Grade: 12

Subject: Economics
Chapter: 2
Topic: National Income Accounting

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 Learning Objectives

● Understanding the basic concepts

● Explaining the circular flow of income
● Distinguishing between stock and flow
● Distinguishing between real flow and money flow
● Applying national income accounting formulae
● Analysing components of national income
● Evaluating GDP as a measure of welfare
● Creating suggestions for an appropriate measure of welfare
 Circular Flow of Income

Income flows from firms to households in the form of

factor payments and then, from households to firms, in
the form of consumption expenditures. Such a flow of
money is known as circular flow of income.
Phases of Circular Flow of Income
Stock and Flow
Stock variable refers to that
variable which is measured at
a particular point of time.

Eg: Stock of goods in a

godown as on 1st June 2021.

Flow variable refers to that

variable which is measured
over a period of time.

Eg: Production of goods during

the month of May 2021.
 Types of Circular Flow
Real flow refers to the flow of factor
services from households to firms
and corresponding flow of goods
and services from firms to
households.

Money flow refers to flow of factor

payments from firms to households
for their factor services and
corresponding flow of consumption
expenditure from households to
firms for purchase of goods and
services produced by the firms.
Circular Flow in a Simple Economy

● The outer loop shows the flow

of factor services from
households to firms and the
corresponding flow of factor
payments from firms to
households.
● The inner loop shows the flow
of goods and services from
firms to households and the
corresponding flow of
consumption expenditure from
households to firms.
 Review

1. Define stock and give examples.

2. What is a flow variable? Give a suitable example.
3. Differentiate between money flow and real flow.
4. Explain the circular flow of income in a two sector model.
 Recapitulation

● Income flows from firms to households in the form of factor payments and
then, from households to firms, in the form of consumption expenditures.
● Stock variable refers to that variable which is measured at a particular point of
time.
● Flow variable refers to that variable which is measured over a period of time.
● Real flow refers to the flow of factor services from households to firms and
corresponding flow of goods and services from firms to households.
● Money flow refers to flow of factor payments from firms to households for their
factor services and corresponding flow of consumption expenditure from
households to firms for purchase of goods and services produced by the
firms.
 Domestic Territory (Economic Territory)
● Political frontiers of a country
● Ships and aircrafts owned and operated by normal
residents
● Fishing vessels, oil and natural gas rigs and floating
platforms
● Embassies, consulates and military establishments
 Normal Residents
● An individual or an institution who ordinarily resides in the
country for for more than 182 days in a year or 60 days in
the current year and 365 days in the previous year and
whose centre of economic interest also lies in that country
is a resident of that country.
● The resident carries out basic economic activities of
earnings, spending and accumulation from that location.
 Residents of other Countries
● Foreign tourists and visitors
● Foreign staff of embassies, diplomats and foreign soldiers
● International institutions like UNO, WHO etc.
● Employees of international organisations
● Crew members of foreign vessels who stays for less than
one year
● Border workers who lives in a foreign country and cross the
border for work on a regular basis
Difference between Citizenship and Residentship
Citizenship
● It is a legal concept.
● A person born in India
● A foreign citizen who is granted
citizenship
● Eg: A non-resident Indian(NRI) is
a citizen of India
Residentship
● It is an economic concept.
● A person who lives in a country
for more than one year
● A person whose economic
interest lies in the country of his
residence
● Eg: An American citizen living in
India for more than one year is a
resident of India
 Factor Income and Transfer Income
Factor income
● It refers to the income received by
the factors of production for
rendering factor services in the
production process.
● It is a bilateral concept.
● Factor income of the normal
residents of a country is included
in the national income.
● e.g. : rent, wages, interest and
profit
Transfer income
● It refers to income received without
rendering any productive service in
return.
● It is a unilateral concept.
● It is not included in the national
income.
● It can be received either within the
domestic territory of a country or from
abroad.
● e.g. : old age pension, widow
pension, scholarship, taxes etc..
 Factor Payments and Transfer Payments
Factor Payment
● It refers to the payments made by the
firms to the factors for rendering their
services in the production process.
● It is a bilateral concept.
● Factor payments of the normal residents
of a country is included in GDP.
● e.g. : rent, wages, interest and profit
Transfer Payment
● It refers to payments done without
receiving any productive service in return.
● It is a unilateral concept.
● It is not included in the national income.
● It can be done either to someone within
the domestic territory of a country or to
someone abroad.
● e.g. : taxes, old age pension, widow
pension, scholarship etc..
 Final Goods and Intermediate Goods
Final Goods
● They are produced to be
consumed.
● finished goods
● available for consumption or
capital formation
● require no further processing
● included in national income
● direct demand
Intermediate Goods
● They are used for
producing final goods.
● unfinished goods
● available for reselling
● require further processing
● not included in the national
income
● derived demand
 Consumption Goods and Capital Goods
● Consumption goods refer to
those goods which satisfies the
wants of the consumers
directly.
● Direct demand
● Do not promote production
capacity
● Have limited expected life
● Purchased by households
● Capital goods are those final
goods which help in production
of other goods and services.
● Derived demand
● Help in raising production
capacity
● Have an expected life of more
than 1 year
● Purchased by firms
 Investment
Investment means addition to the capital stock of an economy.
Gross investment is the addition to the stock of capital before making allowance
for depreciation.
Net investment is the actual addition made to the capital stock of the economy.

Net Investment = Gross investment - Depreciation

Depreciation refers to a fall in the value of fixed assets due to normal wear and
tear, passage of time or expected obsolescence.
 Net Indirect Taxes

Net Indirect Taxes = Indirect Taxes - Subsidies

 Net Factor Income from Abroad
Factor income comprises of wages, rents, interest and profit.
Following are its three main components:

(i) Net compensation of employees (Wages)

(ii) Net income from property and entrepreneurship (rent, interest, profit).

