71. Net Value Added at Factor Cost (NVAFC) = Value of Output (Sales + Change in Stock) Intermediate Cost- Depreciation Net Indirect Tax The GDP of the country this year would be $100 million, and the NDP would be $80 million, calculated as follows: In this example, the NDP of $80 million is a more accurate measure of the countrys economic output, as it considers the wear and tear of physical capital. = [400+ (-40)]-250-(20+ 30) NNP FC = NDP FC + Factor income earned by normal residents from abroad - factor payments made to abroad. It is a measure of the total value of all goods and services produced within a countrys borders, adjusted for the decline in the value of physical capital over time due to wear and tear, obsolescence, and other factors. Home Economy National Income accounting Methods of estimating National Income Income method. National income is studied under macroeconomics; gross domestic product (GDP) and gross national product (GNP) are the two major components. NCERT Solutions for Class 6, 7, 8, 9, 10, 11 and 12, 1. Ans. (ii) Payment of interest on borrowings by general government. = 5000 + 2000 + 500 + (-30) + (-150) + 100-50- 800 = 7600-1030 = Rs. Give reasons for your answer. Calculate Delhi - 110058. Precautions While Using Value Added Method (a) Income method and Giving reason, explain the treatment assigned to the following while estimatingNational Income (All India 2011) 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 (Delhi 2011), 56.Calculate = Rs. He teaches Science, Economics, Accounting and English at Teachoo, Made with lots of love document.getElementById( "ak_js_1" ).setAttribute( "value", ( new Date() ).getTime() ); Copyright 2023 . (a) National Income (NNPFc)= Private Final Consumption Expenditure + Government Final Consumption Expenditure + Gross Domestic Fixed Capital Formation + Net Change in Stocks Net Imports Depreciation Net Indirect Tax Net Factor Income to Abroad (iii) Expenditure on machine for installation in a factory. 2. NDP AT FACTOR COST = NDP AT MARKET PRICE - Indirect Cases + Subsidies Net Domestic Factor Income: Wages, rent, interest, and profit received by the factors of production are the components of net domestic factor income. (a) Gross Domestic Product at Factor Cost (GDPFC) = Government Final Consumption Expenditure (a) Net Domestic Product at Factor Cost (NDPFC) = Wages and Salaries + Rent + Interest Paid byProduction Units + Corporation Tax + Dividends + Undistributed Profits + Social Security Schemes by Employers (a) Gross National Product at Factor Cost and National Income (NNPFC) = Compensation of Employees + Rent + Interest + Profit Net Factor Income to Abroad InsightsIAS Headquarters, = 3500 + 50 2000 500 350 = 1760-110 (iii) Expenditure by government on providing free education will be included while estimating NationalIncome, as it is a part of governments final consumption expenditure. Ans. It ascertains the economic performance, wealth, and growth of a country. Ans. The NDP-FC provides a more accurate measure of a countrys economic performance. Manage Settings (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. 835 arab. What Is GDP and Why Is It So Important to Economists and Investors? It is represented as follows: GDPFC = GDPMP - Net Indirect Tax #3 - Net Domestic Product at Market Price (NDPMP) 830 crore You must give reason in support of your answer. Value Added Method/Product Method/Output Method By this method, the total value of all the final goods and services produced in an economy during a given time period are estimated to obtain the value of domestic income. = 500+ (80-60)-350-90-50 (a) Gross Domestic Product at Factor Cost and = 530-310 Calculate Hence, the problem of double counting is avoided. 24. (Delhi 2010). Factor cost might have been used to calculate GDP at market prices, but Indian GDP was presented as GDP at . It is that part of economic theory which deals with the individual parts of the economic system like individual households, individual firms, individual industries, etc. 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. 340 lakh, 20. (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. Calculate National Income and Net National Disposable Income from the following data (Delhi 2008), Ans. 