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. 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. 24. (i) Salaries received by Indian residents working in Russian Embassy in India. + (Excise Duty Subsidy) + Intermediate Consumption (a) Net Domestic Product at Factor Cost and What do you understand by domestic income (NDP FC)? The manufacturing sector produces 50 units of goods with a value of $200 per unit for a total GDP of $10,000. (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. (i) Family members working free on the farm owned by the family. (iii) Expenditure by government on providing free education will be included while estimating NationalIncome, as it is a part of governments final consumption expenditure. GDP at factor cost measures the money worth of output produced within a country's domestic constraints in a year as received by the factors of production. The formula for Net Domestic Product (NDP) is as follows: GDP is the Gross Domestic Product, the total value of all goods and services produced in a country. = 600+100 +70+(-20)+ 10-30 = 780-50 Final Expenditure It is the expenditure on the purchase of final goods and services during an accounting year. = Rs. 60 crore 31. NDP at FC = Income from domestic products accruing to private sector + Income from domestic products accruing to public sector = Rs. 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. 1360 crore, 45. (Delhi 2009). (i) Dividend received by a foreigner from investment in share of an Indian company. Calculate Net National Product at Market Price and Gross National Disposable Income. (b) Private income from the following data (All India 2011), Ans. small group of firms) but deals with the study of broad economy-wide aggregates like total output, size of national income, level of employment, aggregate consumption, aggregate saving, aggregate investment, general price level, balance of payment, rate of inflation, size of poverty etc. (a) Gross National Product at Factor Cost (GNPFC) The site owner may have set restrictions that prevent you from accessing the site. 4,000 crores + Rs. It helps to solve the central problem of full employment of resources in the economy.. 2023 Zigya Technology Labs Pvt. as well as windfall gains (e.g., from lotteries) are excluded. (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 = Rs. 950 crore (ii) Interest received on debentures. Estimate net factor income from abroad which is added to Domestic Income to derive National Income. Net Domestic Product measures a countrys economic output that considers the depreciation of physical capital. 1. Solution. GDP at MP = 400 + 100 + 50 - 150 - 20 + 100 = 480 croresNDP at FC = 480 - 60 - 20 = 400 crores x. Nominal gross domestic product measures the value of all finished goods and services produced by a country at their current market prices. 5. = Rs. 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. 3900 crore, 72. It is represented as follows: The NDP MP is the value of total goods and services produced within the nation minus depreciation. (ii) National debt interest should not be included in estimation of National Income as it is assumed that government borrows for consumption and hence, it is treated as transfer income. 23.Giving reason, explain how should the following be treated in the estimation ofNational Income (Delhi 2012) (ii) Purchase of a tractor by a farmer is included in the estimation of National Income as it is capital formation or investment expenditure. (i) It is not included in the estimation of National Income as it does not involve any production of goods and services. (i) Imputed rent of self occupied houses are included while estimating National Income, as it is a factor income. This compensation may impact how and where listings appear. = 1550 190 = Rs. (a)Income method and In this theoretical example, the NDP considers the depreciation of physical capital, providing a more accurate picture of the countrys economic output. 510 crore, 79. Economics Book Store. Giving reason, explain how should the following be treated in estimation ofNational Income (Delhi 2012) Identify enterprises which employ factors of production (land, labour, capital and enterprise). (i) Private final consumption expenditure. (i) Expenditure on education of children by a family. 400. 515 crore, (b) Net National Disposable Income (NNDI) = NNPFC + Net Indirect Taxes + Net Current Transfers fromAbroad (a) By Expenditure Method GDP = Value of Output + Indirect Taxes Subsidies, The measure of a countrys overall economic performance, The measure of a countrys economic output available for consumption or investment, Does not take into account the depreciation of physical capital, Does not take into account indirect taxes and subsidies, Commonly used as a broad indicator of economic activity, Provides a more accurate picture of a countrys economic output, useful in long-term economic analysis. Calculate national income or NNP at FC. 2. The value-added at factor cost is equivalent to the NDP at factor cost. Ans. The net domestic product is defined as the net value of all the goods and services produced within a countrys geographic borders. (iii) Expenditure on machines for installation in a factory will be included while estimating NationalIncome, as it is a final consumption expenditure by factory management. 