CBSE CHAPTERWISE QB CLASS 12 ECONOMICS PAGE 17

CHAPTER 1
NATIONAL INCOME AND RELATED AGGREGATES

8. CONSUMPTION GOODS OR CONSUMER GOODS

SUMMARY
Consumer goods are those goods which are
bought by consumers as final goods to satisfy
1. MACRO ECONOMICS their wants, e.g., durable, non-durable and semi-
durable goods.
It is the study of large scale or aggregate economic
variables of an economy. 9. PRODUCER GOODS
2. FINAL GOODS It refers to those goods which are used in the
process of production of goods and services. These
These are those goods which are used either for
can be further classified as:
final consumption or for investment. Their value
1. Intermediate or non-durable goods like raw
is included in national income.
materials.
3. INTERMEDIATE GOODS 2. Capital goods
These goods are used either for resale or for 10. GOODS FOR SELF-CONSUMPTION
further production and are not included in
These goods are produced by the producers and
national income.
retained for their own use. It is also called own-
4. STOCKS account production.
Variables whose magnitude is measured at a 11. DEPRECIATION OR CONSUMPTION OF FIXED CAPITAL
particular point of time.
It is a fall in the value of fixed asset due to normal
5. FLOWS wear and tear, passage of time and expected
obsolescence. This concept is used to differentiate
Variables whose magnitude is measured over a
between gross and net.
period of time.
12. FACTOR INCOME (OR PAYMENT)
6. INVESTMENT
Payment received in exchange for rendering
It is an increase in the stock of capital during a
productive services is called factor income. It is
year. It is also called capital formation. Following
included in national income, e.g., rent, wages,
are the types of investment-
interest and profit.
1. Fixed investment: It is an increase in the
stock of fixed capital assets of firms during a 13. TRANSFER INCOME (OR PAYMENT)
year.
It refers to any income received without providing
2. Inventory investment: It refers to change in any good or service in return, e.g., scholarship,
stock. old age pension etc.
3. Net Investment: Gross investment –
Depreciation 14. CURRENT TRANSFERS
A transfer made out of current income of the payer
7. CAPITAL GOODS
and added to the current income of the recipient
Capital goods are those final goods which are used is called a current transfer, e.g., tax, donations,
and help in the process of production of other gifts, etc.
goods and services, e.g., plant and machinery.

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CH 1 : NATIONAL INCOME AND RELATED AGGREGATES

15. CAPITAL TRANSFERS 20. INDIRECT TAX

A transfer made out of wealth or capital of the It is a tax whose impact (liability to pay) and
payer and is added to the wealth or capital of the incidence (actual burden) lie on different persons,
recipient e.g., capital grants, payment made to e.g., sales tax, customs duties etc. Imposition of
people affected by natural calamities etc. indirect tax increases market price of goods and
services.
16. NET FACTOR INCOME FROM ABROAD (NFIA)
It is the difference between the factor incomes 21. SUBSIDY
earned by our residents from abroad and These are financial support given by the
factor income earned by non-residents within government to a firm to promote the production
our country. It is used to differentiate between of certain commodities. Subsidies reduce market
national product and domestic product. price of goods and services.

17. DOMESTIC (OR ECONOMIC) TERRITORY 22. NET INDIRECT TAXES (NIT)
It is the geographical territory administered by Difference between indirect tax and subsidies:
a government within which persons, goods and Important Points:
capital circulate freely. (- Depreciation)
(i) Gross Net
The scope of domestic territory covers: (-)[Indirect Tax + Subsidy]
(i) Political frontiers including territorial waters (ii) Market Price (MP) or (-) Net Indirect Taxes

and air space. Factor Cost (FC)

(+) NFIA
(ii) Embassies, consulates, military bases etc. (iii) Domestic Product (DP) National
located abroad but excluding those located Product (NP)
within the political frontiers.
23. CIRCULAR FLOW IN A TWO-SECTOR ECONOMY
(iii) Ships, aircrafts etc. operated by the residents
between two or more countries. Factor Payments
(iv) Fishing vessels, oil and natural gas rigs etc.
operated by the residents in the international
waters or other areas over which the country
enjoys the exclusive rights or jurisdiction.

18. NORMAL RESIDENTS OF A COUNTRY

A resident, whether a person or an institution,
is one whose centre of economic interest lies in
the domestic territory of the country in which he
lives.

19. CENTRE OF ECONOMIC INTEREST IMPLIES

24. GROSS DOMESTIC PRODUCT (GDP)
(i) The resident lives or is located within the
economic territory. GDP is total monetary value of all the finished
(ii) The resident carries out the basic economic goods and services produced within the country’s
activities of earnings, spending and borders in a specified time period, by both citizens
accumulation from that location. and non-citizens.
Implication of the above two concepts:
24.1 Nominal GDP (GDP at current prices)
(i) Domestic Product. Domestic Product is the
total production of final goods and services When the final goods and services produced in
within the domestic territory of the country, a year are valued at current prices (i.e., prices
irrespective of whether the production units prevailing in that particular year), it is called
are residents or non-residents. Nominal GDP.
(ii) National Product. It is the total production
24.2 Real GDP (GDP at constant prices)
of final goods and services by residents
only irrespective of whether the production In real GDP, market value of final output is
activities are performed within the domestic expressed in terms of prices prevailing in a
territory or outside the domestic territory. particular year called base year.

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Conversion of nominal GDP into Real GDP: higher welfare of the people. Following are the
Nominal GDP reasons of it:
Real GDP = 100
Current Price Index # (i) Distribution of GDP. Increased GDP may
be concentrated in a few hands leading to
25. NET DOMESTIC PRODUCT OR DOMESTIC FACTOR inequality in income distribution.
INCOME (NDPFC) (ii) Composition of GDP. Increase in GDP may
It is the total factor income earned by the factors be caused by rise in war goods or goods like
of production within the domestic territory of a liquor which will not increase welfare.
country in an accounting year. (iii) Non-monetary exchanges. Services like those
Its components have been shown in the given flow provided by a housewife are not included
chart: in national income leading to its under-
estimation.
(iv) Externalities. These are benefits (or harms)
caused during the production process for
which people are not paid (or penalized).
These benefits (positive externalities) or
harms (negative externalities) are not
considered while estimating national income.

30. METHODS OF CALCULATING NATIONAL INCOME

26. GROSS NATIONAL PRODUCT (GNP) 30.1 Methods of Estimation of National Income
It measures the value of goods and services Production or Value Added Method:
produced by only country’s citizens both (i) Value Added (GVAMP) = Value of output –
domestically and abroad. Intermediate consumption
GNP = GDP + NFIA (Net Factor Income from [Value of Output = Sales + Change in Stock;
Abroad) Change in Stock = Closing stock - Opening
Stock
27. NATIONAL INCOME (NNPFC)
(ii) NVAFC = GVAMP – Depreciation – NIT
It is the sum total of value added at factor
(iii) NVAFC = NDPFC (or Domestic Income)
cost or net domestic product at factor cost and
net factor income from abroad. It is net of the NNPFC (or National income) = NDPFC +
national income which means it does not include NFIA
depreciation.
30.2 Problem of Double Counting
28. PRIVATE INCOME This means counting the value of the same
It is the income accruing to the private sector product more than once in calculating National
from all sources before payment of direct taxes. Income. This happens when proper distinction is
It includes: not made between final and intermediate goods.
(i) Income from domestic product accruing to This can be avoided by taking the value added
private sector. method in the calculation of national income.
(ii) Net factor income from abroad (NFIA).
31. INCOME METHOD
(iii) Current transfers –
(a) Interest on national debt Components of income method are as follows –
(b) Net current transfer from the rest of the
world
(c) Current transfer from the government.
GNP deflator = Nominal GNP # 100
Real GNP

29. GDP AND WELFARE

A higher GDP means more production of goods
and services but it may not necessarily mean

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CH 1 : NATIONAL INCOME AND RELATED AGGREGATES

NDPFC = Compensation of Employees + 3. On the basis of the given figure identify the type
Operating Surplus + Mixed Income of flow indicted by B and D:
NNPFC = NDPFC + NFIA

32. EXPENDITURE METHOD

Components of final expenditure method are as
follows—
(i) Private final consumption expenditure
(ii) Government final consumption expenditure
(iii) Gross domestic capital formation
(a) Gross domestic fixed capital formation
(b) Change in stock
Alternatives:
(iv) Net Exports (Exports – Imports)
(a) Real flow
GDPMP = (i) + (ii) + (iii) + (iv) (b) Money flow
(c) Nominal flow
NDPFC = GDPMP – NIT – Depreciation (d) National flow

NNPFC = NDPFC + NFIA Ans : OD 2023

(a) Real flow

4. The difference between Gross domestic product

and Net domestic product is due to _____.
MULTIPLE CHOICE QUESTION (a) Net indirect taxes
(b) Depreciation
(c) Net factor income from abroad
1. With a rise in Real National Income, welfare of (d) Subsidies
the people: Ans : OD 2013
(a) Rises
(b) Falls (b) Depreciation
(c) Remains unchanged 5. Goods which normally lose their own identity in
(d) None of the above the production process are known as _____.
Ans : COMP 2024 (a) Consumer durables
(b) Intermediate goods
(a) Rises
(c) Services
2. Complete the table: (d) Final goods
Ans : FOREIGN 2014
Producer Value of Intermediate Value
output Consumption Added (b) Intermediate goods
Farmer 2,000 – 2,000 6. Which of the following is a stock?
Baker _(i)_ 2,000 2,000 (a) Wealth
Retail 4,400 _(iii)_ 400 (b) Savings
Seller (c) Exports
(d) Profit
Total _(ii)_ 6000 _(iv)_
Ans : OD 2016
Alternatives:
(a) 4,000, 10,400, 4,000, 4,000 (a) Wealth
(b) 4,000, 10,400, 4,000, 4,400
7. The production method of calculating National
(c) 2,000, 6,000, 6,000, 4,400
Income gives us the following National Income
(d) 4,000, 10,400, 6,000, 4,000
Aggregate:
Ans : COMP 2023 (a) NDPMP (b) NDPFC
(b) 4,000, 10,400, 4,000, 4,400 (c) GDPMP (d) GDPFC

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CBSE CHAPTERWISE QB CLASS 12 ECONOMICS PAGE 21
Ans : OD 2015
(c) Purchase of uniforms for nurses by a hospital
(c) GDPMP (d) Purchase of car by a household

8. Following is not true about Operating Surplus, a Ans : FOREIGN 2020

component of the Income Method of calculating (c) Purchase of uniforms for nurses by a hospital
National Income.
(a) it is also termed as Income from Property and 13. Which of the following is not included while
Entrepreneurship estimating National Income?
(b) it includes rent, royalty, interest and profit (a) Net imports
(c) interest includes interest paid on loans taken (b) Indirect taxes
for production and consumption purposes (c) Depreciation
(d) corporate tax is a component of profit (d) Both (a) and (c)

Ans : FOREIGN 2016 Ans : DELHI 2021

(c) interest includes interest paid on loans taken (d) Both (a) and (c)
for production and consumption purposes
14. A major cause of underestimation of GDP in an
9. Which of the following is a transfer income? economy is:
(a) Scholarship (a) Exclusion of value of intermediate goods
(b) Wages and salaries (b) Exclusion of non-monetary exchanges
(c) Rent (c) Exclusion of positive externalities
(d) Interest (d) Exclusion of old age pension

Ans : SQP 2017 Ans : SQP 2022

(a) Scholarship (b) Exclusion of non-monetary exchanges

10. If Nominal GDP is `4400 crore and price index is 15. Unilateral payments are also called as _____.
110, than Real GDP will be: (a) One sided payments
(a) `4400 crore (b) Transfer payments
(b) `4000 crore (c) Factor payments
(c) `4800 crore (d) Both (a) and (b)
(d) `3600 crore Ans : OD 2000

Ans : COMP 2018 (d) Both (a) and (b)

(b) `4000 crore
16. In which of the following cases will NNPFC be
11. Problem of double counting involves: equal to GDPFC?
(a) Omission of some values while estimating (a) When NFIA and depreciation are zero
value of output (b) When NIT and depreciation are zero
(b) Addition of values more than once while (c) When NFIA and NIT are zero
estimating value of output (d) When NFIA is more than depreciation
(c) Including the value of only intermediate
Ans : FOREIGN 2001
goods while estimating value of output
(d) Including the value of only final goods while (a) When NFIA and depreciation are zero
estimating value of output
17. Which of the following is correct for calculation of
Ans : OD 2019 Domestic Factor Income?
(b) Addition of values more than once while (a) Value of Output – Intermediate Consumption
estimating value of output NIT
(b) Value of Output – Depreciation – NIT
12. Which of the following is not included while (c) Value of Output – Intermediate Consumption
estimating National Income? Depreciation – NIT
(a) Addition to machinery, factory buildings and (d) Value of Output – Intermediate Consumption
equipments by firms – Depreciation
(b) Purchase of goods by foreign tourists
Ans : DELHI 2002

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CH 1 : NATIONAL INCOME AND RELATED AGGREGATES

(c) Value of Output – Intermediate Consumption Ans : SQP 2016

Depreciation – NIT (c) Normal wear and tear and foreseen obsolescence

18. Goods purchased for the following purpose are 24. Foreign embassies in India are a part of India’s:
final goods : (a) Economic territory
(a) For satisfaction of wants (b) Geographical territory
(b) For investment in firm (c) Both (a) and (b)
(c) Both (a) and (b) (d) None of the above
(d) None of the above
Ans : COMP 2017
Ans : SQP 2017
(b) Geographical territory
(c) Both (a) and (b)
25. National income is the sum of factor incomes
19. Which of the following is not a flow? accruing to :
(a) Capital (a) Nationals
(b) Income (b) Economic territory
(c) Investment (c) Residents
(d) Depreciation (d) Both residents and non-residents
Ans : COMP 2015 Ans : FOREIGN 2016

(a) Capital (c) Residents

20. What is the consumption of fixed capital known 26. If NDPFC = `1,000 and Net factor income paid to
as? abroad = `800, then NNPFC will be :
(a) Depreciation (a) `1,800 (b) `200
(b) Capital formation (c) `2,000 (d) `1,000
(c) Investment
(d) All of the above Ans : DELHI 2018

Ans : OD 2016
(b) `200

(a) Depreciation 27. Which of the following is not a part of operating

surplus?
21. Which of the following is a flow? (a) Rent
(a) Deposits in a bank (b) Mixed income of self employed
(b) Capital (c) Interest
(c) Depreciation (d) Profits
(d) Wealth
Ans : DELHI 2018
Ans : OD 2016
(b) Mixed income of self employed
(c) Depreciation
28. The difference between Gross domestic product
22. Which of the following is a stock? and Net domestic product is due to :
(a) Savings (a) Depreciation
(b) Production (b) Net indirect taxes
(c) Consumption of fixed capital (c) Net factor income from abroad
(d) Capital (d) Change in stock
Ans : OD 2016 Ans : DELHI 2018

(d) Capital (a) Depreciation

23. Depreciation of fixed capital assets refers to : 29. The difference between domestic income and
(a) Normal wear and tear national income is due to :
(b) Foreseen obsolescence (a) Depreciation
(c) Normal wear and tear and foreseen (b) Net factor income from abroad
obsolescence (c) Net indirect taxes
(d) Unforeseen obsolescence (d) Change in stock

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CBSE CHAPTERWISE QB CLASS 12 ECONOMICS PAGE 23
Ans : FOREIGN 2019
(b) Net National product (GNP) at Market price
(b) Net factor income from abroad = NNP at factor cost.

30. Which of the following will not be included in 35. From the statements given in Column-I and
national income? Column-II, Choose the correct pair.
(a) Rent
(b) Mixed income of self employed Column I Column II
(c) Scholarships A. Vegetables grown (i) Non marketing
(d) Interest in the Personal activity
garden
Ans : COMP 2019
B. A car used as a taxi (ii) Consumer good
(c) Scholarships
C. An air-conditioner (iii) Capital good
31. The sum of factor payments is equal to _____. used by household
(a) Domestic Income
D. Scholarship given (iv) Factor income
(b) National Income
to students by
(c) Per Capita Real Income
government
(d) Per Capita Nominal Income
(a) A–(i)
Ans : SQP 2020
(b) B–(ii)
(a) Domestic Income (c) C–(iii)
(d) D–(iv)
32. Which of the following is not a ‘factor payment’ ?
(a) Free uniform to defence personnel. Ans : SQP 2023

(b) Salaries to the Members of Parliament. (a) A–(i)

(c) Rent paid to the owner of a building.
(d) Scholarship given to the students. 36. Identify, which of the following is not considered
as ‘Normal Resident’ of India?
Ans : OD 2020
(a) An Indian citizen working in U.S.A. embassy
(d) Scholarship given to the students. located at New Delhi.
(b) An Indian official working in Indian embassy
33. When Nominal Gross Domestic Product (GDP) in China.
is `840 crore and price Index is 120, then the Real (c) An Indian diploma visiting Canada for a
GDP will be _____. summit.
(a) `700 crore (d) An Indian working in an American Company
(b) `900 crore located in New York for a period of more
(c) `800 crore than one year.
(d) `500 crore
Ans : FOREIGN 2024
Ans : FOREIGN 2020
(d) An Indian working in an American Company
(a) `700 crore located in New York for a period of more than
34. Which of the following statement is incorrect? one year.
(a) Gross Domestic Product (GDP) at Market 37. Net Domestic Product at Factor Cost (NDPFC)
price is a critical economic aggregate used to measure
= GDP at factor cost plus Net Indirect taxes. income. Which of the following best describes
(b) Net National product (GNP) at Market price what NDPFC represents in an economy?
= NNP at factor cost. (a) Total factor income earned domestically
(c) Gross National Product (GNP) at Market including NFIA
price (b) Total factor income earned by production
= GDP at Market price Plus Net factor factors within the domestic territory
income from abroad. (c) Total value of all goods and services produced
(d) Net National Product (NNP) at factor cost within the domestic territory
= National Income. (d) Total income from all sources, including
Ans : DELHI 2020 current transfers

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CH 1 : NATIONAL INCOME AND RELATED AGGREGATES
Ans : OD 2000
(a) Machinery used in the production of goods
(b) Total factor income earned by production (b) Fertilizer purchased by a farmer for
factors within the domestic territory agricultural production
NDPFC represents income earned by factors of (c) A car purchased by a household for personal
production within a country’s domestic territory use
during an accounting year. (d) Food served in a restaurant for direct
consumption
38. Private Income is a significant component in
calculating economic performance. Which of the Ans : SQP 2003

following components are included in Private (b) Fertilizer purchased by a farmer for agricultural
Income earned by individuals in a country before production
direct taxes are paid? Intermediate goods are used in the production of
(a) Net current transfers from the rest of the final goods. Fertilizer is utilized for agricultural
world output and is therefore classified as intermediate.
(b) Gross Domestic Product (GDP) generated
within domestic boundaries 41. Factor Payments play a critical role in the
(c) Interest on national debt, along with other Circular Flow of Income. Which of the following
current transfers best describes factor payments in an economic
(d) Both (a) and (c) system?
(a) Payments made for intermediate goods used
Ans : FOREIGN 2001
in production
(d) Both (a) and (c) (b) Payments made to households for providing
Private income includes income from domestic productive services like labor and capital
products accruing to the private sector, net factor (c) Payments made by the government to firms
income from abroad (NFIA) and current transfers as subsidies
such as interest on national debt. (d) Payments made for consumer goods purchased
in the market
39. When discussing Gross Domestic Product (GDP),
there is often a distinction between Nominal GDP Ans : FOREIGN 2006

and Real GDP. How are Nominal GDP and Real (b) Payments made to households for providing
GDP fundamentally different from each other? productive services like labor and capital
(a) Nominal GDP is adjusted for inflation, while Factor payments include wages, rent, interest
Real GDP is not. and profits earned by households for contributing
(b) Real GDP is valued at base year prices, while productive resources to the economy.
Nominal GDP is valued at prices prevailing
in the year of production. 42. Net Factor Income from Abroad (NFIA) is a
(c) Nominal GDP includes NFIA, while Real key concept in differentiating National Product
GDP excludes it. from Domestic Product. What is the formula
(d) Real GDP excludes depreciation, while for calculating NFIA in the context of national
Nominal GDP includes it. income accounting?
(a) Total factor income earned within the
Ans : DELHI 2002
domestic territory
(b) Real GDP is valued at base year prices, while (b) Factor income earned by residents abroad
Nominal GDP is valued at prices prevailing in the minus factor income earned by non-residents
year of production. domestically
Nominal GDP measures output using current year (c) Net current transfers from abroad minus
prices, whereas Real GDP adjusts for inflation by domestic consumption
using base year prices. (d) Depreciation subtracted from Gross National
Product
40. Intermediate Goods play a vital role in the
production process but are excluded from national Ans : COMP 2004

income calculations. Which of the following (b) Factor income earned by residents abroad
qualifies as an intermediate good in the context minus factor income earned by non-residents
of economic activity? domestically

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NFIA measures the net difference between income (c) Total production of intermediate goods for
earned by residents abroad and income earned by resale or further production
non-residents within the domestic economy. (d) Non-monetary exchanges and externalities

43. Subsidies are crucial for reducing the cost of Ans : SQP 2008

production and ensuring affordable goods for (b) Total production by residents, including
consumers. How can subsidies be best defined income earned abroad
in the context of government policies to support GNP accounts for goods and services produced by
production? residents regardless of whether production occurs
(a) Taxes imposed on goods and services paid by within or outside the domestic territory.
consumers
(b) Financial support provided by the government 46. National Income calculations do not include
to reduce production costs and encourage certain types of activities. Which of the following
specific goods is excluded from national income due to the
(c) Penalties imposed on firms for producing absence of market transactions?
harmful goods (a) Subsidies provided by the government to
(d) The difference between market price and producers
factor cost (b) Non-monetary exchanges like household
services
Ans : OD 2005
(c) Factor income earned by residents abroad
(b) Financial support provided by the government (d) Depreciation of fixed capital
to reduce production costs and encourage specific
Ans : COMP 2009
goods
Subsidies are monetary aids provided by the (b) Non-monetary exchanges like household
government to promote the production of specific services
goods, reducing their market price. Non-monetary exchanges, such as services
provided by homemakers, are not included in
44. The GNP Deflator is an essential tool in adjusting national income since they do not involve market-
nominal values for inflation. What is the primary based transactions.
purpose of the GNP Deflator in economic
calculations? 47. Gross Domestic Product (GDP) is often used as
(a) To differentiate between gross and net an economic indicator, but its scope is specific.
national income What does GDP represent in terms of economic
(b) To adjust nominal GDP for inflation to output and who is included in its calculation?
calculate Real GDP (a) The total production of goods and services
(c) To calculate depreciation for fixed capital within the country’s borders, excluding non-
assets residents.
(d) To measure income distribution among citizens (b) The total production of goods and services by
both residents and non-residents within the
Ans : DELHI 2007
country’s borders.
(b) To adjust nominal GDP for inflation to (c) The total production of goods and services
calculate Real GDP by citizens, whether within or outside the
The GNP Deflator accounts for inflation, country.
converting nominal GDP into real GDP by using (d) The total value of all goods and services
price indices. exchanged in the global economy.