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. (iii) Net Factor Income from Abroad NDP-FC = Value of Output Indirect Taxes + Subsidies. = 700+100+10-130 = Rs. Ans. (ii) Earning of shareholders from the sales of shares. Personal Disposable Income = Private Income Corporation Tax Corporate Savings Direct Tax So, NNPfc = 2100 +(-50) = 2050 (in Arabs) In the question, they asked us to calculate NNPfc, but with income method we get . Some of our partners may process your data as a part of their legitimate business interest without asking for consent. Net Domestic Product (NDP) measures the total value of all goods and services produced in a country, adjusted for the depreciation of physical capital. (i)Interest on a car loan paid by an individual. Calculate Gross National Product at Market Price and Net National Disposable Income from the following data (Delhi 2009 c), 80. Precautions While Using Expenditure Method. Net national product (NNP) is the total value of finished goods and services produced by a country's citizens overseas and domestically, minus depreciation. Calculate sales from the following data (All India 2013), 2. According to the formula, national income is calculated by adding together consumption, government expenditure, investments made within the country, net exports (exports minus imports), and foreign production by residents. (v) Commission earned on account of sale and purchase of second hand goods is included. Uploaded by . (a) Gross National Product at Factor Cost (GNPFC) (b) Net National Disposable income from the following data Net Current Transfers to Abroad + National Debt Interest + Current Transfers by Government + Net Factor Income from Abroad National Income Accounting Book Chosen. Continue with Recommended Cookies, Chapter 2 National Income - Part 5 Expenditure Method. (i) it is included in the GDPMP,as it is a part of government final consumption expenditure. (b) Factor Income from Abroad from the following data (All India 2010). 660 crore, 54. Gross National Product at Market Price (GNPmp) = NDPFC + Net Indirect Taxes Net Factor NDP at MP = GDP at MP (+) NFIA [Net Factor Income from Abroad] 3. (i) National Income Let us have a look at the examples to understand the concept better. PRODUCT METHOD (Value added method): Theory-only the value of final goods is to be included; otherwise there arises a problem of double counting. Simply put 'it is study of the economy as a whole'. Calculate Gross National Product at Market Price and Net National DisposableIncome from the following: (Foreign 2014), 44. NDP FC 55,915 Indirect Tax 2,590 Less Subsidies 1540 Net Indirect Taxes 1,050 Step 1 We calculate NNPMP NNPMP = GNPMP - Dep = 58,350 - 1625 = 56,725 Step 2 We calculate NDPMP NDPFC - Factor income from abroad + Factor income to abroad = 56,725 - 625 + 865 = 56,965 Step 3 We calculate Net Indirect tax . = Private Final Consumption Expenditure + Government Final Consumption Expenditure + Net Domestic Fixed Capital Formation + Change in Stock + Net Export + Consumption of Fixed Capital Net Factor Income to Abroad Net Indirect Tax The depreciation is also referred to as capital consumption allowance. (a)Income method and Net domestic product (NDP) is an annual measure of the economic output of a nation that is adjusted to account for depreciation. An increase in NDP signifies a growing economy, while a decrease denotes economic stagnation. Are the following a part of countrys Net Domestic Product at Market Price? It is computed as follows: NNPFC = GNPMP Net Indirect Taxes Depreciation. The construction of new homes on previously unused real estate can also represent a gain for the NDP if the residences are not intended to replace defunct or demolished property. (i) Expenditure on free services provided by government. To read more about such interesting concepts on economics for commerce, stay tuned to our website. Find out Expenditure + Net Domestic Capital Formation + Net Exports + Net Factor Income from Abroad- Net Indirect Taxes There are only two producing sectors A and B in an economy. Ans. (ii) Profits earned by an Indian bank from its abroad branches is included while estimating National Income of India as it is a factor income from abroad. Cloudflare Ray ID: 7a11ea707ae6d2cd Ans. (ii) Net exports = NNPFc+ Net Indirect Tax Net Current transfer to Abroad (ii) Payment of interest on loan taken by an employee from the employer. Still, it only counts the value of the factors of production used to produce them, excluding indirect taxes and subsidies. The consent submitted will only be used for data processing originating from this website. Give reasons for your answer. Sum up all factor payments made within domestic territory to get Domestic Income (NDP at FC). = Rs. (iii)Purchase of taxi by a taxi driver. It measures the output generated by a country's organizations located domestically or abroad. (ii) Expenditure method Click to reveal (i) Salaries received by Indian residents working in Russian Embassy in India will be included whileestimating National Income in India, as it is a factor income from abroad. NNPfc = NDPfc + NFIA. = Rs. (a) Gross Value Added (GVA) by A = Sales by A + Net Change in Stock of A IntermediateConsumption of A (ii) Addition to stocks during a year. In short, NDP FC = 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 (NNP FC ), i.e. How should the following be treated while estimating National Income? Calculate Net National Product at Market Price and Gross National Disposable Income from the following: ( All India 2014). (a) Net National Product at Market Price 600 crore, (NNPFC) = Gross Value Added by A and B Indirect Taxes Depreciation + Net Factor Income Abroad = 600-80-30+20= 620-110=Rs. The GNPMP is the value of overall goods or services manufactured by a nations residents. (ii) GNP (at FC): Gross National Product at factor cost. While estimating National Income, how will you treat the following? 