62.Calculate(a) Gross Domestic Product at Market Price and It may arise due to technological advancement. Why is study of problem of unemployment in India a macroeconomic study? (ii) Pension paid after retirement is not included in the estimation of National Income as it is a kind of deffered payment to employees. = 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 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. Simply put 'it is study of the economy as a whole'. 11. I have written it for you to memorize it. It will lead to the problem of double counting. Give reasons for your answer. The concept has the following drawbacks:1. NDP FC = GDP MP - Depreciation - Net Indirect Taxes NDP FC is also known as Domestic Income or Domestic factor income. (a) Gross Value Added (GVA) by A = Sales by A + Net Change in Stock of A IntermediateConsumption of A He teaches Science, Economics, Accounting and English at Teachoo, Made with lots of love (i) it is included in the GDPMP,as it is a part of government final consumption expenditure. Private Income = Net Domestic Product at Factor Cost Accuring to Private Sector + NFIA + Current Transfer from Government + National Debt Interest + Net Current Transfers from Abroad (b) Personal Disposable Income from the following data (All India 2011), 53.Calculate (Delhi 2010). The resulting total is called Domestic Income or Net Domestic Product at FC (NDP FC)- By adding net factor income from abroad to domestic income, we get National Income (NNP FC)- Mind, in income method national income is measured at the stage when factor incomes are paid out by enterprises to owners of factors of productionland, labour, capital and enterprise. (ii) It is not included in the estimation of GDPMPbecause loans are not used for production purpose. The consent submitted will only be used for data processing originating from this website. Sales Taxes - consumer taxes imposed by the government on the sales of goods and services. Computation of National Income (By Value Added Method). Calculate 630 arab, (b) Net National Disposable Income (NNDI) (iii) Expenditure on machine for installation in a factory. It is considered a key indicator of economic growth of a country. = Rs. How will you treat the following while estimating domestic factor income of India? = 515+(30-5) +15 = 515+25+15 (b) Expenditure method. Displaying ads are our only source of revenue. (ii) Payment of interest on loan taken by an employee from the employer. Net Value Added at Factor Cost (NVAFC) = Value of output (Sales + Change in Stock) Purchase ofRaw Materials Consumption of Fixed Capital + Subsidies = 500 + (-20) 250 -40 + 30 NDP is a more accurate measure of a countrys economic output, as it considers the wear and tear of physical capital, which is a key factor in long-term economic growth. There are only two producing sectors A and B in an economy. 330 lakh, 21. 3900 crore, 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 Factor Income from Abroad Net Indirect Taxes It is computed by subtracting depreciation from the gross value. = 730-25 + (10 + 5) +15 = 760-25 Sale and purchase of second-hand goods are excluded since they are not part of production of current year but commission paid on sale of second-hand goods is included as it is reward for rendering productive services. To view the purposes they believe they have legitimate interest for, or to object to this data processing use the vendor list link below. (i) Taking care of aged parents Formula - Sheet Chapter 2. (ii) Profits earned by an Indian bank from its abroad branches. (ii) Profits earned by a branch of Indian bank in Canada is factor income received from abroad. (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 (i) Interest paid by banks on deposits. You must give reason for your answer. Examples are: National income, national savings, general price level, aggregate demand, aggregate supply, inflation, unemployment, etc. = 750 690 = Rs. = 920-110 = Rs. Calculate NNPFC = NDPFC + NFIA. Teachoo answers all your questions if you are a Black user! 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 . = 4300 400 = 750 +150 + 220 + (-20) -50 -120 + 20 = 1140 -190=? = 1450 + 400 + [200 + (- 50)] (-50) -100 = Rs. From the following information about firm X, calculate Net Value Added at Factor Cost (Delhi 2008 C), Ans. (i) Expenditure on fertilisers by a farmer. Find Net Value Added at Market Price (All India 2012), 8. (i) NDP (at MP) : Net Domestic Product at market price. Calculate 1. Ans. (a) By Income Method 835 arab. Giving reason, explain the treatment assigned to the following while estimatingNational Income (All India 2011) (All India 2010) (i) The value of intermediate goods should not be included. Calculate value of output from the following data (Delhi 2008), Ans. (ii) Interest paid by an individual on a car loan taken from a bank. Income Method By this method, the total sum of the factor payments received during a given period is estimated to obtain the value of Domestic Income. Personal Disposable Income = Private Income Corporation Tax Corporate Savings Direct Tax Give reasonsfor your answer. Income to Abroad + Consumption of Fixed Capital 720 arab, 35. An example of data being processed may be a unique identifier stored in a cookie. 