GNP FC = NNP FC + Depreciation OR. 61.Explain the problem of double counting in estimating national income, with thehelp of an example. =610 +130-30 -10-40 (iii) Scholarship given to Indian students studying in India by a foreign company. = 530-310 In other words, it accounts for the reduction in the value of the countrys assets due to aging, wear and tear, or obsolescence. It refers to the market value of final goods aand servicess produced within the domestic territory of a country during the period of an accounting year, exclusiive of depreciation. (i) it is included in the GDPMP,as it is a part of government final consumption expenditure. Calculation of Natinal Domestic Prodeuct (NDP) at Factor Cost (FC) 1. (a) By Income Method Let us have a look at the examples to understand the concept better. (i) Salaries received by Indian residents working in Russian Embassy in India. Find Gross Value Added at Factor Cost (All India 2012), 9. (ii) Profits earned by a branch of Indian bank in Canada is factor income received from abroad. (iii) Interest received on loans given to a friend for purchasing a car. (All India 2009). = 4100 -2150 (iii) Expenditure on machine for installation in a factory. Give reasons to your answer. + (Excise Duty Subsidy) + Intermediate Consumption at Factor Cost (NVAFc)+ Depreciation + (Sales Tax-Subsidy) He teaches Science, Economics, Accounting and English at Teachoo, Made with lots of love (i) Expenditure on fertilisers by a farmer. A common equation used to calculate NDP is as follows: NDP = Gross domestic product (GDP) - Depreciation Similarly, NDP = Consumption + Government Expenditures + Investment +Exports - Imports - Depreciation =1850 + (400 + 500+1100 + 100 + (-50) National Income (NNPFC) = Private Final Consumption Expenditure + Government FinalConsumption Expenditure + Net Domestic Fixed Capital Formation + Change in Stocks Net Imports Net Indirect Taxes + Net Factor Income from Abroad Sum up all factor payments made within domestic territory to get Domestic Income (NDP at FC). = Rs. 1950 crore, (b) By Production Method 960 crore, (a) Gross Domestic Product at Market Price and = 500 +200+120 + (-20) + 20-30 -100 -(-10) -20 50: Solution: GNP at MP = NDP at FC + Depreciation - Net Factor income from abroad + Indirect tax =3,200 + 400-50 + 70 = 3,620 crores. (i) Private final consumption expenditure. (ii) Payment of salaries to its staff by an embassy located in New Delhi will not be included in domestic income of India, as it is not a part of domestic territory of India. The national income (NI) is an aggregate value of the total production of goods and services by a nations residents pertaining to a particular accounting year. Domestic income is the sum total of factor incomes generated by all the production units located within the domestic territory of a country during a period of account. 290 crore Nanda Ashirwad Complex, 3rd Floor, (ii) National debt interest will not be included while estimating National Income by income method, as the government takes loan for both productive and non-productive activities. NDP = GDP - Depreciation N DP = GDP. Class 12 Computer Science Ans. 89. 660 crore, 54. Thus, national income is calculated by adding up factor incomes generated by all the producing units located within the domestic economy during a period of account. (iii) Interest received on loans given to a friend for purchasing a car will not be included in the estimationof National Income as loan is given for consumption purpose. 720 arab, 35. Question 3. NDP at MP = GDP at MP (+) NFIA [Net Factor Income from Abroad] 3. Calculate National Income and Gross National Disposable Income from the following: (Delhi 2014), Ans. NFIA = From - To = 0-50 = -50 . (ii) Operating surplus (rent, profit and interest) Expenditure Method By this method, the total sum of expenditures on the purchase of final goods and services produced during an accounting year within an economy is estimated to obtain the value of domestic income. Above Village Hyper Market, Chandralyout Main Road, (i) Payment of fees to a lawyer engaged by a firm will not be included while estimating National Income, as it is a kind of intermediate expenditure for the firm. Net domestic product (NDP) is an annual measure of the economic output of a nation that is adjusted to account for depreciation. + Government Final Consumption Expenditure + Net Domestic Fixed Capital Formation + Change in Stock + Consumption of Fixed Capital- Net Imports Net Indirect Tax Net Factor Income to Abroad In other words, the NDP is calculated by subtracting the depreciation of physical capital from the GDP to give a more accurate picture of a countrys economic output that is available for consumption or investment. = 2000 + 500 + 700 + 800 + 1500 Calculate Gross National Product at Market Price from the following data (All India 2013), Ans. (Delhi 2009), Ans. (a) National Income (NNPFC) = Private Final Consumption Expenditure + Government Final Consumption (ii) Rent paid by embassy of Japan in India to a resident Indian. 