45. Gross National Product (GNP) is a broader Ans : OD 2010

measure than GDP. Which of the following (b) The total production of goods and services
statements accurately represents what GNP by both residents and non-residents within the
includes? country’s borders.
(a) Total production within the domestic territory GDP measures the monetary value of all final
by residents and non-residents goods and services produced within a country’s
(b) Total production by residents, including borders, including contributions from residents
income earned abroad and non-residents.

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48. Real GDP is often preferred over Nominal GDP Ans : SQP 2013

for analyzing economic performance. Why is Real (a) Factor Income is payment for productive
GDP considered more accurate for comparing services, while Transfer Income is received without
output across years? providing any goods or services in return.
(a) It excludes the effects of inflation by using Factor Income includes wages, rent, interest and
base year prices. profits earned for providing productive services,
(b) It adjusts for depreciation in the value of while Transfer Income refers to payments
fixed assets. like scholarships and pensions without any
(c) It includes factor income from abroad, making corresponding economic activity.
it more comprehensive.
51. Net Domestic Product at Factor Cost (NDPFC)
(d) It measures only the physical volume of is an essential economic measure. How is it
production. calculated using the Income Method?
Ans : FOREIGN 2011
(a) Compensation of employees + operating
surplus + mixed income of self-employed.
(a) It excludes the effects of inflation by using
(b) GDP at market prices - depreciation - net
base year prices.
indirect taxes.
Real GDP adjusts for changes in price levels,
ensuring that output comparisons across years (c) GNP + net factor income from abroad
reflect real growth rather than inflationary effects. (NFIA).
(d) Net exports + government spending -
49. Private Income is a crucial component in intermediate goods.
determining economic activity. What is included
in Private Income and how is it calculated? Ans : COMP 2014

(a) Income from domestic product, NFIA and (a) Compensation of employees + operating
current transfers like interest on national surplus + mixed income of self-employed.
debt.
NDPFC represents the income earned by factors
(b) GDP, depreciation and subsidies provided by
of production within a country and is calculated
the government.
by summing the income components using the
(c) GNP minus current transfers and NFIA.
Income Method.
(d) Only income earned by private businesses
operating domestically. 52. Subsidies are an essential economic tool used
Ans : DELHI 2012
by governments to support production. How do
subsidies impact the market price of goods and
(a) Income from domestic product, NFIA and services?
current transfers like interest on national debt. (a) They increase the market price by reducing
Private Income includes all income accruing to production costs for producers.
the private sector before taxes, including domestic
(b) They reduce the market price by lowering the
product income, NFIA and current transfers.
effective cost of production.
50. The term Factor Income is widely used in national (c) They increase the demand for goods,
income accounting. What does Factor Income indirectly increasing the market price.
represent and how is it different from Transfer (d) They do not have any direct impact on market
Income? prices.
(a) Factor Income is payment for productive
services, while Transfer Income is received Ans : OD 2015

without providing any goods or services in (b) They reduce the market price by lowering the
return. effective cost of production.
(b) Factor Income includes gifts and donations,
Subsidies provide financial support to producers,
while Transfer Income excludes these.
enabling them to lower production costs, which in
(c) Factor Income is earned only domestically,
turn reduces market prices for consumers.
while Transfer Income is earned abroad.
(d) Factor Income and Transfer Income are
synonymous and interchangeable terms.

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CBSE CHAPTERWISE QB CLASS 12 ECONOMICS PAGE 27

53. The problem of double counting is a common issue Ans : SQP 2018

in calculating national income. What is double (d) GDP excludes NFIA, while GNP includes
counting and how can it be avoided? NFIA in its calculation.
(a) Counting intermediate goods as final goods; GNP is calculated by adding Net Factor Income
avoided by using value-added methods. from Abroad (NFIA) to GDP, accounting for
(b) Counting only goods produced by residents; income earned by residents abroad.
avoided by including non-resident production.
(c) Counting depreciation twice; avoided by using 56. Circular flow of income in a two-sector economy
net investment values. describes the interaction between households
(d) Counting private income as public income; and firms. What type of payments flow from
avoided by using income methods. households to firms?
(a) Factor payments for wages and rent
Ans : FOREIGN 2016
(b) Payments for goods and services consumed
(a) Counting intermediate goods as final goods; by households
avoided by using value-added methods. (c) Subsidies received by producers
Double counting occurs when the value of (d) Taxes collected by the government
intermediate goods is included in national income
Ans : COMP 2019
calculations, leading to overestimation. This is
avoided by calculating the value added at each (b) Payments for goods and services consumed by
stage of production. households
In a two-sector model, households make payments
54. Net Factor Income from Abroad (NFIA) is vital to firms for the goods and services they consume,
for differentiating between national and domestic completing the circular flow of income.
product. What does a positive NFIA indicate
about a country’s economic activities? 57. Net Factor Income from Abroad (NFIA) is
(a) Non-residents are contributing more to the calculated as the difference between ______
domestic economy than residents abroad. and ______.
(b) Residents are earning more abroad than non- (a) Domestic factor income, depreciation
residents are earning domestically. (b) Factor income earned by residents abroad,
factor income earned by non-residents
(c) There is a surplus in the trade balance due to
domestically
higher exports.
(c) GDP, subsidies provided by the government
(d) The country is dependent on foreign
(d) Private income, current transfers
investments for growth.
Ans : OD 2019
Ans : DELHI 2017
(b) Factor income earned by residents abroad,
(b) Residents are earning more abroad than non- factor income earned by non-residents domestically
residents are earning domestically. NFIA represents the net earnings of residents
A positive NFIA implies that residents are earning from abroad after deducting the income earned
higher incomes from economic activities abroad by non-residents within the domestic territory.
compared to the income earned domestically by
non-residents. 58. Subsidies provided by the government ______
the cost of production and ______ the market
55. What is the main difference between Gross price of goods.
Domestic Product (GDP) and Gross National (a) Increase, decrease
Product (GNP)? (b) Decrease, decrease
(a) GDP includes only domestic production, (c) Increase, increase
while GNP includes income from abroad. (d) Decrease, increase
(b) GDP is always higher than GNP, irrespective
of economic conditions. Ans : FOREIGN 2020

(c) GDP includes intermediate goods, while GNP (b) Decrease, decrease
includes only final goods. Subsidies lower production costs for producers,
(d) GDP excludes NFIA, while GNP includes which leads to a reduction in the market price of
NFIA in its calculation. goods and services.

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CH 1 : NATIONAL INCOME AND RELATED AGGREGATES

59. Real GDP is calculated by expressing the value Ans : OD 2024

of final goods and services in terms of ______. (a) Intermediate goods, final goods
(a) Current year prices Double counting happens when the value of
(b) Base year prices intermediate goods is added to the value of final
(c) Market prices including NFIA goods, inflating the national income figures.
(d) Prices adjusted for net indirect taxes
63. Gross National Product (GNP) is calculated by
Ans : DELHI 2021
adding ______ to GDP.
(b) Base year prices (a) Depreciation
Real GDP uses prices from a fixed base year (b) Net Factor Income from Abroad (NFIA)
to adjust for inflation, allowing for accurate (c) Net Indirect Taxes (NIT)
comparisons of economic output over time. (d) Transfer payments

60. In the Income Method of calculating national Ans : FOREIGN 2000

income, NDPFC is the sum of ______, (b) Net Factor Income from Abroad (NFIA)
______ and ______. GNP includes the income earned by residents
(a) Compensation of employees, operating from abroad, added to GDP to reflect the total
surplus, mixed income national production.
(b) Net exports, depreciation, subsidies
(c) Private income, transfer payments, current 64. Goods produced by a farmer and retained for
transfers personal consumption are called ______.
(d) Factor income, indirect taxes, intermediate (a) Consumer goods
goods (b) Capital goods
(c) Goods for self-consumption
Ans : SQP 2022
(d) Intermediate goods
(a) Compensation of employees, operating
Ans : DELHI 2001
surplus, mixed income
NDPFC is calculated by summing the incomes (c) Goods for self-consumption
earned by employees, the operating surplus of Goods retained by producers for their own use are
firms and the mixed income of self-employed classified as goods for self-consumption and are
individuals. part of the economic activities.

61. Net Domestic Product at Factor Cost (NDPFC) is 65. A subsidy is a ______ payment made by the
derived by subtracting ______ and ______ government to ______ the cost of production.
from GDP at Market Price (GDPMP). (a) Direct, increase
(a) Depreciation, indirect taxes (b) Direct, decrease
(b) Net Indirect Taxes (NIT), depreciation (c) Financial, decrease
(c) Subsidies, capital transfers (d) Financial, increase
(d) Depreciation, factor income from abroad Ans : SQP 2002

Ans : COMP 2023 (c) Financial, decrease

(b) Net Indirect Taxes (NIT), depreciation Subsidies are financial payments given by the
NDPFC is obtained by deducting depreciation government to reduce production costs and
and Net Indirect Taxes (NIT) from GDPMP to encourage the supply of certain goods.
arrive at the factor income earned within the
66. The scope of domestic territory includes
domestic territory.
______ and ______.
62. Double counting in national income calculations (a) Airspace over the country, consulates of other
occurs when ______ are included along with countries within the borders
______. (b) Territorial waters, embassies and consulates
(a) Intermediate goods, final goods of the country located abroad
(b) Private transfers, factor income (c) International waters, all imported goods
(c) Subsidies, market prices (d) Domestic businesses, foreign investments
(d) Exports, imports Ans : COMP 2003

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CBSE CHAPTERWISE QB CLASS 12 ECONOMICS PAGE 29

(b) Territorial waters, embassies and consulates of negative.

the country located abroad (a) Both Assertion (A) and Reason (R) are true
The domestic territory covers political frontiers, and Reason (R) is the correct explanation of
including territorial waters and consulates of the Assertion (A).
country located abroad. (b) Both Assertion (A) and Reason (R) are true
and Reason (R) is not the correct explanation
of Assertion (A).
(c) Assertion (A) is true but Reason (R) is false.
ASSERTION AND REASON (d) Assertion (A) is false but Reason (R) is true.
Ans : DELHI 2015
67. Assertion : Subsidies are also referred to as
(a) Assertion and reason both are correct
economic or financial assistance.
statements and reason is correct explanation for
Reason : Subsidies do not lead to any value
assertion.
addition.
(a) Both Assertion (A) and Reason (R) are true 70. Assertion : National Income at constant prices
and Reason (R) is the correct explanation of may give a misleading picture of economic
Assertion (A). performance.
(b) Both Assertion (A) and Reason (R) are true Reason : Due to price fluctuations National
and Reason (R) is not the correct explanation Income at current prices may give an incorrect
of Assertion (A). picture of economic growth.
(c) Assertion (A) is true but Reason (R) is false. (a) Both Assertion (A) and Reason (R) are true
and Reason (R) is the correct explanation of
(d) Assertion (A) is false but Reason (R) is true.
Assertion (A).
Ans : OD 2024 (b) Both Assertion (A) and Reason (R) are true
(b) Assertion and reason both are correct and Reason (R) is not the correct explanation
statements but reason is not correct explanation of Assertion (A).
for assertion. Subsidies are granted to promote (c) Assertion (A) is true but Reason (R) is false.
exports or to set up industries in backward areas. (d) Assertion (A) is false but Reason (R) is true.
Ans : MAIN 2012
68. Assertion : Purchases by one production unit from
other production units can be of intermediate as (d) Assertion is false but Reason is true.
well as final goods. National income at current prices may give a
Reason : Intermediate goods have direct demand misleading picture of economic performance.
whereas final goods have derived demand.
71. Assertion : Composition of GDP supports the use
(a) Both Assertion (A) and Reason (R) are true of GDP as an index of economic welfare.
and Reason (R) is the correct explanation of Reason : Increase in GDP may not necessarily
Assertion (A). result in increase in economic welfare.
(b) Both Assertion (A) and Reason (R) are true (a) Both Assertion (A) and Reason (R) are true
and Reason (R) is not the correct explanation and Reason (R) is the correct explanation of
of Assertion (A). Assertion (A).
(c) Assertion (A) is true but Reason (R) is false.
(b) Both Assertion (A) and Reason (R) are true
(d) Assertion (A) is false but Reason (R) is true.
and Reason (R) is not the correct explanation
Ans : SQP 2024 of Assertion (A).
(c) Assertion is true but Reason is false. (c) Assertion (A) is true but Reason (R) is false.
A production unit can purchase raw materials as (d) Assertion (A) is false but Reason (R) is true.
well as machinery from other production units. Ans : COMP 2017

69. Assertion : Domestic Income can be greater than (d)Assertion is false but Reason is true.
National Income. GDP may also increase due to production of war
Reason : National Income is less than domestic goods which can be a limitation for GDP as an
income when net factor income from abroad is index of economic welfare.

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CH 1 : NATIONAL INCOME AND RELATED AGGREGATES

72. Assertion : Gross investment adds to the stock of Ans : SQP 2021

capital in the domestic economy. (d) Assertion is false but Reason is true. Domestic
Reason : Gross domestic capital formation is the Income is a territorial concept.
expenditure on acquiring goods for investment by
the production units located within the domestic 75. Assertion : Sale and purchase of second hand
territory. goods is not included in National Income.
Reason : The imputed value of goods produced for
(a) Both Assertion (A) and Reason (R) are true
self consumption is included in national income as
and Reason (R) is the correct explanation of
they are not sold in the market.
Assertion (A).
(a) Both Assertion (A) and Reason (R) are true
(b) Both Assertion (A) and Reason (R) are true
and Reason (R) is the correct explanation of
and Reason (R) is not the correct explanation
Assertion (A).
of Assertion (A).
(b) Both Assertion (A) and Reason (R) are true
(c) Assertion (A) is true but Reason (R) is false. and Reason (R) is not the correct explanation
(d) Assertion (A) is false but Reason (R) is true. of Assertion (A).
Ans : OD 2011
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
(a) Assertion and reason both are correct
statements and reason is correct explanation for Ans : MAIN 2013

assertion. (b) Assertion and reason both are correct

statements but reason is not correct explanation
73. Assertion : Transfer income is not included in for assertion. Sale and purchase of second hand
national income. goods does not add to the current flow of goods
Reason : Transfer income is a bilateral concept. and services.
(a) Both Assertion (A) and Reason (R) are true
and Reason (R) is the correct explanation of 76. Assertion : Real Gross Domestic Product is a
Assertion (A). better indicator of economic growth of a nation as
(b) Both Assertion (A) and Reason (R) are true compared to Nominal Gross Domestic Product.
and Reason (R) is not the correct explanation Reason : Real Gross Domestic Product measures the
of Assertion (A). value of goods and services at current year prices.
(c) Assertion (A) is true but Reason (R) is false. (a) Both Assertion (A) and Reason (R) are true
(d) Assertion (A) is false but Reason (R) is true. and Reason (R) is the correct explanation of
Assertion (A).
Ans : SQP 2019 (b) Both Assertion (A) and Reason (R) are true
(c) Assertion is true but Reason is false. and Reason (R) is not the correct explanation
Transfer income is a unilateral concept. It does of Assertion (A).
not reflect any production of goods and services. (c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
Ans : COMP 2018
(c) Assertion is true but Reason is false.
74. Assertion : Domestic Income is a geographical
concept.
Reason : Domestic Income includes the value
of final goods and services produced within the STATEMENT BASED QUESTIONS
domestic territory of a country.
(a) Both Assertion (A) and Reason (R) are true
and Reason (R) is the correct explanation of 77. Statement 1 : Gross Domestic Product (GDP) is
Assertion (A). the sum total of the gross market value of all the
(b) Both Assertion (A) and Reason (R) are true final goods and services added by all the sectors
and Reason (R) is not the correct explanation in the economy during a fiscal year.
of Assertion (A). Statement 2 : Gross Value Added at Market Price
(c) Assertion (A) is true but Reason (R) is false. (GVAMP) is equal to the excess of value of output
(d) Assertion (A) is false but Reason (R) is true. over intermediate consumption.

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CBSE CHAPTERWISE QB CLASS 12 ECONOMICS PAGE 31

(a) Statement 1 is true & Statement 2 is false. 80. Which of the following statements about subsidies
(b) Statement 1 is false & Statement 2 is true. is true?
(c) Both statements 1 & 2 are true. (i) Subsidies increase production costs for
(d) Both statements 1 & 2 are false. producers.
(ii) Subsidies lower the market price of goods.
Ans : FOREIGN 2020
(iii) Subsidies encourage production and
(c) Both statements 1 & 2 are true. consumption of certain goods.
(iv) Subsidies are included as indirect taxes in
78. Identify the correct combination of statements
GDP calculations.
about Net Factor Income from Abroad (NFIA) :
(a) (ii) and (iii)
(i) NFIA is the difference between income
(b) (i), (ii) and (iii)
earned by residents abroad and non-residents
(c) (ii), (iii) and (iv)
domestically.
(d) (i) and (iv)
(ii) NFIA is always negative for every country.
(iii) NFIA is used to calculate Gross National Ans : SQP 2012
Product (GNP). (a) (ii) and (iii)
(iv) NFIA is excluded when calculating GDP. Statements (ii) and (iii) are correct as subsidies
(a) (i) and (ii) reduce production costs, lowering market prices
(b) (i), (iii) and (iv) and promoting the production and consumption
(c) (i) and (iii) of targeted goods. Subsidies are not included as
(d) (ii), (iii) and (iv) indirect taxes.
Ans : OD 2009
81. Which of the following statements about Subsidies
(c) (i) and (iii) is true?
Statements (i) and (iii) are correct because NFIA (i) Subsidies reduce the market price of goods
represents the net earnings from international and services.
activities and is used to calculate GNP. However, (ii) Subsidies increase the production costs for
NFIA is not always negative and it is excluded in producers.
GDP calculations. (iii) Subsidies encourage the production and
consumption of certain goods.
79. Which of the following statements about Real
(iv) Subsidies are added to Net Indirect Taxes
GDP is correct?
(NIT).
(i) Real GDP adjusts for inflation using base
(a) (i) and (iii)
year prices.
(b) (i), (ii) and (iv)
(ii) Real GDP is always lower than Nominal
(c) (ii) and (iv)
GDP.
(d) (iii) and (iv)
(iii) Real GDP measures the physical volume of
production. Ans : SQP 2017
(iv) Real GDP is calculated by excluding Net (a) (i) and (iii)
Factor Income from Abroad (NFIA). Statements (i) and (iii) are correct because
(a) (i) and (ii) subsidies lower market prices and promote
(b) (i) and (iii) production and consumption of targeted goods.
(c) (i), (iii) and (iv) They do not increase production costs or form
(d) (ii), (iii) and (iv) part of NIT.
Ans : FOREIGN 2010
82. Which of the following statements about Gross
(b) (i) and (iii) National Product (GNP) is accurate?
Statements (i) and (iii) are correct because Real (i) GNP includes all goods and services produced
GDP accounts for inflation using base year prices by residents, domestically and abroad.
and measures the physical production volume. It (ii) GNP excludes Net Factor Income from
is not always lower than Nominal GDP and NFIA Abroad (NFIA).
is not part of Real GDP. (iii) GNP adjusts GDP by adding or subtracting
NFIA.
(iv) GNP is always greater than GDP.

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(a) (i) and (iii) 85. Select the correct statements about Net Domestic
(b) (ii) and (iv) Product at Factor Cost (NDPFC) :
(c) (i), (ii) and (iii) (i) NDPFC is calculated by subtracting
(d) (i), (iii) and (iv) depreciation from GDP.
(ii) NDPFC includes Net Indirect Taxes (NIT) in
Ans : DELHI 2011
its calculation.
(a) (i) and (iii) (iii) NDPFC represents the income earned by
Statements (i) and (iii) are correct as GNP production factors within the domestic
includes domestic and international production economy.
by residents and adjusts GDP by NFIA. GNP can (iv) NDPFC excludes NFIA.
be less than GDP if NFIA is negative. (a) (i), (ii) and (iii)
(b) (ii) and (iv)
83. Identify the correct combination of statements
(c) (i), (iii) and (iv)
about Intermediate Goods :
(d) (i) and (ii)
(i) Intermediate goods are used for resale or
further production. Ans : COMP 2013
(ii) Their value is not included in national income. (c) (i), (iii) and (iv)
(iii) Intermediate goods are counted as final goods Statements (i), (iii) and (iv) are correct because
in GDP calculations. NDPFC excludes NFIA, is derived by subtracting
(iv) Including intermediate goods in national depreciation from GDP and reflects domestic
income causes double counting. income. NIT is excluded in its calculation.
(a) (i), (ii) and (iv)
(b) (ii), (iii) and (iv) 86. Select the correct statements about Factor Income
(c) (i), (ii) and (iii) :
(d) (i) and (iii) (i) Factor income is earned in exchange for
rendering productive services.
Ans : OD 2014
(ii) Factor income includes rent, wages, interest
(a) (i), (ii) and (iv) and profit.
Statements (i), (ii) and (iv) are correct because (iii) Factor income is excluded from national
intermediate goods are used for resale or further income calculations.
production, excluded from national income and (iv) Factor income reflects the payments made to
including them leads to double counting. factors of production.
(a) (i), (ii) and (iv)
84. Which of the following statements about Real
(b) (ii), (iii) and (iv)
GDP is accurate?
(c) (i), (ii) and (iii)
(i) Real GDP eliminates the effects of inflation.
(d) (i), (iii) and (iv)
(ii) Real GDP is calculated at current prices.
Ans : COMP 2019
(iii) Real GDP uses base year prices for
comparison. (a) (i), (ii) and (iv)
(iv) Real GDP is always equal to Nominal GDP. Statements (i), (ii) and (iv) are correct because
factor income includes payments made for
(a) (i), (ii) and (iii)
productive services, is a part of national income
(b) (ii) and (iv)
and comprises rent, wages, interest and profit.
(c) (i) and (iii)
(d) (ii), (iii) and (iv)
Ans : FOREIGN 2015

(c) (i) and (iii) GRAPH BASED QUESTIONS

Statements (i) and (iii) are correct as Real GDP
adjusts for inflation using base year prices. It is
not calculated at current prices and is not always 87. Which category, crucial for government-led
equal to Nominal GDP. development initiatives, is likely to have the
highest percentage in the distribution of economic
activities?

