NIOS Economics (318) Notes/Answer| Chapter-12|National Income: Measurement

NIOS Economics (318) Notes/Answer| Chapter-12|National Income: Measurement. 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-12|National Income: Measurement

HS 2nd years Solutions (English Medium)

NIOS Economics (318) Notes/Answer| Chapter-12|National Income: Measurement

Intext Questions

1. Fill in the blanks from the clue given: (tertiary, primary, secondary, income, expenditure, national income)

(a) The value added, final expenditure and ________ distribution are the three angles of looking at national income.

Ans. income

(b) The first step in estimating_________is to classify production unit. 

Ans. national income

(c) The production units engaged in manufacturing are classified as_________ sector.

Ans. secondary

(d) Banking is a part of the_________ sector.

Ans. tertiary

(e) Fishing is a part of the ___________ sector.

Ans. primary

2. Fill in the blanks from the clue given: (tertiary, secondary, capital, compensation, included, consumption)

(a) Output produced for self consumption is _________  in the value of output. 

Ans. included

(b) Interest payment on loan taken to meet________ expenditure is not treated as factor income.

Ans, consumption

(c) Bonus received by employees is a part of the _________ of employees. 

Ans. compensation

(d) The expenditure on purchasing furniture by a production unit is a part of __________ formation. 

Ans. capital

(e) Employing domestic servants is a part of _________ sector.

Ans. tertiary

Terminal Exercise

1. Explain The three angles of looking at national income. 

Ans. The production units produce goods and services. For this purpose they employ the owner of the four factors of production viz. labour, land, capital and entrepreneurship. When these factors of production jointly produce goods and services, it leads to the creation of income termed as ‘value added’. This angle, i.e. the value added angle, is the first angle of looking at the flow of national income. The national income measured from this angle is said to be measured through the Value Added’ or the ‘Production’ method.

The income created in the production units is distributed among the owners of the factors of production in the form of compensation of employees, rent, interest and profit. When we add all these factor incomes we get domestic income. This is the second angle leading to the ‘Income Distribution’ method of estimating national income. 

The incomes received by the owners of the factors of production are spent on purchasing of goods and services from the production units for the purpose of consumption and investment. The national income measured by adding the final expenditure is the third angle leading to the Final Expenditure method of measuring national income.

To conclude, national income can be measured when it is created (production method); or when distributed among the claimants (income distribution method) or when spent on distinct industrial groups or sectors.

The first step in the measurement of national income, irrespective of the method adopted, is to classify the production units located within the economic territory of the country into the distinct industrial groups or sectors.

2. Explain the nature of functions of primary, secondary and tertiary sectors. 

Ans. The nature of functions of primary, secondary and tertiary sectors are as follow:

(a) Primary Sector

The primary sector includes all production units engaged in exploring natural resources like the units engaged in farming, forestry, fishing, mining, dairy farming, etc. This sector treated as the sector of first importance because it is a source of all materials needed for producing goods and services.

(b) Secondary Sector 

The secondary sector of the economy produces finished goods from the raw materials extracted by the primary economy. That is why this sector is considered as the sector of second importance. All manufacturing units or factories producing goods from the use of materials come under this category. Activities associated with the secondary sector include metalworking and smelting, automobile production, textile production, the chemical and engineering industries, food processing industries, aerospace manufacturing, energy utilities, breweries and bottlers, construction, and shipbuilding.

(c) Tertiary Sector

All production units engaged in producing services are classified as the tertiary sector units. The growth of this sector depends mainly on the growth of the primary and the secondary sectors of the economy. That is why this sector is considered the sector of third importance.

Activities associated with this sector include retail and wholesale sales, transportation and distribution, restaurants clerical services, media, tourism, insurance, banking, health care, and law.

3. Explain the steps taken in measuring national income through the value added method.

Ans. Value added method approaches the measurement of national income through the value added angle. The main steps involved in measuring national income through this method are as follows:

  1.  Classify the production units located within the economic territory into the distinct industrial groups like agriculture, mining manufacturing, banking, trade etc.
  1.  Estimate the net value added at factor cost by the each industrial sector by taking the following sub steps:
  • Estimate the value of output 
  • Estimate the value of intermediate consumption and deduct the same from the value of output to arrive at gross value added at market price.
  • Deduct consumption of fixed capital and indirect taxes from and add subsidies to the gross value added at gross value added at market price to obtain the net value added at factor cost. 