1950 crore, (b) By Production Method NDP FC = GDP MP - Depreciation - Net Indirect Taxes NDP FC is also known as Domestic Income or Domestic factor income. Solved Example for You (i) Salaries paid to Russians working in Indian Embassy in Russia. Ask questions, doubts, problems and we will help you. It is computed by deducting net indirect tax from the aggregate value of all commodities produced by the residents of a countryduring an accounting year. Calculate Gross National Product at Factor Cost by Expenditure Method: NI = C (household consumption) + G (government expenditure) + I (investment expense) + NX (net exports).3. Switch; Flag; Formula value of output= Sales + change in stock Change in st. Calculate value of output from the following data (Delhi 2008), Ans. Calculate Gross National Product at Market Price from the following data (All India 2013), Ans. Its main tools are demand and supply of particular commodity/factor. This method measures national income as sum total of final expenditures incurred by households, business firms, government and foreigners. The value-added at factor cost is equivalent to the NDP at factor cost. Find out Net Value Added at Factor Cost (All India 2012), 10. 510 crore, 79. This has been a guide to what is National Income. Net Domestic Product at factor cost measures a countrys economic output considering the production of goods and services. NDP = GDP - Depreciation N DP = GDP. (i) Remittances from non-resident Indians to a resident in India should not be included in the estimation of domestic factor income as it is not a part of domestic income and the income is not generated in domestic territory of India. Calculate 42. (i) Expenditure on fertilisers by a farmer. (iii) Expenditure on purchasing a car for use by a firm. (b) National Income (All India 2009), Ans. Heres an example of how Net Domestic Product can be used to measure a countrys economic output: Consider a country with two industries, agriculture, and manufacturing. Sales = Net Value Added at Factor Cost (NVAFC)+ Intermediate Consumption Change in Stock+ Indirect Tax + Depreciation = Rs. 78. Thus, from the money value of NNP at market price or NNI we deduct the amount of indirect taxes to arrive at the net national income at factor cost. =Rs. (b) Gross National Disposable Income (GNDI) =NNPFC+ Net Indirect Taxes + Consumption of FixedCapital Net Current Transfer to the Rest of the World (i) Profits earned by a branch of foreign bank in India. When you visit the site, Dotdash Meredith and its partners may store or retrieve information on your browser, mostly in the form of cookies. 23.Giving reason, explain how should the following be treated in the estimation ofNational Income (Delhi 2012) (ii) Interest paid by an individual on a loan taken to buy a car. Net Domestic Product at Factor Cost (NDPFC) GNP FC = GDP FC + NFIA 5. = 1550 190 = Rs. 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This measure is useful for policymakers and investors. (iii) Brokerage on the sale/purchase of shares and bonds is to be included. = Rs. Thus, it provides a clearer picture of a countrys economic performance. The counting of the value of a commodity more than once while estimation of National Income is called double counting. Value of Output = Net Value Added at Factor Cost (NVAFC) + Depreciation 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. Net Domestic Product at Factor Cost or NDP FC : It refers to the net money value of all the final goods and services that are produced within the domestic territory of a nation excluding the net indirect taxes and depreciation. Question 3. (a) Net Domestic Product at Factor Cost and (iii) Scholarship given to Indian students studying in India by a foreign company. (b) Expenditure method from the following data (All India 2009), Ans. Indirect Taxes. (iii) Purchase by a foreign tourists will be included while estimating National Income as it is consideredas exports of goods and services. It refers to the sum total of factor . (b) National Income = Gross Value Added (GVA) by A and B = (310 + 290) crores