NIOS Economics (318) Notes/Answer| Chapter-11|National Income: Concepts

NIOS Economics (318) Notes/Answer| Chapter-11|National Income: Concepts. Important questions for NIOS Economics (318) Questions Answers brings you latest queries and solutions with accordance to the most recent pointers SOS . Students will clear all their doubts with regard to every chapter by active these necessary chapter queries and elaborate explanations that area unit provided by our specialists so as to assist you higher. These queries can facilitate students prepare well for the exams thanks to time constraint . NIOS Economics (318) Notes/Answer| Chapter-11|National Income: Concepts

HS 2nd years Solutions (English Medium)

NIOS Economics (318) Notes/Answer| Chapter-11|National Income: Concepts

Intext Questions

1.Choose the correct alternative: 

(a) The term ‘national’ in national income is associated with:

  1. Economic territory
  2. Geographical territory
  3. Residents 
  4. Citizens

Ans.(C) Residents

(b) By deducting intermediate cost and indirect taxes from the value of the output we get:

  1. Gross value added at market price 
  2. Gross value added at factor price
  3. Net value added at market price
  4. Net value added at Factor price 

Ans. (B) Gross value added at factor price 

(c) By deducting consumption of fixed capital and intermediate cost from the value of the output we get:

  1. Gross value added at market price 
  2. Gross value added at factor price 
  3. Net value added at market price 
  4. Net value added at Factor price

Ans.(C)Net value added at market price 

(d) Value added is a measure of the contribution of:

  1. a resident.
  2. a production unit.
  3. an entrepreneur.
  4. a worker.

Ans.(B) a production unit.

(e) The expenditure on goods and services purchased for resale by a production units is:

  1. Intermediate cost. 
  2. Value of final products
  3. Value of output
  4. Factor cost

Ans.(A) Intermediate cost.

(f) National income of a country is same as: 

  1. Gross National Product at market price. 
  2. Net National Product at factor cost.
  3. Gross National Product at factor cost.
  4. Net National Product at market price.

Ans.(B)Net National Product at factor cost.

2. Choose the correct alternative: 

(a) Which of the following is not treated as compensation of employees? 

  1. Payment of salary.
  2. Payment of bonus.
  3. Payment of travelling expenses on a business tour. 
  4. Free accommodation.

Ans.(C) Payment of travelling expenses on a business tour.

(b) Rent in national income accounting accrues to:

  1. Land used for production. 
  2. Structure erected on land used for production.
  3. Land and structure both used for production 
  4. Land and structure both used for residence

Ans.(A) Land used for production.

(c) The GVAmp exceeds NVAmp by the amount of:

  1. Indirect taxes
  2. Subsidies
  3. Consumption of fixed capital
  4. Net factor income from abroad.

Ans.(C) Consumption of fixed capital

(d) National product exceeds domestic product by the amount of:

  1.  Exports
  2. Factor income received less factor income paid to abroad
  3. Factor income received from abroad
  4. Import

Ans.(B) Factor income received less factor income paid to abroad

(e) The final expenditure is the expenditure on:

  1. Consumption 
  2. Investment only
  3. Both consumption and investment 
  4. Neither on consumption nor on investment

Ans. (C) Both consumption and investment

(f) Domestic product at market price exceeds domestic product at factor cost by: 

  1. Net factor income from abroad.
  2. Consumption of fixed capital
  3. Net indirect taxes 
  4. Exports

Ans. (D) Exports

Terminal Exercise

1. Explain the concept of economic territory.

Ans. The concept of economic territory (or domestic territory) is derived from geographical territory by making certain adjustments. This concept is evolved in connection with the measurement of economic activity of a country. Two adjustments are made in geographical territory to derive economic territory. These are:

  1. Include all embassies and similar government offices of a country located outside its geographical territory. For example, India’s economic territory will include all Indian embassies and similar offices located in foreign countries.
  2. Exclude all foreign embassies, offices of international organisations and other similar offices located within the geographical territory of a country. For example, India’s economic territory will exclude all foreign embassies and offices of international organisations located in India.

It is clear from the above that the concept of economic territory is not the same as geographical territory. The concept of economic territory is relevant for estimating the domestic product of a country.

The sum of all incomes originating within the economic territory of a country is called the domestic income of that country. All factor incomes generated in production units located in the economic territory, whether owned by the residents or the foreigners. are included in domestic incomes.