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CBSE CHAPTERWISE QB CLASS 12 ECONOMICS PAGE 33

89. Based on the bar graph, which component has the

second-highest value?

(a) Public Expenditure (a) Subsidies

(b) Private Investment (b) Net Indirect Taxes (NIT)
(c) Exports (c) Depreciation
(d) Imports (d) Net Factor Income from Abroad (NFIA)
Ans : COMP 2024 Ans : FOREIGN 2022

(a) Public Expenditure (c) Depreciation

The pie chart shows that Public Expenditure has The bar graph indicates that Net Indirect Taxes
the largest share at 40%, reflecting its importance (NIT) have the highest value at 50 billion dollars,
in funding infrastructure, social welfare and followed by Depreciation at 40 billion dollars.
development programs, which are key drivers of
economic growth. 90. According to the pie chart, which sector has the
largest contribution to GDP?
88. Based on the bar graph, which economic aggregate
has the highest value?

(a) GDP (Nominal)

(b) GDP (Real)
(c) Net Domestic Product (NDP) (a) Agriculture
(d) Gross National Product (GNP) (b) Industry
(c) Services
Ans : OD 2021
(d) Exports
(d) Gross National Product (GNP)
Ans : DELHI 2023
The bar graph shows that Gross National
Product (GNP) has the highest value at 110 (c) Services
billion dollars, compared to other aggregates like The pie chart indicates that the Services sector
GDP (Nominal), GDP (Real) and Net Domestic has the largest contribution to GDP at 35%,
Product (NDP). followed by Agriculture (30%), Industry (25%)
and Exports (10%).

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PASSAGE BASED QUESTION (c) Depreciation and NFIA

(d) Private final consumption and taxes
Ans : DELHI 2006
91. Net Factor Income from Abroad (NFIA) is the (a) Depreciation and Net Indirect Taxes (NIT)
difference between income earned by residents NDPFC adjusts GDP by subtracting depreciation
abroad and income earned by non-residents within and NIT to reflect income earned within the
the domestic territory. It is a key component for domestic economy.
calculating Gross National Product (GNP), which
adjusts GDP to include net income from abroad. 94. Nominal GDP values goods and services produced
What is Net Factor Income from Abroad (NFIA)? in a year at current prices, while Real GDP uses
(a) Income earned by all residents domestically base year prices to adjust for inflation. Real GDP
(b) Difference between income earned by residents provides a more accurate comparison of economic
abroad and non-residents domestically performance over time.
What is the key difference between Nominal GDP
(c) Total income earned domestically by non-
and Real GDP?
residents
(a) Nominal GDP includes NFIA, while Real
(d) Income earned from government subsidies GDP excludes it.
Ans : OD 2004 (b) Real GDP adjusts for inflation using base year
prices, while Nominal GDP uses current prices.
(b) Difference between income earned by residents
(c) Nominal GDP includes depreciation, while
abroad and non-residents domestically
Real GDP does not.
NFIA adjusts for the net income from
(d) Real GDP excludes subsidies, while Nominal
international economic activities by accounting
GDP includes them.
for the difference between income earned abroad
by residents and income earned domestically by Ans : SQP 2007
non-residents. (b) Real GDP adjusts for inflation using base year
prices, while Nominal GDP uses current prices.
92. Gross National Product (GNP) is derived by Real GDP accounts for inflation by using a fixed
adding Net Factor Income from Abroad (NFIA) base year’s prices, while Nominal GDP reflects
to GDP. It measures the total value of goods current prices without adjustment.
and services produced by a country’s residents,
regardless of their location. 95. Double counting occurs when the value of
How is Gross National Product (GNP) calculated? intermediate goods is added along with final
(a) By adding Net Factor Income from Abroad goods in national income calculations, leading to
(NFIA) to GDP overestimation. It can be avoided by using the
(b) By subtracting depreciation from GDP value-added method.
(c) By adding net indirect taxes to GDP What is double counting in national income and
(d) By including income from current transfers how can it be avoided?
(a) Adding private income twice; avoided by
Ans : FOREIGN 2005
subtracting NIT
(a) By adding Net Factor Income from Abroad (b) Counting intermediate goods with final
(NFIA) to GDP goods; avoided by value-added method
GNP includes all goods and services produced by (c) Including subsidies with taxes; avoided by
a country’s residents and is calculated by adding GDP adjustments
NFIA to GDP. (d) Including NFIA twice; avoided by recalculating
GDP
93. Net Domestic Product at Factor Cost (NDPFC)
is calculated by subtracting depreciation and Net Ans : COMP 2008
Indirect Taxes (NIT) from GDP. It represents the total (b) Counting intermediate goods with final goods;
factor income earned within the domestic territory. avoided by value-added method
What components are subtracted from GDP to Double counting inflates national income by
calculate NDPFC? including intermediate goods, which can be
(a) Depreciation and Net Indirect Taxes (NIT) avoided by calculating the value added at each
(b) Subsidies and net exports production stage.

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96. Real GDP uses base year prices to measure (a) GNP includes NFIA, while GDP excludes it.
the market value of final goods and services, GNP adjusts GDP by adding income earned by
eliminating the impact of inflation. This provides residents abroad and subtracting income earned
a more realistic assessment of economic growth by non-residents domestically, represented by
compared to Nominal GDP. NFIA.
Why is Real GDP preferred over Nominal GDP
for economic analysis? 99. Intermediate goods are those used in the
(a) It includes subsidies to adjust for price production of final goods and are not included
changes. in national income calculations. They prevent
(b) It uses base year prices to account for double counting, ensuring accurate measurement
inflation. of economic output.
(c) It excludes depreciation from the total GDP. Why are intermediate goods excluded from
(d) It measures only physical production volume. national income calculations?
(a) They are considered part of factor income.
Ans : OD 2009
(b) Including them would result in double
(b) It uses base year prices to account for inflation. counting.
Real GDP adjusts for inflation using a base year, (c) They represent non-monetary transactions.
providing a more accurate representation of (d) They are not sold in the domestic market.
economic growth over time. Ans : SQP 2011

97. Net Domestic Product at Factor Cost (NDPFC) (b) Including them would result in double
represents the total income earned by factors counting.
of production within a domestic economy. It is Intermediate goods are excluded from national
calculated by subtracting depreciation and Net income to avoid double counting, as their value is
Indirect Taxes (NIT) from GDP at market prices. already included in the final goods.
Which components are deducted from GDP at
market prices to calculate NDPFC? 100. A subsidy is a financial aid provided by the
(a) Subsidies and transfer payments government to reduce production costs, making
(b) Depreciation and Net Indirect Taxes (NIT) goods and services more affordable for consumers.
(c) Intermediate goods and final consumption It lowers market prices and encourages production.
(d) Net Factor Income from Abroad (NFIA) and What is the primary purpose of a subsidy provided
NIT by the government?
(a) To increase market prices and discourage
Ans : FOREIGN 2010
consumption.
(b) Depreciation and Net Indirect Taxes (NIT) (b) To reduce production costs and make goods
NDPFC is derived by subtracting depreciation affordable.
and NIT from GDP to measure income earned (c) To increase indirect taxes on final goods.
within the domestic territory. (d) To improve factor income calculations in
GDP.
98. Gross National Product (GNP) includes all goods
and services produced by residents of a country, Ans : COMP 2012

both domestically and abroad. It is calculated by (b) To reduce production costs and make goods
adding Net Factor Income from Abroad (NFIA) affordable.
to GDP.
How does GNP differ from GDP in national
income accounting?
(a) GNP includes NFIA, while GDP excludes it. ONE MARK QUESTIONS
(b) GDP measures only domestic production,
while GNP excludes international activities.
(c) GNP excludes depreciation, while GDP 101. What is macroeconomics?
includes it. Ans : OD 2024
(d) GDP accounts for current transfers, while
GNP does not. Macroeconomics studies the behavior of overall
economic aggregates and averages.
Ans : DELHI 2010

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CH 1 : NATIONAL INCOME AND RELATED AGGREGATES

102. Define ‘Resident’. Final goods are those used for consumption
or investment and are not involved in further
Ans : FOREIGN 2023
production.
A resident is someone who lives and earns within
the boundaries of a country. 111. Define intermediate goods.

103. Define Inventory or Stocks. Ans : SQP 2011

Intermediate goods are utilized in production and

Ans : DELHI 2020
are not counted in National Income calculation.
Stocks are variables measured at a specific point
in time, such as the capital invested by a firm on 112. Define capital formation.
31st March 2015. Ans : OD 2016

104. Define unplanned inventories (stock). Capital formation refers to the creation of physical
assets like buildings and machines to enhance
Ans : SQP 2020
production within an accounting year.
Unplanned inventory refers to unexpected changes
in the stock of goods. 113. Define investment.

105. Define flows. Ans : FOREIGN 2013

Investment, or capital formation, is the creation

Ans : COMP 2016
of physical assets to increase production capacity,
Flow variables are economic measures assessed adding to an economy’s capital stock.
over a period of time, such as income, expenditure
and savings. 114. Define national product.

106. Define Consumption goods. Ans : DELHI 2014

National product is the net monetary value of all

Ans : OD 2014
final goods and services produced by a country’s
Consumption goods are items used by consumers residents in one year.
for satisfaction, not for resale or further production,
such as a car purchased by a household. 115. Define domestic product.

107. Give the meaning of Capital goods. Ans : SQP 2014

Domestic product is the value of final goods and

Ans : FOREIGN 2014
services produced within a country’s economic
Capital goods are assets like machinery that territory in one year.
form a country’s capital stock and are used in
production processes. 116. What are two sources of domestic income?

108. Give two examples of intermediate goods. Ans : OD 2011

Domestic income comprises income from the

Ans : OD 2014
domestic product accruing to the private sector
Examples of intermediate goods include: and the government.
(i) Milk used in a dairy shop for resale.
(ii) Milk used for investment in a firm. 117. Give the meaning of depreciation.

109. Define the term ‘Public Goods’. Ans : COMP 2014

Depreciation is the decline in the value of fixed

Ans : DELHI 2020
assets due to wear and tear, passage of time, or
Public goods are services provided for the whole expected obsolescence.
society, where one person’s use does not reduce
availability for others, such as streetlights. 118. State, whether the given statement is true or false
:
110. Define final goods. ‘Unexpected obsolescence is a component of
Ans : COMP 2010,2013 depreciation.’

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CBSE CHAPTERWISE QB CLASS 12 ECONOMICS PAGE 37
Ans : FOREIGN 2020
services produced within a country’s domestic
Correct, unexpected obsolescence is considered a territory, plus net factor income from abroad, in
capital loss, not depreciation. a year.

119. State, whether the following statement is true or 127. What is the difference between GNP and NNP?
false : Ans : COMP 2019
‘Inventory is a stock variable.’
GNP includes depreciation, whereas NNP
Ans : SQP 2020
excludes it.
True. As it is related to a point of time.
128. What is the difference between GNP and NDP?
120. Define domestic income. Ans : OD 2017
Ans : COMP 2021
NDP = GNP – Depreciation – Net Foreign
Domestic income is the monetary value of final Income.
goods and services produced within a country’s
domestic territory in a year. 129. Give two examples of net indirect taxes.
Ans : FOREIGN 2016
121. What is transfer payment?
Examples of net indirect taxes include excise duty
Ans : OD 2010
and sales tax.
Transfer payments are one-way payments received
without contributing to the current production of 130. What is dividend?
goods and services. Ans : DELHI 2019

122. Define intermediate consumption. Dividend is the portion of a company’s profit

distributed to its shareholders.
Ans : FOREIGN 2013

Intermediate consumption refers to the use of 131. Combined factor income, which can’t be separated
intermediate goods in the production of final into various factor income components is known
goods. as _____.
Ans : SQP 2020
123. `2,000 note lying in wallet of Rohini, a student,
is an example of _____ (stock/flow) variable. Mixed income of the self employed.

Ans : DELHI 2020 132. Net Domestic Fixed Capital Formation + Change
Stock in Stock = _____.
Ans : COMP 2020
124. Define GDP.
Net Domestic Fixed Capital Formation + Change
Ans : FOREIGN 2012
in Stock = Net Domestic Capital Formation
GDP is the total monetary value of final goods
and services produced within a country’s domestic 133. State, whether the following statement is true or
territory in a year. false:
‘Purchase of machinery by a producer is an
125. Define GNP. intermediate good.’
Ans : DELHI 2018 Ans : OD 2020

GNP is the total monetary value of final goods False; Purchase of machinery by a producer is a
and services produced within a country’s domestic final good.
territory, plus net factor income from abroad, in
a year. 134. Rent + Interest + Profit = _____.
Ans : FOREIGN 2020
126. Define NNP.
Rent + Interest + Profit = Operating Surplus
Ans : SQP 2020

NNP is the net monetary value of final goods and

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CH 1 : NATIONAL INCOME AND RELATED AGGREGATES

135. When does Net Factor Income from Abroad Ans : FOREIGN 2023

(NFIA) show Negative Value? A country’s normal residents are individuals or

Ans : DELHI 2020
institutions whose center of economic interest is
within the domestic territory. This means they
Net Factor Income from Abroad (NFIA) is the live or are located in the economic territory
difference between factor income received from and conduct primary activities such as earning,
abroad and factor income paid to abroad and it is spending and accumulation from that location.
negative when income earned from abroad is less
than the income paid. 141. Giving reasons, classify the following into
intermediate and final goods:
136. State the meaning of retained earnings. (i) Machines purchased by a dealer of machines.
Ans : SQP 2020 (ii) A car purchased by a household.
Retained earnings are the portion of profits Ans : OD 2010
reserved after paying corporate tax and dividends.
(i) Machines bought by a dealer are intermediate
137. Define National Income. goods as they are meant for resale.
(ii) A car purchased by a household is a final
Ans : COMP 2013
good since the expenditure on it is final and
National Income is the monetary value of final it is not intended for resale.
goods and services produced within a country’s
domestic territory in a year, plus net factor 142. Giving reasons, classify the following into inter-
income from abroad. mediate products and final products:
(i) Furniture purchased by a school.
138. Is National Income a stock or flow variable? (ii) Chalks, dusters, etc. purchased by a school.
Ans : OD 2015 Ans : DELHI 2011

National Income is a flow variable as it is measured (i) Furniture for a school is a final product as it
over a specific period of time. contributes to capital formation.
(ii) Chalks and dusters are intermediate products
as they are consumed in the production of
teaching services, serving as inputs rather
TWO MARK QUESTIONS than ends themselves.

143. Giving reasons classify the following into

139. Disposition Phase of circular flow of Income intermediate products and final products:
involves flow of factor Income, which comprises (i) Computers installed in an office.
of rent, wages, interest and profits from firms to (ii) Mobile sets purchased by a mobile dealer.
households.
Ans : COMP 2011
Defend or refute the statement, giving valid
reasons in support of your answer. (i) Computers installed in an office are final
Ans : FOREIGN 2024
products as they are used for investment
purposes.
Income generation and distribution occur in
(ii) Mobile sets meant for resale are intermediate
phase 2, where factors of production receive
products as they serve as goods for further
payments like rent, wages, interest and profit. In
sale.
phase 3, income disposition takes place through
consumption expenditure by households and 144. Giving reason identify whether the following are
investment expenditure by producers, reflecting final expenditures or intermediate expenditures:
the expenditure of income generated earlier. (i) Expenditure on maintenance of an office
Thus, phase 3 involves spending, following income building.
generation in phase 2. (ii) Expenditure on improvement of a machine in
a factory.
140. State the meaning of ‘normal resident’ of a
country. Ans : SQP 2011

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(i) Expenditure on office building maintenance is (i) Purchases by foreign tourists are included in
intermediate expenditure as it involves single- national income as they are treated as exports
use producer goods. of goods and services.
(ii) Expenditure on improving a factory machine is (ii) Purchases of shares by a domestic firm are
final expenditure as it constitutes investment. excluded from national income as they are
financial transactions without any production
145. Should the following be treated as final involved.
expenditure or intermediate expenditure? Give
reasons for your answer. 149. How should the following be treated in estimating
(i) Purchase of furniture by a firm. National Income of a Country? Give valid reasons.
(ii) Expenditure on maintenance by a firm. (i) Profits earned by Foreign Banks in India.
(ii) Expenditure on up-gradation of fixed asset by
Ans : OD 2012
a firm.
(i) A firm’s purchase of furniture is final
expenditure as it represents investment. Ans : OD 2023

(ii) on maintenance by a firm is intermediate (i) Earned by foreign banks in India is excluded
expenditure as it is recurrent and not from national income as it constitutes factor
permanent. income paid abroad to non-residents for their
contribution to production in India’s domestic
146. Net exports reflect the difference between a territory.
country’s exports and imports. They show the (ii) Expenditure on upgrading a firm’s fixed
role of international trade in generating income. assets is included in national income as it
Why are net exports included in National Income? forms part of gross fixed capital formation.
Explain.
150. How should the following be treated in the
Ans : DELHI 2011
calculation of national income? Give reasons for
Net exports, being part of the domestic product, your answer.
are included in the national income as they (i) Interest on public debt
reflect the value of goods and services produced (ii) Bonus given to railway employees
domestically. Since national income accounts for
the domestic product generated by residents, net Ans : SQP 2013

exports form an integral component of it. (i) Interest on public debt is not included in
national income as it is paid on loans taken
147. Giving reasons, explain the treatment assigned to by the government for consumption purposes,
the following while estimating National Income: not investment.
(i) Family members working free on the farm (ii) Bonus to railway employees is included in
owned by the family. national income as it is part of compensation
(ii) Payment of interest on borrowings by general of employees, a component of the income
government. method of calculating national income.
Ans : COMP 2011
151. Giving reason state how the following are treated
(i) Production for self-consumption is included in estimation of national income:
in national income as it contributes to the (i) Expenditure on old age pensions by
economy’s total output. government.
(ii) Non-factor payments, not involving the flow (ii) Expenditure on engine oil by car service
of goods and services, are excluded from station.
national income.
Ans : OD 2019
148. How should the following be treated while
(i) Expenditure on old age pensions by the
calculating national income? Give reasons for
government is excluded from national income
your answer.
as it is a transfer payment.
(i) Purchases by foreign tourists.
(ii) Purchase of shares by a domestic firm. (ii) Expenditure on engine oil by a car service
station is excluded from national income as it
Ans : SQP 2012 is an intermediate expenditure.

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CH 1 : NATIONAL INCOME AND RELATED AGGREGATES

152. Giving reasons, explain the treatment assigned to 156. Giving reasons, explain the treatment assigned to
the following while estimating National Income: the following while estimating National Income:
(i) Social security contributions by employees (i) Contribution to provident fund by the
(ii) Pension paid after retirement employers.
(ii) Free dress provided to nurses by the hospital.
Ans : DELHI 2011
Ans : OD 2015
(i) Social security contributions are included as
part of compensation of employees and are (i) Employers’ contributions to the provident
not separately counted in national income. fund are included in national income as they
(ii) Pension payments after retirement are form part of employees’ compensation.
excluded from national income as they are (ii) Free dresses provided to nurses by the hospital
considered transfer payments. are included in national income as they are
also part of employees’ compensation.
153. Giving reasons, explain the treatment assigned to
the following while estimating National Income: 157. Giving reason explain how should the following
(i) Expenditure on maintenance of a building. be treated in estimating National Income:
(ii) Expenditure on adding a floor to the building. (i) Expenditure on fertilizers by a farmer.
(ii) Purchase of tractor by a farmer.
Ans : SQP 2011
Ans : DELHI 2012
(i) Expenditure on building maintenance (i) Expenditure on fertilizers by a farmer is
is excluded from national income as it excluded from national income as it is an
is intermediate expenditure, not final intermediate cost and part of the value of
expenditure. output, not national income.
(ii) Expenditure on adding a floor to a building is (ii) Purchase of a tractor by a farmer is included
included in national income as it contributes in national income as it represents an
to domestic capital formation. investment.

154. Giving reasons, explain the treatment assigned to 158. Giving valid reasons, explain how the following
the following while estimating National Income: would be treated while estimating National
(i) Payment of income tax by a firm. income:
(ii) Festival gift to employees. (i) Payment of indirect taxes by a firm.
(ii) Purchase of goods by foreign tourists.
Ans : COMP 2015
Ans : SQP 2022
(i) Income tax paid by a firm is already accounted
(i) Indirect tax payments by firms are excluded
for under corporate tax and is not separately
from National Income estimates as they are
included in national income.
transfer payments with no corresponding
(ii) Festival gifts to employees are part of services provided by the government.
compensation of employees and are included (ii) Expenditures by foreign tourists on domestic
in national income. products are considered exports of goods and
services, hence included in National Income
155. Giving reasons, explain the treatment assigned to
calculation.
the following while estimating National Income:
(i) Subsidy on the output produced 159. Giving reason explain how should the following
(ii) Contribution to provident fund by the be treated in estimating National Income:
employees (i) Payment of bonus by a firm
Ans : FOREIGN 2017 (ii) Payment of interest on a loan taken by an
employee from the employer.
(i) Subsidy on output is excluded from national
income as it is a unilateral transfer payment Ans : OD 2012
by the government to firms. (i) Bonus is part of employee compensation and
(ii) Employees’ contributions to provident funds is included in National Income as it reflects
are not separately included as they are payment for services rendered.
already part of wages and salaries. (ii) Interest on loans taken by employees for
consumption is excluded from National

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Income as it does not contribute to production Ans : SQP 2012

or income generation. (i) A family’s expenditure on children’s

education is final consumption expenditure,
160. Giving reason explain how should the following representing payment for services and is
be treated in estimating National Income: included in National Income.
(i) Interest paid by banks on deposits by (ii) A school’s electricity payment is an
individuals. intermediate cost, used to calculate value-
(ii) National debt interest. added and is not directly included in National
Ans : OD 2012 Income.
(i) Interest paid by banks to individuals is 164. How should the following be treated in the
included in National Income as it represents calculation of national income? Give reasons for
a factor payment for the use of capital by your answer.
producers. (i) Government expenditure on street lighting.
(ii) Interest on national debt is excluded from (ii) Sale of an old house
National Income since it is a transfer payment
for loans used for government consumption, Ans : OD 2016

not production. (i) Government expenditure on street lighting is

included in National Income as it represents
161. Should the following be treated as final final consumption expenditure in the
expenditure or intermediate expenditure? Give expenditure method.
reasons for your answer. (ii) Sale of an old house is not included in National
(i) Purchase of furniture by a firm Income since it does not contribute to the
(ii) Expenditure on maintenance by a firm. current production of goods and services; it
Ans : OD 2012 was accounted for when first constructed.
(i) A firm’s purchase of furniture is considered 165. How are the following treated while calculating
final expenditure as it qualifies as investment, national income? Give reasons for your answer.
contributing to National Income. (i) Receipts from sale of land
(ii) Maintenance expenditure by a firm is (ii) Profits earned by the branch of an Indian
intermediate expenditure since it is recurring bank in France.
and does not involve permanent investment,
excluding it from National Income. Ans : COMP 2016

(i) Receipts from land sales are excluded

162. Giving reason, explain how should the following from National Income as land is a natural
be treated while estimating National Income: resource and its sale does not involve current
(i) Expenditure on free services provided by production.
government.
(ii) Profits from an Indian bank branch in France
(ii) Payment of interest by a government firm.
are included in National Income as they
Ans : OD 2017 represent factor income earned by an Indian
(i) Government’s final consumption expenditure resident from abroad.
is included in National Income as it reflects
166. How should the following be treated while
spending on goods and services for public
calculating national income? Give reasons for
welfare.
your answer:
(ii) Interest paid on loans for productive purposes
(i) Profits earned by a branch of foreign bank in
is included in National Income as it constitutes
India.
a factor payment by producers.
(ii) Salary received by Indian employees working
163. How should the following be treated while in American embassy in India.
estimating National Income? Give reasons. Ans : SQP 2016
(i) Expenditure on education of children by a
(i) Profits earned by a foreign bank’s branch in
family.
India are considered factor income to abroad
(ii) Payment of electricity bill by a school.
and are not included in National Income.