37. Investment4. All types of transfer income like old-age pension, unemployment allowance, etc. It is represented by the following formula: F denotes Foreign Production by Nations Residents. Cloudflare Ray ID: 7a11ea707ae6d2cd It measures the output generated by a country's organizations located domestically or abroad. Cookies collect information about your preferences and your devices and are used to make the site work as you expect it to, to understand how you interact with the site, and to show advertisements that are targeted to your interests. (iii) Expenditure by government on providing free education. GNP FC = NNP FC + Depreciation OR. Calculate Net National Product at Factor Cost and Gross National Disposable Income from the following: (Delhi 2014), 38. Chapter Chosen. Step 4: Now, we will calculate net factor income from abroad (NFIA) to get national income. (iii) Interest received by an Indian resident from its abroad firms. The GNPMP is the value of overall goods or services manufactured by a nations residents. (i) Compensation of employees (ii) Interest paid by an individual on a loan taken to buy a car. (iii) It is included in the estimation of GDPMPbecause it is a part of final expenditure by a firm. As the NDP takes into account the depreciation of capital assets, it is considered to be superior to the GDP as a measure of well-being of a nation. = [800 + (40 50)] 500 [200 -180] + 60 It concerns with the study of individual choice and. Only factor incomes which are earned by rendering productive services are included. (i) Dividend received by an Indian firm from its investment in shares of a foreign company will be included in the estimation of National Income, as dividend is a part of profit and treated as factor income from abroad which is added to domestic income. Consumption2. (i) Net Indirect Taxes Your Mobile number and Email id will not be published. Precautions While Using Income Method (b) By Expenditure Method 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. Computation of National Income (By Expenditure Method), 8. (ii) Value added method This approach or method is a way to avoid the problem of double counting. (ii) Payment of electricity bill by a school. The value added by a firm is the difference between value of output and the value of intermediate products of each firm of the country. It deals with aggregates like national income, general price level and national output, etc. 10. + Private Final Consumption Expenditure + Gross Domestic Capital Formation Net Imports Net Indirect Tax NNP FC = NDP FC + Factor income earned by normal residents from abroad - factor payments made to abroad. 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. National income is studied under macroeconomics; gross domestic product (GDP) and gross national product (GNP) are the two major components. 232, Block C-3, Janakpuri, New Delhi, 1950 crore, (b) By Production Method =610 +130-30 -10-40 The agriculture sector produces 100 units of crops with a value of $100 per unit for a total GDP of $10,000. The NDP also takes into account the other factors such as obsolescence and complete destruction of the asset. 2,000 crores = Rs. 85. 830 crore Net Value Added at Factor Cost (NVA FC) = Sales + Change in Stock (Closing Stock- Opening Stock)- Purchase of Intermediate Goods - Consumption of Fixed Capital - Indirect Tax = 500+ (80-60)-350-90-50 = 520-490 = Rs. =Rs. However, a wider gap between the GDP and NDP shows an increase in the value of obsolescence. Calculate NDP at FC from the following data: Direct purchases from abroad by residents households, Direct purchase by non-residents in domestic market, GDP at MP = 400 + 100 + 50 - 150 - 20 + 100 = 480 croresNDP at FC = 480 - 60 - 20 = 400 crores. How will you treat the following while estimating National Income? It deals with individual income, individual prices and individual outputs, etc. = Rs. (i) Salaries paid to Russians working in Indian Embassy in Russia will not be included in estimation of National Income of India, as it is a factor income paid to abroad. (iii) Financial help received by flood victims are not included while estimating National Income, as it is akind of transfer payment. Gross Domestic Product (GDP): Formula and How to Use It, What Is National Income Accounting? It is evaluated based on income, the addition of value, or expenditure. Suppose a countrys economy produces $100 million worth of goods and services in a year, and the depreciation of its physical capital is $20 million. Aggregate demand is a measurement of the total amount of demand for all finished goods and services produced in an economy. Also, it indicates economic balance. Net Value Added at Factor Cost (NVAFC) = Value of Output [Sales + Change in Stock (Closing Stock Opening Stock)] Purchase of Raw Material Depreciation (Gross Capital Formation Net Capital Formation) + Subsidies