(iii) Net retained earnings of resident companies abroad.(Corporate Profits)

 Net Factor Income from Abroad

It refers to the difference between factor income received from the rest of the
world and factor income paid to the rest of the world.

NFIA = Factor Income From Abroad - Factor Income To Abroad

 Review
● What is the difference between domestic territory and
economic territory?
● Who are normal residents?
● Distinguish between citizenship and residentship.
● Distinguish between factor income and transfer income.
● Distinguish between final goods and intermediate
goods.
 Recapitulation
● Domestic territory lies within the political frontiers of a country and includes ships and
aircrafts owned and operated by normal residents, fishing vessels, oil and natural gas
rigs and floating platforms, embassies, consulates and military establishments
● Foreign tourists and visitors, Foreign staff of embassies, diplomats and foreign soldiers,
International institutions like UNO, WHO etc., Employees of international organisations,
Crew members of foreign vessels who stays for less than one year, Border workers
who lives in a foreign country and cross the border for work on a regular basis etc are
not residents.
● Factor income refers to the income received by the factors of production for rendering
factor services in the production process.
● Transfer income refers to income received without rendering any productive service in
return.
 Learning Objectives

● To know the basic aggregates of national income

● To solve practical questions
 Variants of National Income
1. GDPMP - Gross Domestic Product at Market Price
2. GDPFC - Gross Domestic Product at Factor Cost
3. NDPMP - Net Domestic Product at Market Price
4. NDPFC - Net Domestic Product at Factor Cost – Domestic Income
5. GNPMP - Gross National Product at Market Price
6. GNPFC - Gross National Product at Factor Cost
7. NNPMP - Net National Product at Market Price
8. NNPFC - Net National Product at Factor Cost – National Income
 Gross Domestic Product at Market Price (GDPMP)

It refers to gross market value of all final goods and services produced
within the domestic territory of a country during a period of one year.
“Gross” signifies that depreciation is not deducted.
“Domestic” signifies that all the products are produced within the domestic
territory.
“Market Price” signifies that Net Indirect Taxes have not been deducted.
“Product” stands for the money value of all final goods and services.
 Gross Domestic Product at Factor Cost (GDPFC)

It refers to gross money value of all the final goods and services within the
domestic territory of a country during a period of one year.
GDPFC = GDPMP – NIT
GDPFC = NDPMP + Dep – NIT
GDPFC = NDPFC – Dep
GDPFC = GNPMP – NIT – NFIA
GDPFC = GNPFC – NFIA
GDPFC = NNPMP + Dep – NIT – NFIA
GDPFC = NNPFC + Dep – NFIA
 Net Domestic Product at Market Price (NDPMP)

It refers to the net market value of all the final goods and services within the
domestic territory of a country during a period of one year.
NDPMP = GDPMP – Depreciation
NDPMP = GDPFC – Dep + NIT
NDPMP = NDPFC + NIT
NDPMP = GNPMP – Dep – NFIA
NDPMP = GNPFC + NIT – NFIA – Dep
NDPMP = NNPMP – NFIA
NDPMP = NNPFC – NFIA + NIT
 Net Domestic Product at Factor Cost (NDPFC)

It refers to the net money value of all the final goods and services within the domestic territory of a
country during a period of one year.
NDPFC = GDPMP - NIT – Depreciation

It is known as the domestic income.

NDPFC = GDPMP – NIT – Dep
NDPFC = NDPMP – NIT
NDPFC = GDPFC – Dep
NDPFC = GNPMP – NIT – NFIA – Dep
NDPFC = GNPFC – NFIA – Dep
NDPFC = NNPMP – NIT – NFIA
NDPFC = NNPFC – NFIA
 Gross National Product at Market Price (GNPMP)

It refers to gross market value of all the final goods and services produced by the
normal residents of a country during a period of one year.

GNPMP = GDPMP + NFIA

 Gross National Product at Factor Cost (GNPFC)

It refers to gross money value of all the final goods and services produced by the
normal residents of a country during a period of one year.

GNPFC = GNPMP – NIT

 Net National Product at Market Price (NNPMP)

It refers to net market value of all the final goods and services produced by the
normal residents of a country during a period of one year.

NNPMP = GNPMP - Depreciation

 Net National Product at Factor Cost (NNPFC)

It refers to net money value of all the final goods and services produced by the
normal residents of a country during a period of one year.

NNPFC = GNPMP – NIT – Dep

It is known as the national income.

 Review
Give formula for calculating the following.

1. GDPFC from GDPMP

2. NDPFC from GDPFC
3. NDPMP from GDPMP
4. NDPMP from NDPFC
5. GNPMP from GDPMP
6. GNPFC from NNPFC
7. NNPMP from GNPMP
8. NNPFC from GDPFC
 Recapitulation

● GDPMP refers to gross market value of all final goods and services
produced within the domestic territory of a country during a period of
one year.
● GDPFC refers to gross money value of all the final goods and services within
the domestic territory of a country during a period of one year.
● NDPMP refers to the net market value of all the final goods and services
within the domestic territory of a country during a period of one year.
● NDPFC refers to the net money value of all the final goods and services
within the domestic territory of a country during a period of one year.
 Recapitulation

1. GNPMP refers to gross market value of all the final goods and services
produced by the normal residents of a country during a period of one year.
2. GNPFC refers to gross money value of all the final goods and services
produced by the normal residents of a country during a period of one year.
3. NNPMP refers to net market value of all the final goods and services
produced by the normal residents of a country during a period of one year.
4. NNPFC refers to net money value of all the final goods and services
produced by the normal residents of a country during a period of one year.
 Learning Objectives