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CH 1 : NATIONAL INCOME AND RELATED AGGREGATES

(ii) Salaries received by Indian employees in (ii) National debt interest.

the American embassy in India are included
Ans : SQP 2010
in National Income as factor income from
abroad. (i) Interest paid by banks to depositors is
included in National Income as it represents
167. How should the following be treated while income earned by depositors from funds used
calculating national income? Give reasons for by banks for productive purposes.
your answer. (ii) National debt interest is not included in
(a) Interest received by households from banks. National Income as it is a transfer payment,
(b) Dividend received by shareholders. reflecting loans used for both productive and
Ans : DELHI 2016
non-productive purposes.

(i) Interest received by households from banks is 171. State the three components of Income from
included in National Income as it represents Property and Entrepreneurship.
factor income earned from productive
Ans : COMP 2020
activities by a production unit.
(ii) Dividends received by shareholders are Income from property and entrepreneurship,
included in National Income as they are part known as Operating Surplus, comprises :
of profits distributed by production units to Rent : Income from land.
their owners. Interest : Earnings from capital.
Royalty : Income from patents or copyrights.
168. Giving reason, explain how are the following Profit : Includes dividend, corporate tax and
treated in estimating National Income by the retained earnings (undistributed profits).
income method:
(i) Interest on a car loan paid by an individual. 172. Are all producer goods capital goods? Give reason.
(ii) Interest on a car loan paid by a government- Ans : SQP 2020
owned company.
Producer goods include intermediate goods, such
Ans : FOREIGN 2010 as raw materials and capital goods, like machinery.
(i) Interest on a car loan paid by an individual is Thus, while all capital goods are producer goods,
not included in National Income because it is not all producer goods qualify as capital goods.
taken for consumption purposes and does not
173. Can any value addition be made to final goods?
contribute to production.
(ii) Interest is included in National Income only Ans : OD 2015
if it relates to loans taken for investment Final goods are those that are outside the
purposes, contributing to productive production boundary, ready for sale and used
activities. by the ultimate consumer for consumption or
investment. These goods undergo no further value
169. Explain the interdependence between the two
addition.
economic units in a two sector circular flow model.
Ans : DELHI 2011 174. Is there any difference between GDPMP and
GDPFC in a two sector economy?
In a two-sector circular flow model without
government or foreign trade, the economy Ans : FOREIGN 2019
comprises two units : firms and households. In a two-sector economy with only firms and
Households provide factor services (like labor, households, there is no government sector.
capital) to firms and earn income in return. Consequently, there is no difference between GDP
This income is fully spent on goods and services at Market Price (GDPMP) and GDP at Factor
produced by firms, creating a continuous flow of Cost (GDPFC), as net indirect taxes (indirect
income and expenditure within the economy. taxes minus subsidies) are absent.
170. Giving reason, explain how are the following 175. Why are net exports (i.e., exports – imports)
treated in estimation of National Income by the included while estimating domestic income?
income method:
(i) Interest paid by banks to depositors. Ans : COMP 2016

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Exports are included in National Income as they conducted within the framework of an organized
represent goods and services produced within the market structure, further excluding them from
domestic territory. Conversely, imports are treated the economic activity category.
as a negative item since they involve expenditure
on goods produced outside the domestic territory. 179. Which among the following are capital goods and
which are consumer goods and why?
176. Will expenditure on purchase of second hand (i) A car used as a taxi
plant and machinery from the rest of the world be (ii) Refrigerator in a hotel
included while estimating national income. Give (iii) Air-conditioner in a house
reasons for your answer.
Ans : DELHI 2018
Ans : SQP 2013
(i) A car used as a taxi is classified as a capital
A second-hand asset, when freshly purchased, good because it serves as a long-term
is treated as domestic fixed capital formation investment for the buyer, generating income
and included in National Income estimation. It through its use in business operations.
contributes to the domestic economy’s capital (ii) A refrigerator in a hotel is considered a
stock. capital good since it represents a long-term
investment that supports the hotel owner’s
business activities.
(iii) An air conditioner in a house is categorized as
THREE MARK QUESTIONS a consumer good because it is utilized by the
consumer for personal consumption rather
than for income-generating purposes.
177. Define Intermediate consumption and explain it
with an example. How is it different from Final 180. Giving reasons, categorise the following into
consumption? stocks and flows:
(i) Losses
Ans : DELHI 2018
(ii) Capital
Intermediate consumption includes the value (iii) Production
of goods and services that a production unit (iv) Wealth
purchases to use completely within the same year
Ans : COMP 2011
or for resale. It is excluded from the domestic
income calculation. Examples are raw material
(i) Losses are flows : Because they are
stocks or semi-finished goods, like milk for
related to a period
restaurants or cotton for factories. Conversely,
of time.
final consumption includes goods purchased
for consumption or investment, like milk by a (ii) Capital is a stock : Measured at a point
consumer or a machine by a producer. of time.
(iii) Production is a : Because it is
178. ‘Domestic services (Household services) performed
flow measured over a
by a woman are not considered as an economic
period of time.
activity.’
Defend or refute the given statement with valid (iv) Wealth is a stock : As it measured at a
reason. point of time.
Ans : FOREIGN 2020
181. Giving reason, categories the following into stocks
I support the statement that domestic services and flows:
performed by women are not classified as (i) Profits
economic activities. This is because these services (ii) Gross domestic product
are driven by love and affection rather than the (iii) Savings
intent to earn income, making it challenging to (iv) Balance in a bank account
assign them a market value. Additionally, such
activities do not contribute to the production of Ans : OD 2011,2013

goods and services in the economy and are not (i) Profits are considered flows because they

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are measured over a specific period of time, from Abroad (NFIA) for the following reasons :
reflecting the earnings generated during that (i) Exports represent the purchase of goods
duration. produced domestically by the rest of the
(ii) Gross Domestic Product (GDP) is a flow world. Since these goods are produced within
since it represents the total value of goods the domestic territory, they are included in
and services produced within a specific time the GDP, not NFIA.
frame, usually a fiscal year. (ii) Export receipts are the revenue earned by
(iii) Savings are categorized as flows as they firms from selling their output. They do not
accumulate over a period of time, indicating constitute factor income, which includes rent,
the portion of income not spent during that interest, profits and wages earned abroad.
duration. Furthermore, exports are a domestic concept,
(iv) Balance in a bank account is a stock because while NFIA pertains to a national concept.
it represents the amount available at a specific
point in time. 185. Explain the following terms:
(i) Operating surplus
182. What is Gross Domestic Product (GDP)? (ii) Mixed income
(iii) Transfer payments.
Ans : FOREIGN 2023

The gross monetary value of final goods and Ans : SQP 2013

services produced within a country’s domestic (i) Operating Surplus : This is the total of rent,
territory in a year is termed the domestic product. interest and profit. It represents income
It includes the portion of fixed capital consumed derived from the ownership of resources or
during the year, known as depreciation, but entrepreneurship.
excludes net factor income earned from abroad. (ii) Mixed Income : This refers to the combined
Gross Domestic Product (GDP) is derived by income of self-employed individuals or own-
subtracting ‘net factor income from abroad’ from account workers and profits of unincorporated
Gross National Product (GNP). Represented enterprises that do not maintain formal
mathematically : accounts.
GDP = GNP – Net Factor Income from Abroad (iii) Transfer Payments : These are unilateral
GDP = NNP + Depreciation – Net Factor Income payments received without contributing to
from Abroad the production of goods and services. As they
do not add to the current economic output,
183. Discuss briefly the concept of ‘Externalities’, with they are excluded from National Income.
suitable example. Examples include scholarships awarded to
Ans : OD 2012 students.
Externalities are the unintended benefits or harms 186. Define ‘net factor income from abroad’. How is it
caused by an activity of a firm or individual, different from ‘net exports’ ?
for which no payment or penalty is imposed.
Activities causing harm to others are termed Ans : DELHI 2019

negative externalities. Net Factor Income from Abroad (NFIA) is the

For instance, factories produce goods that difference between what a country’s factors of
contribute to economic welfare, but they also production earn abroad and what foreign factors
pollute the environment, adversely affecting earn within the country. It is part of the national
people’s well-being. While the production of product but excluded from the domestic product.
goods enhances welfare, the resulting pollution Net Exports, by contrast, represents the difference
reduces it. However, this negative impact is not between a country’s exports and imports.
reflected in the GDP measurement. The key distinction is that net exports are a
domestic concept, encompassing non-factor
184. Export are not a part of ‘Net Factor Income from services, while NFIA is a national concept,
abroad.’ involving only factor services such as rent, wages,
Elaborate the reason behind the given statement. interest and profits.
Ans : COMP 2022

Exports are excluded from Net Factor Income

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187. Define ‘value of output’. How is it different from On the other hand, subsidies are financial or
‘value addition’ ? in-kind support provided by the government to
promote economic or social objectives. Subsidies
Ans : SQP 2019
are given to firms or households to enhance
The value of all goods and services produced general welfare, encourage exports, foster
within an accounting year is referred to as the industrialization in backward regions, or boost
value of output, which includes both intermediate the production of specific goods. Unlike transfer
and final goods. Alternatively, it can be calculated payments, subsidies contribute to production and
as the sum of sales and the change in stock (closing are included in National Income.
stock minus opening stock) for the year.
Value addition, however, represents the 190. Giving reason state how are the following treated
difference between the value of output and in estimation of national income.
intermediate consumption. It reflects the (i) Payment of interest by an individual to a
contribution of factors of production during the bank on a loan to buy a car.
production process. (ii) Expenditure by government on providing free
educational services.
188. Explain the following: (iii) Expenditure on purchasing a machine
(i) Why are imports deducted while calculating installed in a production unit.
domestic product through the expenditure
method? Ans : OD 2017

(ii) Why is ‘indirect tax’ deducted while (i) Payment of Interest by a Bank to an
estimating national income by expenditure Individual : This is excluded from national
method? income estimation because the loan is used
for personal consumption purposes, not for
Ans : COMP 2013
production or investment.
(i) Net Exports (X - M) : Net exports, calculated (ii) Expenditure on Free Educational Services by
as exports (X) minus imports (M), form part the Government : This is included in national
of GDP under the expenditure method. Since income as it constitutes final government
imports are sourced from the rest of the world, expenditure, contributing to the economy’s
they are excluded from GDP calculations as welfare and output.
they do not represent domestic production. (iii) Expenditure on a Machine Installed in
(ii) Expenditure Method and National Income a Production Unit : This is included in
: National income, under the expenditure national income since it is a final investment
method, is initially calculated at market expenditure, directly contributing to
prices. To determine national income at production capacity and economic output.
factor cost (NNP at FC), indirect taxes are
subtracted, as these are included in market 191. Explain why subsidies are added to and indirect
prices but do not represent income earned by taxes are deducted from domestic product at
factors of production. market price to arrive at domestic product at
factor cost.
189. ‘Subsidies to the producers, should be treated as
transfer payments.’ Defend or refute the given Ans : OD 2010

statement with valid reason. A subsidy is a financial grant provided by the

government to producers to lower the prices
Ans : SQP 2020
consumers pay. In contrast, indirect taxes are
I disagree with the statement, as subsidies and levied on firms and households, increasing the
transfer payments are distinct concepts. Transfer final price of commodities. Subsidies do not
payments refer to payments made without any impose a financial burden on producers, unlike
exchange of factor services, intended purely to indirect taxes and are not directly linked to the
transfer purchasing power to specific groups, cost of production. As a result, subsidies are not
such as the elderly or destitute women. Examples included in production costs like indirect taxes.
include old-age pensions and unemployment To calculate domestic product at factor cost from
allowances, which are excluded from National domestic product at market price, subsidies are
Income calculations. added and indirect taxes are subtracted.

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CH 1 : NATIONAL INCOME AND RELATED AGGREGATES

192. Giving reason explain how should the following 194. How will you treat the following while estimating
be treated in estimating gross domestic product National Income of India? Give reasons for your
at market price? answer.
(i) Fees to a mechanic paid by a firm. (i) Dividend received by a foreigner from
(ii) Interest paid by an individual on a car loan investment in shares of an Indian company.
taken from a bank. (ii) Profits earned by a branch of an Indian bank
(iii) Expenditure on purchasing a car for use by a in Canada.
firm. (iii) Scholarship given to Indian student studying
in India by a foreign company.
Ans : OD 2014
Ans : OD 2010
(i) Fees Paid to a Mechanic by a Firm : This
is treated as intermediate expenditure by the (i) Factor Income to Abroad : This represents
firm and, therefore, is not included in GDP income paid to foreign factors of production
at Market Price (GDPMP), as it does not operating within the domestic territory. It is
constitute final output. subtracted from National Income as it does
(ii) Interest Paid by an Individual on a Car Loan not contribute to the country’s domestic
: This is excluded from GDPMP because the economy.
loan is used for consumption purposes, not (ii) Profit Earned by an Indian Bank Abroad
for production or investment and hence does : This is considered income earned from
not contribute to the economy’s productive abroad and is included in National Income,
output. as it reflects earnings generated by domestic
entities outside the country.
(iii) Expenditure on Purchasing a Car for Use by a
(iii) Transfer Payment : Such payments do not
Firm : This is included in GDPMP since it is
involve the production of goods or services
a final investment expenditure, representing
and are therefore excluded from National
a durable asset that contributes to the firm’s
Income estimation.
production activities.
195. Will the following be included in the national
193. How will you treat the following while estimating
income of India? Give reason for your answer:
domestic product of a country? Give reasons for
(i) Financial assistance to flood victims.
your answer:
(ii) Profits earned by the branches of a foreign
(i) Profits earned by branches of country’s bank
bank in India.
in other countries.
(iii) Salaries of Indians working in the American
(ii) Gifts given by an employer to his employees
Embassy in India.
on independence day.
(iii) Purchase of goods by foreign tourists. Ans : OD 2017

Ans : OD 2017 (i) Financial Assistance to Flood Victims : These

are classified as transfer payments since no
(i) Profits Earned by a Bank Outside the
economic activity occurs in exchange for
Domestic Territory : These are excluded from
these payments. Consequently, they are not
domestic product estimation because they
included in the National Income of India.
are earned outside the country’s domestic
territory and are part of net factor income (ii) Profits Earned by Foreign Bank Branches
from abroad (NFIA). in India : These are excluded from India’s
National Income as they are considered factor
(ii) Gifts Given by Employers to Employees :
income paid abroad. To calculate National
These are considered transfer or unilateral
Income, these profits are subtracted from
payments, not linked to the production of
Domestic Income.
goods or services and are therefore excluded
from the domestic product calculation. (iii) Salaries of Indians Working in the American
(iii) Goods Purchased by Foreign Tourists : These Embassy in India : These are included in
goods are produced within the domestic National Income as they represent factor
territory and are treated as exports. They income received from abroad, given that the
are included in domestic product estimation American Embassy is considered part of the
using the Expenditure Method. U.S. domestic territory.

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196. Giving reason explain how should the following (iii) Interest received on loans given to a friend for
be treated in estimation of National Income: purchasing a car.
(i) Expenditure by a firm on payment of fees to
Ans : OD 2012
a chartered accountant
(ii) Payment of corporate tax by a firm (i) Dividend as Factor Income from Abroad
(iii) Purchase of refrigerator by a firm for own use : Dividend is a component of profit and
represents factor income from abroad. Since it
Ans : OD 2015
contributes to domestic income, it is included
(i) Fees Paid to a Chartered Accountant by a in the estimation of National Income.
Firm : This is not included in National Income (ii) Exclusion of Non-Productive Payments
as it is considered intermediate expenditure : Payments that are not a result of the
by the firm and does not contribute to the production or flow of goods and services are
final output. excluded from National Income, as they do
(ii) Payment of Corporate Tax by a Firm : not reflect economic output.
Corporate tax is a transfer payment from the (iii) Loan for Consumption Purposes : Loans taken
firm to the government and is not directly for consumption purposes are not included in
included in National Income. However, it is National Income estimation, as they do not
accounted for as part of the firm’s profit, correspond to the flow of goods and services
which is a factor income. Therefore, it should within the economy.
not be separately added to National Income.
(iii) Purchase of a Refrigerator by a Firm for Own 199. How should the following be treated in estimating
Use : This is included in National Income as national income of a country? You must give
it is considered final consumption expenditure reason for you answer.
by the firm, contributing to economic output. (i) Taking care of aged parents.
(ii) Payment of corporate tax.
197. Will the following be included in the domestic (iii) Expenditure on providing police services by
product of India? Give reasons for your answer: the government.
(i) Profits earned by foreign companies in India.
Ans : COMP 2014
(ii) Salaries of Indians working in the Russian
Embassy in India. (i) Taking Care of Aged Parents : This is a
(iii) Profits earned by a branch of State Bank of non-economic activity as it arises from love
India in Japan. and affection, which cannot be monetarily
measured. Hence, it is excluded from National
Ans : OD 2017
Income estimation.
(i) Profit Generated Within India’s Domestic (ii) Payment of Corporate Tax : Corporate tax
Territory : This is included in the domestic is a part of profit, which is already included
product of India because the profit is in National Income. Therefore, it is not
generated within the country’s domestic accounted for separately in National Income.
boundaries. (iii) Expenditure on Police Services by the
(ii) Income Earned in the Russian Embassy : This Government : This is included in National
is not included in India’s domestic product Income as it forms part of government final
because the embassy is considered part of consumption expenditure, contributing to the
Russia’s domestic territory, not India’s. economy’s overall output.
(iii) Profits Earned in Japan : These are excluded
from India’s domestic product since they are 200. Giving reason explain how should the following
generated in Japan, which is outside India’s be treated in estimating national income:
domestic territory. (i) Electricity consumed by a firm.
(ii) Pension paid to the retired employees.
198. How will you treat the following while estimating (iii) Free treatment of the poor in hospitals.
National Income of India?
Ans : COMP 2013
(i) Dividend received by an Indian from his
investment in shares of a foreign company. (i) Electricity Consumed by a Firm : This is
(ii) Money received by a family in India from excluded from National Income because it is
relatives working abroad. an intermediate product. Including it would

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CH 1 : NATIONAL INCOME AND RELATED AGGREGATES

lead to double counting, as electricity is 203. How will you treat the following in the calculation
already accounted for when produced. of Gross Domestic Product of India? Give reasons
(ii) Pension Paid to Retired Employees : This for your answer.
is not included in National Income since it (i) Profits earned by a branch of foreign bank in
is a transfer payment, representing income India.
without any corresponding productive (ii) Salaries of Indian employees working in
activity. embassy of Japan in India.
(iii) Free Treatment of the Poor in Hospitals : This (iii) Salary of residents of Japan working in Indian
is excluded from National Income as it is a embassy in Japan.
transfer payment. Free treatment is provided
Ans : COMP 2012
without any productive service in return,
thus not contributing to economic output. (i) Profits Earned by a Branch of a Foreign Bank
in India : These profits are included in the
201. Giving reasons, state whether the following
domestic product of India because the bank
statements are true or false.
operates within India’s domestic territory,
(i) Real gross domestic product can be equal to
contributing to domestic economic activity.
nominal gross domestic product.
(ii) Salaries of Indian Employees Working in the
(ii) Savings are a stock.
Embassy of Japan in India : These are not part
(iii) Butter is only a final product. of India’s domestic product as the Embassy of
Ans : COMP 2012
Japan is considered part of Japan’s domestic
territory, not India’s.
(i) True : Real Gross Domestic Product (GDP) (iii) Salaries Paid to Residents of Japan Working
and Nominal GDP will be equal if the price in the Indian Embassy in Japan : These are
level remains constant, as there would be no included in the domestic product of India
need to adjust for inflation or deflation. because the Indian Embassy in Japan is
(ii) False : Savings are always measured over considered part of India’s domestic territory.
a specific time period, making them a flow
variable, not a stock. 204. Giving reason explain how the following should
(iii) False : Butter is a final product only when be treated in estimation of national income:
purchased by households for consumption. (i) Payment of interest by a firm to a bank
When bakeries buy butter to produce cakes (ii) Payment of interest by a bank to an individual
and pastries, it is considered an intermediate (iii) Payment of interest by an individual to a
good, as it serves as raw material for further bank
production.
Ans : OD 2015
202. What are externalities? Give an example of a
(i) Payment of Interest by a Firm to a Bank :
positive externalities and its impact on welfare of
This is included in National Income since the
the people.
interest is paid on a loan taken for productive
Ans : DELHI 2014 purposes. It is a factor payment made by a
Externalities are the unintended benefits or producer for utilizing financial resources.
harms resulting from the activities of a firm (ii) Payment of Interest by a Bank to an Individual
or individual, for which they are neither : This is considered a factor payment as the
compensated nor penalized. Positive externalities bank borrows funds to facilitate its banking
arise when activities benefit others. For instance, services. Therefore, it is included in National
the construction of a flyover or highway reduces Income.
transport costs and journey times for users. While (iii) Payment of Interest by an Individual to
the expenditure on construction is included in a Bank : This is not included in National
GDP, the welfare gains from positive externalities Income because it is a non-factor receipt.
are not accounted for. This suggests that actual The loan is used for consumption purposes
welfare exceeds the level indicated by GDP. rather than production, making it irrelevant
to economic output.