2. Explain the concept of residents.

Ans. The term resident is different from the term citizen. All individual and institutions whose centre of economic interest lies in a country are treated as the residents of that country irrespective of whether they are the citizens of that country of not. For example, if a foreign citizen normally resides in India and performs the basic economic activities of production, consumption and investment in India, he is treated as an Indian resident. Similarly an Indian citizen living abroad and performing his basic economic activities in that country will be treated as the resident of the country in which he lives.

we must be aware of a large number of Indian citizens living abroad and performing their basic economic activities there. They will be treated as the resident of that country in which they live.For example, Indian citizens living in England, United States of America, Canada, etc. are termed as Non resident Indians (NRIs) in India. Although they are the citizens of India but treated as non-residents of India and citizens of a country may or may not be the resident of that country.

It is the concept of residence which is relevant for estimating national income of a country. The sum total of factor incomes accruing to the residents of the country, both from their activities within and outside the economic territory, is the national income of the country. So, the term ‘national’ in national income is associated with the concept of ‘residents’. National income is strictly the income of the residents.

NIOS Class 12th Economics (318) Notes/Question Answer

Chapter Chapters NameLink
Chapter 1Economy and Its ProcessClick Here
Chapter 2Basic Problems of an EconomyClick Here
Chapter 3Economic Development and Indian EconomyClick Here
Chapter 4Statistics: Meaning and ScopeClick Here
Chapter 5Making Statistical Data MeaningfulClick Here
Chapter 6Presentation of Statistical DataClick Here
Chapter 7Statistical MethodsClick Here
Chapter 8Index Numbers (Meanings and Its Construction)Click Here
Chapter 9Index Numbers (Problem and Uses)Click Here
Chapter 10Income FlowsClick Here
Chapter 11National Income: ConceptsClick Here
Chapter 12National Income: MeasurementClick Here
Chapter 13Uses of National Income EstimatesClick Here
Chapter 14What micro EconomicsClick Here
Chapter 15What affects demandClick Here
Chapter 16What affects supplyClick Here
Chapter 17Price determinationClick Here
Chapter 18CostClick Here
Chapter 19RevenueClick Here
Chapter 20Profit maximizationClick Here
Chapter 21Government budgetingClick Here
Chapter 22Money supply and its regulationClick Here
Chapter 23Need for planning in IndiaClick Here
Chapter 24Achievements of planning in IndiaClick Here
Chapter 25Recent economic reforms and the role of planningClick Here

Optical Module – I

Chapter 26AgricultureClick Here
Chapter 27IndustryClick Here
Chapter 28Independence of Agriculture and IndustryClick Here
Chapter 29Transport and CommunicationClick Here
Chapter 30EnergyClick Here
Chapter 31Financial InstitutionsClick Here
Chapter 32Social Infrastructure (Housing, Health and Education)Click Here

Optical Module – II

Chapter 33Direction and composition of India’s Foreign tradeClick Here
Chapter 34Foreign exchange rateClick Here
Chapter 35Balance of trade and balance of paymentsClick Here
Chapter 36Inflow of capital (Foreign Capital and Foreign Aid)Click Here
Chapter 37New trade policy and its implicationsClick Here
Chapter 38Population and economic developmentClick Here
Chapter 39Population of IndiaClick Here

3. What is the significance of the distinction between intermediate products and final products?

Ans. The significance of the distinction between intermediate products and final products can be explained with the help of an example. Suppose, the flour mill buys wheat worth Rs.10,000 from the farmers. After grinding the wheat the mill sells the flour for Rs.12,000 to the households. Flour is the final product to the households. In our examples the sale of output of wheat by the farmers is Rs. 10,000 while the sale of output of flour by the mill is Rs. 12,000. The total output of both the farmers and the mill is Rs.22,000

There is an element of double counting in the total output of Rs. 22,000. The output of wheat has been counted twice, once as a part of the output of the farmer and then as a part of the output of the flour mill.

This double counting can be avoided by counting the value of final products only and ignoring the value of intermediate products. It is because the value of intermediate products is already included in the value of final products.

4. Explain the concept of the value added by giving a numerical example..

Ans. To explain the concept of the value added let us take the example of the previous question no. 3 about the mill. The mill purchase wheat worth Rs.10,000. This purchase is the intermediate cost to the mill. Suppose wheat is the only intermediate cost to the mill.

Now, out of the total output of the mill of Rs. 12,000 the contribution of the mill is only worth Rs.2,000. The remaining Rs.10,000 is contribution of the farmers. The contribution of Rs.2,000 by the mill is called the ‘value added’ by the mill. It is estimated after deducting intermediate cost from the total value of output. Thus:

Value added = Value of output – intermediate cost 

=Rs. 12,000-Rs. – 10,000=Rs.2000

The above measure of value added is termed as Gross Value Added at Market Price (GVAmp). To know what ‘gross’ and ‘market price’ mean in GVAmp, we must know the difference between (a) gross and net measure and (b) market price and factor cost measures of value added.