● Remembering value added, income and expenditure

methods of estimating national income
● Understanding the reconciliation of the three methods
● Understanding the treatment of different items in
national income and domestic income
● Understanding the difference between real and nominal
GDP
● Evaluating GDP as a measure of welfare
National Income Methods
 Shri Rao Inderjit Singh
Ministry of Statistics and Programme Implementation
Ministry of Planning
 Value Added Method (Product or Output Method)

● ‘Value Added’ refers to the value added to the raw material by a firm by
virtue of its productive activities.
● Value Added = Value of Output - Intermediate Consumption
● Value of Output = Sales + Production of goods and services for Self-
consumption (Entire output is sold in an
accounting year)
● Value of Output = Sales + Production for Self-consumption +
Change in Stock (Entire output is not sold in an
accounting year)
● Change in Stock = Closing Stock - Opening Stock
VALUE ADDED METHOD (Product Method/ Inventory Method / Net
output Method / Industrial Origin Method /Commodity Service Method)

Value added method is defined as that method, which measures National Income in
terms of value addition made by each producing enterprise in an economy during an
accounting year.
National Income (NNPFC) NI is the sum of net value added at factor cost across all
producing units of an economy.
NI by Value Added
1) Gross value added by primary sector, secondary sector and tertiary sector within
the domestic territory.
2) Subtract Depreciation from gross value added at Market Price.
3) Subtract Net Indirect Taxes (NIT) from gross value added at market price.
4) Add Net Factor Income from Abroad (NFIA).
 Steps of Value Added Method
Step 1: Identifying and classifying of producing units into the primary,
secondary and tertiary sector.
Step 2: Estimating of gross value added of each sector
Gross value added (GVA) = Value of output – Intermediate
consumption
Step 3: Estimation of GDP by adding GVA of all the three sectors, i.e.,
primary, secondary and tertiary
Step 4: Estimation of national income by adding Net factor income from
abroad (NFIA), subtracting depreciation and deducting Net Indirect Taxes
 Steps Involved in Calculating NI

Step - 1: Identify and Classify all producing units in to three heads:

Primary sector, Secondary sector and Tertiary sector
Step – 2: Estimation of Gross Value Added (GVAMP)
GVAMP = Value of output – intermediate consumption.
ie, = [sales + change in stock] - intermediate consumption
(change in stock = closing stock – opening stock)
Step – 3: Estimation of Net Value Added at MP ( NVAMP)
GVAMP - depreciation = NVAMP
Step – 4: Estimation of Net Value Added at Factor Cost ( NVAFC)
NVAMP – Net Indirect Taxes = NVAFC
Step – 5: Estimation of NNPFC or National Income.
NVAFC + NFIA = NNPFC (National Income)
 Precautions of value Added Method
(i) Avoid double counting, by considering only the final goods.
(ii) Sale of second hand goods should not be considered.
(iii) Production of goods for self-consumption must be considered.
(iv) Production of services for self-consumption included. But non-economic
services are not included.
(v) Change in stock will be included.
(vi) Sale and purchase of shares, bonds and debentures will not be included. But
commission or brokerage on sale of such assets will be included
 Precautions of value Added Method

1. Imputed rent of owner-occupied houses will be included because all houses have rental
value.
2. Imputed value of goods and services produced for self-consumption is included. Non-
economic services are not included.
3. Value of own account production of fixed assets by enterprises, government and
households will be included
4. Only value added and not value of output by production units is included
5. Sales and purchases of second-hand goods are not included. But commission or
brokerage should be included.
6. Sale of bonds by a company is not included as it is merely a financial transaction which
does not contribute directly to the flow of goods and services.
7. Income from smugglings is not included.
 Problem of Double Counting

Farmer Miller Baker Consumer

Output Wheat Flour Bread
Value of ₹500 ₹700 ₹1000
Output
Value of 0 ₹500 ₹700
Input
Value ₹500 ₹200 ₹300 ₹1000
Added
 Review
● What are the steps in calculating national income by
value added method?
● What precautions should be taken while estimating the
national income by value added method?
Factor Income Method
 Learning Objectives
• Remembering the components of national income according to
Factor Income Method
• Remembering the terms like operating surplus, royalty, mixed
income, compensation of employees etc.
• Understanding the precautions of Income Method
• Applying the formula for calculating national income according
to income method
 Factor Income Method
National income is computed by summing up the rent of
land, salaries of employees and wages, interest on capital,
profits of entrepreneurs and earnings of self-employed
people.
This follows from the simple notion that the revenues earned
by all the enterprises put together must be allocated among
the factors of manufacturing as profits, salaries, interests,
wages and rents.
Components of Factor Income
 Factor Income Method

•Domestic Income= COE+OS+MI

•National Income = Compensation + Operating Surplus +
Mixed income of the Self-employed + NFIA
 Compensation for Labor
Compensation includes:
1. Salaries and wages
2. Travel allowances, bonuses, accommodation allowances and medical
reimbursements.
3. Compensation in kind
4. Remuneration in the form of social security schemes such as insurance,
pensions, provident funds.
5. Employer’s contribution ( not employees contribution) towards social
security schemes. (PF)
6. Retirement pension (not old age pension)
 Rent from Land
• Rent is the money you pay for the use of land. While
calculating income, rent refers only to the income earned
from using any land. Rent paid for the use of machinery
and other equipment is not accounted for as rent.

• Now in addition to rent, another form of income is royalty.