To summarise: Gross value added at market /  price. =Value of output-Value of intermediate consumption

Net value added at factor cost 

= (Gross value added at market price + subsidies)-(Consumption of fixed capital + Net indirect taxes)

C. Take the sum of net value added at factor cost by all the industrial sector to arrive at net domestic product at factor cost. 

D. Add net factor income received from abroad to the Net Domestic Product at factor cost to obtain Net National Product at factor at cost which is the National Income.

4. What are the main precautions required to be taken in estimating national income by the value added method? 

Ans. The following precautions are necessary while estimating national income by production method: 

  1. Avoid double counting of production. To do so instead of taking the value of total output, take only the value added by each production unit. In this way double counting in the estimation of national income is avoided.
  2. That output which is produced for self-consumption and whose value can be estimated, must be included in the estimates of production. It will save national income from under estimation. For example, suppose a farmer produced wheat and retains the same for meeting his family needs, instead of selling it. The value of such self-consumed output must be included in production.
  3. The sale of second hand goods should not be included in current production because the value of these goods had already been included earlier. However, the value of services rendered in their sales must be counted because these services are freshly produced.

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

5. Explain the steps taken in estimating national income through the income distribution method.

Ans. In this method, national income is measured at the stage when factor incomes are paid out by the production units to the owner of the factors of production. The main steps involved in this method are as follows:

  1. Classify the production units into distinct industrial sectors like agriculture, forestry, manufacturing, banking, trade etc.
  2. Estimating the following factor incomes paid out by the production units in each industries sector: Compensation of 
  • employees
  • Rent
  • Interest
  • Profit

The sum total of the above factor incomes paid out is the same as net value added at factor cost by the industrial sector. 

  1.  Take the sum of factor payments by all the industrial sectors to arrive at the net domestic product at factor cost.
  2. Add net factor income from abroad to the net domestic product at factor cost to arrive at the net national product at factor cost.

6. What are the main precautions required to be taken in estimating national income by the income distribution method? 

Ans. The following precautions are necessary while estimating national income by distribution method:

  1. While estimating compensation of employees all benefits accruing to the employees whether in cash or in kind must be included. It should not include only cash payments to the employees.
  2. In estimating interest, the interest on only those loans should be included which are taken for production. The interest on loans taken to meet consumption expenditure is a non-factor income and so is not included in national income. 
  3. Gifts, donations, charities, taxes, fines, winnings from lotteries etc. are not factor incomes but transfer incomes. These should not be included in estimating national income.

7. What are the main steps in the expenditure method of estimating national income? 

Ans. The main steps in the expenditure method of estimating national income are

  1.  Estimate the following expenditure incurred on the final products of all the sectors of the economy 
  • Private final consumption expenditure
  • Government final consumption
  • Gross domestic capital 
  • formation Net exports (Exports – imports)

The sum total of all the above expenditure on final products of all the sectors of the economy gives us gross domestic product at market price.

  1. Deduct consumption of fixed capital, indirect taxes and add subsidies to the gross domestic product at market price to get net domestic product at factor cost.

NDPfc = GDPmp-consumption of fixed capital – indirect taxes + subsidies 

  1. Add net factor income from abroad to the net domestic product at factor cost to obtain net national product at factor cost which is the national income.

NNPfc = NDPfc + net factor income from abroad = National Income

8. Point out some of the precautions taken in estimating national income through the final expenditure method.

Ans. The following precautions are necessary while estimating national income by the final expenditure method. 

  1. Avoid double counting of expenditure by not including expenditure on intermediate products. Include only the expenditure on final products. 
  2. Expenditure on gifts, donation, taxes, scholarships etc. is not the expenditure on final products. These are transfer expenditure and should not be included in final expenditure.
  3. Expenditure incurred on purchase of second hand goods should not be included as the expenditure on these has been included when bought for the first time.

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