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205. How does increase in inequalities in distribution transport reduce greenhouse gas emissions, while
of income affect welfare of the society? Explain. reliable infrastructure streamlines supply chains
and facilitates efficient cross-border movement
Ans : COMP 2017
of goods and services. Thus, infrastructure
An increase in inequality implies that the rich investment directly and positively impacts
grow richer while the poor become poorer. Even economic growth.
if a country’s GDP rises, it does not guarantee
an improvement in overall welfare. This occurs 208. What is real GDP? State three limitations of
when the additional income from increased GDP GDP as an index of economic welfare.
is concentrated in the hands of a few, while others Ans : COMP 2016
may experience a decline in income. Since the
utility of money is greater for the poor than for National Income calculated at constant prices is
the rich, rising inequalities may reduce the overall referred to as real GDP. However, a higher GDP
welfare of society despite economic growth. does not always equate to greater welfare for the
following reasons :
206. Explain how ‘externalities’ are a limitation on (i) Unequal Income Distribution : GDP does
taking gross domestic product as an index of not account for income distribution, meaning
welfare. that the additional income generated might
Ans : FOREIGN 2011 be concentrated in the hands of a few, leaving
others with stagnant or declining welfare.
Externalities are the unintended benefits or
(ii) Exclusion of Non-Monetary Exchanges : Non-
harms caused by a firm or individual to others,
monetary activities, such as domestic services
without compensation or penalty. They do not
provided by housewives, are excluded from
operate within any market system where they
GDP calculations, despite their significant
can be bought or sold. Positive externalities
contribution to societal well-being.
improve welfare without direct payment, such
as when a well-maintained garden by Mr. X (iii) Externalities : GDP does not measure the
enhances Mr. Y’s enjoyment. However, such positive or negative externalities of economic
benefits are not reflected in GDP calculations. activities. For example, environmental
Negative externalities cause harm, like factory pollution caused by production harms social
emissions causing air or water pollution. While welfare, which is not reflected in GDP figures.
the factory’s output contributes to GDP, the
209. Gross Domestic Product (GDP) does not give
environmental damage reduces social welfare
us a clear indication of economic welfare of a
and no penalties or valuations are incorporated
country.” Defend or refute the given statement
into GDP. Consequently, GDP as a welfare index
with valid reason.
is imprecise, as it may either underestimate or
overestimate actual welfare. Ans : SQP 2011

207. “In the past few decades, Indian economy has (i) Unequal Income Distribution : GDP does
been fairly benefited by positive externalities not account for the distribution of income,
created by rapid rise in infrastructure.” Justify so an increase in GDP may benefit only a
the given statement with valid arguments. few, leaving a large section of the population
unaffected.
Ans : SQP 2024
(ii) Exclusion of Non-Monetary Exchanges
A positive externality refers to the benefits arising : Non-monetary contributions, such as
from the production or consumption of a product. domestic services provided by housewives, are
Investments in good infrastructure yield significant excluded from GDP calculations despite their
positive externalities. They reduce commute significant role in enhancing welfare.
times, ensure access to clean water and energy (iii) Externalities : GDP ignores the positive or
and provide safe public spaces for recreation, negative impacts of economic activities that
enabling individuals to lead more balanced lives do not involve direct rewards or penalties.
with time for personal development. Moreover, For instance, environmental pollution is a
infrastructure enhances employment, healthcare negative externality that harms welfare but is
and education quality. Clean energy and public not reflected in GDP.

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CH 1 : NATIONAL INCOME AND RELATED AGGREGATES

210. Explain how ‘distribution of gross domestic 213. “Many goods and services which may contribute
product’ is a limitation in taking gross domestic to welfare, but are not included in estimating
product as an index of welfare. Gross Domestic Product (GDP).”
Do you agree with the given statement? Give
Ans : DELHI 2011
valid reason in support of your answer.
The distribution of increased Gross Domestic
Product (GDP) significantly impacts economic Ans : SQP 2023

welfare. If a rise in GDP leads to greater income I agree with the statement. GDP does not
inequalities, the resultant improvement in account for transactions that are not expressed in
economic welfare may not align with the GDP monetary terms, which is a significant limitation
growth. In such cases, the gap between the rich as an index of a country’s welfare. Many non-
and the poor widens. Notably, an increase in the monetary activities, though crucial for growth
welfare of the rich contributes less to overall welfare and development, are excluded due to the
compared to a similar increase in the welfare of absence of authentic data. For instance, services
the poor, due to the diminishing marginal utility provided by housewives or social workers, often
of income among the wealthy. motivated by love and affection, are not evaluated
in monetary terms and therefore not included in
211. Explain how ‘non-monetary exchanges’ are a
GDP calculations.
limitation in taking gross domestic product as an
index of welfare. Such non-market transactions significantly
enhance economic welfare, yet their exclusion leads
Ans : OD 2011 to an underestimation of welfare, making GDP an
Many activities, such as domestic services incomplete measure of a nation’s well-being.
performed by women at home, are not evaluated
214. Is gross domestic product a true index of economic
in monetary terms. If these services were hired
welfare of the people? Give two reasons in support
from the market, their payments would have
of your answer.
been included in Gross Domestic Product (GDP).
Consequently, the exclusion of such non-monetary Ans : COMP 2014
exchanges results in an underestimation of GDP.
Welfare refers to a sense of well-being, influenced
This underestimation negatively impacts the
by both economic and non-economic factors.
assessment of economic welfare, as it fails to account
While GDP can be an indicator of economic
for significant contributions to societal well-being
welfare, it has significant limitations :
that are not captured in monetary terms.
(i) Externalities : These are unintended benefits
212. Management of a water polluting oil refinery says or harms caused by an activity that are not
that it (oil refinery) ensures welfare through its accounted for in market transactions. Since
contribution to Gross Domestic Product.” GDP excludes these effects, it may either
Defend or refute the argument of management underestimate or overestimate welfare. For
with respect to GDP as a welfare measure of the example, pollution from industries harms
economy. social welfare, while a public park enhances
it, but neither is reflected in GDP.
Ans : FOREIGN 2020
An increase in per capita real GDP generally (ii) Non-Monetary Exchanges : Activities like
suggests greater availability of goods and services, services provided by housewives or self-
implying enhanced economic welfare. However, produced goods, which contribute to welfare,
GDP may not accurately reflect true welfare due are excluded from GDP calculations due to
to its limitations. For instance, an oil refinery challenges in data collection and valuation.
contributes to GDP but harms economic welfare Consequently, GDP fails to capture their
by causing water pollution, a negative externality. impact on welfare accurately.
This pollution adversely impacts public health,
reducing overall welfare. Since GDP does 215. How can distribution of income be a limitation
not account for such negative externalities, it of using gross domestic product as an index of
overestimates actual welfare. Thus, the statement welfare? Explain.
that GDP reliably indicates economic welfare is Ans : OD 2011
refuted.

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The distribution of increased national income is 218. Suppose a ban is imposed on consumption of
a critical factor in assessing its impact. A rise liquor/tobacco in the country. Examine its effects
in national income does not guarantee that all on:
individuals’ incomes increase proportionately. (i) gross domestic product and
Some may experience greater gains, while others (ii) welfare.
might see little or even a decline in their income.
Ans : OD 2017)
This unequal distribution can lead to increased
income inequalities, which negatively impact (i) Gross Domestic Product (GDP) : Imposing a
the overall economic welfare of society. Thus, ban on the consumption of liquor or tobacco
to evaluate the true effect of a rise in national will reduce their demand, subsequently
income, it is essential to determine whether it lowering their production. Since production
reduces or exacerbates income inequalities. contributes to GDP, this decline will result in
a decrease in GDP.
216. Government incurs expenditure to popularize (ii) Welfare : Despite their widespread
yoga among the masses. Analyses its impact on consumption, liquor and tobacco are
gross domestic product and welfare of the people. detrimental to consumer health. A ban on
Ans : DELHI 2016
their consumption will likely enhance societal
welfare by improving public health and
By promoting yoga among the masses, the reducing the negative externalities associated
government aims to foster health awareness with their use.
and encourage a healthier lifestyle. Over time,
this initiative will benefit both society and the 219. As per The Economic Times report, dated April
economy. Adopting healthy habits will enhance the 11, 2023 “Electric Vehicle sales cross 10 Lakh
physical and emotional well-being of individuals, mark in financial year 2022-23.” Analyses the
contributing to overall welfare. A healthy likely impacts of this news on Gross Domestic
workforce positively impacts GDP by improving Product (GDP) and Welfare.
productivity and efficiency, increasing stamina
Ans : COMP 2024
and reducing absenteeism. These improvements
result in higher output and greater availability of The increased sales of electric vehicles positively
goods and services per person, further enhancing impact both GDP and welfare. Higher sales
the economic welfare of the population. directly contribute to economic value addition,
boosting Gross Domestic Product (GDP).
217. Sale of petrol and diesel cars is rising particularly Electric vehicles are environmentally friendly,
in big cities. Analyses its impact on gross domestic reducing carbon emissions and mitigating the
product and welfare. harmful effects of pollution. This improvement
Ans : OD 2016
in air quality enhances public health, reduces
healthcare costs and promotes overall welfare.
The final sale of cars contributes to GDP as Thus, the shift towards electric vehicles supports
cars are considered final products, providing economic growth while contributing to a healthier
transportation convenience and enhancing welfare. and more sustainable environment.
However, the increased sale of petrol and diesel
cars, especially in big cities, leads to significant 220. Explain ‘non-monetary exchanges’ as a limitation
negative externalities. Air and noise pollution of using gross domestic product as an index of
caused by vehicle emissions release harmful gases, welfare of a country.
adversely affecting citizens’ health, including
Ans : OD 2017
respiratory problems and other health issues.
These negative externalities diminish societal GDP does not account for transactions not
welfare and can have a detrimental impact on expressed in monetary terms, which is a significant
GDP over time due to increased healthcare costs limitation as an index of a country’s welfare. Many
and reduced productivity. Thus, while car sales non-monetary activities, such as services provided
boost GDP, the associated harms reduce overall by housewives or social workers, contribute to
welfare. national growth and welfare but are excluded
from GDP due to the lack of authentic data and
valuation challenges. These non-market activities,

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CH 1 : NATIONAL INCOME AND RELATED AGGREGATES

driven by love and affection, enhance economic (iii) Yes, as their centre of economic interest lies in
welfare. Consequently, GDP underestimates true India.
welfare and may not accurately reflect the overall
well-being of a nation. 224. During a given year nominal national income
increased by 14% while the real national income
221. Calculate Intermediate consumption from the increased by only 6%. Population increased by
following information: 2%. What has caused the difference between
nominal income and real income. What is the rise
Items (` in crores) in the real per capita income?
(i) Value of output 200 Ans : COMP 2017
(ii) NVAFC 80 Nominal income can change on account of –
(iii) Customs duty 15 (i) change in quantity of goods and services
produced and
(iv) Depreciation 20
(ii) change in price level. However, real national
(v) Rent 5 income changes only on account of changes in
quantity of goods and services.
Ans : SQP 2011
Therefore, a change of 14% in nominal national
NVAFC = (i) – Intermediate Consumption – (iv) – (iii) income is partly on account of 6% change in
80 = 200 – Intermediate Consumption – 20 – 15 quantity of goods and services and the remaining
Intermediate consumption = `85 crore 8% must be on account of rise in general price level.
Rise in real per capita income
222. Calculate sales from the following: = Rise in real national income – Rise in population
Items (` in crores) = 6% – 2% = 4%

(i) Subsidies 200 225. Explain the basis of classifying goods into
(ii) Opening stock 100 intermediate and final goods. Give suitable
examples.
(iii) Closing stock 600
Ans : DELHI 2010
(iv) Intermediate consumption 3000
Intermediate goods are products or services
(v) Consumption of fixed 700 bought by one production unit from another and
capital are entirely consumed or resold within the same
(vi) Profits 750 year, such as tires used in car manufacturing. Final
(vii) NVAFC 2000 goods are either purchased or self-produced for
consumption or investment purposes. Examples
(viii) Exports 100 include bread bought by households or machines
purchased by firms.
Ans : COMP 2010

NVAFC = Sales + (iii) – (ii) – (iv) – (v) + (i) 226. What is Gross Domestic Product (GDP)?

2000 = Sales + 600 – 100 – 3000 – 700 + 200 Ans : FOREIGN 2023

Sales = `5,000 crore The gross monetary value of final goods and
services produced within a country’s domestic
223. Are the following residents of India? Give reason: territory in a year is termed the domestic product.
(i) Indian going abroad for medical treatment. It includes the portion of fixed capital consumed
(ii) Foreigners working in Indian embassy. during the year, known as depreciation, but
(iii) Indians working in the office of the United excludes net factor income earned from abroad.
Nations Organization in India. Gross Domestic Product (GDP) is derived by
Ans : OD 2000 subtracting ‘net factor income from abroad’ from
(i) Yes, as visit for medical treatment is a short Gross National Product (GNP). Represented
period visit. mathematically :
(ii) No, as they are residents of the country to GDP = GNP – Net Factor Income from Abroad
which they belong. GDP = NNP + Depreciation – Net Factor Income
from Abroad

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CBSE CHAPTERWISE QB CLASS 12 ECONOMICS PAGE 53
Ans :
FOUR MARK QUESTIONS DELHI 2015

The ‘Jan Dhan Yojana’ aims to provide every

household with at least one bank account,
227. Explain the circular flow of income. integrating demand deposits into the money supply.
or This initiative impacts national income as follows :
Discuss briefly, the circular flow of income in a (i) Increased bank accounts lead to more
two sector economy model. deposits, expanding the money supply.
(ii) With the legal reserve ratio constant, higher
Ans : OD 2016,2024
deposits enhance banks’ capacity for money
The flow of production, income generation and or credit creation.
expenditure involving different sectors of the (iii) Greater deposits boost banks’ lending
economy in the form of wages, rent and dividends, capacity.
is known as circular flow of income (as shown in (iv) Increased lending promotes investment and
the diagram). Production gives rise to income capital formation in the economy.
(factor incomes), which in turn gives rise to (v) Consequently, aggregate demand grows, driving
demand for goods and services. Circular flow of an increase in the country’s national income.
income refers to continuous circular movement
of aggregate value of goods and services between 229. Distinguish between stocks and flows. Give two
households and firms, either as factor payments, examples of each.
or as expenditure on goods and services. In an Ans : `OD 2013
economy, money keeps on flowing in the form
of income and expenditure among the different Difference between Stocks and Flows
sectors of the economy.
Basis Stocks Flows
1. Meaning Stocks Flows relate
relate to to a period of
a point of time.
time.
2. Time Stocks Flows have
Dimension do not a time
have time dimension.
dimension.
3. Affect- Stocks are Flows are
ability affected by affected by
flows, e.g., stocks, e.g.,
more is more is the
the saving, stock of
This demand leads to expenditure by households more is the capital, more
on goods and services produced. The movement stock of is the volume
of factor payments from production units to capital. of output.
households and that of payment for goods 4. Relativity Some stocks Some flows
and services from households to firms is called have related have related
money flow as shown by the outer loop in the flows such stocks, such as
given diagram. In this way income generated by as money flow of water
production units goes back to production units supply and and quantity
and makes the circular flow complete. change of water in a
in money tank.
228. Government of India has recently launched
supply.
‘Jan Dhan Yojna’ aimed at every household in
the country to have at least one bank account. 5. Example Its examples Its examples
Explain how deposits made under the plan are are Wealth, are Raw
going to affect National Income of the country. Stock of materials,
capital etc. Fuel etc.

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230. Explain the problem of double counting in secondary and tertiary based on their
estimating National Income with the help of an activities.
example. Also explain two alternative ways of (ii) Calculate Net Value Added at FC : For
avoiding the problem. each unit, determine Net Value Added at
Ans : OD 2010
Factor Cost (NVA at FC) by subtracting
intermediate consumption, depreciation and
While estimating national product, the value of net indirect taxes from the value of output.
a commodity should be counted only once. If the
(iii) Aggregate by Sector : Sum the NVA at FC
value of a commodity is counted more than once,
of all producing units within each industrial
this is known as the problem of double counting,
sector to find the sector’s total NVA at FC.
such as counting the value of sugarcane and sugar
(iv) Compute Domestic Income (NDP at FC) :
both. Here, sugarcane used as raw material in the
Add the NVA at FC of all industrial sectors
production of sugar has been counted twice. In
to derive Domestic Income.
the given example, we should only count the value
of sugar which is a final product. Sugarcane is a (v) Add NFIA : Include Net Factor Income
raw material or an intermediate good. Therefore, from Abroad (NFIA) to Domestic Income to
while calculating the national product, value of calculate National Income (NNP at FC).
intermediate goods should not be counted. In
232. State the steps pertaining to the estimation of
this way, by finding the value of final goods, the
National Income by Income Method.
problem of double counting can be solved.
The problem of double counting can be solved Ans : SQP 2024

with the help of value added method also. This Steps involved in estimating national Income by
can be explained with the help of the example of Income Method:
production of sugar taken above. Let us say that
Step 1 : Identify and classify the production units.
the value of sugarcane is `1,000 and that of sugar
All the producing enterprises employing various
`1,500. Here, in the first production stage, where
factors of production are identified and classified
sugarcane is produced, value added is `1,000
into primary, secondary and tertiary sectors.
(sale price - cost of production) and during the
second and final production stage where sugar Step 2 : Estimate the factor income paid by each
is manufactured, value added is `500 (`1,500 – sector.
`1,000). Therefore total value added is `1,500 The factor incomes paid by each sector are
(`1,000 + `500) which is equal to the value of classified under the following heads :
final product i.e., sugar. (i) Compensation of employees;
This can be understood well looking at the value- (ii) Rent and Royalty;
added statement given below: (iii) Interest;
(iv) Profit;
Production Sale Cost Value Expenditure on
Stage Price added Final Product (v) Mixed Income.
1. Sugarcane 1,000 Zero 1,000 ... Step 3 : Calculate Domestic Income (NDPFC).
When factor incomes of all the sectors are summed
2. Sugar 1,500 1,000 500 1,500
up, we get domestic income (NDPFC). In short,
Thus, the problem of double counting can be NDPFC = Compensation of Employees + Rent
avoided either by finding value added or by and Royalty + Interest + Profit + Mixed Income
finding the value of final goods. Step 4 : Estimate net factor income from abroad
(NFIA) to arrive at National Income.
231. State the steps pertaining to the estimation of
National Income by Value Added Method. In the final step, NFIA is added to domestic
income to arrive at National Income (NNPFC),
Ans : COMP 2024
i.e., NNPFC = NDPFC + Net factor income from
The process of estimating national income using abroad.
the Value Added Method (Product Method)
involves these steps : 233. Describe the expenditure method of calculating
(i) Classify Producing Units : Identify all Gross Domestic Product at market price.
producing units in the domestic economy Ans : OD 2015,2024
and group them into three industrial sectors,

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CBSE CHAPTERWISE QB CLASS 12 ECONOMICS PAGE 55

In the final expenditure method of calculating included since they represent productive
National Income, we take the sum of final services.
expenditures on consumption and investment. (v) Exclude Shares and Bonds : These are
This sum equals GDPMP. These final expenditures financial claims and do not contribute to the
are on the output produced within the domestic flow of goods or services, so they are excluded.
territory of the country.
Its main components are – 235. “While estimating Gross Domestic Product
(i) Private final consumption expenditure; (GDP) by expenditure method, entire focus is
(ii) Government final consumption expenditure. on expenditures incurred by the residents of the
(iii) Gross domestic capital formation: country.”
(a) Gross domestic fixed capital formation Do you agree with the given statement? Give
(b) Change in stock (Closing stock - Opening valid reason in support of your answer.
stock) Ans : SQP 2023
(iv) Net Exports (Exports – Imports)
Disagree with the statement because the
The following steps are involved in calculating
expenditure method emphasizes final expenditure
National Income by Expenditure method:
on goods and services (consumption and capital)
1. Identify and classify the economic units
produced within the domestic territory. These
incurring final expenditure into (a) Household
goods can be purchased by :
sector, (b) Government sector, (c) Firms, (d)
(i) Residents : Reflected as Private Final
Rest of the world.
Consumption Expenditure.
2. Final expenditure incurred by these economic
(ii) Government : Included as Government Final
units is estimated and classified under the
Consumption Expenditure.
following heads, the sum of which gives us
(iii) Firms and Government : Represented by
Gross Domestic Product at Market Price
Gross Domestic Capital Formation.
(GDPMP).
(iv) Non-Residents : Accounted for as Net Exports
GDPMP= Private final consumption expenditure (exports minus imports).
+ Government final consumption expenditure Imports are subtracted as they are not produced
+ Gross Domestic Capital Formation domestically. Thus, the expenditure method
+ Net Exports focuses only on expenditures contributing to
domestic production.
234. State any four precautions that are taken while
calculating national income by expenditure 236. What (any four) precautions should be taken
method. while estimating national income by income
method?
Ans : OD 2016
Ans : COMP 2015
Precautions for the expenditure method in
national income estimation are : Precautions for the Income Method in national
(i) Exclude Intermediate Expenditure : Avoid income estimation are :
including intermediate goods expenditure (i) Exclude Transfer Incomes : Receipts like
as it is already part of final expenditure; scholarships and donations are excluded as
counting it again causes double counting. they do not arise from productive activities.
(ii) Exclude Second-Hand Goods Purchases (ii) Exclude Income from Second-Hand Goods
: Expenditure on second-hand goods is : Such income is not included because the
excluded since it was accounted for when first original sale has already been accounted for.
purchased. However, payments for related (iii) Exclude Income from Shares and Bonds :
services like brokerage or commission are Earnings from shares, bonds and debentures
included as productive services. are not included as they do not contribute
(iii) Omit Transfer Payments : Payments like to the current flow of goods and services
donations and charities are excluded as they but represent paper claims and ownership
are non-productive and do not add value. changes.
(iv) Include Own Account Production : (iv) Exclude Windfall Gains : Profits from lotteries
Expenditure on self-consumed goods or and similar activities are omitted since they
imputed rent of owner-occupied houses is are unrelated to productive efforts.