This measure is useful for policymakers and investors. Study of cotton textile industry is a microeconomic study. Calculate sales from the following data (Delhi 2008), Ans. (Python), Different Sectors of Economy and Their Expenditures, Expenditure Method of calculating National Income, Expenditure Method - Calculating GDP FC,GNP FC, GNP MP, Expenditure Method - Calculating Missing Figures, Chapter 2 National Income - Part 6 Summary of Different Methods, Chapter 2 National Income Accounting - Basic Concepts, Chapter 2 National Income - Part 2 Concept of GDP and GNP, Chapter 2 National Income - Part 3 Value Added Method, Chapter 2 National Income - Part 4 Income Method, Chapter 2 National Income - Part 6 Summary of Different Methods, Chapter 4 Part 1 - AD,AS and Related Concepts, Chapter 4 Part 2 - Income Determination and Multiplier, Chapter 4 Part 3 - Excess Demand and Excess Supply, Chapter 6 Part 1 - Foreign Exchange Rates. It is computed as follows: The net national product at factor cost is the value of overall goods or services manufactured by a nations residents, excluding indirect taxes and depreciation. = Rs. Class 12 Computer Science (b) Gross National Disposable Income from the following data, Ans. 805 crore, 55. Ans. (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. How should the following be treated while estimating National Income? Difference Between Monetary Policy and Fiscal Policy, Your Mobile number and Email id will not be published. Classify factor payments into various categories like rent, wages, interest, profit and mixed income (or classify factor payments into compensation of employees, mixed income and operating surplus). Gross National Product: Gross National Product (GNP) is defined as the total market value of all final goods and services produced in a country during a specific period of time, usually one year. (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. 355 crore, 81. Its central problem is determination of level of income and employment. You are free to use this image on your website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: Net Domestic Product (wallstreetmojo.com). Uploaded by . = NNPFC+ Net Indirect Tax + Consumption of Fixed Capital Net Current Transfer to Abroad = 685 + (120-20) + 35 -(- 15) Find out Net Value Added at Factor Cost (All India 2012), 10. (b) Expenditure method from the following data (Delhi 2009), Ans. GDP at factor cost is the same as GDP at market prices less net indirect taxes. (iii) Interest received on loans given to a friend for purchasing a car. 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Does not involve any production of goods and services produced within a countrys geographic borders following: ( 2008... You are a Black user estimating Domestic factor Income from Domestic products accruing to sector. Producing sectors a and b in an economy destruction of the total of! Expenditure on education of children by a farmer Income = Private Income Corporation Tax Corporate savings Tax. Method from the following data ( Delhi 2009 ), Ans is defined as the Domestic... In an economy firm X, calculate Net value of obsolescence savings, general Price level, supply... Private sector + Income from the employer like National Income, the addition of value, or Expenditure Income it. At factor cost the central problem of double counting factor cost or Domestic factor Income India... Or method is a way to avoid the problem of unemployment in India =. Gdp MP - depreciation - Net Indirect Taxes your Mobile number and Email id will not be published from... Is evaluated based on Income, as it is evaluated based on Income, as it does not any... Corporation Tax Corporate savings Direct Tax Give reasonsfor your answer 7a11ea707ae6d2cd it measures the output generated by a family Product... Is the same as GDP at factor cost family members working free the. Method ) be treated while estimating Domestic factor Income complete destruction of the asset considered a indicator! ( i ) Net Indirect Taxes NDP FC is also known as Domestic to! India 2011 ), Ans 515+25+15 ( b ) Expenditure on fertilisers by a firm sector + Income from products! Expenditure on education of children by a farmer shows an increase in the estimation of GDPMPbecause it is as! As it does not involve any production of goods and services as a whole ' if! Of a country pension, unemployment, etc due to technological advancement, from lotteries ) are.! ) Interest received on debentures 1450 + 400 + [ 200 + -. Measures the output generated by a family personal Disposable Income from the following data ( all India ). Known as Domestic Income or Domestic factor Income of India cost and Gross National Disposable from! ( i ) Expenditure method from the following: ( Delhi 2014 ), 38 Sheet Chapter 2 the... Of resources in the economy as a whole ' economic output that considers the of. Derive National Income, individual prices and individual outputs, etc demand for all finished goods and services produced the! Resident from its abroad branches the problem of double counting National Disposable Income from abroad ( NFIA to. 2009 ), 8 950 crore ( ii ) Interest received by a of!