5. On the basis of the following derive different measures of value added:

  1. Value of output
  2. Indirect taxes
  3. Intermediate cost 
  4. Consumption
  5. Subsidies

Ans. GVAmp = Value of output – Intermediate cost 

NVAmp = GVAmp – Consumption of fixed asset NVAfc = GVAmp – Indirect taxes + Subsidies

6. Name different factor incomes. Explain briefly their meaning. 

Ans. There are four types of factor incomes described below: 

(a) Compensation of employees

It includes all money receipts and benefits both in cash and in kind accruing to the employees. The employees get wages or salaries. In addition they may get many other benefits as employees like bonus, employer’s contribution to provident fund, free accommodation, free conveyance, free medical facilities, free holiday trips, etc.

In short, compensation of employees includes all monetary and non-monetary benefits that accrue to the employees on account of work performed.

(b) Rent

It accrues to the owners of land for the use of their land for production of goods and services.

(c) Interest

Interest is a payment to those who provide funds to the production units. In national income estimation, the interest payments only against the funds provided to the production units for investment are treated as factor payments. Any interest payment against loans given to consumers to meet consumption expenditure is not a factor payment and so cannot be treated as factor income.

(d) Profit

Profit is the income accruing to the entrepreneur for his entrepreneurial services to the production unit. It is residual income left after factor payment out of the value added in the form of compensation of employees, rent and interest have been made.

(e) Mixed Income

The data about the four types of factor income is obtained from the income accounts of the production units. Many production units do not keep accounts in a manner so that the four factor payments are clearly identified. This happen in case of those entrepreneurs who also provide their own land, labour, and capital services to their production units. Suppose there is a small shopkeeper who has no employees. Also suppose that he has not borrowed any funds and used his own saving for investment in the shop. Further suppose that he is also the owner of the land on which the shop is built. The payment for these services gets merged with profits and recorded as profit in the accounts. Such an income is not truly profit but includes the owner’s salary, rent, and interest also. In national income estimation, it is treated as ‘mixed income’

The sum total of the compensation of employees, rent, interest and profit paid by the production unit is the same as NVAfc. 

7. What is ‘mixed income’? Why is there a need for such concept? 

Ans. Mixed income is that income which is mixture of different factor incomes

We need such a concept for a separate category to arise because we cannot separate this income into different factor income.

8. Name different final expenditures. Explain briefly their meaning. 

Ans. Different final expenditures are

  1. Private final consumption expenditure 
  2. Government final consumption expenditure
  3. Gross domestic capital formation
  4. Net exports

Out of the above (1) and (2) are consumption expenditures and (3) and (4) are investment expenditures. 

(i) Private final consumption expenditure

PFCE includes purchases by the households and the non profit institutions serving households. The households purchase goods and services for the satisfaction of the wants of their family members. The non-profit institution serving households consist of institutions like mosques, temples, churches, gurudwaras, and charitable hospitals, associations etc. who provide free service to the households.

(ii) Government final consumption expenditure 

GFCE is the expenditure on the free services provided to the people by the general government. The main examples of the free services are that of police, military, education institutions, hospitals, roads, bridges, legislatures and other government departments.

(iii) Gross domestic capital formation

GDCF is a measure of the total expenditure on investment by the production units within the economic (domestic) territory of a country. This expenditure is of two types: (a) on fixed assets like buildings, machines, instruments, furniture, transports vehicles etc. and (b) on stocking of raw materials, semi-finished goods and finished goods. These two types of expenditure are respectively termed as (a) gross domestic fixed capital formation (GDFCF) and (b) net addition to stock. The excess of the closing stock over the opening stock is the ‘net addition to stock, the closing stock less opening stock is a measure of the net addition to the stock during the year.

The GDCF is called gross because the consumption of fixed capital has not been deducted from it. If we deduct the consumption of fixed capital from GDCF we get Net Domestic Capital Formation (NDCF). The NDCF is a measure of the net domestic investment during the year.

(iv) Net exports

In national income accounting any part of the final products produced during the year but not consumed within the economic territory of the country is treated as investment abroad. Similarly imports are treated as disinvestment. So, exports less imports, i.e. net exports, represent net investment abroad.

The sum total of PFCE, GFCE, GDCF, and Net Exports is a measure of total final expenditure of a country during a given period.

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