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CH 1 : NATIONAL INCOME AND RELATED AGGREGATES

237. With suitable examples, distinguish between final (iii) Include Imputed Rent : Rent of owner-
goods and intermediate goods. occupied houses is imputed and included.
(iv) Avoid Intermediate Goods : Their value is
Ans : FOREIGN 2023
excluded to prevent double counting, as it is
Difference between Intermediate goods and Final already part of final goods’ value.
goods (v) Include Fixed Capital Assets : Own-
account production of fixed capital assets by
Basis Intermediate Final goods
production units is considered, as these are
goods
produced for the market.
1. Meaning Intermediate Final goods refer to (vi) Include Retained Goods : The value of goods
goods refer to those goods which
those goods which are used either for
retained for self-consumption is added.
are used either consumption or for
for resale or for investment. 239. Distinguish between Nominal Gross Domestic
further production Product and Real Gross Domestic Product.
in the same year.
Ans : DELHI 2010
2. Nature They are not They are included
included in both in both national Difference between Nominal GDP and Real GDP
national and income as well as
domestic income. Domestic income. Basis Nominal GDP Real GDP
3. Demand They have a They have a direct 1. Meaning The aggregate Real GDP refers
derived demand demand as they market value of to the value of
as their demand satisfy the wants the economic economic output
depends on the directly. output produced produced in a
demand for final in a year within given period,
goods. the boundaries adjusted
of the country is according to the
4. Boundary These goods These are those
known as Nominal general price
line are still within goods which
GDP. level.
the production have crossed
boundary line. the boundary of 2. Inflation Nominal GDP Real GDP adjusts
consumption or does not take into the inflation into
investment. consideration the it.
5. Example Intermediate These goods effects of inflation.
goods are used are used by 3. Expressed in Current year Base year prices
by the industry house holds for prices. or constant
to produce final consumption. for prices.
goods. Example, example, Wheat
Wheat and sugar and sugar are 4. Value It gives higher It generally gives
are intermediate final goods for a value. the lower value.
goods for a bakery consumer.
that produces 5. Uses Comparison of Comparison of
bread and biscuits. various quarters of two or more
the given year can financial year can
be made. be done easily.
238. Explain the precautions that are taken while
6. Economic Economic growth It is the good
estimating national income by value added
growth cannot be analyses indicator of
method. easily. economic growth.
Ans : OD 2017

Precautions for measuring national income using 240. How is Real Gross Domestic Product (GDP)
the Value Added Method include : different from Nominal Gross Domestic Product
(i) Exclude Second-Hand Goods : Their sale (GDP)? Explain using a numerical example.
and purchase are omitted since they were Ans : FOREIGN 2019
included in earlier years. However, brokerage
The aggregate market value of the economic
or commission earned on such transactions is
output produced in a year within the boundaries
included as it facilitates a productive activity.
of the country is known as Nominal GDP. It is
(ii) Include Production for Self-Consumption :
expressed in current year prices and is considered
The imputed value of self-consumed goods is
as GDP without the effect of inflation.
added as it contributes to current output.

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CBSE CHAPTERWISE QB CLASS 12 ECONOMICS PAGE 57

Real GDP, on the other hand, refers to the value air and water pollution, negatively affecting the
of economic output produced in a given period health of nearby residents. Such external costs are
adjusted according to the changes in the general not reflected in real income calculations. Thus,
price level. real national income overlooks these impacts,
It is inflation adjusted GDP and is expressed in limiting its reliability as a welfare measure.
base year prices or constant prices.
242. Distinguish between ‘nominal income’ and ‘real
Real GDP is always considered as a better income’. Explain why due to the presence of non-
indicator of economic growth. monetary production, real national income on its
For example, an economy produces only one own cannot be treated as a true index of welfare.
commodity say rice and it produced 20 kg of rice
in year 2018 (base year). Suppose price of rice is Ans : OD 2013

`20/kg in 2018. So GDP of 2018 is `400 (i.e., 20 Real income, measured at constant prices,
kg × `20). Thus nominal as well as real GDP of reflects changes due to variations in the volume
2018 at current and constant prices is the same in of goods and services, not prices, making it
2018. Now, due to inflation the price of rice goes suitable for comparisons. Conversely, nominal
upto `25 kg in 2019 and economy produces same income, measured at current prices, is influenced
amount of rice, i.e., 20 kg. Now, Nominal GDP primarily by price changes and is less reliable for
has increased from `400 to `500 in 2019 but since comparative purposes.
the economy is producing same amount of rice, However, GDP calculations often exclude
i.e., 20 kg, it does not reflect growth. activities not evaluated monetarily, such as
In order to ascertain growth, real GDP of unpaid domestic work by women or barter
2019 needs to be estimated. For this value of rice exchanges, which involve direct trade of goods
produced in 2019 at base year price, i.e., price of or services without money. These exchanges,
rice in 2018 should be calculated. common in underdeveloped regions of developing
Production of rice in 2019 = 20 kg countries, remain unregistered, leading to GDP
Price of rice in base year, i.e., 2018 = `20/kg underestimation. Thus, GDP may not fully
Hence there is no growth. represent a country’s productive activity or well-
Now, suppose rice production in 2019 increases to being.
30 kg, then
243. Distinguish between “real” gross domestic
Nominal GDP = 25 × 30 = `750
product and “nominal” gross domestic product.
and Real GDP = 30 × 20 = `600 Which of these is a better index of welfare of the
people and why?
Growth Rate = 600 - 400 # 100
400 Ans : OD 2013

= 200 # 100 = 50% Real Gross Domestic Product (GDP) is calculated

400
at constant prices, using a fixed base year, while
241. Explain the concept of “real income”. Explain Nominal GDP is calculated at current prices.
why, due to the presence of externalities, real Real GDP reflects changes solely in the volume
national income in itself cannot be treated as a of output, whereas Nominal GDP is influenced by
true index of welfare. both output and price changes.
GDP is a superior indicator of welfare
Ans : (OD 2013
as it shows the actual growth in goods and
Real national income, measured at constant services available to people, unaffected by price
prices, reflects the output of goods and services fluctuations. Nominal GDP, on the other hand,
in an economy. While it increases with rising may rise due to inflation without indicating an
production, it cannot always serve as a true improvement in living standards. Thus, Real GDP
indicator of welfare. This is due to factors like provides a more accurate measure of economic
externalities, where the activities of firms or well-being.
individuals create unintended benefits or harms
without compensation.
For example, an oil refinery may increase national
income by producing more oil, but it also causes

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CH 1 : NATIONAL INCOME AND RELATED AGGREGATES

NUMERICAL QUESTIONS 246. Calculate Gross Value Added at Factor Cost:

Particulars (` in crores)
244. From the following data calculate “Net value (i) Units of output sold (units) 1,000
added at factor cost”. (ii) Price per unit of output 30
Particulars (` in crores) (`)

(i) Purchase of intermediate 500 (iii) Depreciation (`) 1,000

goods (iv) Intermediate cost (`) 12,000
(ii) Sales 750 (v) Closing stock (`) 3,000
(iii) Import of raw materials 50 (vi) Opening stock (`) 2,000
(iv) Depreciation 60 (vii) Excise (`) 2,500

(v) Net indirect taxes 100 (viii) Sales tax (`) 3,500

(vi) Change in stock (–) 30 Ans : DELHI 2012

(vii) Exports 20 Gross Value Added at Factor Cost (GVAFC)

= (Units of output sold × Price per unit of
Ans : OD 2011
output) + Closing stock - Opening stock -
Net Value Added at Factor Cost Intermediate cost - Excise duty - Sales tax
= Sales + Change in stock – Purchase of = (1,000 × 30) + 3,000 – 2,000 – 12,000 – 2,500
intermediate goods – Depreciation – Net – 3,500
indirect taxes = 33,000 – 20,000 = `13,000
= 750 + (–30) – 500 – 60 – 100
= 750 – 690 = `60 crores 247. The value of nominal GNP of an economy was
`2500 crores in a particular year. The value
245. From the following data calculate “Net value of GNP of that country during the same year,
added at factor cost”: evaluated at the prices of same base year was
`3000 crores. Calculate the value of the GNP
Particulars (` in crores) deflator of the year in percentage terms. Has the
(i) Sales 500 price level risen between the base year and the
year under consideration?
(ii) Purchase of intermediate 350
goods Ans : SQP 2013

(iii) Opening stock 60 GNP Deflator = Nominal GNP # 100

Real GNP
(iv) Indirect taxes 50 2, 500
= 100 = 83.3%
3, 000 #
(v) Consumption of fixed 90 No, the price level has not risen but fallen from
capital 100% to 83.3%.

(vi) Imports of raw materials 85 248. Find Net Value Added at Market Price:

(vii) Closing stock 80 (i) Depreciation (`) 700

(ii) Output sold (units) 900

Ans : COMP 2011

Net Value Added at Factor Cost (iii) Price per unit of output (`) 40
= Sales + Closing stock – Opening stock – (iv) Closing stock (`) 1,000
Purchase of intermediate goods – Consumption
(v) Opening stock (`) 800
of fixed capital – Indirect taxes
= 500 + 80 – 60 – 350 – 90 – 50 (vi) Sales tax (`) 3,000
= 580 – 550 = `30 crores (vii) Intermediate cost (`) 20,000

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CBSE CHAPTERWISE QB CLASS 12 ECONOMICS PAGE 59
Ans : OD 2012
251. Find Net Value Added at Factor Cost:
Net Value Added at Market Price
= (Units of output sold × Price per unit of Particulars (` in lakhs)
output) + Closing stock – Opening stock – (i) Durable use producer 10
Intermediate cost – Depreciation goods with a life span of
= (900 × 40) + 1,000 – 800 – 20,000 – 700 10 years
= 36,000 + 1,000 – 21,500 = `15,500
(ii) Single use producer goods 5
249. Find out Net Value Added at Factor Cost:
(iii) Sales 20
(i) Price per unit of output (`) 25
(iv) Unsold output produced 2
(ii) Output sold (units) 1,000 during the year

(iii) Excise duty (`) 5,000 (v) Taxes on production 1

(iv) Depreciation (`) 1,000 Ans :

(v) Change in stocks (`) (–) 500 Depreciation

Value of durable use producer goods
=
(vi) Intermediate costs (`) 7,000 Life span
= ` 10 lakhs = `1 lakh
Ans : COMP 2014 10 years
NVA at Factor Cost Value of Output
= [Price per unit of output × Output sold = Sales + Unsold output produced during the
(units)] + Change in stocks – Intermediate year
costs – Depreciation – Excise duty = `20 + `2 = `22 lakhs
= (25 × 1,000) + (–500) – 7,000 – 1,000 – 5,000 Gross Value Added at market price (GVAMP)
= 25,000 – 13,500 = `11,500 = Value of Output – Single use producer goods
= 22 – 5 = `17 lakhs
250. Calculate “Net Value added at factor cost” from Net Value Added at Factor Cost (NVAFC)
the following data: = GVAMP – Depreciation – Taxes on production
Particulars (` in lakhs) = 17 – 1 – 1 = `15 lakhs

(i) Intermediate consumption 300 252. Calculate Gross Value Added at Market Price:
(ii) Change in stock 50 [Link]. Particulars Amt. (in ` lakhs)
(iii) Net indirect taxes 70
(i) Depreciation 20
(iv) Sales 500
(ii) Domestic Sales 200
(v) Consumption of fixed capital 20
(vi) Imports 40 (iii) Change in Stocks (–)10

Ans : FOREIGN 2014

(iv) Exports 10

Value of output = Sales + Change in stock (v) Single use producer 120
= 500 + 50 = `550 lakhs goods
GVA at Market Price
Ans : FOREIGN 2020
= Value of output - Intermediate consumption
= 550 – 300 = `250 lakhs Value of Output
NVA at Factor Cost = Domestic Sales + Exports + Change in Stocks
= GVAMP – Net indirect taxes – Consumption of = 200 + 10 + (–10) = 200
fixed capital GVA at MP
= 250 – 70 – 20 = `160 lakhs = Value of Output - Single use producer goods
= 200 – 120 = `80 lakhs

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CH 1 : NATIONAL INCOME AND RELATED AGGREGATES

253. Calculate “Sales” from the following data: (iii) Intermediate consumption 200
Particulars (` in lakhs) (iv) Net indirect taxes 40
(i) Net value added at factor 560 (v) Exports 50
cost (vi) Depreciation 30
(ii) Depreciation 60 Ans : SQP 2014
(iii) Change in stock (–) 30
Value of output = Sales + Change in stock
(iv) Intermediate cost 1,000 = 400 – 20 = `380 lakhs
(v) Exports 200 GVAMP
(vi) Indirect taxes 60 = Value of output – Intermediate consumption
= 380 – 200 = `180 lakhs
Ans : DELHI 2013 NVAFC
Sales = GVAMP – Depreciation – Net indirect taxes
= Net value added at factor cost + Depreciation
= 180 – 30 – 40 = `110 lakhs
+ Indirect taxes + Change in stock +
Intermediate cost 256. Calculate Net Value Added at Market Price.
= 560 + 60 + 60 – (–30) + 1,000
= `1,710 lakhs Particulars (` in crores)
(i) Intermediate consumption 1,000
254. From the following data, calculate Net Value
Added at Factor Cost. (ii) Consumption of fixed 50
capital
Particulars (` in crores)
(iii) Net Indirect taxes 150
(i) Sales 300
(iv) Sales 2,000
(ii) Opening stock 40
(v) Exports 200
(iii) Depreciation 30
(vi) Net factor income to abroad (–) 100
(iv) Intermediate consumption 120
(vii) Change in stock (–) 50
(v) Exports 50
Ans : OD 2015
(vi) Change in stock 20
GVAMP
(vii) Net indirect taxes 15
= Sales + Change in stock – Intermediate
(viii) Factor income to abroad 10 consumption
= 2,000 + (–50) – 1,000 = `950 crores
Ans : OD 2015
NVAMP
Value of output = Sales + Change in stock = GVAMP – Consumption of fixed capital
= 300 + 20 = `320 crores = 950 – 50 = `900 crores
Gross Value of Product (GVAMP)
257. Calculate Net Value Added at Factor Cost
= Value of output – Intermediate consumption
(NVAFC) from the following data:
= 320 – 120 = `200 crores
Net Value Added at factor cost (NVAFC) Particulars (in ` lakh)
= GVAMP – Depreciation – Net Indirect Taxes
(i) Fixed capital goods 15
= 200 – 30 – 15 = `155 crores
(expected life span - 5 years)
255. From the following data, calculate “Net value (ii) Domestic Sales 200
added at factor cost”.
(iii) Change in stock (–) 10
Particulars (` in lakhs) (iv) Exports 10
(i) Sales 400 (v) Single use producer goods 120
(ii) Change in stock (–) 20 (vi) Net indirect taxes 20

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CBSE CHAPTERWISE QB CLASS 12 ECONOMICS PAGE 61
Ans : OD 2024
= 20 + 2 = `22 lakh
Depreciation on Fixed capital goods Durable producer goods
Depreciation =
Fixed capital goods 15 Life span
= = =3
Expected life span 5
= 10 = `1 lakh
Net Value Added at Factor Cost (NVAFC) 10
= Domestic sales + Exports + Change in stock GVA at MP
– Single use producer goods – Depreciation – = Value of Output - single use producer goods
Net indirect taxes = 22 – 5 = `17 lakh
= (ii) + (iv) + (iii) – (v) – 3 – (vi) ...[From (i) NVA at FC = GVAMP – Depreciation – GST
= `200 + `10 + (–10) – `120 – `3 – `20
= 17 – 1 – 1 = `15 lakh
= `57 lakh

258. Calculate Net Value Added at Factor Cost 260. Calculate Net Domestic Product at Factor Cost
(NVAFC) from the following data: by Production Method.

[Link]. Particulars Amount Particulars (` in crores)

(in ` (i) Net value added at market 1,000
crores) price by primary sector
(i) Value of output 800
(ii) Wages and salaries 2,000
(ii) Intermediate consumption 200
(iii) Indirect taxes 30 (iii) Social security 100
contributions by employers
(iv) Depreciation 20
(v) Subsidies 50 (iv) Net value added at market 600
price by the secondary
(vi) Purchase of machinery 50
sector
Ans : DELHI 2020
(v) Corporation tax 30
GVAMP = Value of Output
(vi) Retained earnings of 10
– Intermediate Consumption private corporation
= 800 – 200 = `600 crores
(vii) Net value added at market 1,400
NVAFC = GVAMP – Depreciation price by the tertiary sector
– (Indirect taxes – Subsidies)
(viii) Dividend 60
= 600 – 20 – (30 – 50) = `600 crores
(ix) Rent 300
259. Calculate Net Value Added at factor cost from
the following data: (x) Interest 300
(xi) Net indirect tax 200
[Link]. Particulars Amt.
(` in lakhs) (xii) Social security contribution 80
by employees
(i) Durable producer goods 10
(with a life span of 10 Ans : OD 2011
years)
NDPFC by Production Method
(ii) Single use producer goods 5
= Net value added at market price by primary
(iii) Sales 20 sector + Net value added at market price
(iv) Unsold Goods (Stock) 2 by the secondary sector + Net value added
at market price by the tertiary sector - Net
(v) Goods & Services Tax 1
indirect tax
(GST)
= 1,000 + 600 + 1,400 – 200 = ` 2, 800 crores
Ans : DELHI 2023

Value of output = Sales + Unsold goods

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CH 1 : NATIONAL INCOME AND RELATED AGGREGATES

261. From the following data, calculate Net Value = Value of output in the economic territory –
Added at Factor Cost (NVAFC): Intermediate purchases by the primary sector
– Intermediate purchases by the secondary
[Link]. Particulars Amount in sector – Intermediate purchases by the tertiary
(` crores) sector – Consumption of fixed capital – Indirect
(i) Price per unit of output 20 taxes
(ii) Output sold (units) 1,250 units = (i) – (iii) – (v) – (viii) – (xi) – (x)
= 4,100 – 600 – 700 – 700 – 50 – 100
(iii) Excise duty 5,000 = 4,100 – 2,150 = `1,950 crores
(iv) Consumption of fixed 1,000
capital 263. On the basis of the data given below for an
imaginary economy, estimate the value of Net
(iii) Change in stock (–) 500
Domestic Product at factor cost (NDPFC):
(v) Single use producer good 6,000
[Link]. Particulars Amt. in
Ans : COMP 2023 (` crores)
NVAFC (i) Household Consumption 2,000
= Price per unit of output × Output sold (units) Expenditure
+ Change in stock – Single use producer goods (ii) Government Final 1,500
– Consumption of fixed capital – Excise duty Consumption Expenditure
= (20 × 1,250) + (–500) – 6,000 – 1,000 – 5,000
= 25,000 – 500 – 6,000 – 1,000 – 5,000 (iii) Gross Domestic Fixed 1,000
= `12,500 crores Capital Formation
(iv) Net Additions to stock 300
262. Calculate ‘Net Domestic Product at Factor Cost’
by the Production method. (v) Exports 700
(vi) Net Indirect Taxes 350
Particulars (` in crores)
(vii) Imports 200
(i) Value of output in the 4,100
economic territory (viii) Consumption of Fixed 250
Capital
(ii) Net imports (–) 50
(iii) Intermediate purchases by 600 Ans : COMP 2023

the primary sector NDPFC

(iv) Private final consumption 1,450 = (i) + (ii) + (iii) + (iv) + (v) – (vi) – (vii) –
expenditure (viii)
= 2,000 + 1,500 + 1,000 + 300 + 700 – 350 – 200
(v) Intermediate purchases by 700
– 250
the secondary sector
= 5500 – 800 = `4,700 crores
(vi) Government final 400
consumption expenditure 264. On the basis of the data given below for an
imaginary economy, estimate the value of Net
(vii) Net domestic fixed capital 200
Domestic Product at Factor Cost (NDPFC):
formation
(viii) Intermediate purchases by 700 [Link]. Particulars Amt. in
the tertiary sector (` crores)
(ix) Net change in stocks (–) 50 (i) Household Consumption 3,000
(x) Indirect taxes 100 Expenditure

(xi) Consumption of fixed 50 (ii) Government Final 1,000

capital Consumption Expenditure

Ans : SQP 2010 (iii) Net Domestic Fixed Capital 1,000

NDPFc (Production Method) Formation

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CBSE CHAPTERWISE QB CLASS 12 ECONOMICS PAGE 63

(iv) Change in stock 200 (v) Net indirect tax 150

(v) Exports 500 (vi) Net domestic capital 200
(vi) Indirect Taxes 350 formation

(vii) Imports 300 (vii) Current transfers from 40

government
(viii) Subsidies 50
(viii) Depreciation 100
Ans : FOREIGN 2023 (ix) Net imports 30
NDPFC (x) Income accruing to 90
= (i) + (ii) + (iii) + (iv) + (v) – (vi) – (vii) + government
(viii)
= 3,000 + 1,000 + 1,000 + 200 + 500 – 350 – 300 (xi) National debt interest 50
+ 50 = `5,100 crores Ans : OD 2016

265. On the basis of the data given below for an NDPMP

imaginary economy, estimate the value of Gross = Private final consumption expenditure +
National Product at Market price (GNPMP): Government final consumption expenditure +
Net domestic capital formation – Net imports
[Link]. Particulars Amt. in = 800 + 300 + 200 – 30 = `1,270 crores
(` crores) GNPMP
(i) Household Consumption 2,000 = NDPMP + Depreciation – Net factor income
Expenditure to abroad
(ii) Government Final 1,000 = 1,270 + 100 – (– 10) = `1,380 crores
Consumption Expenditure
267. Estimate the value of Net National Product
(iii) Gross Fixed Capital 1,100 at Factor Cost (NNPFC), using the following
Formation information:
(iv) Net Addition to Stock 200
Items (` in crores)
(v) Exports 600
(i) Household Consumption 1,200
(vi) Net factor income from 150 Expenditure
abroad
(ii) Business Fixed investment 800
(vii) Imports 400 Expenditure
Ans : DELHI 2023 (iii) Government Final 500
Consumption Expenditure
GNPMP
= (i) + (ii) + (iii) + (iv) + (v) + (vi) – (vii) (iv) Excess of Imports over 100
= 2,000 + 1,000 + 1,100 + 200 + 600 + 150 – Exports
400 = `4,650 crores (v) Net indirect tax 150
266. Find Gross National Product at Market Price: (vi) Change in Inventory (–) 50
(vii) Consumption of fixed 200
Particulars (` in crores)
capital
(i) Private final consumption 800
(viii) Net factor income from 80
expenditure
Abroad
(ii) Net current transfers to 20
(ix) Public fixed investment 70
abroad
(iii) Net factor income to (–) 10 Ans : OD 2024
abroad NNPFC
(iv) Government final 300 = (i) + (ii) + (iii) – (iv) – (v) + (vi) – (vii) +
consumption expenditure (viii) + (ix)

