no payments are made by the public. It
increases welfare through positive effect on health.
Q.19. Government incurs expenditure to popularize yoga among the masses. Analyze its impact on gross
domestic product and welfare of the people. {CBSE, Delhi 2016}
Ans. Government expenditure on popularizing yoga raises GDP because it is government’s final
consumption expenditure. It also raises welfare of the people because yogic exercises improve health
and thus, raise efficiency of the people.

Q.20. Sale of petrol and diesel cars is rising particularly in big cities. Analyze its impact on gross domestic
product and welfare. {CBSE, All India 2016}
Ans. Sale of cars raises GDP, because sales are of final products. Cars provide convenience in
transportation but at the same time, it causes traffic jams, air pollution and noise pollution, which
reduces the welfare of the people. Pollution has bad effects on the health of the people.

Q.21. Suppose in an imaginary economy, GDP at Market Price in a particular fiscal year was `4,000 crores,
National Income was `2,500 crores, Net Factor Income paid by the economy to Rest of the World
was `400 crores and the value of Net Indirect Taxes is `450 Crores. Estimate the value of
consumption of fixed capital for the economy from the given data. {CBSE, Sample Paper 2016}
Ans. 𝑁𝑁𝑃𝐹𝐶 = 𝐺𝐷𝑃𝑀𝑃 -Consumption of Fixed Capital (CFC) - Net factor income to abroad - Net indirect
taxes
2.500 = 4,000 - CFC - 450 - 400
2.500 = 3,150 - CFC
CFC = `650 Crores.

Q.22. The factor income earned by an economy amounted to `5,000 crores during a year. The economy
suffers a capital loss of `300 crores due to an earthquake. The resident producers pay indirect taxes
of `70 crores and they were also offered subsidies of `30 crores. Calculate 𝑁𝑁𝑃𝑀𝑃 of the economy.
Ans. 𝑁𝑁𝑃𝑀𝑃 = National Income + Net Indirect Taxes = 5,000* + (70 - 30) = `5,040 Crores.
* Factor income earned by an economy = National Income

Q.23. Suppose a ban is imposed on consumption of tobacco. Examine its likely effects on: (a) gross
domestic product; and (b) welfare. {CBSE, Delhi Comptt. 2017}
Ans. (a) Ban on consumption of tobacco will bring down production of tobacco. Since it is counted in
GDP, GDP will fall, (b) The ban will improve the health in general. It will thus increase welfare.

Q. 24. How does increase in inequalities in distribution of income affect welfare of the society? Explain.
{CBSE, Delhi Comptt. 2017}
Ans. Increase in inequalities means that rich become richer and poor become poorer. Since utility of money
is higher among poor and lower among the rich, any increase in inequalities may not lead to increase
in welfare.

Q. 25. ‘GDP as an index of welfare may understate or overstate welfare’. Explain the statement using
examples of a positive and a negative externality. {CBSE, Sample Paper 2017}
Ans. GDP doesn’t account for externalities.
Positive Externality: Example: Saving commuting time due to construction of a fly-over, increases
welfare, GDP as an index understates welfare.
Negative Externality: Example: Pollution from factories, decreases welfare, GDP overstates welfare.
Q. 26. Use following information of an imaginary country:

Year 2014 - 2015 2015 - 2016 2016 - 2017

Nominal GDP 6.5 8.4 9
GDP Deflator 100 140 125
(i) For which year is real GDP and nominal GDP same and why?
(ii) Calculate Real GDP for the given years. Is there any year for which Real GDP falls?
{CBSE, Sample Paper 2018}

Ans. (a) For the year 2014-15, real GDP and nominal GDP are same as it is the base year.
(b) Calculation of Real GDP:
Year 2014 - 2015 2015 - 2016 2016 - 2017
Nominal GDP 6.5 8.4 9
GDP Deflator 100 140 125
𝐍𝐨𝐦𝐢𝐧𝐚𝐥 𝐆𝐃𝐏 6.5 6 7.2
Real GDP = × 𝟏𝟎𝟎
𝐆𝐃𝐏 𝐃𝐞𝐟𝐥𝐚𝐭𝐨𝐫

The Real GDP declined in the year2015-2016. It could be due to high rate of inflation or price levels.

Q.27. How will you treat the following items in the calculation of ‘Domestic Income’ and ‘National
Income’ of India? Give reasons for your answer.
(i) Profits earned by a branch of Foreign Company in India.
(ii) Salaries of Indian employees working in Chinese Embassy in India.
(iii) Retained Earnings of Foreign Companies from India.
(iv) Salary of residents of France working in Indian Embassy in France.
(v) Profits of Tata Industries from its business in Australia.
Ans. (i) It will be included in the Domestic Income as profits are earned within the domestic territory of
India. However, it will not be included in the national income as it is a part of factor income paid
abroad. It is subtracted from domestic income to get national income.
(ii) It will not be included in the Domestic Income as Chinese Embassy is not a part of the
domestic territory of India. However, it will be included in the national income as it is a part
of factor income from abroad.
(iii) It will be included in the Domestic Income as retained earnings have accrued within the
domestic territory of India. However, it will not be included in the national income as it is a
part of factor income paid abroad. It is subtracted from domestic income to get national
income.
(iv) It will be included in the Domestic Income as Indian Embassy is a part of domestic territory
of India. However, it will not be included in the national income as it is a part of factor income
paid abroad. It is subtracted from domestic income to get national income.
(v) It will not be included in the Domestic Income as Tata Industries is located outside the
domestic territory of India. However, it will be included in the national income as it is a part
of factor income from abroad.
TRUEI AND FALSE
Are the following statements true or false? Give reasons.
1. Measurement of national income at current prices provides a reliable base of comparison.
False. National income at ‘Constant Prices’ provides a reliable base of comparison.

2. National income is affected by both factor as well as transfer incomes.

False H/s affected by factor income only.
3. Nominal GDP can never be less than Real GDP. {CBSE, Sample Paper2010}
False. Nominal GDP can be less than real GDP, if prices in the current year are less than the prices
in the base year.

4. Rent received by an American from Reliance Industries with respect to building located in India will
neither be included in national income nor in domestic income of India.
False. Such rent will be included in domestic income of India as building is located within the
domestic territory of India.

5. Purchase of car by a consumer is a part of gross domestic capital formation.

False. His a Part of private final consumption expenditure.

6. Goods produced for self-consumption will be included in national income.

True. Such goods contribute to the current output and their imputed value will be included in national
income.
7. Teaching by a teacher to his son will be included in national income.
False. not be included in national income as it is a non-market transaction and it is difficult to
ascertain its market value.

8. Increase in stock of goods held by a consumer will contribute to capital formation.

False. Any increase in stock of goods held by a consumer does not contribute to capital formation as
it is assumed that such goods are consumed, the moment they are purchased.

9. Free services provided by the government will not be included in national income.
False. Such services will be included in national income as they are part of Government Final
Consumption Expenditure.

10. Free samples distributed by a business enterprise for advertisement will not be included in national
income.
True. Such free samples are part of intermediate consumption expenditure.

11. An amount of `2,500 contributed by Harish (employee of M/s Nanda Enterprises) towards his own
provident fund is a part of compensation of employees.
False. Any contribution made by an employee towards any social security scheme is not a part of
compensation of employees.
12. Gross domestic capital formation is always greater than gross fixed capital formation.
{CBSE, Sample Paper 2010}
False. Gross domestic capital formation can be less than gross fixed capital formation if change in
stock is negative.

13. Bharat is living in his own house. So, rent of his house should not be included in national income.
False. Bharat also enjoys the housing services similar to those people who stay in rented houses. So,
imputed rent of his house will be included in national income.

14. Production of services for self-consumption are not included in national income.
 True. Such services are not included in national income as it is difficult to ascertain their market
value and they are not rendered for earning income.

15. Value addition can also take place even when the commodity does not go through any transformation.
True. It happens when a commodity is purchased for resale. For example, if a mobile shop sells a
mobile for `7,000 after purchasing it for `6,100, then there is no transformation in mobile, yet value
added is `900.

16. Real gross domestic products can be equal to nominal gross domestic product.
{CBSE, Delhi Comptt. 2012}
True, it is possible when price level in both the years is same.

17. NDP at factor cost is equal to NDP at markets in a two-sector economy.

True. It happens because the concepts of indirect taxes and subsidies does not arise in a two-sector
economy due to absence of government.
Note: As per CBSE guidelines, no marks will be given if reason to the answer is not explained.

1. Why should the aggregate final expenditure of an economy be equal to the aggregate factor
payments? Explain.
Hint: in a simplified economy, it is assumed that there are no savings, taxes, exports and imports.
During the production process, four factors of production (land, labour, capital and enterprise) receive
income in the form of rent, wages, interest and profit for their factor services. The sum total of these
incomes is the factor income received during a year. The entire factor income is spent by the factors
on purchase of final goods and services. The sum of these purchases is the aggregate final expenditure
during the year. So, it is rightly said that aggregate final expenditure in a year is equal to aggregate
factor payments.