5. Also explain, two alternative ways of avoiding the problem. = 730-25 + (10 + 5) +15 = 760-25 (v) Expenditure on shares and bonds is not to be included in Total Expenditure. 70. 730 crore, (b) Private Income = NNPFC Net Domestic Product at Factor Cost Accruing to Government+ Transfer Payments + National Debt Interest 515 crore, (b) Net National Disposable Income (NNDI) = NNPFC + Net Indirect Taxes + Net Current Transfers fromAbroad How should the following be treated while estimating National Income? (i) National Income (ii) Interest paid by an individual on a car loan taken from a bank. The site owner may have set restrictions that prevent you from accessing the site. Gross National Product at Factor Cost (GNP at FC) GNP at factor cost is the sum of total factor earnings received by the owners of factors of production in the form of wages and salaries, rent, interest, and profit as a result of their contribution to . Net Current Transfers to Abroad + National Debt Interest + Current Transfers by Government + Net Factor Income from Abroad = 3550-2850 = Rs. When we divide NI by a countrys total population, we get residents per capita income. (iii) Scholarship given to Indian students studying in India by a foreign firm will not be included while estimating National Income, as it is a transfer payment. = 300+ 200-(-50)+ 20+ 30 Thus, it includes indirect taxes and subsidies, as well as the depreciation of physical capital. National income accounting refers to the bookkeeping system that governments use to measure the level of the economic activity, such as GDP. Your Mobile number and Email id will not be published. (i) Imputed rent of self occupied houses. (a) By Income Method It is that part of economic theory which deals with the behaviour of national aggregates. Income to Abroad + Consumption of Fixed Capital (b) Net National Disposable Income = GDPFC+ Net Indirect Tax Net Factor Income to Abroad Net Current Transfers to Abroad Depreciation 220 lakh, 22.Giving reason, explain how should the following be treated in estimating NationalIncome (Delhi 2012) Instead of expanding the sprawl of the city, older buildings might be torn down and replaced by new construction intended to fill the same use as the predecessor building. Investopedia does not include all offers available in the marketplace. Nominal gross domestic product measures the value of all finished goods and services produced by a country at their current market prices. Today its Indias top website and an institution when it comes to imparting quality content, guidance and teaching for IAS Exam. 990 crore. Find Net Value Added at Market Price (All India 2012), 8. Distinguish between microeconomics and macroeconomics. = 860 230 As the price of wheat is included three time and that of floor two times. As a result, it provides a more accurate picture of the available resources for consumption or investment. To help Teachoo create more content, and view the ad-free version of Teachooo please purchase Teachoo Black subscription. Value Added by a Firm = Value of Output of the Firm Intermediate Consumption of the Firm. It is computed as follows: The net domestic product at factor cost is the value acquired by deducting the net indirect tax and depreciation from the gross market value of domestic goods and services. Step 4: Now, we will calculate net factor income from abroad (NFIA) to get national income. (vii) If intermediate purchases are given, then imports are not included. (b) National Income (All India 2009), Ans. Net Domestic Product at Factor Cost (NDPFC) = Value of Output in Economic Territory-(Intermediate Purchase by Primary Sector+ Intermediate Purchase by Secondary Sector + Intermediate Purchase by Tertiary Sector)-Consumption of Fixed Capital Indirect Taxes NNPfc = NDPfc + NFIA. = 1220-270 = Rs. (i) Capital gain on sale of a house will not be included while estimating National Income, as it is already included in the year when it is built. Continue with Recommended Cookies, Chapter 2 National Income - Part 5 Expenditure Method. This would mean the purchased machine would qualify as a gain for the NDP. (ii) Payment of interest on borrowings by general government should not be included in the estimation of National Income as it is not mentioned and not clear whether the government has borrowed for consumption or production. suppose if we include the price of wheat, then the price of floor and finally price of bread. Depending on the way, the income is earned. Its main tools are demand and supply of particular commodity/factor. = Rs. (v) Commission earned on account of sale and purchase of second hand goods is included. Required fields are marked *. You are free to use this image on your website, templates, etc., Please provide us with an attribution link. (Python), Class 12 Computer Science (b) Gross National Disposable Income (GNDI) Value Added or