Royalty is the amount you pay to an individual or a
company in exchange for the use of assets such as coal or
gas.
 Interest on Capital
• Interest refers to the charges you pay for using
borrowed capital. Now, this includes the interest paid
when a company takes a loan for an investment.
• Similarly, when a family invests in a property or a house,
they take a loan from a bank and pay an interest for the
same while repaying the loan over a period of time.
• However, while calculating national income, economists
consider only the interest paid by production units.
 Profits by Organizations

• Profits refer to the money that organizations make

while producing goods and services.
• Now companies distribute the profits they make by
paying income tax to the government and dividends to
shareholders.
• And the amount that is left over after paying tax and
dividends is called undistributed profit.
 Operating surplus

1) Rent and Royalty

2) Interest
3) Profit (Dividend + Corporation tax or business tax + Retained earnings
or undistributed profits)
 Mixed Income
• Mixed income refers to the income of the self-employed
individuals, farming units and sole proprietorships.
• The total earnings of a self-employed persons is a mixture of income
from work and the income form property and entrepreneurship
• These incomes are the mixture of wages, rent, interest and profit of
self-employed people using their own land, labour, capital and
entrepreneurs.
 Steps
1. Calculate Factor Incomes – COE, OS and MI
2. Take the sum of all factor incomes to get
NDPFC NDPFC = COE + Operating Surplus + Mixed Income
3. Add NFIA to NDPFC to get NNPFC
NDPFC + NFIA = NNPFC or NI
Precautions While Using Income Method

➢ Income from illegal activities like smuggling, theft, gambling, etc.

should not be included.
➢ Brokerage on the sale/purchase of shares and bonds is to be included.
➢ Income in terms of windfall gains should not be included.
➢ Transfer earnings like old age pensions, unemployment
allowances, scholarships, pocket expenses etc. should not be
included.
➢ Transfer payments such as gifts and donations and profits from the
sale of pre-owned goods are not included.
➢ Income from the sale of shares and debentures is excluded.
 Review
• What are the components of national income according to income
method?
• What precautions are to be taken while calculating national income
using income method?
• Explain the steps of income method of national income accounting.
• What is operating surplus?
• How do we treat income from windfall gains in national income
estimation?
 Recapitulation
• National income by income method is a sum of compensation of
employees, operating surplus, mixed income of the self employed and
net factor income from abroad.
• Certain precautions are to be taken while using income method.
• Income from illegal activities like smuggling, theft, gambling, etc
should not be included.
• Corresponding to production for self consumption, the generation of
income of economy to be taken into account.
• Brokerage on the sale/purchase of shares and bonds is to be included.
• Income in terms of windfall gains should not be included.
Expenditure Method
 Learning Objectives

• Remembering the components of national

income according to expenditure method
• Understanding the precautions of expenditure
method
• Applying the formula for calculating national
income according to expenditure method
 Expenditure Method

This method takes the following elements:

• Purchase of consumer goods and services by residents and households (C)
• Government expenditure on goods and services (G)
• Business enterprises’ expenditure on capital goods and stocks (I)
• Net exports (exports-imports) (X – M)
• Hence, according to the expenditure method:
• National Income = C + G + I + (X – M)
 Steps
Step 1: Identify the economic units incurring final expenditure.
(i) Households (ii) Firms (iii) Government and (iv) Foreign sector
Step 2: Classification of Final Expenditure under the following
heads:
❖ Private Final Consumption Expenditure (PFCE)
❖ Gross Domestic Capital Formation (GDCF)
❖ Government Final Consumption Expenditure (GFCE)
❖ Net Exports (X - M)
Step 3: Calculate GDPMP
Step 4: Calculate NNPFC by subtracting depreciation and Net
Indirect Taxes and adding NFIA
 National Income by Expenditure Method

GDPMP = Private Final Consumption Expenditure (PFCE)

+ Gross Domestic Capital Formation (GDCF)
+ Government Final Consumption Expenditure (GFCE)
+ Net Exports (X - M)
NNPFC = GDPMP – Dep – NIT + NFIA
 Gross Domestic Capital Formation

A. Gross Domestic Fixed Capital Formation = Business Fixed

Investment + Govt. Fixed Investment + Household Fixed
Investment.
B. Inventory Investment ( Closing stock – Opening stock )
C. Depreciation
Precautions While Using Expenditure Method
● Only final expenditure is included to avoid error of double
counting.
● Expenditure on second hand goods is not to be included.
● Expenditure on transfer payments by the government is
not to be included.
● Imputed value of expenditure on goods produced for self
consumption should be included.
● Expenditure on shares and bonds is not to be included.
 Estimation of National Income

Income Method Expenditure Method Value Added Method

NDPFC = COE + OS GDPMP = PFCE + GFCE GDPMP / GVAMP= Sales
+ MI + GDCF + Net Exports + Change in stock +
self-consumption goods
– Intermediate
Consumption
NDPFC + NFIA = GDPMP – Dep – NIT + GDPMP – Dep – NIT +
NNPFC NFIA = NNPFC NFIA = NNPFC
 Review
• What are the components of national income
according to expenditure method?
• What precautions are to be taken whole calculating
national income using expenditure method?
• Explain the steps of expenditure method of
national income accounting.
 Recapitulation
✔According to the expenditure method, National Income = C + G + I + NX
✔The expenditure method excludes expenditure on second-hand goods
and purchase of shares and bonds.
✔Certain precautions are to be taken while using expenditure method.
✔Identify the economic units incurring final expenditure
✔Classification of final expenditure is done. Thus GDPMP=
PFCE+GFCE+GDCP+(X-M)
✔NDPFC=GDPMP-Depreciation-Net Indirect Taxes.
✔Estimate NFIA to arrive at National Income (NNPFC)
✔National Income (NNPFC) = NDPFC+NFIA
GDP and Welfare
 Learning Objectives

• Applying the formula for calculating GDP deflator

• Understanding the concepts of real and nominal GDP
• Understanding the relation between GDP and Welfare
• Creating a better measure of welfare
Limitations of GDP as an Index of Welfare
•GDP may not be uniformly distributed
among different sections of the society.
•Non-market transactions are not included in GDP.
•Negative and positive externalities are not included
in the estimation of GDP.
•GDP may rise due to rise in prices.
•Population growth reduces per capita GDP.
•Composition of GDP
• Current prices refer to the prevailing prices.(2021 prices)
• Constant prices refer to a base year prices.(2011 - 12
prices or prices of any other past base year)
 Nominal GDP
• GDP at current prices is the market value of all the final goods and
services produced within the domestic territory of a country during
an accounting year, estimated using current prices.
• Nominal GDP = Q x P
• GDP can increase when there is increase in either Q or P.
• If it is increasing due to increase in Q, it is real increase.
• If it increases due to increase in P, it is only monetary increase in
GDP.
 Real GDP
•GDP at constant prices is the market value of all the
final goods and services produced within the
domestic territory of a country during an accounting
year, estimated using base year prices.
•It increases only when quantity increases.
 GDP Deflator
• It is the ratio of nominal GDP to real GDP.