2. The value of the nominal GNP of an economy was `2,500 crores in a particular year. The value of
GNP of that country during the same year, evaluated at the prices of some base year, was `3,000
crores. Calculate the value of the GNP deflator of the year in percentage terms. Has the price level
risen between the base year and the year under consideration?
𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝑁𝑃 2,500
Hint: GNP Deflator = × 100 3,000 × 100 = 0.83
𝑅𝑒𝑎𝑙 𝐺𝑁𝑃
GNP deflator of 0.83 or 83% indicates that the price level has reduced by 17% between the base year
and the year under consideration.
3. Write down some of the limitations of using GDP as an index of welfare of a country.
Hint: Discuss “GDP and Welfare”.

REVISION EXERCISE
Multiple Choice Questions (MCQs)
1. Which of the following is included in compensation of employees?
(a) Dearness Allowance
(b) Tools given to employees to be used during work
(c) Payment by insurance company to an injured employee
(d) Contribution by employee to provident fund
2. 𝐺𝐷𝑃𝑀𝑃 = `1,000 and Subsidies = `50, then GDPFC will be:
(a) 1,050 (b) 950 (c) 1,000 (d) 900

3. Which of the following is not a part of profits?

(a) Corporate Tax (b) Dividends
(c) Retained Earnings (d) Royalty

4. “Income method” is also known as:

(a) Distributive share method (b) Income Disposal method
(c) Industrial Origin Method (d) None of these

5. Which of the following is a synonym of “Undistributed Profits”?

(a) Savings of private corporate sector (b) Reserves and Surplus
(c) Retained Earnings (d) All of these

6. The value of intermediate consumption will be______, if purchase of raw material is `1,200, exports
are of `600 and imports are of `200.
(a) 1,200 (b) 800 (c) 1,800 (d) 1,400

7. Which one is included in National Income?

(a) Winning from Lottery (b) Milk purchase by a dairy shop
(c) National Debt Interest (d) None of these

8. ‘Gross Investment’ is also known as: (i) Gross Domestic Capital Formation, (ii) Gross Capital
Formation,
(iii) Gross Fixed Capital Formation, (iv) Gross Domestic Fixed Capital Formation.
(a) Both (i) and (ii) (b) (i)
(c) (ii) (d) (i), (ii) and (iv)

9. Which of the following method can be used to calculate National Income?

(a) Income Method (b) Expenditure Method
(c) Value Added Method (d) All of the above
10. ‘Commodity Service method’ is another name for:
(a) Expenditure method (b) Income method
(c) Value-added method (d) None of these

11. ‘Distributed Profits’ is also known as:

(a) Corporate Tax (b) Dividend
(c) Retained Earnings (d) None of these

12. If a farmer sells wheat to miller for `500 and miller sells flour to baker for `700 and baker sells bread
to consumers for `1,000, then total value added by ‘miller’ and baker’ is:
(a) 500 (b) 300
(c) 1,700 (d) 1,200
13. Which of the following is a part of Expenditure Method?
(a) Rent and Royalty (b) Mixed Income
(c) Net Exports (d) Sales

14. If 𝑁𝐷𝑃𝐹𝐶 = `1,500 and Net Factor Income to Abroad = `500, then NNPFC will be:
(a) 2,000 (b) 1,500
(c) 1,000 (d) 2,500

15. Net Exports is calculated as:

(a) Exports + Imports (b) Exports - Imports
(c) Imports - Exports (d) None of these

16. Which of the following is included in domestic income?

(a) Factor Income from abroad (b) Windfall gains
(c) Capital Gains (d) Bonus to employees

17. Which of the following is not included in compensation of employees?

(a) Wages and salaries in cash
(b) Wages and salaries in kind
(c) Employees’ contribution to social security schemes
(d) Employers’ contribution to social security schemes

18. When the entire output is sold in an accounting year, then value of output is equal to:
(a) Sales + Change in stock (b) Sales
(c) Sales - Change in stock (d) None of these

19. “Operating Surplus” refers to:

(a) Income from property (b) Income from entrepreneurship
(c) Income from property and entrepreneurship (d) None of these

20. According to income method, domestic income is equal to:

(a) Rent and royalty + Interest + Profit + Compensation of employees + Mixed Income
(b) Operating Surplus + Compensation of employees + Income of self-employed
(c) Both (a) and (b)
(d) Neither (a) nor (b)

21. Gross Domestic Capital Formation can be calculated as:

(a) Gross Fixed Capital Formation + Inventory Investment
(b) Gross Business Fixed Investment + Gross Residential Construction Investment + Gross Public
Investment + Inventory Investment
(c) Net Capital Formation + Consumption of Fixed Capital
(d) All of these

22. Broker’s commission on sale and purchase of second hand goods is included in national income
because:
 (a) It is a part of compensation of employees
(b) It is a part of gross domestic capital formation
(c) It is an income earned for rendering productive services
(d) None of these

23. National Income can be calculated by 3 methods. By which method, we get the maximum value of
National Income?
(a) Expenditure method (b) Income method
(c) Value Added method (d) All 3 methods give same value of national income

24. Piyush’s mother is a teacher. She also teaches Piyush. How would you treat this while calculating
national income and domestic income?
(a) It will be included in the national income, but not in the domestic income.
(b) It will be included in the domestic income, but not in the national income.
(c) It will be included in domestic income as well as national income.
(d) It will neither be included in the domestic income nor in the national income.

25. Which of the following will be included in National Income?

(a) Sale of bonds by a company (b) Transport expenses by a firm
(c) Interest on loan paid by households to banks (d) None of these

26. National income includes:

(a) Transfer income (b) Factor income
(c) Both (a) and (b) (d) Neither (a) nor (b)

27. A growing country is one with:

(a) Rising GNP at constant prices (b) Constant GNP at constant prices
(c) Rising GNP at current prices (d) None of these
28. Normal residents of India working in an American company in England add to:
(a) Domestic product of India (b) Domestic product of England
(c) National product of England (d) None of these

29. Change in stock is negative when:

(a) Closing stock > Opening stock (b) Closing stock < Opening stock
(c) Closing stock = 0 (d) Opening stock = 0
30. The net value added at factor cost of a producing unit is equal to:
(a) Sum of factor payments (b) Sum of intermediate consumption
(c) Sum of final consumption (d) Sum of intermediate and final consumption

31. The sum of net value added at factor cost of all the producing units of an economy gives:
(a) Gross domestic product at market price (b) Net domestic product at market price
(c) Net domestic product at factor cost (d) Gross domestic product at factor cost

32. Measurement of national income at constant prices constitute its:

(a) Nominal value (b) Real value
 (c) Both (a) and (b) (d) Neither (a) nor (b)

33. Net factor income from abroad is taken into account when national income is calculated by:
(a) Value added method (b) Income method
(c) Expenditure method (d) Any of the three methods
34. Gross domestic capital formation is equal to:
(a) Gross fixed capital formation plus closing stock
(b) Gross fixed capital formation plus opening stock
(c) Net fixed capital formation plus consumption of fixed capital plus change in stock
(d) Net fixed capital formation plus consumption of fixed capital

35. Gross domestic product at market price is equal to:

(a) Compensation of employees + operating surplus + mixed income of self-employed.
(b) Compensation of employees + operating surplus + mixed income of self-employed + consumption
of fixed capital + net indirect taxes
(c) Compensation of employees + net current transfers from abroad
(d) Compensation of employees + net factor income from abroad

36. National product at current prices is higher than national product at constant prices during a period
of:
(a) Rising prices (b) Falling prices
(c) Constant prices (d) Both (a) and (b)

37. Which of the following sector comes under the category of “tertiary sector”?
(a) Primary sector (b) Secondary sector
(c) Service sector (d) None of these
38. Which one of the following items is excluded in calculating national income?
(a) Services of a rental TV set (b) Rupees 10,000 won in a lottery
(c) Imputed value of owner occupied house (d) Salary of a house maid

39. Value added means value of:

(a) Output at market prices (b) Output less depreciation
(c) Output less Intermediate Cost (d) Output plus Intermediate Cost

40. Which of the following statement is correct? Price Index

𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥 𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃
(a) Real GDP = 𝑁𝑜𝑚𝑖𝑛𝑎𝑙 𝐺𝐷𝑃 × 100 (b) Real GDP = × 100
𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥

𝑅𝑒𝑎𝑙 𝐺𝐷𝑃 𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥

(c) Real GDP = 𝑃𝑟𝑖𝑐𝑒 𝐼𝑛𝑑𝑒𝑥 × 100 (d) Nominal GDP = × 100
𝑅𝑒𝑎𝑙 𝐺𝐷𝑃

41. Expenditure Method focuses on measurement of National Income at:

(a) Phase of production of goods and services (b) Phase of Income Distribution
(c) Phase of Income Disposition (d) All of the above

42. Value Added by a firm is equal to:

 (a) Sales (b) Profits
(c) Sales - Intermediate Consumption (d) Sales + Intermediate Consumption

43. Which of the following is not a component of domestic income?

(a) Net factor income from abroad (b) Operating Surplus
(c) Mixed Income (d) Compensation of Employees

44. Which of the following flowchart is incorrect?

45. Which of the following flowchart is incorrect?

46. Which of the following is not an economic activity and not included in national income?
(a) Medical services rendered by a dispensary (b) A housewife doing household work
(c) A lawyer doing his practice (d) A maid working full time with a family

47. National income is the sum of factor incomes accruing to: {CBSE, All India 2016}
(a) Nationals (b) Economic territory
(c) Residents (d) Both residents and non-residents

48. Factor income paid to non-residents within the domestic territory of a country leads to:
(a) Increase in Domestic Income (b) Decrease in National Income
(c) Both (a) and (b) (d) None of these

49. With a rise in real national income, welfare of the people: (Choose the correct alternative)
(a) Rises (b) Falls
(c) Remains unchanged (d) None of the above
{CBSE, All India 2018}
Answer Key
1 A 11 B 21 D 31 C 41 C
 2 A 12 A 22 C 32 B 42 C
3 D 13 C 23 D 33 D 43 A
4 A 14 C 24 D 34 C 44 A
5 D 15 B 25 D 35 B 45 C
6 A 16 D 26 B 36 A 46 B
7 D 17 C 27 A 37 C 47 C
8 A 18 B 28 B 38 B 48 C
9 D 19 C 29 B 39 C 49 A
10 C 20 C 30 A 40 B

Very Short Answer Type Questions (1 Mark each)

Q.1. Mention the three methods of measuring national income.
Ans. (i) Value Added method (ii) Income method (iii) Expenditure method.

Q.2. What is the value added method of measuring national income?

Ans. Value added method is that method which measures the national income by estimating the value
added by each producing enterprises within the domestic territory of the country in an accounting
year.

Q.3. When is value of output equal to value added?

Ans. Value of output is equal to value added if there are no intermediate costs.

Q.4. What aggregate do we get, when we add up the gross value added of all the producing sectors of an
economy?
Ans. Gross domestic product at market price.

Q.5. What is the rationale for not taking into account value of intermediate goods in the measure of GDP?
Ans. To avoid the problem of double counting.

Q.6. How can the problem of double counting be avoided?

Ans. There are two alternative ways of avoiding double counting: (i) Take value of final output; (ii) Take
value added of each firm.

Q.7. Give the meaning of operating surplus.

Ans. Operating surplus refers to the sum total of income from property (rent + royalty + interest) and
income from entrepreneurship (profit).

Q.8. Income from property, rent and entrepreneurial income are respectively `150, `75 and `50. How
much is the operating surplus?
Ans. 150 + 50 = `200. (Note: Rent is a part of income from property.)
Q.9. What is meant by mixed income?
Ans. Mixed income refers to the income generated by own account workers (like farmers, barber etc.) and
unincorporated enterprises (like retail traders, shopkeepers etc.).

Q.10. If compensation of employees in a firm constitutes 55% of net value added at factor cost of a firm,
find the proportion of operating surplus.
Ans. 100% -55% = 45% (assuming mixed income is zero).

Q.11. Why do export form a part of national income?

Ans. Exports are produced within the country’s domestic territory, therefore, they from a part of national
income.

Q.12. Why are imports not included in the estimation of national income?
Ans. Imports are not produced within the domestic territory of the country, therefore, they are not included
in the estimation of national income.

Q.13. Under what circumstances, net export is negative?

Ans. When imports exceed exports.

Q.14. Will the commission given to a broker for sale of an old house be included in national income?
Ans. Yes, it will be included in national income as it is a payment for productive service received.

Q.15. Why leisure is not included in GNP?

Ans. It is very difficult to measure the value of leisure.

Q.16. Why is transfer income not included in national income?

Ans. Transfer income is not included in national income because it is not connected with any productive
activity and there is no value addition.

Q.17. What is nominal gross domestic product? {CBSE, Delhi 2011, Delhi Comptt. 2017}
Ans. When gross domestic product (GDP) of a given year is estimated on the basis of price of the same
year, it is called nominal GDP.

Q.18. What is real gross domestic product? {CBSE, Delhi Comptt. 2011, All India Comptt. 2017}
Ans. When gross domestic product (GDP) of a given year is estimated on the basis of price of the base
year, it is called real GDP.

Q.19. Give one example of “externality” which reduces welfare of the people. (CBSE, Delhi 2013}
OR
Give one example of negative externalities. {CBSE, Delhi 2018}
Ans. Environmental pollution caused by industrial plants.

Q.20. Define intermediate consumption. {CBSE, Delhi Comptt. 2013 (I)}

Ans. Intermediate consumption refers to the use of intermediate goods in the production process.
Short Answer Type Questions (3-4 Marks each)
1. Discuss the concept of Value Added Method.

2. What is meant by problem of double counting? How this problem can be avoided?
{CBSE, Sample Paper 2019}

3. What precautions (any four) should be taken while estimating national income by production
method? {CBSE, All India Comptt. 2015 (III)}
OR
State the various precautions of Product Method that should be kept in mind while estimating national
income. {CBSE, Sample Paper 2017}

4. What is meant by compensation of employees? Discuss three elements of compensation of

employees.

5. Define operating Surplus. State its components. {CBSE, Delhi 2003}

6. Explain ‘mixed income of self-employed’ and give an example. {CBSE, Foreign 2017(111)}

7. What precautions (any four) should be taken while estimating national income by income method?
{CBSE, All India Comptt. 2015 (II)}

8. What is meant by gross domestic capital formation? State its components.

9. What precautions (any four) should be taken while estimating national income by expenditure
method? {CBSE, All India Comptt. 2015 (I)}

10. Give the meaning of Nominal GDP and Real GDP. Which of these is the indicator of economic
welfare? {CBSE, Sample Paper 2012}

11. Explain how distribution of gross domestic product is its limitation as a measure of economic
welfare. (CBSE, Delhi 2010 (I, III), 2011}

12. Distinguish between real and nominal gross domestic product.

{CBSE, Delhi 2010 (II), All India Comptt. 2014}

13. Giving reason identify whether the following are final expenditures or intermediate expenditure:
{CBSE, Delhi 2011 (III)}
(i) Expenditure on maintenance of an office building.
(ii) Expenditure on improvement of a machine in a factory.
 Hint: (i) It Seated as intermediate expenditure because it involves expenditure on goods, which are
single use producer goods, (ii) It is treated as final expenditure because it is expenditure on
investment.

14. Explain how ‘non-monetary exchanges’ are a limitation in taking gross domestic product as an index
of welfare. {CBSE, All India 2011, Delhi Comptt. 2018}

15. How can externalities be a limitation of using gross domestic product as an index of welfare?
{CBSE, Delhi Comptt. 2011}

16. Distinguish between “real” gross domestic product and “nominal” gross domestic product. Which of
these is a better index of welfare of the people and why? {CBSE, All India 2013}

17. Is gross domestic product a true index of economic welfare of the people? Give two reasons in support
of your answer. {CBSE, All India Comptt. 2014}

18. Only one Product X is produced in the country. Its output during the year 2012 and 2013 was 100
units and 110 units respectively. The market price of the product during the year was `50 and `55
per unit respectively. Calculate the percentage change in real GDP and nominal GDP in year 2013
using 2012 as the base year. {CBSE, Sample Paper
2015}
19. State the various components of the Income Method that are used to calculate national income.
{CBSE, Sample Paper 2015}

20. If the Nominal GDP is `1,200 and Price Index (with base = 100) is120, calculate Real GDP.
{CBSE, Delhi 2015 (II)}
Hint: Real GDP = `1,000.

21. If the Real GDP is `300 and Nominal GDP is f 330, calculate Price Index (base = 100).
{CBSE, Delhi 2015 (III)}
Hint: Price index =110.
22. If the Real GDP is `500 and Price index (base = 100) is 125, calculate the Nominal GDP.
{CBSE, All India 2015 (II)}
Hint: Nominal GDP = `625.

23. Describe the expenditure method of calculating gross domestic product at market price.
{CBSE, All India Comptt. 2015 (I)}

24. Government spends on child immunization programme. Analyse its impact on Gross Domestic
Product and welfare of the people. {CBSE, Foreign 2016}

25. If nominal income is `500 and price index is 125, calculate real income. {CBSE, All India 2016 (II)}
Hint: Real Income = `400.