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= 1200 + 800 + 500 – 100 – 150 + (– 50) – 200 (viii) Net factor income from 80
+ 80 + 70 = `2,150 crores Abroad
268. Estimate the value of Net Domestic Product (ix) Public fixed investment 70
at Factor Cost (NDPFC), using the following
Ans : SQP 2024
information:
GDPMP = (i) + (ii) + (iii) – (iv) – (vi) + (ix)
Items (` in crores)
= 1200 + 800 + 500 – 100 + (–50) + 70
(i) Household Consumption 1,200
= `2,420 Crore
Expenditure
(ii) Business Fixed investment 800 270. Calculate Net Domestic Product at factor cost
Expenditure from the following data:
(iii) Government Final 500 Particulars (` in crores)
Consumption Expenditure
(i) Government final 2,000
(iv) Excess of Imports over 100 consumption expenditure
Exports
(ii) Net factor income to (–) 40
(v) Net indirect tax 150 abroad
(vi) Change in Inventory (–) 50 (iii) Gross domestic capital 800
(vii) Consumption of fixed 200 formation
capital (iv) Change in stock (–) 30
(viii) Net factor income from 80 (v) Net domestic capital 620
Abroad formation
(ix) Public fixed investment 70 (vi) Net indirect taxes 250
Ans : COMP 2024 (vii) Net Current transfers 800
NDPFC from rest of the world

= (i) + (ii) + (iii) – (iv) – (v) + (vi) – (vii) + (ix) (viii) Net exports (–) 500
= 1200 + 800 + 500 – 100 – 150 + (–50) – 200 + (ix) Profits 700
70 = `2,070 crore (x) Private final consumption 5,000
expenditure
269. Estimate the value of Gross Domestic Product
at Market Price (GDPMP), using the following Ans : OD 2011
information:
NDPFC
Items (` in crores) = Private final consumption expenditure +
(i) Household Consumption 1,200 Government final consumption expenditure +
Expenditure Net domestic capital formation + Net exports
– Net indirect taxes
(ii) Business Fixed investment 800
= 5,000 + 2,000 + 620 + (–500) – 250
Expenditure
= 7,620 – 750 = `6,870 crores
(iii) Government Final 500
Consumption Expenditure 271. Calculate Net domestic product at factor cost
(iv) Excess of Imports over 100 data:
Exports Particulars (` in crores)
(v) Net indirect tax 150 (i) Net indirect tax 130
(vi) Change in Inventory (–) 50 (ii) Government final 100
(vii) Consumption of fixed 200 consumption expenditure
capital (iii) Profits 90

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(iv) Net domestic capital 120 GNPMP

formation = NDPMP + Gross domestic fixed capital
(v) Change in stocks (–) 10 formation + Change in stock – Net domestic
capital formation + Factor income from abroad
(vi) Private final consumption 500 – Factor income to abroad
expenditure = 4,100 + 600 + (–20) – 500 + 50 – 100
(vii) Net imports 20 = 4,750 – 620 = `4,130 crores
(viii) Net current transfers to 10 273. Find out Gross National Product at Market Price:
abroad
(ix) Net factor income to 30 Particulars (` in crores)
abroad
(i) Net indirect tax 35
(x) Gross domestic capital 160
formation (ii) Private final consumption 500
expenditure
Ans : FOREIGN 2023

NDPFC (iii) Net national disposable 750

income
= Private final consumption expenditure +
Government final consumption expenditure + (iv) Closing stock 10
Net domestic capital formation – Net imports
(v) Government final 150
– Net indirect tax
consumption expenditure
= 500 + 100 + 120 – 20 – 130 = `570 crores
(vi) Net domestic fixed capital 100
272. Calculate Gross National Product at Market
formation
Price from the following data:
(vii) Net factor income to (–) 15
Particulars (` in crores) abroad
(i) Private final consumption 3,000 (viii) Net imports 20
expenditure
(ix) Opening stock 10
(ii) Factor income to abroad 100
(x) Consumption of fixed 50
(iii) Government final 800 capital
consumption expenditure
Ans : SQP 2011
(iv) Net export (–) 200
GNPMP
(v) Net current transfers from 300
rest of the world = Private final consumption expenditure +
Government final consumption expenditure
(vi) Gross domestic fixed 600
+ (Net domestic capital formation + Closing
capital formation
stock – Opening stock + Consumption of fixed
(vii) Change in stock (–) 20 capital) – Net imports – Net factor income to
(viii) Net indirect taxes 400 abroad
= 500 + 150 + (100 + 10 – 10 + 50) – 20 – (–15)
(ix) Factor income from 50 = 650 + 150 – 20 + 15
abroad
= 815 – 20 = `795 crores
(x) Net domestic capital 500
formation 274. Find out National Income:
Ans : DELHI 2011 Particulars (` in crores)
NDPMP (i) Net imports (–) 10
= Private final consumption expenditure + (ii) Net domestic fixed capital 100
Government final consumption expenditure + formation
Net domestic capital formation + Net exports
= 3,000 + 800 + 500 + (–200) = `4,100 crores

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(iii) Private final consumption 600 = Private final consumption expenditure +

expenditure Government final consumption expenditure
+ Gross domestic capital formation – Net
(iv) Consumption of fixed 60 imports – Consumption of fixed capital + Net
capital factor income from abroad – Net indirect taxes
(v) Change in stocks (–) 50 = 900 + 400 + 250 – 30 – 20 + (–40) – 100
(vi) Government final 200 = `1,360 crores
consumption expenditure
276. Calculate National Income:
(vii) Net factor income to 20
abroad (` in crores)

(viii) Net current transfers to 30 (i) Personal tax 80

abroad
(ix) Net indirect tax 70 (ii) Private final consumption 600
expenditure
(x) Factor income from 10
abroad (iii) Undistributed profits 30

Ans : OD 2012 (iv) Private income 650

National Income (NNPFC) (v) Government final 100
= Private final consumption expenditure + consumption expenditure
Government final consumption expenditure (vi) Corporate tax 50
+ [Net domestic fixed capital formation +
(vii) Net domestic fixed capital 70
Change in stocks] – Net imports – Net factor
formation
income to abroad – Net indirect tax
= 600 + 200 + [100 + (–50)] – (–10) – 20 – 70 (viii) Net indirect tax 60
= 800 + 100 – 50 + 10 – 90 (ix) Depreciation 14
= 910 – 140 = `770 crores
(x) Change in stocks (–) 10
275. Calculate National Income from the following (xi) Net imports 20
data:
(xii) Net factor income to 10
(` in crores) abroad

(i) Private final consumption 900 Ans : DELHI 2015

expenditure
National Income
(ii) Profit 100 = Private final consumption expenditure +
(iii) Government final 400 Government final consumption expenditure +
consumption expenditure Net domestic fixed capital formation + Change
in stocks – Net imports – Net factor income to
(iv) Net indirect taxes 100
abroad – Net indirect tax
(v) Gross domestic capital 250 = 600 + 100 + 70 + (–10) – 20 – 10 – 60
formation = `670 crores
(vi) Change in stock 50
277. Calculate ‘Net National Product at Market Price’:
(vii) Net factor income from (–) 40
abroad (` in crores)
(viii) Consumption of fixed 20 (i) Transfer payments by 7
capital government
(ix) Net imports 30 (ii) Government final 50
consumption expenditure
Ans : DELHI 2013
(iii) Net imports (–) 10
National Income (NNPFC)

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(iv) Net domestic fixed capital 60 = Private final consumption expenditure +

formation Net domestic capital formation + Change
in stock + Net exports + Government final
(v) Private final consumption 300 consumption expenditure
expenditure
= 500 + 100 + 20 + 40 + 200 = `860 crores
(vi) Private income 280 National Income (NNPFC)
(vii) Net factor income to (–) 5 = NDPMP + Net factor income from abroad –
abroad Net indirect taxes
= 860 + 30 – 50 = `840 crores
(viii) Closing stock 8
(ix) Opening stock 8 279. Calculate National Income.
(x) Depreciation 12 (` in crores)
(xi) Corporate tax 60 (i) Gross domestic fixed 200
(xii) Retained earnings of 20 capital formation
corporations (ii) Change in stock (–) 30
Ans : OD 2015 (iii) Net factor income to 50
abroad
NNPMP
(iv) Private final consumption 1500
= Private final consumption expenditure +
expenditure
Government final consumption expenditure +
Net domestic fixed capital formation + Closing (v) Net indirect taxes 100
stock – Opening stock – Net imports – Net (vi) Net exports 60
factor income to abroad
(vii) Profit 500
= 300 + 50 + 60 + 8 – 8 – (–10) – (–5)
= `425 crores (viii) Government final 600
consumption expenditure
278. Calculate National Income.
(ix) Consumption of fixed 20
(` in crores) capital

(i) Private final consumption 500 (x) Net current transfer to (–) 10
expenditure abroad

(ii) Net domestic fixed capital 100 Ans : OD 2015

formation
DDPMP
(iii) Net factor income from 30
= Private final consumption expenditure +
abroad
Government final consumption expenditure
(iv) Change in stock 20 + Gross domestic fixed capital formation +
(v) Net exports 40 Change in stock + Net Exports
= 1,500 + 600 + 200 – 30 + 60 = `2,330 crores
(vi) Net indirect taxes 50
National Income (NNPFC)
(vii) Mixed income 300
= NDPMP + Net factor income from abroad
(viii) Government final 200 - Net indirect taxes
consumption expenditure = 860 + 30 - 50 = `840 crores
(ix) Consumption of fixed 60 National Income (NNPFC)
capital
= GDPMP – Consumption of fixed capital – Net
(x) Net current transfer to (–) 10 indirect taxes – Net factor income to abroad
abroad = 2,330 – 20 – 100 – 50 = `2,160 crores
Ans : OD 2015

NDPMP

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280. Calculate national income: (vi) Net indirect taxes 100

(` in crores) (vii) Net exports (–) 60
(i) Net factor income to (–) 50 (viii) Net factor income to (–) 80
abroad abroad
(ii) Net indirect taxes 800 (ix) Net current transfer from 100
abroad
(iii) Net current transfers from 100
rest of the world (x) Dividend 100
(iv) Net imports 200 Ans : OD 2017
(v) Private final consumption 5,000 GDPMP
expenditure
= Private final consumption expenditure +
(vi) Government final 3,000 Government final consumption expenditure
consumption expenditure + Gross domestic fixed capital formation +
(vii) Gross domestic capital 1,000 Change in Stock + Net Exports
formation = 8,000 + 3,000 + 400 + 50 + (–60)
(viii) Consumption of fixed 150 = `11,390 crore
capital NNPMP
= GDPMP – Consumption of fixed capital – Net
(ix) Change in stock (–) 50
factor income to abroad
(x) Mixed income 4,000 = 11,390 – 40 – (–80) = `11,430 crore
(xi) Scholarship to students 80
282. Calculate (i) Gross Domestic product at market
Ans : DELHI 2020 price and (ii) National Income:
GDPMP (` in crores)
= Private final consumption expenditure + (i) Government final 4,000
Government final consumption expenditure + consumption
Gross domestic capital formation + Change in
stock – Net imports (ii) Private final consumption 3,500
= 5,000 + 3,000 + 1,000 + (–50) – 200 expenditure
= `8,750 crores (iii) Gross domestic capital 1,100
NNPFC (National Income) formation
= GDPMP – Consumption of Fixed Capital – Net (iv) Net exports 500
Factor Income to Abroad – Net indirect taxes
(v) Net factor income from 100
= 8,750 – 150 – (–50) – 800 = `7,850 crores abroad
281. Calculate net national product at market price: (vi) Net indirect taxes 300

(` in crores) (vii) Subsidies 40

(i) Gross domestic fixed 400 (viii) Change in stock 80
capital formation
(ix) Consumption of fixed 120
(ii) Private final consumption 8,000 capital
expenditure
Ans : OD 2018
(iii) Government final 3,000
consumption expenditure GPDMP
(iv) Change in stock 50 = Government final consumption expenditure +
Private final consumption expenditure + Gross
(v) Consumption of fixed 40
domestic capital formation + Net exports
capital
= 4,000 + 3,500 + 1,100 + 500 = `9,100 crores

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National Income (NNPFC) 285. Calculate the value of Domestic Income from the
= GDPMP + Net factor income from abroad – Net following data:
indirect taxes – Consumption of fixed capital [Link] Particulars Amt. in
= 9,100 + 100 – 300 – 120 = `8,780 crores (` crores)
283. Calculate ‘Net Domestic Product at Factor Cost’ (i) Rent and Royalties 1,300
: (ii) Net Indirect Taxes 200
(` in crores) (iii) Wages & Salaries (in cash 1,700
(i) Net factor income to 30 & in kind)
abroad (iv) Corporate Tax 400
(ii) Sales 2,000 (v) Depreciation 400
(iii) Subsidies 20 (vi) Retained Earnings 300
(iv) Consumption of fixed 50 (vii) Dividends 400
capital
(viii) Net factor income from (–) 120
(v) Net current transfer to (–) 10 Abroad
abroad
(ix) Mixed Income of Self 1,400
(vi) Closing stocks 100 Employed
(vii) Opening stocks 200 (x) Change in Stock (–) 200
(viii) Intermediate costs 1,000
Ans : SQP 2023
(ix) Indirect tax 150
Domestic Income (NDPFC)
Ans : FOREIGN 2011 = (i) + (iii) + (iv) + (vi) + (vii) + (ix)
NDPFC = 1300 + 1700 + 400 + 300 + 400 + 1400
= `5,500 crore
= Sales + Closing stocks – Opening stocks –
Intermediate costs – Indirect tax + Subsidies 286. Calculate Net Domestic Product at factor cost.
– Consumption of fixed capital
= (ii) + (vi) – (vii) – (viii) – (ix) + (iii) – (iv) [Link] Particulars Amt. in (` crores)
= 2,000 + 100 – 200 – 1,000 – 150 + 20 – 50 (i) Interest 700
= 2,120 – 1,400 = `720 crores
(ii) Compensation of 3,000
284. Suppose in a financial year, the Gross Domestic employees
Product (GDP) at market price of a country was (iii) Net Indirect Taxes 500
`1,100 crore. Net factor income from Abroad was
(iv) Rent and Profit 700
`100 crore, the net indirect taxes was `150 crore
and National income was `850 crore. (v) Transfer Payments 10
Calculate the value of depreciation, on the basis by Governments
of above information.
Ans : DELHI 2023
Ans : COMP 2011
NDPFC
NNPFC = Interest + Compensation of Employees + Rent
= GDPMP – Net Indirect Taxes – Depreciation + and Profit
Net Factor Income from abroad = 700 + 3000 + 700 = `4,400 crores
850 = 1100 – 150 – Depreciation + 100
287. Calculate the value of “Rent” from the following
Depreciation = 1100 + 100 – 150 – 850 data:
= `200 crore
(` in crores)
(i) Gross Domestic Product 18,000
at Market Price

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(ii) Mixed Income of Self- 7,000 Given:

Employed GDPMP = `27,500 crores
(iii) Subsidies 250 NDPFC = GDPMP – Indirect taxes + Subsidies
– Consumption of fixed Capital
(iv) Interest 800
NDPFC = 27,500 – 2,100 + 750 – 1,100
(v) Rent ?
= `25,050
(vi) Profit 975
NDPFC = Compensation of Employees
(vii) Compensation of 6,000
+ Interest + Profits + Rent
Employees
+ Mixed income of self employed
(viii) Consumption of Fixed 1,000
25,050 = 17,300 + 1,200 + 1,800 + 2,000
Capital
+ mixed income of self employed
(ix) Indirect Tax 2,000
Mixed income of self-employed
Ans : COMP 2019 = 25,050 – 17,300 – 1,200 – 1,800 – 2,000
Given: GDPMP = Z18,000 crores = `2,750 crores
NDPFC = GDPMP – Indirect Tax + Subsidies 289. From the following data, calculate:
– Consumption of fixed capital (i) Gross Domestic Product at Factor Cost
= 18,000 – 2,000 + 250 – 1,000 (ii) Factor Income to Abroad
= 16,000 – 750 = `15,250 crores (` in
Now, ‘000 crores)
NDPFC = Compensation of Employees (i) Compensation of 800
+ Interest + Rent + Profit employees
+ Mixed income of self employed (ii) Profits 200
15,000 = 6,000 + 800 + Rent + 975 + 7,000 (iii) Dividends 50
Rent = `15,250 – `14,775
(iv) Gross national product at 1,400
Rent = `475 crores MP

288. Calculate the value of “Mixed Income of self- (v) Rent 150
employed”from the following data: (vi) Interest 100

(` in crores) (vii) Gross domestic capital 300

formation
(i) Compensation of 17,300
employees (viii) Net fixed capital formation 200

(ii) Interest 1,200 (ix) Change in Stock 50

(iii) Consumption of Fixed 1,100 (x) Factor income from 60

Capital abroad

(iv) Mixed Income of Self- ? (xi) Net indirect taxes 120

Employed
Ans : DELHI 2010
(v) Subsidies 750
(i) Gross Domestic Product at Factor Cost
(vi) Gross Domestic Product 27,500 GDPFC = Compensation of employees + Rent
at Market Price + Interest + Profits
(vii) Indirect Tax 2,100 + Gross domestic capital formation
(viii) Profits 1,800 – Net fixed capital formation
– Change in Stock
(ix) Rent 2,000
= 800 +200 + 150 + 100 + 300 – 200 – 50
Ans : OD 2019
= 1,600 – 250 = `1,300 (in ‘000 crore)

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(ii) GDPFC = GNPMP (vi) Rent 300

– Net factor income from abroad
(vii) Interest 400
– Net indirect taxes
(viii) Factor income to abroad 120
1300 = 1400 – (Factor income from abroad
(ix) Net indirect taxes 250
– Factor income to abroad) – 120
(x) Net domestic capital 650
1300 = 1400 – (60 – Factor income to abroad)
formation
– 120
Factor income to abroad (xi) Gross fixed capital 700
formation
= 1300 – 1400 +60 +120
= `80 (in ‘000 crores) (xii) Change in stock 50

Ans : OD 2010
290. From the following data, estimate the value of
Net Indirect Taxes (NIT): (i) Gross Domestic Product at Market Price
GDPMP = Compensation of employees + Rent
[Link] Particulars Amt. in
+ Interest + Profits
(` crores)
+ (Gross fixed capital formation)
(i) Net National Product at 1,400
+ Change in stock
Market Price (NNPMP)
– Net domestic capital formation
(ii) Net Factor Income from (–) 20 + Net indirect taxes
abroad
= 1,500 +300 + 400 +500 + (700 + 50
(iii) Gross National Product at 1,300
– 650)+250
Factor Cost (GNPFC)
= 1,500 + 300 + 400 + 500 + 100 + 250
(iv) Consumption of fixed 100
= `3,050 crore (in ‘000 crores)
capital
(ii) GDPMP = GNPFC + Net indirect taxes
Ans : COMP 2002 = 2,800 + 250 = 3,050
NNPMP = GNPFC + Net Indirect Tax Net factor income earned from abroad
– Depreciation = GNPMP – GDPMP = 3,050 – 3,050
(i) = (iii) + Net Indirect Tax – (iv) =0
1,400 = 1,300 + Net Indirect Tax – 100 Factor income from abroad + Factor income
to abroad = 0
Net Indirect Taxes = 1,400 – 1200 = `200 Or, Factor Income from abroad – 120 = 0
Factor income from abroad
291. Calculate:
(i) Gross Domestic Product at Market Price = `120 (in ‘000 crores)
(ii) Factor Income from Abroad from the following
292. From the following data calculate:
data:
(i) Gross domestic product at market price
(` in (ii) Factor income from abroad.
‘000 crores)
(` in
(i) Profits 500 ‘000 crores)
(ii) Exports 40 (i) Gross national product at 6,150
(iii) Compensation of 1,500 factor cost
employees (ii) Net exports (–) 50
(iv) Gross national product at 2,800 (iii) Compensation of 3,000
factor employees
(v) Net current transfers from 90 (iv) Rent 800
rest of the world

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(v) Interest 900 (ix) Contribution to social 200

(vi) Profit 1,300 security schemes by
employers
(vii) Net indirect taxes 300
(x) Dividends 100
(viii) Net domestic capital 800
formation (xi) Undistributed profits 20

(ix) Gross fixed capital 850 (xii) Net factor income to 0

formation abroad

(x) Change in stock 50 Ans : OD 2011

(xi) Dividend 300 NDPFC = Wages and salaries + Contribution

(xii) Factor income to abroad 80 to social security schemes by employers
+ Rent + Interest paid by production
Ans : OD 2010
units + Corporation tax + Dividends
(i) Gross Domestic Product at Market Price: + Undistributed profits
GDPMP = Compensation of employees + Rent = 1,000 + 200 + 100 + 130 + 50 + 100 + 20
+ Interest + Profit + Net indirect tax
= `1,600 crores
+ (Gross fixed capital formation
+ Change in stock 294. Calculate ‘Net National Product at Factor Cost’
– Net domestic capital formation) from the following:
= 3,000 + 800 + 900 + 1,300 + 300 (` in crores)
+ (850 + 50 – 800)
(i) Profits 200
= 6,300 + 100 = `6,400 crore
(ii) Net current transfers to (–) 10
(ii) Factor Income from abroad
abroad
= GNPFC – GDPMP + Net indirect tax
+ Factor income to abroad (iii) Royalty 10
= 6,150 – 6,400 + 300 + 80 (iv) Wages and salaries 600
= 6,530 – 6,400 = `130 crore (v) Consumption of fixed 60
capital
293. Calculate ‘Net Domestic Product at Factor Cost’ (vi) National debt interest 80
from the following:
(vii) Interest paid by 120
(` in crores) production units
(i) Domestic product accruing 300 (viii) Social security 100
to government contributions by employers
(ii) Wages and salaries 1,000 (ix) Net factor income to (–) 20
(iii) Net current transfers to (–) 20 abroad
abroad (x) Rent 50
(iv) Rent 100 (xi) Net indirect tax 70
(v) Interest paid by the 130
Ans : FOREIGN 2011
production units
NNPFC = Wages and salaries + Social security
(vi) National debt interest 30
contribution by employers + Rent
(vii) Corporation tax 50
+ Interest paid by production units
(viii) Current transfers by 40 + Royalty + Profits
government – Net factor income to abroad
= 600 + 100 + 50 + 120 + 10 + 200 – (–20)
= `1,100 (crores)