• The GDP deflator is a measure of inflation. This ratio shows the extent to which
the increase in GDP has happened on account of higher prices rather than
increase in output. It shows the percentage change in prices.
• It is given as percentage.
Calculation

1. If real GDP is ₹ 18,000 crores and Real GDP is

₹ 12,000 crores calculate GDP deflator.
2. If nominal GDP is ₹ 840 crores and GDP
7
deflator is calculate real GDP.
5
1. GDP Deflator = 1800/1200
=150%

2.Real GDP
 QUESTIONS
1.Sale of petrol and cars is rising particularly in big cities. Analyze its impact on
GDP & welfare.
2. If in a locality ,a new park is developed by municipal corporation ,it will have
externality both positive and negative. State one example of both types of
externalities.
3.Govt. incurs expenditure to popularize yoga among the masses ,analyze its
impact on GDP & welfare.
4. How to negative externalities affect the welfare of people? Explain by taking at
example.
5. ‘GDP as a index of welfare may understate or over state welfare.’ Explain the
statement using examples of positive & negative externalities.
 Review
• What is GDP deflator?
• Distinguish between nominal and real GDP.
• Explain limitations of GDP as an indicator of welfare.
 Recapitulation
• GDP at current prices is the market value of all the final goods and
services produced within the domestic territory of a country
during an accounting year, estimated using current prices.
• GDP at constant prices is the market value of all the final goods
and services produced within the domestic territory of a country
during an accounting year, estimated using base year prices.
• The GDP deflator is a measure of inflation. This ratio shows the
extent to which the increase in gross domestic product has
happened on account of higher prices rather than increase in output.
• GDP is not an indicator of welfare.
National Income Accounting
 Learning Objective

● Calculate national income

aggregates
1.Calculate Domestic Income and National
Income

Sl No Items (₹ in crores)
(i) Wages 10000
(ii) Rent 5000
(iii) Interest 400
(iv) Dividend 3000
(v) Mixed Income 400
(vi) Undistributed Profit 200
(vii) Social Security Contribution 400
(viii) Corporate Profit Tax 400
(ix) Net Factor Income from Abroad 1000
Solution
• (a) Domestic Income= (i) +(ii) +(iii) +(iv) +(v)+(vi)+(vii)+(viii)
=₹10000+₹5000+₹400+₹3000+₹400+₹200+₹400+₹400
= ₹ 19800 crore
(b) National Income= Domestic Income + NFIA
= ₹ 19800+1000
= ₹20800 crore
2.Calculate NNP at MP
Sl No Items ₹ in crores
(i) Wages and salaries 1400
(ii) Employer’s contribution to social 200
security
(iii) Rent 100
(iv) Dividend and corporate profit tax 120
(v) Corporate saving 80
(vi) Interest 80
(vii) Mixed income of the self-employed 200
(viii) Net factor income to abroad 20
(ix) Indirect taxes 40
(x) Subsidies 20
Solution

• Net National Product at Market Price

• = (i)+(ii)+(iii)+(iv)+(v)+(vi)+(vii)- (viii)+ [(ix)-(x)]
• = 1400+200+100+120+80+80+200-20+(40-20)
• = ₹ 2180 crores
3.
Solution
4. Calculate GNP at factor cost
Sl No Items ₹ in crores
(i) Factor income from abroad 10
(ii) Compensation of employees 150
(iii) Factor income to abroad 15
(iv) Consumption of fixed capital 15
(v) Interest 40
(vi) Rent 40
(vii) Profit 100
Solution
GNP at factor cost= (i)+(ii) –(iii)+ (iv) +(v) +(vi) + (vii)
=10+150-15+15+40+40+100
=₹ 340 crore
5. Calculate NI (NNPFC)
Sl NO Items Rs in crores
(i) Net current transfers to abroad 15
(ii) PFCE 600
(iii) Subsidies 20
(iv) GFCE 100
(v) IT 120
(vi) Net Imports 20
(vii) Consumption of Fixed capital 35
(viii) ∆ in stock 10
(ix) Net Factor Income to Abroad 5
(x) Net Domestic Capital Formation 110
=600+100+110-20-
100-5=685
6. Calculate NDPFC
No Items Rs in crores
(i) Net Current Transfers to Abroad 5
(ii) GFCE 100
(iii) NIT 80
(iv) PFCE 300
(v) CFC 20
(vi) GDFCF 50
(vii) Net imports (-)10
(viii) Closing stocks 25
(ix) Opening Stock 25
(x) Net Factor Income to Abroad 10
=300+100+50+(25-
25)-(-)10-80-
20= 360
7. Calculate NNP FC
Sl. No Items Rs. in crores
(i) National Debt Interest 60
(ii) Wages and salaries 600
(iii) Net Current Transfers to Abroad 20
(iv) Rent 200

(v) Transfer Payments by government 70

(vi) Interest 300
(vii) NDPFC accruing to government 400
(viii) Social Security Contributions by Employers 100
(ix) Net Factor Income Paid to Abroad 50
(x) Profits 300
=600+200+300+300+
100-50=1450
 8. Calculate GNPMP and NDPFC
Sl No Items Rs. In crores