26. Given real income to be 400 and price index be 100, calculate nominal income.
 {CBSE. Foreign 2016 (I)}
Hint: Nominal Income = f400.

27. What is real GDP? State three limitations of GDP as an index of economic welfare.
{CBSE, Delhi Comptt. 2016}
28. Discuss any two differences between GDP at constant prices and GDP at current Prices.
{CBSE, Sample Paper 2016}

29. State the various components of the Expenditure Method that are used to calculate national income.
{CBSE, Sample Paper 2016}

30. Suppose a ban is imposed on consumption of liquor in the country. Examine its effects on (a) gross
domestic product and (b) welfare. {CBSE, All India Comptt. 2017}

31. Explain the concepts of Real GDP and Nominal GDP, using a suitable numerical example.
{CBSE, Sample Paper 2017}

32. Define intermediate consumption and explain it with an example. How is it different from final
consumption? {CBSE, All India 2018}

33. Given nominal income, how can we find real income? Explain.
Long Answer Type Questions (6 Marks each)
1. Explain the production method of estimating national income. {CBSE, Delhi 2007}

2. Discuss in brief the various precautions of value added method.

3. Describe the steps involved in the estimation of national income by income method. State any two
precautions that must be taken while estimating national income by this method.
(CBSE, All India 2005}
4. State any six precautions which must be taken while estimating factor income. {CBSE, Delhi 2003}

5. Explain the precautions that are taken while estimating national income by value added method.
{CBSE, All India 2017 (II)}

6. Explain in brief the various components of expenditure method.

7. Discuss the various steps of expenditure method for calculating national income.

8. Explain the precautions that should be taken while estimating national income by expenditure
method. {CBSE, All India 2017 (I, III)}

9. Why are exports included in the estimation of domestic product by the expenditure method? Can
gross domestic product be greater than gross national product? Explain. {CBSE, Sample Paper 2008}
10. Distinguish between real gross domestic product and nominal gross domestic product. Cangross
domestic product be used as an index of welfare of the people? Give two reasons. {CBSE Foreign
2010}

11. How will you treat the following while estimating national income of India? Give reasons for your
answer.
(i) Salaries received by Indian residents working in Russian Embassy in India.
(ii) Profits earned by an Indian bank from its branches abroad.
(iii) Goods and Services Tax received by the government.
Hint: Refer “Items included/excluded in National Income”.

12. Explain the problem of double counting in estimating national income, with the help of an example.
Also explain two alternative ways of avoiding the problem. {CBSE, All India 2010}

13. Explain the concept of “real income”. Explain why, due to the presence of externalities, real national
income in itself cannot be treated as a true index of welfare. {CBSE, Delhi Comptt. 2013}

14. Distinguish between ‘nominal income’ and ‘real income’. Explain why due to the presence of non-
monetary production, real national income on its own cannot he treated as a true index of welfare.
{CBSE, All India Comptt. 2013}

15. Explain any four limitations of using GDP as a measure/index of welfare of a country.
(CBSE, Sample Paper 2016}

16. Explain ‘non-monetary exchanges’ as a limitation of using gross domestic product as an index of
welfare of a country. {CBSE, Delhi 2017}

17. How will you treat the following while estimating domestic product of a country? Give reasons for
your answer: {CBSE, Delhi 2017}
(a) Profits earned by branches of country’s bank in other countries.
(b) Gifts given by an employer to his employees on independence day.
(c) Purchase of goods by foreign tourists.
18. Differentiate between National Income at Current Prices and National Income at Constant Prices.
Which of the two presents a better view of the economic growth of economy and why?
{CBSE, Sample Paper 2019}

Unsolved Practicals
Practicals on Value Added Method
1. In an economy, following transactions took place. Calculate value of output and value added by Firm
B:
(i) Firm A sold to firm B goods of `80 crore; to firm C `50 crore; to household `30 crore and goods
of value `10 crore remains unsold
(ii) Firm B sold to firm C goods of `70 crore; to firm D `40 crore; goods of value `30 crore were
exported and goods of value 5 crore was sold to government. {CBSE, Sample Paper 2019}
Value of Output of firm B= `145 crores; Value added by firm B = `65 crores
2. Calculate Value added by firm A and firm B.
Particulars `in crores
(i) Sales by firm A 100
 (ii) Purchases from firm B by firm A 40
(iii) Purchases from firm A by firm B 60
(iv) Sales by firm B 200
(v) Closing stock of firm A 20
(vi) Closing stock of firm B 35
(vii) Opening stock of firm A 25
(viii) Opening stock of firm B 45
(ix) Indirect taxes paid by both the firms 30
Value added by firm A = `55 crores; Value added by firm S = `130 crores

3. Calculate net value added at factor cost from following data:

Particulars `in crores
(i) Purchase of machinery to be used in the production unit 100
(ii) Sales 200
(iii) Intermediate costs 90
(iv) Indirect taxes 12
(v) Change in stock 10
(vi) Goods and Services Tax 6
(vii) Stock of raw material 5
Net value added at factor cost = `108 Crores
4. Calculate 𝑁𝐷𝑃𝐹𝐶 :
Particulars ` in crores
(i) Subsidies 1
(ii) Sales 100
(iii) Closing stock 10
(iv) Indirect taxes 5
(v) Intermediate consumption 30
(vi) Opening stock 20
(vii) Consumption of fixed capital 15
𝑁𝐷𝑃𝐹𝐶 = `41 crores
5. Calculate ‘value of output’ from the following data:
Particulars `in lakhs
(i) Subsidy 10
(ii) Intermediate consumption 150
(iii) Net addition to stocks (~)13
(iv) Depreciation 30
(v) Goods and Services Tax 20
(vi) Net value added at factor cost 250
Value of output = `440 lakhs

6. Calculate value of output and gross value added at market price

(i) Opening stock 1,000
(ii) Closing stock 800
(iii) Purchase of raw materials 200
 (iv) Sales 10,000
(v) Indirect taxes 250
(vi) Subsidies 50
Value of output = `9,800 crores; Gross value added at MP = `9,600 crores

7. Calculate ‘Sales’ from the following data: {CBSE, Foreign 2008 (II)}
Particulars `in lakhs
(i) Net value added at factor cost 300
(ii) Net addition to stocks (—)20
(iii) Goods and Services Tax (GST)* 30
(iv) Depreciation 10
(v) Intermediate consumption 100
(vi) Subsidy 5
‘Sales Tax given in the question earlier has been replaced by GST.
Sales = `455 lakhs

8. Calculate Net Value Added at Factor Cost: {CBSE, Delhi 2012 (II)}
Particulars `
(i) Consumption of fixed capital (`) 600
(ii) Goods and Services Tax or GST* (`) 400
(iii) Output sold (units) 2,000
(iv) Price per unit of output (`) 10
(v) Net change in stocks (`) (-) 50
(vi) Intermediate cost (`) 10,000
(vii) Subsidy (`) 500
Import duty given in the question earlier has been replaced by GST.
`9,450
9. Calculate Net Value Added at Market Price: {CBSE, Delhi 2012 (III)}
Particulars
(i) Output sold (units) 800
(ii) Price per unit of output (`) 20
(iii) Goods and Services Tax or GST* (`) 2,000 (-)
(iv) Net change in stocks (`) 500
(v) Depreciation (`) 1,000
(vi) Intermediate cost (`) 8,000
*Excise duty and Import duty given in the question earlier have been replaced by GST.
`6,500

10. Find Net Value added at Market Price: {CBSE, Delhi 2016 (II)}
Particulars ( `in lakhs)
(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
`14 lakh
11. Calculate ‘Sales’ from the following data: {CBSE, All India 2013}
Particulars ( `in
lakhs)
(i) Subsidies 200
(ii) Opening stock 100
(iii) Closing stock 600
(iv) Intermediate consumption 3,000
(v) Consumption of fixed capital 700
(vi) Profit 750
(vii) Net value added at factor cost 2,000
`5,000 lakh
12. Suppose firm A sold timber produced in its forest to firm B for `1,000 and firewood to consumers for
fuel for `500. Firm B converted logs into slippers and partly sold to furniture making firm C for `800
and the remaining to private consumers for `700. Firm C sold furniture worth `1,000 to private
consumers and the remaining to a government office for `500. Calculate:
(i) Values added by firm A, firm B and firm C.
(ii) Total value of output.
(i) Value added by firm A = `1,500; Value added by firm B = `500; Value added by
firm C = `700. (ii) Total value of output = `4,500.