Product Method: NI = GDP Depreciation Indirect Taxes + Overseas Net Factor Income., Following are the four components of NI accounts:1. (a)Income method and 555 crore, 83. Net Factor income to abroad: 3,200. Call us @ 08069405205, Want to work at Insights IAS? Some of our partners may process your data as a part of their legitimate business interest without asking for consent. Hence, according to the value-added method: National Income = (NDP FC) + Net factor income from abroad. CFA And Chartered Financial Analyst Are Registered Trademarks Owned By CFA Institute. Net Value Added at Factor Cost (NVAFC) = Value of Output (Sales + Change in Stock) Purchase ofIntermediate Goods Depreciation Net Indirect Taxes Expenditure Method: NI = C (household consumption) + G (government expenditure) + I (investment expense) + NX (net exports).3. From the following data calculate Net Value Added at Factor Cost (Delhi 2011 c) (i) National Income . = 515+(30-5) +15 = 515+25+15 Methods of Calculating National Income, (i) Income method Such an example would qualify as depreciation and replacement. Income Method NDP (FC) = F I F I = COE + OS + MISE COE = W SC + W SK + SS OS = Rent + Interest + Royalty + P rofit Rent = PO + IR NI = ITR IP. Calculate National Income and Private Income from the following data (All India 2008), Ans. GDP at MP = 400 + 100 + 50 - 150 - 20 + 100 = 480 croresNDP at FC = 480 - 60 - 20 = 400 crores x. Ans. (i) Interest paid by banks on deposits by individuals should be included in estimation of National Income as it will be treated as factor income. (i) Expenditure on fertilisers by a farmer is not included in the estimation of National Income as it is an intermediate consumption as fertilisers are meant for further production. Calculate Net National Product at Market Price and Gross National Disposable Income. (All India 2009). Giving reasons, explain how the following are treated while estimating National Income? (i) Payment of bonus by a firm. Domestic Income or NDP at FC. 1. (Delhi 2014) (iii) Financial help received by flood victims. (b) Production method from the following data (All India 2011), Net Domestic Product at Factor Cost (NDPFC) = Wages and Salaries + Social Security Contribution byEmployers + Corporation Tax + Retained Earnings of Private Corporations + Dividend + Rent + Interest There are several actions that could trigger this block including submitting a certain word or phrase, a SQL command or malformed data. 1650 crore, (b) By Expenditure Method Gross National Product at Factor Cost (GNPFC) = Private Final Consumption Expenditure+ Government Final Consumption Expenditure + Net Domestic Capital Formation + Consumption of Fixed Capital + Net Exports Net Indirect Taxes + Net Factor Income from Abroad (ii) Pension paid after retirement is not included in the estimation of National Income as it is a kind of deffered payment to employees. NDP, along with GDP, gross national income (GNI), disposable income, and personal income, is one of the key gauges of economic growth that is reported on a quarterly basis by the Bureau of Economic Analysis (BEA). 25.Giving reason, explain how should the following be treated while estimatingNational Income (All India 2012) (ii) Money received by a family in India from relatives working abroad. Your email address will not be published. Formula_Sheet Chapter 2 - Read online for free. Calculate Gross Value Added at Factor Cost (Delhi 2012), 5. The formula for NDP-FC is: NDP-FC = Value of Output - Indirect Taxes + Subsidies In other words, the NDP-FC is calculated by subtracting the indirect taxes and adding the subsidies to the value of output, which is the value of all goods and services produced within a country's borders. Calculate National income is studied under macroeconomics; gross domestic product (GDP) and gross national product (GNP) are the two major components. (a) By Expenditure Method Calculate Ans. (a) National Income (NNPFC) = Private Final Consumption Expenditure Gross Domestic Product (GDP): Formula and How to Use It, What Is National Income Accounting? = Rs. Calculate This information is crucial for policymakers and investors. NDP FC = GDP MP - Depreciation - Net Indirect Taxes NDP FC is also known as Domestic Income or Domestic factor income. (Delhi 2011), 56.Calculate Net domestic product (NDP) is an annual measure of the economic output of a nation that is calculated by subtracting depreciation from gross domestic product(GDP). It is represented by: The NNPMP is the net value of the goods and services generated by production capacities that are owned by residents. The depreciation is also referred to as capital consumption allowance. = 520-490 = Rs. 88.Giving reason, explain, how the following are treated in estimating National Income? Calculate sales from the following data (All India 2013), 2. Give an example of showing the difference between microeconomics and. (i) Salaries paid to Russians working in Indian Embassy in Russia.