(i) PFCE 80000

(ii) Change in Stock 20000
(iii) Gross Fixed Investment 30000
(iv) Depreciation 5000
(v) Public Consumption 20000
Expenditure
(vi) Public Investment 10000
Expenditure

(vii) NFIA (-) 5000

(viii) Indirect Taxes 3000

(ix) Subsidies 1,500

Solution
GNPMP=80000+20000+30000+20000+(-)5000+10000
● = 155000
● NDPFC
● = GNPMP-Dep-NFIA-NIT
● =155000-5000-(-)5000-(3000-1500)
● =153500
9. Calculate GNPMP and NDPFC

Sl No Particulars Rs in crores
(i) PFCE 160000
(ii) Change in stock 40000
(iii) Gross Fixed Investment 60000
(iv) Depreciation 10000
(v) Public Consumption Expenditure 40000
(vi) Public Investment 20000
(vii) NFIA (-)10000
(viii) IT 600
(ix) S 300
Solution
=16000+40000+60000+20000+(-)10000
= 310000

NDPFC = GNPMP-Dep-NFIA-NIT
= 310000-10000-(-)10000-(600-300)
=309700
10. Calculate NNPFC

No Particulars Rs in Crores
(i) Consumption of Fixed Capital 22170
(ii) Indirect Taxes less Subsidies 35270
(iii) Imports 18160
(iv) Exports 17710
(v) Change in Stock 10390
(vi) Gross Fixed Capital Formation 63050
(vii) GFCE 38010
(viii) PFCE 291630
(ix) NFIA (-)2840
Solution
● =38010+291630+63050+10390+17710-18160-22170+(-)2840-35270
● =342350
11. Calculate national income both by income and
expenditure methods.
Sl No Items ₹ in crores
(i) Interest 150
(ii) Rent 250
(iii) GFCE 600
(iv) PFCE 1200
(v) Profits 640
(vi) COE 1000
(vii) Net factor income from abroad 30
(viii) NIT 60
(ix) Net exports (-)40
(x) CFC 50
(xi) Net Domestic Capital Formation 340
Solution
By income method
NNPFC= Interest + rent + profit + COE - Net factor income to abroad
● =150 + 250 + 640 + 1000 – 30 = 2010
● By expenditure method
● (GFCE + PFCE + NDCF + Net Exports) = NNPMP-NFIA-NIT
● 600 + 1200 + 340 + (-) 40 – 30 – 60 = 2010
12. Calculate GNPFC by both income and expenditure
methods.
Sl Items ₹ in crores
No
(i) Net Domestic Capital 500
Formation
(ii) COE 1850
(iii) CFC 100
(iv) PFCE 2600
(v) GFCE 1100
(vi) Rent 400
(vii) Dividend 200
(viii) Interest 500
(ix) Net exports (-)100
(x) Profits 1100
(xi) NFIA (-)50
(xii) NIT 250
Solution
● Income Method
● GNPFC= (ii)+(vi)+(viii)+(x)+(xi)+(iii)
● = 1850+400+500+1100+ (-)50+100=3900
● Expenditure Method
● GNPFC= (v)+(iv)+[(i) +(iii)]+(ix)- (xii)
● = 2600+1100+(500+100)+ (-)100+(-)50-250=3900
 13. Calculate National Income
Sl No Particulars ₹ in crores

(i) Exports 80
(ii) PFCE 600
(iii) Net current transfers to the rest of the world (-)5
(iv) GFCE 100
(v) Subsidies 20
(vi) IT 80
(vii) Net domestic fixed capital formation 150
(viii) NFIA (-)10
(ix) Closing stock 60
(x) Opening stock 10
(xi) Net exports 50
(xii) CFC 40
Solution
GDPMP= PFCE+GFCE+NDFCF+CFC+ Change in stock+Net exports
=990
NNPFC=GDPMP-CFC-NIT+NFIA
= 880
14. Calculate GNPMP by both income and expenditure
methods.
Sl No Particulars ₹ in crores

(i) Rent 40
(ii) PFCE 800
(iii) Net Exports 20
(iv) Interest 60
(v) Profit 120
(vi) GFCE 200
(vii) NDCF 100
(viii) Wages for 800
employees
(ix) CFC 20
(x) NIT 100
(xi) NFIA -20
Solution

● Income Method
NDPFC=(i) + (iv)+ (v) +(viii)
= 40+60+120+800= 1020
GNPMP = NDPFC + (ix) + (xi) + (x)
= 1020 +20 + - 20 + 100 = 1120
Expenditure Method
GDPMP = (ii) + (iii) + (vi) + (vii) + (ix)
= 800 + 20 + 200 + 100 + 20 =
1140
GNPMP = GDPMP + (xi)
= 1140 + - 20
= 1120
15. Calculate NNPFC

Particulars Rs in crores
(i) CFC 22170
(ii) Indirect taxes less 35270
subsidies
(iii) Imports 18160
(iv) Exports 17710
(v) Change in stock 10390
(vi) Gross fixed capital 63050
formation
(vii) GFCE 38010
(viii) PFCE 291630
(ix) NFIA - 2840
Solution
GDPMP= [(iv) – (iii)] + (v) + (vi) + (vii) + (viii)
[(17710 – 18160)] + 10390 + 63050 + 38010 + 291630 = 402630
NNPFC = GDPMP – (i) + (ix) – (ii)
= 402630 – 22170 – 2840 – 35270 = 342350
16.Calculate (i) value added by firm A and B (ii) GDPMP (iii) NDPFC

Sl NO 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
● Value added by firm B = Sales by firm B to general government + Sales by
firm B to household + (Closing stock of firm B – Opening stock of firm B) –
Purchases by firm B from firm A
= 100 + 350 + (40 – 30) – 200 =260
● GDPMP = Value added by firm A + Value added by firm B = 200 + 260 = 460
● NDPFC = GDPMP – CFC – IT paid by both firms
= 460 – 120 – 75 = 265
17. Calculate NVAMP