13. You are given following information about four producers A, B, C and D in an economy. A sells
`300 worth of his output to B, `200 worth of his output to C and `500 worth of output to households.
The sales of B to A, C and D are worth `400, `200 and `300 respectively. C sells to A, B and D
output worth `100 each. Sales by C to households are worth `900. D sells to households output worth
`700. His exports are worth `300 while stock worth `200 remains unsold with D. Estimate the value
added by.
(i) A, B, C and D separately.
(ii) All of them together.
(i) Value added: Firm A = `500; Firm B = `500; Firm C = `800; Firm D = `800.
(ii) `2,600.

14. Suppose firm A sold raw material to firm B for `1,000 and to firm C for `600. Firm B sold its product
partly to private consumers for `800 and the remaining product was exported for `600. Firm C part
of its product to the government for `500 for public consumption and the remaining product worth
`500 was unsold stock left with it. (Assume that firm A buys no raw material), (i) Find the value
added by firm A, firm B and firm C. (ii) Total Consumption Expenditure.
(i) Value added: Firm A = `1,600; Firm B = `400; Firm C = `400.
(ii) Total Consumption Expenditure = `1,300.

15. In an economy, the following transactions take place and the final sale is for private consumption. A,
B, C and D are four industries. A sells to B for `20,000. B whose value added is `40,000, sells half
of its output to C and another half to D. C sells all its output to D, whose value added is `30,000. D
sells all its output to final product for `1,30,000. What is value added by C?
Value Added by C= `40,000
Practicals on Income Method
16. Calculate National Income.
Particulars ` in crores
(i) Mixed income of self employed 200
(ii) Old age pension 20
(iii) Dividends 100
(iv) Operating surplus 900
(v) Wages and salaries 500
(vi) Profits 400
(vii) Employers’ contribution to social security schemes 50
(viii) Net factor income from abroad -10
(ix) Consumption of fixed capital 50
(x) Net indirect taxes 50
National Income = `1,640 crores
17. Calculate NNP at FC.
Particulars `in crores
(i) Net current transfers from rest of the world 80
(ii) Wages and Salaries 600
(iii) Net indirect taxes 75
(iv) Net Factor income from abroad -20
(v) Rent and interest 160
(vi) Corporation tax 40
(vii) Mixed Income of the self-employed 280
(viii) Undistributed profit 60
(ix) Dividend 20
(x) Consumption of fixed capital 120
𝑁𝑁𝑃𝐹𝐶 = `1,140 crores
18. Calculate GNP at MP.
Particulars `in crores
(i) Employee Compensation 600
(ii) Rent and interest 350
(iii) Profit 200
(iv) Indirect Tax 160
(v) Consumption of fixed capital 200
(vi) Mixed Income of the self-employed 850
(vii) Subsidies 40
(viii) Net current transfers from rest of the world 850
(ix) Net Factor income from abroad (-)100
GNP at MP = `2,220 crores
19. Calculate GNP at MP.
Particulars `in crores
(i) Indirect tax 200
(ii) Consumption of fixed capital 100
 (iii) Factor Income to abroad 250
(iv) Factor Income from abroad 320
(v) Rent 250
(vi) Dividend 220
(vii) Mixed Income 120
(viii) Saving of private corporate sector 200
(ix) Interest 100
(x) Subsidies 200
(xi) Compensation of employees 500
(xii) Corporate tax 400
GNP at MP = `1,960 crores

20. Calculate “Gross National Product at Market Price” from the following data: {CBSE, All India2013}
Particulars `in crores
(i) Compensation of employees 2,000
(ii) 500
(iii) Interest
(iv) Rent 700
(v) Profits 800
(vi) Employers’ contribution to social security schemes 201
(vii) Dividends 300
(viii) Consumption of fixed capital 100
(ix) Net indirect taxes 250
(x) Net exports 70
(xi) Net factor income to abroad 150
(xii) Mixed income of self-employed 1,500
`5,700 Crore
21. From the data given below, prove that ‘Net Value Added at Factor Cost’ is equal to ‘Income Generated’.
Particulars `in crores
(i) Opening stock 200
(ii) Closing stock 400
(iii) Purchase of raw materials 300
(iv) Sales 1,200
(v) Corporate tax 100
(vi) Undistributed profits 50
(vii) Dividends 50
(viii) Rent 150
(ix) Interest 100
(x) Depreciation 200
(xi) Indirect taxes 150
(xii) Subsidies 50
(xiii) Wages and salaries 350
 Net Value Added at Factor Cost = Income Generated = `800 crores

22. On the basis of following data, prove that 'Net Value Added at Factor Cost’ is equal to ‘Income
Generated’.
Particulars ` in crores
(i) Addition to stock 1,000
(ii) Sales 10,000
(iii) Net indirect taxes 800
(iv) Purchase of raw material 1,650
(v) Expenses on Power 850
(vi) Consumption of fixed capital 500
(vii) Rent 700
(viii) Compensation of Employees 3,500
(ix) Interest 1,000
(x) Dividend 1,500
(xi) Corporate gains tax 300
(xii) Undistributed profit 200
Net Value Added at Factor Cost = Income Generated = `7,200 crores

Practicals on Operating Surplus

23. Calculate operating surplus.
Particulars `in crores
(i) Bonus to employees 25
(ii) Mixed income 175
(iii) Profit 100
(iv) Dividend 40
(v) Corporate tax 30
(vi) Rent 80
(vii) Royalty 40
(viii) Interest 130
(ix) Employers’ contribution to social security schemes 30
Operating Surplus = `350 crores
24. Calculate the value of operating surplus.
Particulars `in crores
(i) Value of output 800
(ii) Intermediate consumption 200
(iii) Compensation of employees 200
(iv) Indirect taxes 30
(v) Depreciation 20
(vi) Subsidies 50
(vii) Mixed income 100
Operating Surplus = `300 crores
25. Calculate the operating surplus.
Particulars `in crores
(i) Compensation of employees 200
 (ii) Indirect taxes 200
(iii) Consumption of fixed capital 100
(iv) Subsidies 50
(v) Gross domestic product at MP 600
Operating Surplus = `150 crores

26. Calculate operating surplus and compensation of employees.

Particulars `in crores
(i) Indirect taxes 250
(ii) Depreciation 200
(iii) Royalty 20
(iv) Profit 200
(v) Subsidies 50
(vi) Gross domestic product at MP 1,800
(vii) Interest 50
(viii) Rent 100
_
(ix) Net factor income from abroad ( ) 40
Operating Surplus = `370 crores; Compensation of employees = `1,030 crores

Practicals on Expenditure Method

27. Calculate GNP at MP.
Particulars `in crores
(i) Personal consumption expenditure 27,500
(ii) Government consumption expenditure 3,000
(iii) Gross domestic fixed capital formation 2,500
(iv) Import of goods and services 500
(v) Net factor income from abroad -250
(vi) Subsidy 250
(vii) Fall in stock 300
(viii) Export of goods and services 450
(ix) Depreciation 1,000
(x) Net indirect taxes 1,000
GNP at MP = `32,400 crores
28. Calculate NDP at FC.
Particulars `in crores
(i) Private final consumption expenditure 400
(ii) Gross domestic capital formation 100
(iii) Change in stocks 20
(iv) Net indirect taxes 60
(v) Net factor income from abroad 10
(vi) Net exports (-) 20
(vii) Consumption of fixed capital 20
(viii) Government final consumption expenditure 100
NDP at FC = `500 crores
29. Calculate National Income.
 Particulars ` in crores
(i) Private Final Consumption Expenditure 2,000
(ii) Government Final Consumption Expenditure 700
(iii) Gross domestic Capital formation 200
(iv) Net Exports 300
(v) Net Factor income from abroad 400
(vi) Consumption of fixed capital 200
(vii) Net indirect tax 50
National Income = `3,350 crores
30. Calculate National Income from the following data: {CBSE, Delhi 2013}
Particulars ` in crores
(i) Private final consumption expenditure 900
(ii) Profit 100
(iii) Government final consumption expenditure 400
(iv) Net indirect taxes 100
(v) Gross domestic capital formation 250
(vi) Change in stock 50
(vii) Net factor income from abroad (-) 40
(viii) Consumption of fixed capital. 20
(ix) Net imports 30
`1,360 Crore
Miscellaneous Practicals
31. Calculate National Income by Income and Expenditure method.
Particulars `in crores
(i) Compensation of employees 1,200
(ii) Net factor income from abroad (-) 20
(iii) Net indirect tax 120
(iv) Profits 800
(v) Private final consumption expenditure 2,000
(vi) Net domestic capital formation 770
(vii) Consumption of fixed capital 130
(viii) Rent 400
(ix) Interest 620
(x) Mixed income of self employed 700
(xi) Net exports (~) 30
(xii) Government final consumption expenditure 1,100
National Incomes = `3,700 crores

32. From the following data, calculate “national income” by (a) income method and (b) expenditure
method: {CBSE, All India 2009}
Particulars ` in crores
(i) Interest 150
(ii) Rent 250
(iii) Government final consumption expenditure 600
(iv) Private final consumption expenditure 1200
(v) Profits 640
 (vi) Compensation of employees 1000
(vii) Net factor income to abroad 30
(viii) Net indirect taxes 60
(ix) Net exports (—)40
(x) Consumption of fixed capital 50
(xi) Net domestic capital formation 340
(a)`2,010 crores; (b) `2,010 crores
33. Calculate National Income by Income and Expenditure method.
Particulars `in crores
(i) Compensation of employees 600
(ii) Government final consumption expenditure 550
(iii) Net factor income from abroad (-) 10
(iv) Net exports (-) 15
(v) Profit 400
(vi) Net indirect tax 60
(vii) Mixed income of self employed 350
(viii) Rent 200
(ix) Interest 310
(x) Private final consumption expenditure 1,000
(xi) Net domestic capital formation 385
(xii) Consumption of fixed capital 65
National Income = `1,850 crores
34. Calculate National Income by income method and expenditure method.
Particulars ` in crores
(i) Government final consumption expenditure 100
(ii) Interest, rent and profits 920
(iii) Gross Capital formation 620
(iv) Net exports (-) 10
(v) Change in stock 100
(vi) Net Factor income from abroad (-) 10
(vii) Subsidies 20
(viii) Private Final Consumption expenditure 800
(ix) Indirect tax 120
(x) Consumption of fixed Capital 60
(xi) Mixed income of the self employed 60
(xii) Compensation of employees 370
National Income = `1,340 crores
35. Calculate National Income by Income and Expenditure method.
Particulars ` in crores
(i) Government final consumption expenditure 7,351
(ii) Indirect tax 8,834
(iii) Gross fixed capital formation 13,248
(iv) Mixed income of the self employed 28,267
(v) Subsidies 1,120
(vi) Change in stock 3,170
(vii) Rent, interest and profits 9,637
(viii) Consumption of fixed capital 4,046
 (ix) Private Final Consumption expenditure 51,177
(x) Imports of goods and services 5,674
(xi) Exports of goods and services 4,812
(xii) Net factor income from abroad (-) 255
(xiii) Compensation of employees 24,420
National Income = `62,069 crores
36. Calculate National Income by Income and Expenditure method.
Particulars `in crores
(i) Rent 1,500
(ii) Net factor income from abroad 50
(iii) Wages and salaries 25,000
(iv) Indirect tax 1,000
(v) Government final consumption expenditure 11,200
(vi) Subsidies 300
(vii) Royalty 200
(viii) Net exports (-) 200
(ix) Interest 6,400
(x) Corporate tax 200
(xi) Profit after tax 4,000
(xii) Households final consumption expenditure 26,000
(xiii) Change in stock 100
(xiv) Net domestic fixed capital formation 600
(xv) Final consumption expenditure of private non-profit 300
institutions serving households
National Income = `37,350 crores

37. Calculate National Income by Income and expenditure method.

Particulars `in crores
(i) Government final consumption expenditure 50
(ii) Rent 150
(iii) Opening stock 20
(iv) Interest 80
(v) Profit 70
(vi) Private final consumption expenditure 480
(vii) Gross fixed capital formation 90
(viii) Closing stock 35
(ix) Net exports (-) 5
(x) Net indirect taxes 60
(xi) Compensation of employees 200
(xii) Consumption of fixed capital 20
(xiii) Mixed income of self employed 50
 (xiv) Net factor income from abroad 20
National Income = `570 crores

38. Calculate National Income by Income and Expenditure method.

Particulars `in crores
(i) Opening stock 50
(ii) Profit 60
(iii) Closing stock 10
(iv) Interest 500
(v) Consumption of fixed capital 20
(vi) Private final consumption expenditure 460
(vii) Mixed income 100
(viii) Net exports (-) 10
(ix) Net factor income from abroad (-)5
(x) Compensation of employees 300
(xi) Net capital formation 500
(xii) Net indirect taxes 20
(xiii) Government final consumption expenditure 100
(xiv) Rent 70
National income = `1,025 crores

39. Calculate NNP at FC by Income and Expenditure method.

Particulars `in crores
(i) Mixed income of self employed 100
(ii) Gross fixed capital formation 300
(iii) Private final consumption expenditure 900
(iv) Net exports (-) 50
(v) Subsidies 50
(vi) Government final consumption expenditure 150
(vii) Rent 60
(viii) Indirect taxes 250
(ix) Interest 200
(x) Change in stocks 50
(xi) Compensation of employees 400
(xii) Profit 340
(xiii) Consumption of fixed capital 50
(xiv) Net factor income from abroad 50
NNP at FC = `1,150 crores
40. Calculate GNP at MP by Income and Expenditure method.
Particulars `in crores
(i) Net exports 15
(ii) Private final consumption expenditure 600
(iii) Consumption of fixed capital 30
(iv) Operating surplus 190
(v) Net indirect taxes 105
(vi) Net factor income from abroad (~) 5
(vii) Wages and Salaries 520
(viii) Rent 60
(ix) Employers’ contribution to social security schemes 100
(x) Government final consumption expenditure 200
(xi) Net capital formation 100
GNP at MP = `940 crores

41. Calculate GNP at MP by Income and Expenditure method.

Particulars `in crores
(i) Net capital formation 200
(ii) Private final consumption expenditure 1,000
(iii) Operating surplus 360
(iv) Wages and Salaries 900
(v) Employers’ contribution to social security schemes 50
(vi) Rent 100
(vii) Government final consumption expenditure 300
(viii) Consumption of fixed capital 50
(ix) Net indirect taxes 200
(x) Net factor income from abroad (-) 10
(xi) Net exports 10
GNP at MP = `1,550 crores
42. Calculate gross national product at factor cost from the following data by (a) income method and (b)
expenditure method. {CBSE, Delhi 2002}
Particulars `in crores
(i) Wages and salaries 800
(ii) Mixed income of self-employed 160
(iii) Operating surplus 600
(iv) Undistributed profits 150
(v) Gross capital formation 330
(vi) Change in stocks 25
(vii) Net capital formation 300
 (viii) Employers’ contribution to social security schemes 100
(ix) Net factor income from abroad (-) 20
(x) Exports 30
(xi) Imports 60
(xii) Private final consumption expenditure 1,000
(xiii) Government final consumption expenditure 450
(xiv) Net indirect taxes 60
(xv) Compensation of employees paid by the Government 75
Note: Consumption of Fixed Capital is calculated as the difference between (v) and (vii) item.
Gross National Product at Factor Cost = `1,670 crores
43. Calculate GDPMP by income method and National income by expenditure method
Particulars ` in crores
(i) Mixed income of the self employed 260
(ii) Rent, interest and Profit 290
(iii) Interest on national debt 40
(iv) Government final consumption expenditure 220
(v) Imports 170
(vi) Exports 140
(vii) Private final consumption expenditure 1,530
(viii) Change in stock 100
(ix) Compensation of employees 730
(x) Net factor income from the rest of the world -10
(xi) Consumption of fixed capital 120
(xii) Subsidies 30
(xiii) Gross fixed capital formation 400
(xiv) Indirect taxes 850
𝐺𝐷𝑃𝑀𝑃 by Income method = `2,220 crores; NNPFC by Expenditure method = `1,270 crores
44. Calculate GDP at MP by Income method and National income by Expenditure method.
Particulars `in crores
(i) Compensation of employees 13,000
(ii) Indirect taxes 3,700
(iii) Gross fixed capital formation 8,100
(iv) Interest, rent and profit 5,000
(v) Government final consumption expenditure 3,600
(vi) Mixed income of self employed 16,000
(vii) Change in stock 1,000
(viii) Imports of goods and services 1,800
(ix) Exports of goods and services 1,700
(x) Private final consumption expenditure 27,000
(xi) Subsidies 300
(xii) Net factor income from abroad (-) 250
(xiii) Consumption of fixed capital 2,200
𝐺𝐷𝑃𝑀𝑃 by Income Method =`39,600 crores; and National Income by
Expenditure Method = `33,750 crores
45. Calculate GDP at MP by Income method and National Income by Expenditure method.
Particulars ` in crores
(i) Compensation of employees 490
(ii) Private final consumption expenditure 1,120
(iii) Net factor income from the rest of the world (-) 10
(iv) Net fixed capital formation 180
(v) Consumption of fixed capital 80
(vi) Indirect taxes 180
(vii) Current transfers from government to households 20
(viii) Change in stock 60
(ix) Mixed income of the self employed 560
(x) Government final consumption expenditure 150
(xi) Subsidies 20
(xii) Exports 100
(xiii) Imports 110
(xiv) Rent, interest and profit 290
𝐺𝐷𝑃𝑀𝑃 by Income Method = `1,580 crores; and National Income by
Expenditure Method = `1,330 crores