Sl NO Particulars ₹ in crores

(i) Sales 900

(ii) Closing stock 250
(iii) Opening stock 150
(iv) Indirect Taxes 100
(v) Depreciation 200
(vi) Intermediate consumption 400
(vii) Purchase of raw materials 150
(viii) Rent 50
Solution
GDPMP = (i) + [ (ii) – (iii) ] – (vi)
= 900 + (250 – 150) – 400 = 600
NVAFC = GVAMP – Dep
= 600 – 200 = 400
18. Calculate domestic income

Sl NO Particulars ₹ in crores

(i) Domestic Sales of firm A 350

(ii) Sales of firm B 250
(iii) Sales of firm C 525
(iv) Change in stock ( - ) 25
(v) Exports of Firm A 2250
(vi) Imports of firm A 256
(vii) Purchase of raw materials of firms B and C from domestic market 125
(viii) Purchase of machinery 1500
(ix) Subsidy 138
(x) Income taxes 159
(xi) Depreciation 163
Solution
NDPFC = (i) + (ii) + (iii) + (iv) + (v) – (vi) – (vii) + (ix) – (xi)
= 350 +250 +525 + (-) 25 + 2250 – 256 – 125 + 138 – 163
= 2944
19. Calculate GVAFC

Sl NO Particulars ₹ in crores

(i) Units of output sold 1,000 units

(ii) Price per unit of output 30
(iii) Depreciation 1,000
(iv) Intermediate cost 12,000
(v) Closing stock 3,000
(vi) Opening stock 2,000
(vii) Excise duty 2,500
(viii) Sales tax 3,500
Solution
● GVAFC = (Units × Price) – IC + (CS – OS) – Excise duty – Sales tax
● = (i × ii) - iv + (v – vi) – vii – viii
● = (1000 × 30) – 12000 + 3000 – 2500 – 3500
● = 30000 + 3000 – (20000)
● = 13000
20. Calculate sales.

Sl NO Particulars ₹ in crores

(i) Intermediate costs 700

(ii) CFC 80
(iii) Δ in stock (-) 50
(iv) Subsidy 60
(v) NVAFC 1300
(vi) Exports 50
Solution
● Sales = (v) + (ii) – (iv) + (i) – (iii)
● = 1300 + 80 – 60 + 700 – (-)50
● = 2070
21. Calculate sales

Sl NO Particulars ₹ in crores

(i) Subsidies 200

(ii) OS 100
(iii) CS 600
(iv) IC 3000
(v) CFC 700
(vi) Profit 750
(vii) NVAFC 2000
Solution
● Sales = (vii) – (i) + (v) + (iv) – [(iii) – (ii) ]
● = 2000 – 200 + 700 + 3000 – (600 – 100)
● = 5000
 22. Calculate a) Value Added by Firm A and B b) GVAFC
Items Rs (in lacs)
1. Sales by Firm A 100
2. Purchases from Firm B by Firm A 40

3. Purchases from Firm A by Firm B 60

4. Sales by Firm B 200

5. Closing stock of Firm A 20
6. Closing stock of Firm B 35
7. Opening stock Firm A 25
8. Opening stock of Firm B 45
9. Indirect taxes 30
Solution
A) V.A by firm A = V.O of firm A – I.C of firm A = 95 – 40 = 55
V.A by firm B = V.O of firm B – I.C of firm B = 190 – 60 = 130
B) GVAFC = 55 +130 – 30 = 155
23. Calculate a) GDPMP b) National Income

(i) Value of Output in Primary Sector 800

(ii) Value of Output in Secondary Sector 200
(iii) Value of Output in Tertiary Sector 300
(iv) Intermediate consumption by Primary Sector 400
(v) Intermediate consumption by Secondary Sector 100
(vi) Intermediate consumption by Tertiary Sector 50
(vii) Indirect taxed paid by all sectors 50
(viii) Depreciation 80
(ix) Factor income received from ROW 10
(x) Factor income paid to non residents 20
(xi ) Subsidies received by all sectors 20
(a) G.D.P at MP = V.A by Pri. Sec + V.A by Sec. Sector + V.A by Ter. Sec.
V.A by Primary Sector = V.O of Pri. Sec - I.C by Pri. Sec. = 800 - 400 = 400
V.A by Secondary Sector = V.O of Sec. Sector - I.C by Sec. Sec. = 200 - 100 = 100
V.A by Tertiary Sector = V.O of Ter. Sector - I.C by Ter. Sector = 300 - 50 = 250
G.D.P at MP = 400 + 100 + 250 = 750

(b) G.D.P at MP - Dep = N.D.P at MP = 750 -- 80 = 670

N.D.PMP + NFIA= N.N.P at MP
670 + ( 10 - 20 ) = 670 - 10 = 660
N.N.P at MP – I. Tax + Subsidy
N.N.P at FC = 660 - 50 + 20 = 630
24. CALCULATE :
a) Net Domestic Income
b) Gross Domestic Income
c) Net National Income
d) Net National Income at MP.
ITEMS (Rs.in crores)
i) Indirect Taxes 9,000
ii) Subsidies 1,800
iii)Consumption of fixed capital 1,700
iv)Mixed Income of self-employed 28,000
v) Operating Surplus 10,000
vi)NFIA (-) 300
vii)Compensation of employees 24,000
SOLUTION
a) NDP at FC= C.O.E+ O.S + Mixed Income
NDP at FC = 24000 + 10000 + 28000 = Rs. 62,000
b) GDP at FC = NDP at FC + Depreciation
GDP at FC = 62000 + 1700 = Rs. 63,700
c) NNP at FC = NDP at FC + NFIA
NNP at FC = 62000 + (-300) = Rs. 61,700
d) NNP at MP = NNP at FC + I.T -SUBSIDIES
NNP at MP = 617000 + 9000 - 1800 = Rs. 68,900
25. Find A) domestic income B) national income
ITEMS (Rs.in crores)
i) Wages 10,000
ii) Rent 5,000
iii)Interest 400
iv)Dividend 3,000
v) Mixed Income 400
vi)Undistributed Profit 200
vii)Social Security Contribution by Employer 400
viii)Corporate Profit Tax 400
ix)Net Factor Income from Abroad 1,000
x) Social Security Contribution by Employee 600
a) NDP at FC = C.O.E + O.S + M.I
C.O.E = Wages + Social security contribution by employer
C.O.E = 10000 + 400 = Rs. 10,400
O.S =Rent + Interest + Profit(dividend + undistributed
profit + corporate profit tax)
O.S = 5000 + 400 + 3000 + 200 + 400 = Rs. 9,000
M.I = 400
NDP at FC = 10400 + 9000 + 400 = Rs. 19,800