46. Calculate GDP at Factor cost by Income and Expenditure method.

Particulars `in crores
(i) Personal consumption expenditure 730
(ii) Wages and Salaries 700
(iii) Employers’ contribution to social security schemes 100
(iv) Gross business fixed investment 60
(v) Profit 100
(vi) Gross residential construction investment 60
(vii) Government purchases of goods and services 200
(viii) Gross public investment 40
(ix) Rent 50
(x) Inventory investment 20
(xi) Exports 40
(xii) Interest 50
(xiii) Imports 20
(xiv) Net factor income from abroad (-)10
(xv) Mixed income 100
(xvi) Depreciation 20
(xvii) Subsidies 10
(xviii) Indirect taxes 20
Note: Gross Domestic Capital Formation is calculated as: Gross business fixed investment + Gross
residential construction investment + Gross public investment + Inventory investment GDP at FC = `1,120
crores

47. Calculate National Income by Income and Output method.

Particulars `in crores
 (i) Value of output of primary sector 1,000
(ii) Value of output of secondary sector 800
(iii) Value of output of tertiary sector 600
(iv) Intermediate consumption of primary sector 400
(v) Intermediate consumption of secondary sector 300
(vi) Intermediate consumption of tertiary sector 100
(vii) Emoluments of employees 500
(viii) Rent 40
(ix) Consumption of fixed capital 80
(x) Indirect taxes 30
(xi) Net factor income from abroad 10
(xii) Subsidies 10
(xiii) Interest 50
(xiv) Rent, Rates, and Interest 200
(xv) Mixed income 800
National Income - `1,510 crores

48. Calculate National Income by Income method and Production method.

Particulars `in crores
(i) Value of output of primary sector 300
(ii) Value of output of secondary sector 200
(iii) Value of output of tertiary sector 100
(iv) Intermediate consumption of primary sector 100
(v) Intermediate consumption of secondary sector 50
(vi) Intermediate consumption of tertiary sector 50
(vii) Emoluments of employees 150
(viii) Net factor income from abroad (-) 10
(ix) Operating surplus 140
(x) Consumption of fixed capital 40
(xi) Net indirect tax 20
(xii) Interest 20
(xiii) Mixed income 50
(xiv) Rent 10
National Income = `330 crores

49. Calculate GDP at MP by value added method and income method.

Particulars `in crores
(i) Intermediate consumption of primary sector 500
(ii) Intermediate consumption of secondary sector 400
(iii) Intermediate consumption of tertiary sector 300
(iv) Value of output of primary sector 1,000
(v) Value of output of secondary sector 900
(vi) Value of output of tertiary sector 700
(vii) Rent 10
(viii) Employee compensation 950
 (ix) Profits 285
(x) Net factor income from abroad (-) 20
(xi) Interest 5
(xii) Depreciation 40
(xiii) Net indirect taxes 10
(xiv) Mixed income 100
GDP at MP = `1,400 crores

50. Calculate (a) Gross domestic product at market price, and (b) Factor income from abroad from the
following data: {CBSE, All India 2010}

Particulars `in crores

(i) Profits 500
(ii) Exports 40
(iii) Compensation of employees 1,500
(iv) Gross national product at factor cost 2,800
(v) Net current transfers from rest of the world 90
(vi) Rent 300
(vii) Interest 400
(viii) Factor income to abroad 120
(ix) Net indirect taxes 250
(x) Net domestic capital formation 650
(xi) Gross fixed capital formation 700
(xii) Change in stock 50
(a) `3,050 crores; (b) `120 crores

51. Find out Gross National Product at Market Price from the following data: {CBSE, Delhi 2011 (II)}

Particulars ( `Arab)
(i) Opening stock 50
(ii) Private final consumption expenditure 1,000
(iii) Net domestic fixed capital formation 150
(iv) Closing stock 40
(v) Net factor income to abroad (-)10
(vi) Government final consumption expenditure 300
(vii) Consumption of fixed capital 30
(viii) Net imports 20
`1,460 Arab

52. Calculate Gross National Product at Market Price from the following: {CBSE, All India 2011 (III)}

Particulars `in crores

 (i) Net factor income to abroad 10

(ii) Net indirect tax 250

(iii) Operating surplus 300

(iv) Corporation tax 150

(v) Undistributed profits 30

(vi) Mixed income 500
(vii) Consumption of fixed capital 100
(viii) Compensation of employees 1,200
`2,340 crores

53. From the following data relating to an economy, calculate national income by expenditure, income
and value added method.
Particulars `in crores
(i) Interest 40
(ii) Value of output:
Primary sector 1,000
Secondary sector 500
Tertiary sector 450
(iii) Compensation of employees 245
(iv) Net factor income from abroad (-)5
(v) Private final consumption expenditure 515
(vi) Intermediate cost:
Primary sector 630
Secondary sector 310
Tertiary sector 265
(vii) Rent and royalty 25
(viii) Government final consumption expenditure 75
(ix) Gross domestic fixed capital formation 130
(x) Opening stock 40
(xi) Profit 30
(xii) Closing stock 70
(xiii) Net exports (-)5
(xiv) Net Indirect Taxes 80
(xv) Consumption of fixed capital 40
(xvi) Mixed income of self-employed 285
National Income = `620 crores
54. Find out National Income: {CBSE, Delhi 2012 (I)}
Particulars ` in crore
(i) Factor income from abroad 15
(ii) Private final consumption expenditure 600
 (iii) Consumption of fixed capital 50
(iv) Government final consumption expenditure 200
(v) Change in stock (-) 10
(vi) Net domestic fixed capital formation 110
(vii) Net factor income to abroad 10
(viii) Net imports (“) 20
(ix) Net indirect tax 70
National Income = `840 crores

55. Find out Net National Product at Market Price: {CBSE, Delhi 2012 (II)}
Particulars ` in crores
(i) Interest 400
(ii) Wages and Salaries 1,000
(iii) Net factor income to abroad (-) 20
(iv) Social security contributions by employers 100
(v) Net indirect tax 80
(vi) Rent 300
(vii) Consumption of fixed capital 120
(viii) Corporation Tax 50
(ix) Dividend 200
(x) Undistributed profits 60
Net National Product at Market Price = `2,210 crores

56. Find out Gross National Product at Market Price: {CBSE, All India 2012 (I)}
Particulars ` in crores
(i) Private final consumption expenditure 1,000
(ii) Depreciation 100
(iii) Net factor income to abroad (-) 10
(iv) Closing stock 20
(v) Government final consumption expenditure 300
(vi) Net indirect tax 50
(vii) Opening stock 20
(viii) Net domestic fixed capital formation 110
(ix) Net exports 15
Gross National Product at Market Price = `1,535 crore

57. Calculate National Income.{CBSE, Delhi 2014 (I)}

Particulars ` in Arab
(i) Net domestic capital formation 110
(ii) Private final consumption expenditure 600
(iii) Subsidies 20
 (iv) Government final consumption expenditure 100
(v) Indirect tax 120
(vi) Net imports 20
(vii) Consumption of fixed capital 35
(viii) Net change in stocks (-) 10
(ix) Net factor income to abroad 5
National Income = `685 Arab
58. Calculate net domestic product at factor cost from the following: {CBSE, Delhi 2014 (III)}
Particulars `in Arab
(i) Net factor income to abroad 10
(ii) Government final consumption expenditure 100
(iii) Net indirect tax 80
(iv) Private final consumption expenditure 300
(v) Consumption of fixed capital 20
(vi) Gross domestic fixed capital formation 50
(vii) Net imports (-) 10
(viii) Closing stock 25
(ix) Opening stock 25
𝑁𝐷𝑃𝐹𝐶 = `360 Arab

59. Calculate 𝑁𝑁𝑃𝑀𝑃 . {CBSE, All India 2014 (III)}

Particulars `in Arab
(i) Closing stock 10
(ii) Consumption of fixed capital 40
(iii) Private final consumption expenditure 600
(iv) Exports 50
(v) Opening stock 20
(vi) Government final consumption expenditure 100
(vii) Imports 60
(viii) Net domestic fixed capital formation 80
(ix) Net factor income to abroad 30
𝑁𝑁𝑃𝑀𝑃 = `730 Arab

60. Calculate national income: {CBSE, Delhi Comptt. 2014}

Particulars `in crores
(i) Net domestic capital formation 150
(ii) Government final consumption expenditure 300
(iii) Net factor income from abroad (-)20
(iv) Private final consumption expenditure 600
(v) Depreciation 30
 (vi) Net exports 50
(vii) Net indirect taxes 90
(viii) Net current transfers from rest of the world 40
National Income = `990 Crore

61. Calculate national income: {CBSE, All India Comptt. 2014}

Particulars ` in crores
(i) Net current transfer from rest of the world 30
(ii) Private final consumption expenditure 400
(iii) Net domestic capital formation 100
(iv) Change in stock 50
(v) Depreciation 20
(vi) Government final consumption expenditure 200
(vii) Net exports 40
(viii) Net indirect taxes 80
(ix) Net factor income paid to abroad 10
National Income = `650 Crore

Miscellaneous Practicals
62. From the following data relating to an economy, calculate (a) National income using Expenditure
Method; (b) National income using Income Method.
Particulars `in crores
(i) Government final consumption expenditure 5,100
Gross fixed capital formation 9,029
(ii)
(iii) Export of goods and services 2,800
(iv) Net compensation of employees from abroad (-) 9
(v) Net property and entrepreneurial income from rest of the (-) 316
world
(vi) Change in stock 2,323
(vii) Consumption of fixed capital 3,023
(viii) Private final consumption expenditure 42,865
(ix) Import of goods and services 3,177
(x) Net indirect taxes 5,168
(xi) Compensation of employees 17,818
(xii) Operating surplus 6,890
(xiii) Mixed income of the self employed 26,041
(a) `50,424 crores; (b) `50,424 crores
63. From the following information, calculate 𝐺𝑁𝑃𝑀𝑃 by income and expenditure methods.
Particulars `in crores
(i) Personal consumption expenditure 2,940
(ii) Social security contribution by Employers 108
(iii) Net indirect taxes 216
(iv) Interest 156
(v) Government expenditure on goods and services 864
(vi) Rent 168
(vii) Undistributed profits 252
 (viii) Dividends 192
(ix) Wages and salaries in cash 2,544
(x) Tax on corporate profits 228
(xi) Net domestic investment 396
(xii) Depreciation 324
(xiii) Net exports 36
(xiv) Income of the self-employed 372
(xv) Net factor income from abroad 15
𝐺𝑁𝑃𝑀𝑃 = `4,575 crores

64. Calculate Gross National Product at Market Price. {CBSE, Delhi 2015 (II)}
Particulars `in crores
(i) Rent 100
(ii) Profit 200
(iii) Social security contribution by employers 47
(iv) Mixed income 600
(v) Gross domestic capital formation 140
(vi) Royalty 20
(vii) Interest 110
(viii) Compensation of employees 500
(ix) Net domestic capital formation 120
(x) Net factor income from abroad (-)10
(xi) Net indirect tax 150
Gross National Product at Market Price = `1,690 Crore

65. Calculate Net Domestic Product at Factor Cost: {CBSE, Delhi 2015 (III)}
Particulars `in crores
(i) Exports 30
(ii) Private final consumption expenditure 800
(iii) Net imports (-)20
(iv) Net domestic capital formation 100
(v) Net factor income to abroad 10
(vi) Depreciation 50
(vii) Change in stocks 17
(viii) Net indirect tax 120
(ix) Government final consumption expenditure 200
Net Domestic Product at Factor Cost= `1,000 Crore

66. Calculate Net Domestic Product at Market Price: {CBSE, All India 2015 (III)}
Particulars ` in crores
(i) Private Final Consumption Expenditure 400
(ii) Opening stock 10
(iii) Consumption of Fixed Capital 25
(iv) Imports 15
(v) Government Final Consumption Expenditure 90
 (vi) Net factor income to abroad (-) 5
(vii) Gross Domestic Fixed Capital Formation 80
(viii) Closing stock 20
(ix) Exports 10
Net Domestic Product at Market Price = `550 Crore

67. Calculate Net National Product at Market Price. {CBSE, Foreign 2015 (III)}
Particulars ` in crores
(i) Net Factor income to abroad (-) 10
(ii) Social security contributions by employees 11
(iii) Consumption of fixed capital 40
(iv) Compensation of employees 700
(v) Corporate tax 30
(vi) Undistributed profits 10
(vii) Interest 90
(viii) Rent 100
(ix) Dividends 20
(x) Net Indirect tax 110
Net National Product at Market Price = `1,070 Crore

68. From the following data, calculate net value added at factor cost. {CBSE, Delhi Comptt. 2015}
Particulars `in crores
(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
Net Value Added at Factor Cost = `155 Crore

69. Calculate National Income. {CBSE, Delhi Comptt. 2015 (I)}

Particulars ` in crores
(i) Private final consumption expenditure 500
(ii) Net domestic fixed capital formation 100
(iii) Net factor income from abroad 30
(iv) Change in stock 20
(v) Net exports 40
(vi) Net indirect taxes 50
(vii) Mixed income 300
(viii) Government final consumption expenditure 200
(ix) Consumption of fixed capital 60
National Income = `840 Crore
70. Calculate Net National Product at Factor Cost: {CBSE, Delhi Comptt. 2015 (II)}
Particulars `in crores
(i) Government final consumption expenditure 500
(ii) Mixed income 1,500
(iii) Net indirect taxes 100
(iv) Net exports 60
(v) Change in stock (-) 50
(vi) Net factor income to abroad 70
(vii) Net domestic fixed capital formation 250
(viii) Private final consumption expenditure 2,000
(ix) Consumption of fixed capital 30
Net National Product at Factor Cost = `2,590 Crore

71. Calculate gross value added at factor cost. {CBSE, All India Comptt. 2015 (I, III)}
Particulars `in crores
(i) Domestic sales 3000
(ii) Change in stock (-)100
(iii) Depreciation 300
(iv) Intermediate consumption 2,000
(v) Exports 500
(vi) Indirect taxes 250
(vii) Net factor income from abroad (-)50
Gross Value Added at Factor Cost = `1,150 Crore

72. From the following data, calculate Gross National Product at Market Price:
{CBSE, All India Comptt. 2015}
Particulars `in crores
(i) Dividends 300
(ii) Compensation of employees 3,000
(iii) Rent 500
(iv) Depreciation 200
(v) Interest 800
(vi) Net factor income to abroad 100
(vii) Mixed income 5,000
(viii) Net indirect taxes 400
(ix) Profit 1,500
Gross National Product at Market Price = `11,300 Crore

73. Calculate Net Domestic Product at Market Price. {CBSE, All India Comptt. 2016}
Particulars `in crores
(i) Compensation of employees 4,000
(ii) Dividend 500
(iii) Mixed income 8,000
(iv) Social security contribution by employers 400
 (v) Net factor income to abroad 600
(vi) Net indirect taxes 1,000
(vii) Rent 800
(viii) Consumption of fixed capital 1,200
(ix) Profit 1,500
(x) Interest 700
Net Domestic Product at Market Price = `16,000 Crore

74. Calculate Gross National Product at Factor Cost. {CBSE, Delhi Comptt. 2016 (I)}
Particulars `in crores
(i) Rent 400
(ii) Compensation of employees 3,000
(iii) Dividend 200
(iv) Change in Stock 300
(v) Net factor income to abroad 700
(vi) Net factor taxes 800
(vii) Consumption of fixed capital 1,000
(viii) Interest 600
(ix) Profits 800
(x) Mixed income 6,000
Gross National Product at Factor Cost = `11,100 Crore

75. Calculate Net Domestic Product at Factor Cost: {CBSE, Delhi2017 (I)}
Particulars ( ` in
crores)
(i) Private final consumption expenditure 8,000
(ii) Government final consumption expenditure 1,000
(iii) Exports 70
(iv) Imports 120
(v) Consumption of fixed capital 60
(vi) Gross domestic fixed capital formation 500
(vii) Change in stock 100
(viii) Factor income to abroad 40
(ix) Factor income from abroad 90
(x) Indirect taxes 700
(xi) Subsidies 50
(xii) Net current transfers to abroad (-) 30
Net Domestic Product at Factor Cost = `8,840 Crore

76. Calculate National Income: {CBSE, All India 2017(1)}

Particulars ( `in crores)
(i) Compensation of employees 2,000
(ii) Rent 400
(iii) Profit 900
(iv) Dividend 100
 (v) Interest 500
(vi) Mixed income of self-employed 7,000
(vii) Net factor income to abroad 50
(viii) Net exports 60
(ix) Net indirect taxes 300
(x) Depreciation 150
(xi) Net current transfers to abroad 30
National Income = `10,750 Crore

77. Calculate Net Domestic Product at Factor Cost: {CBSE, All India Comptt. 2017 (I)}
Particulars ( `in crores)
(i) Dividends 50
(ii) Social security contributions by employers 40
(iii) Corporate profit tax 30
(iv) Consumption of fixed capital 60
(v) Net factor income to abroad 20
(vi) Retained earnings of private corporate sector 20
(vii) Interest 150
(viii) Net current transfers to rest of the world (-) 10
(ix) Rent 100
(x) Net indirect tax 70
(xi) Compensation of employees 600
Net Domestic Product at Factor Cost = `950 Crore
Note: ‘Emoluments of employees’ is another name for compensation of employees.
*****