b) NNP at FC = NDP at FC + NFIA

NNP at FC = 19800 + 1000 = Rs. 20,800
26. Calculate a) GDPMP b) GDPFC

ITEMS (Rs. in crores)

a) Gross Investment 90
b) Net Exports 10
c) Net Indirect Taxes 5
d) Depreciation 15
e) Net Factor Income from Abroad (-) 5
f) Private consumption Expenditure 350
g) Government purchases of goods and services 100
SOLUTION
a ) GDPMP = C + G + I + (X-M)
GDP at MP = Private consumption expenditure + Government
purchases of goods & services + Gross investment + Net exports.
GDPMP = 350 + 100 + 90 + 10 = Rs. 550 cr.
b ) GDP at FC = GDPMP – N.I.T
GDPFC = 550 – 5 = Rs. 545 cr.
27. Find NNP at FC from the following data
ITEMS (Rs. in lakhs)
i) Gross domestic fixed investment 10,000
ii) Inventory investment 5,000
iii) Depreciation 2,000
iv) Indirect tax 1,000
v) Subsidies 2,000
vi) Consumption expenditure 20,000
vii) Residential construction investment 6,000
viii) Net factor Income from Abroad 3,000
SOLUTION
GDP at MP = C + G + I + (X-M)
= Consumption expenditure + Government expenditure +
(Gross domestic fixed Investment + Inventory
investment) + (X-M)
= 20,000 + 0 + ( 10,000 + 5,000) + 0 = 35,000
GDP at MP – Depreciation = NDP at MP
= 35,000 - 2,000 = 33,000
NDP at MP – I.T + Subsidies= NDP at FC
=33,000-1,OOO + 2,000= 34,000
NDP at FC + NFIA = NNP at FC
= 34,000 + 3,000 = 37,000 61
28. Calculate Value Added at factor cost
ITEMS Rs. CRORES
i) Purchase of raw materials 30
ii) Depreciation 12
iii) Sales 200
iv) Excise tax 20
v) Opening stock 15
vi) Intermediate consumption 48
vii) Closing stock 10
Sales + ∆ in stock = value of output
200 + (cl. st – op. st)
200 + (10 -15) = 200 – 5 = 195
Value of output – intermediate consumption
= value added at MP
195 - 48 = 147
V.A at FC = V.A at MP – Net indirect tax
147 – 20 = 127 crores
29. Calculate GDPMP by (a) Production Method and (b) Income Method
ITEMS Rs. crores
a. Intermediate consumption by
i) Primary sector 500
ii) Secondary sector 400
iii) Tertiary sector 400
b. Value of output by
i) Primary sector 1000
ii) Secondary sector 900
iii) Tertiary sector 700
c. Rent 10
d. Compensation of employees 400
e. Mixed income 550
f. Operating surplus 300
h. Net factor income from abroad (-)20
i. Interest 5
j. Consumption of fixed capital 40
k. Net indirect taxes 10
Production method
(b) (i) + (ii) + (iii) – a (i) + (ii) + ( iii) = GDPMP
(1000+ 900 + 700) – (500 -400-400) = GDPMP
2600 – 1300 = 1300 crores
Income method
COE + operating surplus + mixed income = NDPFC
= 400 + 300 + 550 = 1250 crores
GDPMP = NDPFC + CFC + net In. tax
= 1250+ 40 + 10 =1300
30. Estimate national income by (a) expenditure method (b) income method

Items Rs. in crores

i) Private final consumption expenditure 210
ii) Govt: final consumption expenditure 50
iii) Net domestic capital formation 40
iv) Net exports (-) 5
v) Wages & Salaries 170
vi) Employer’s contribution 10
vii) Profit 45
viii) Interest 20
ix) Indirect taxes 30
x) Subsidies 05
xi) Rent 10
xii) Factor income from abroad 03
xiii) Consumption of fixed capital 25
xiv) Royalty 15
Solution
National Income (NNPFC)
● Expenditure Method
(1) + (2) + (3) + (4) = NDP MP
210 + 50 + 40 + (-5) = 295
NNPFC = NDPMP + factor Income from abroad – net Indirect tax ( Indirect tax – subsidy)
295 + 3 – (30 -5)
295 + 3 – 25
= 298 – 25 = 273
NNPFC = 273 crores
● Income method:
(5) + (6) + (7) + (8) + (11) + (15)
170 + 10 + 45 + 20 + 10 + 15
= 270 (NDPFC)
NNPFC = NDP FC + FIFA = 270 + 3= 273 crores
Calculate GVAMP and national income

Sl NO Particulars ₹ in crores

(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
Solution
Calculate GVAMP and national income

Sl NO Particulars ₹ in crores

(i)
(ii)
(iii)
(iv)
(v)
(vi)
(vii)
(viii)
(ix)
(x)
(xi)
Solution
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