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295. Find out Net National Product at Market Price: (x) Net factor income to 150
(` in crores) abroad
(xi) Mixed income of self- 1,500
(i) Net current transfers from (–) 10 employed
abroad
Ans : OD 2013
(ii) Wages and salaries 1,000
Gross National Product at Market Price
(iii) Net factor income to (–) 20 GNP at MP
abroad = Compensation of employees + Interest + Rent
+ Profits + Mixed income of self-employed +
(iv) Social security 100
Consumption of fixed capital + Net indirect
contributions by employers
taxes – Net factor income to abroad
(v) Net indirect tax 80 = 2,000 + 500 + 700 + 800 + 1,500 + 100 + 250
(vi) Rent 300 – 150 = `5,700 crores
(vii) Consumption of fixed 120 297. Calculate ‘Net National Product at Factor Cost’
capital from the following:
(viii) Corporation Tax 50
(` in crores)
(ix) Dividend 200
(x) Undistributed profits 60 (i) Social security 90
contributions by
(xi) Interest 400 employees
Ans : DELHI 2012
(ii) Wages and salaries 800
Net National Product at Market Price
= Wages and salaries + Social security (iii) Net current transfers to (–) 30
contributions by employers + Rent + Interest abroad
+ Corporation tax + Dividend + Undistributed (iv) Rent and royalty 300
profits + Net indirect tax – Net factor income
to abroad (v) Net factor income to 50
= 1,000 + 100 + 300 + 400 + 50 + 200 + 60 + abroad
80 – (–) 20 = `2,210 crores
(vi) Social security 100
296. Calculate “Gross National Product at Market contributions by employers
Price” from the following data:
(vii) Profit 500
(` in crores)
(viii) Interest 400
(i) Compensation of 2,000
employees (ix) Consumption of fixed 200
capital
(ii) Interest 500
(iii) Rent 700 (x) Net indirect tax 250
(iv) Profits 800 Ans : OD 2014

(v) Employer’s contribution 200 NNPFC

to social security schemes
= Wages and salaries + Social security
(vi) Dividends 300 contributions by employers + Rent and royalty
(vii) Consumption of fixed 100 + Interest + Profit – Net factor income to
capital abroad
= 800 + 100 + 300 + 400 + 500 – 50
(viii) Net indirect tax 250
= 2,100 – 50 = `2,050 crores
(ix) Net exports 70

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298. Calculate ‘Gross National Product at Market (v) Current transfers from 10
Price’: government
(` in crores) (vi) Undistributed profits 20
(i) Rent 100 (vii) Corporation tax 30
(ii) Net current transfers to 30 (viii) Interest 150
rest of the world (ix) Social security 100
(iii) Social security 47 contribution by employers
contributions by employers (x) Net domestic product 250
(iv) Mixed income 600 accruing to government
(v) Gross domestic capital 140 (xi) Net current transfers to 5
formation rest of the world
(vi) Royalty 20 (xii) Dividends 50
(vii) Interest 110 Ans : OD 2015

(viii) Compensation of 500 National Income (NNPFC)

employees = Wages and salaries + Social security
(ix) Net domestic capital 120 contributions by employers + Rent + Interest
formation + Undistributed profits + Corporation tax +
Dividends – Net factor income to abroad
(x) Net factor income from (–) 10 = 700 + 100 + 200 + 150 + 20 + 30 + 50 – 10
abroad
= `1,240 crores
(xi) Net indirect tax 150
300. Find national income:
(xii) Profit 200
(` in crores)
Ans : DELHI 2015
(i) Wages and salaries 1,000
Depreciation
= Gross domestic capital formation – Net (ii) Net current transfer to 20
domestic capital formation abroad
= 140 – 120 = `20 (iii) Net factor income paid to 10
NDPFC abroad
= Compensation of employees + Rent + Interest (iv) Profit 400
+ Royalty + Profit + Mixed income
(v) National debt interest 120
= 500 + 100 + 110 + 20 + 200 + 600
= `1,530 crores (vi) Social security 100
Gross National Product at Market Price contributions by employers
= NDPFC + Depreciation + Net indirect tax + (vii) Current transfers from 60
Net factor income from abroad government
= 1,530 + 20 + 150 + (–10) = `1,690 crores (viii) National income accruing 150
to government
299. Calculate the ‘National Income’:
(ix) Rent 200
(` in crores) (x) Interest 300
(i) Rent 200 (xi) Royalty 55
(ii) Net factor income to 10
Ans : DELHI 2016
abroad
NDPFC
(iii) National debt interest 15
= Wages and salaries + Social security
(iv) Wages and salaries 700
contributions by employers + Profit + Rent +
Interest + Royalty

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= 1,000 + 100 + 400 + 200 + 300 + 50 (vi) Net indirect taxes 1,000
= `2,050 crores
(vii) Rent 800
NNPFC (National Income)
= NDPFC – Net factor income paid to abroad (viii) Consumption of fixed 1,200
capital
= 2,050 – 10 = `2,040 crores
(ix) Profit 1,500
301. Find net national product at market price: (x) Net current transfers to 200
rest of the world
(` in crores)
(xi) Interest 700
(i) Personal taxes 200
Ans : OD 2016
(ii) Wages and salaries 1,200
NDPMP
(iii) Undistributed profit 50 = Compensation of employees + Mixed income
+ Rent + Profit + Interest + Net indirect
(iv) Rent 300
taxes
(v) Corporation tax 200 = 4,000 + 8,000 + 800 + 1,500 + 700 + 1,000
= `16,000 crores
(vi) Private income 2,000
303. Calculate National Income.
(vii) Interest 400
(` in crores)
(viii) Net indirect tax 300
(i) Compensation of 2,000
(ix) Net factor income to 20 employees
abroad
(ii) Rent 400
(x) Profit 500
(iii) Profit 900
(xi) Social security 250
contributions by employers (iv) Dividend 100
(v) Interest 500
Ans : DELHI 2016
(vi) Mixed income of self- 7,000
NNPMP employed
= Wages and salaries + Social security (vii) Net factor income to 50
contributions by employers + Rent + Interest abroad
+ Profit – Net factor income to abroad + Net
(viii) Net exports 60
indirect tax
= 1,200 + 250 + 300 + 400 + 500 – 20 + 300 (ix) Net indirect taxes 300
= `2,930 crores (x) Depreciation 150

302. Calculate net domestic product at market price: (xi) Net current transfers to 30
abroad
(` in crores)
Ans : OD 2017
(i) Compensation of 4,000
employees NDPFC
= Compensation of employees + Rent + Profit +
(ii) Dividend 500 Interest + Mixed income of self-employed
(iii) Mixed income 8,000 = 2,000 + 400 + 900 + 500 + 7,000 + 7,000
(iv) Social security 400 = `10,800 crores
contribution by employers NNPFC (National Income)

(v) Net factor income to 600 = NDPFC – Net factor income to abroad
abroad = 10,800 – 50 = `10,750 crores

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CH 1 : NATIONAL INCOME AND RELATED AGGREGATES

304. Calculate the Gross National Product at market (vii) Wages and salaries 600
price.
(viii) Indirect tax 120
(` in crores) (ix) Net factor income to 30
(i) Compensation of 2,500 abroad
employees (x) Rent 80
(ii) Profit 700
Ans : COMP 2017
(iii) Mixed income of self- 7,500
employed GDPMP

(iv) Government final 3,000 = Wages and salaries + Social security

consumption expenditure contributions by employers + Operating
surplus + Mixed income of self-employed +
(v) Rent 400 Indirect tax – Subsidy + Consumption of fixed
(vi) Interest 350 capital
(vii) Net factor income from 50 = 600 + 100 + 300 + 500 + 120 – 20 + 70
abroad = `1,670 crores

(viii) Net current transfers to 100 306. Calculate (i) Operating Surplus and (ii) Domestic
abroad Income:
(ix) Net indirect taxes 150
(` in crores)
(x) Depreciation 70
(i) Compensation of 2,000
(xi) Net exports 40 employees
Ans : OD 2017 (ii) Rent and interest 800
NDPFC (iii) Indirect taxes 120
= Compensation of employees + Profit + Rent +
(iv) Corporation tax 460
Interest + Mixed income of self-employed
= 2,500 + 700 + 400 + 350 + 7,500 (v) Consumption of fixed 100
= `11,450 crores capital
GNPMP
(vi) Subsidies 20
= NDPFC – Depreciation + Net indirect taxes +
Net factor income from abroad (vii) Dividend 940
= 11,450 + 70 + 150 + 50 = `11,720 crores (viii) Undistributed profits 300
(ix) Net factor income to 150
305. Calculate Gross Domestic Product at Market
abroad
Price:
(x) Mixed income 200
(` in crores)
Ans : DELHI 2018
(i) Net current transfers to (–) 10
the rest of world (i) Operating Surplus
= Interest + Corporation Tax + Dividend +
(ii) Consumption of fixed 70 Undistributed Profits
capital = 800 + 460 + 940 + 300 = `2,500 crores
(iii) Mixed income of self- 500 (ii) Domestic Income (NDPFC)
employed = Compensation of employees + Rent and
Interest + Corporation tax + Dividend +
(iv) Subsidies 20
Undistributed Profits + Mixed Income
(v) Social security 100 = 2,000 + 800 + 460 + 940 + 300 + 200
contributions by employers = `4,700 crores
(vi) Operating surplus 300

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CBSE CHAPTERWISE QB CLASS 12 ECONOMICS PAGE 77

307. Give the following data, find the missing value consumption expenditure + 5,000 + 40,000
of ‘Government Final Consumption Expenditure’ Government final consumption expenditure
and ‘Mixed Income of Self Employed’. = 75,000 – 10,000 – 5,000 – 40,000
(` in crores) = 75,000 – 55,000 = `20,000 crores

(i) National income 71,000 308. Given the following data, find the missing values
(ii) Gross domestic capital 10,000 of ‘Private Final Consumption Expenditure’ and
formation ‘Operating Surplus’.
(iii) Government final ? (` in crores)
consumption expenditure
(i) National income 50,000
(iv) Mixed income of self- ?
(ii) Net indirect taxes 1,000
employed
(iii) Private final consumption ?
(v) Net factor income from 1,000
expenditure
abroad
(iv) Gross domestic capital 17,000
(vi) Net indirect taxes 2,000
formation
(vii) Profits 1,200
(v) Profits 1,000
(viii) Wages and salaries 15,000
(vi) Government final 12,500
(ix) Net exports 5,000 consumption expenditure
(x) Private final consumption 40,000 (vii) Wages and salaries 20,000
expenditure
(viii) Consumption of fixed 700
(xi) Consumption of fixed 3,000 capital
capital
(ix) Mixed income of self- 13,000
(xii) Operating surplus 30,000 employed
Ans : SQP 2019 (x) Operating surplus ?
National Income, (xi) Net factor income from 500
NNPFC = `71,000 abroad
NDPFC = NNPFC – NFIA (xii) Net exports 2,000
= 71,000 – 1,000 = `70,000 crore Ans : SQP 2013
NDPFC = Mixed income of self employed National Income,
+Wages and Salaries NNPFC = `50,000
+ Operating Surplus
NDPFC = NNPFC – NFIA
`70,000 = Mixed income of self employed
= 50,000 – 500 = `49,500 crore
+ 15,000 + 30,000
NDPFC = Wages and Salaries + Mixed income
Mixed income of Self Employed
= 70,000 – 15,000 – 30,000 of self employed+ Operating surplus
= 70,000 – 45,000 = `25,000 crore 49,500 = 20,000 + 13,000 + Operating Surplus
GDPMP = NNPFC – NFIA + Net Indirect Taxes Operating surplus = 49,500 – 20,000 – 13,000
+ Consumption of fixed capital = 49,500 – 33,000
GDPMP = 71,000 – 1,000 + 2,000 + 3,000 = `16,500 crore
= 70,000 + 5,000 = `75,000 crore GDPMP = NNPFC+ Consumption of fixed capital
GDPMP = Gross capital formation + Net indirect taxes
+ Government final consumption expenditure = Net factor income from abroad
+ Net exports + Private final GDPMP = 50,000 + 700 + 1,000 – 500
consumption expenditure
= `51,200 crore
75,000 =10,000 + Government final

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CH 1 : NATIONAL INCOME AND RELATED AGGREGATES

GDPMP= Private final consumption expenditure Given:

+Government final consumption Nominal GDP = `1, 200
expenditure Price Index = 120; Real GDP = ?
+ Gross domestic capital formation
Real GDP = Nominal GDP # 100
+ Net exports Price Index
`51,200 = Private final consumption expenditure 1, 200
Real GDP = 100 = `1,000
+ 12,500 + 17,000 + 2,000 100 #
Private final consumption expenditure 313. If the Real GDP is `300 and Nominal GDP is
= 51,200 – 12,500 – 17,000 – 2,000 `330, calculate Price Index (base = 100).
= 51,200 – 31,500 = `19,700 crore Ans : DELHI 2015

309. If the Real Gross Domestic Product (GDP) in Given:

an economy is `520 crores and Nominal Gross Nominal GDP = `330; Real GDP = `300;
Domestic Product (GDP) is `650 crores, calculate Price Index = ?
the price Index.
Real GDP = Nominal GDP # 100
Ans : (2020 Series : HMJ/5) Price Index
300 = 330 100
Real GDP = Nominal GDP # 100 Price Index #
Price Index
650 Price Index = 330 # 100 = `110
520 = 100 300
Price Index #
65, 000 If the Real GDP is `500 and Price Index (base =
Price Index = = `125 crores 314.
520
100) is 125, calculate the Nominal GDP.
310. When Nominal Gross Domestic Product (GDP) Ans : OD 2015
is `850 crores and Price Index is 170, Real Gross
Given: Real GDP = `500
Domestic Product (GDP) will be .......... .
(Fill up the blank with correct answer) Price Index = 125; Nominal GDP = ?

Ans : FOREIGN 2020 Real GDP = Nominal GDP # 100

Price Index
As we know,
500 = Nominal GDP
125
Real GDP = Nominal GDP # 100
Price Index 500 # 125 = `625
Nominal GDP =
100
= 850 # 100 = `500 crores
170
315. If the Nominal GDP is `600 and Price Index (base
311. If Real GDP is `200 and Price Index (with base = = 100) is 120, calculate the Real GDP.
100) is 110, calculate Nominal GDP.
Ans : OD 2015
Ans : DELHI 2015
Given: Nominal GDP = `600
Given:
Price Index = 120; Real GDP = ?
Real GDP = `200
Price Index =110 and Nominal GDP = ? Real GDP = Nominal GDP # 100
Price Index
Real GDP = Nominal GDP # 100 Real GDP = `600 # 100 = `500
Price Index 120
200 = Nominal GDP # 100
110 316. If nominal income is `500 and price index is 125,
calculate real income.
Nominal GDP = 200 # 110 = `220
100
Ans : OD 2016

312. If the Nominal GDP is `1,200 and Price Index Given:

(with base = 100) is 120, calculate Real GDP. Nominal Income = `500
Ans : DELHI 2015 Price Index = 125;

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CBSE CHAPTERWISE QB CLASS 12 ECONOMICS PAGE 79

Real Income = Nominal GDP # 100 Calculate the percentage change in Real Gross
Price Index
Domestic Product (GDP) in year 2019 using 2018
Real Income = `500 # 100 = `400 as the base year.
125
Ans : FOREIGN 2023
317. If real income is `400 and price index is 105,
calculate nominal income. Year Units Market price Real GDP (`)
Ans : OD 2016 (MP) (`) Units × MP

Given: Real Income = `400 2018 100 50 50 × 100 = 5,000

Price Index = 105 2019 110 55 55 × 110 = 6,000

Real Income = Nominal GDP # 100 % change in Real GDP

Price Index
Change in Real GDP
= 100
`400 = No minal Income 100
# Base Year Real GDP #
105
5, 500 - 5, 000
= # 100
5, 000
Nominal Income = `400 # 105 = `420
100
= 500 # 100 = 10%
5, 000
318. Assuming real income to be `200 crore and price
index to be 135, calculate nominal income. 321. Suppose only one Good `X’ is produced in the
Ans : OD 2016
country. Output of `Good X’ during 2018 & 2019
were 100 units & 120 units respectively. The
Real Income = `200 crore, market price of the product during the two years
Price index = 135 was `50 and `60 per unit respectively.
Calculate the percentage change in Real Gross
Real Income = Nominal GDP # 100 Domestic Product (GDP) in year 2019, using
Price Index
2018 as the base year.
`200 = Nominal Income # 100
135 Ans : FOREIGN 2023

Nominal Income = `200 # 135 Year Units Price per Real GDP (`)
100
unit (`) Units × Price Per
= `270 crore
Unit
319. If the Real GDP is `300 and Nominal GDP is 2018 100 50 5,000
`350, calculate the Price Index (base = 100).
2019 120 60 6,000
Ans : OD 2016
% Change in Real GDP
Given: Real GDP = `300; Change in Real GDP
= 100
Price Index = ? Base Year Real GDP #
Nominal GDP = `350 6, 000 - 5, 000
= # 100
5, 000
Real GDP = Nominal GDP # 100 1, 000
Price Index = 100 = 20%
5, 000 #
300 = 350 100
Price Index # 322. Using the following information, calculate and
Price Index = 350 # 100 analyse the value of Gross Domestic Product
300
(GDP) deflator:
= `116.6 (Approx)
Ans : COMP 2022

320. Suppose only one Good ‘X’ is produced in the

country. Output of Good X during year 2018 and Year 2014-15 2016-17
2019 were 100 units and 110 units respectively. Nominal GDP 6.5 9
The market price of the product during the two
Real GDP 6.5 7.2
years was `50 and `55 per unit respectively.

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CH 1 : NATIONAL INCOME AND RELATED AGGREGATES

For 2014 - 15: (iii) Following is an advantage of real GDP:

(a) It is used to make international
GDP Deflator = Nominal GDP # 100
Real GDP comparison
= 6 . 5 100 = 100% (b) It shows the availability of goods and
6.5 # services to the people
For 2016 - 17: (c) It ignores the inequalities in the
GDP Deflator = Nominal GDP # 100 distribution of income
Real GDP (d) Both (a) and (b)
= 9 # 100 = 125% (iv) Match the following :
7.2

Column I Column II
1. Real Flows A. milk used by a
CASE BASED QUESTION bakery
2. Intermediate B. physical flow of
goods goods and services
323. Read the para given below and answer the
questions that follow: 3. Money Flows C. nominal flow
Economic growth has improved living standards 4. Final goods D. food grains used
globally, but Gross Domestic Product (GDP), by a household
the common measure of growth, focuses only on
(a) B, A, D, C
economic size, ignoring welfare. GDP measures
(b) B, A, C, D
the value of goods and services produced in an
(c) A, C, B, D
economy but does not account for the social or
(d) A, B, C, D
environmental costs of production. For instance,
it includes the value of cars and sugar-laced drinks Ans :
but excludes the pollution and health issues they (i) Capital Loss
cause. (ii) (d) Expenditure incurred by a foreign tourist
GDP also overlooks vital aspects like in the country.
environmental degradation and income inequality. (iii) (d) Both (a) and (b)
While it increases with higher production, it fails (iv) (b) B, A, C, D
to reflect the damage to natural resources or the
unequal distribution of wealth, which leads to 324. Read the paragraph given below and answer the
societal discontent and polarization. Policymakers questions that follow:
must address these limitations to evaluate true India’s GDP is calculated using two methods,
development effectively. yielding slightly different but comparable figures.
The first method calculates GDP at factor
(i) Loss in the value of fixed assets due to national cost, based on the net value changes across
calamities and economic recession is called as eight economic sectors. This figure, commonly
_____ (Depreciation/Capital Loss). reported in the media, helps gauge the economy’s
overall health and informs policy and investment
(ii) Which of the following is included in the
decisions.
estimation of National Income.
The second method calculates GDP at market
(a) Remittances from abroad
prices by summing expenditures on final goods
(b) Salary paid to a foreign technical
and services, including household consumption,
(c) Reimbursement of travelling expenses
net investments, government spending and net
to salesman incurred while doing official
trade. While the results from these methods
work.
may not match precisely, they provide valuable
(d) Expenditure incurred by a foreign tourist
insights into the contributions of various sectors
in the country.
to the economy.

(i) From the set of statements given in column I

and II, choose the correct pair of statements:

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CBSE CHAPTERWISE QB CLASS 12 ECONOMICS PAGE 81

Column I Column II 325. Read the paragraph given below and answer the
questions that follow:
1. GDP A. Sum of factor The production process relies on factors
incomes generated of production like land, labor, capital and
in the domestic entrepreneurship, for which producers incur
territory. costs. These costs, referred to as factor costs,
2. Domestic B. Value of all final include expenses like rent, wages, interest
factor goods and services and entrepreneurial profit but exclude taxes.
income produced by the Subsidies, however, are included as they directly
normal residents of offset production costs.
the country. Price is the price consumers pay, which is
calculated by adjusting the factor cost. Taxes are
3. GNP C. Value of final
added since they increase the price, while subsidies
goods and services
are subtracted as they reduce the effective cost.
produced in the
For example, if the government provides a subsidy
domestic territory.
on interest, it lowers the interest cost (a factor
4. National D. Sum of factor cost), reducing the market price of the product.
income incomes of normal
residents of the (i) Sales + Change in stock = _____.
country. (a) Value of output
(b) Intermediate consumption
(a) 1-A
(c) Gross value added
(b) 2-B
(d) Net value added
(c) 3-C
(d) 4-D (ii) Which of the following will be included in the
estimation of domestic income of the nation?
(ii) The difference between National Income and
(a) Profits earned by branches of country’s
Domestic Income is:
bank in another country
(a) Net indirect taxes
(b) Gift given by an employer to his employees
(b) Consumption of fixed capital
on Independence Day
(c) Net factor income earned from abroad
(c) Purchase of goods by foreign tourists in
(d) Subsidies
our country
(iii) Identify the items which will be excluded (d) Scholarships given by the government
from the estimation of National Income:
(iii) Net indirect taxes = Indirect taxes – _____.
(a) Profits earned by an Indian bank from its
(Subsidies/Intermediate consumption)
branches abroad
(b) Proceeds from sale of land (iv) Road constructed by a factory owner to
(c) Earnings of a self-employed doctor having connect the village and town is an example of
a clinic at his residence a _____ (positive/negative) externality.
(d) Contribution to provident fund by an
employer Ans :
(i) (a) Value of output
(iv) National Income at current price will be equal (ii) (c) Purchase of goods by foreign tourists in
to National Income at constant prices when our country
price in the base year will be equal to price in (iii) Subsidies
the _____ (current/past) year. (iv) Positive
Ans :
326. Read the paragraph given below and answer the
(i) (d) 4-D questions that follow:
(ii) (c) Net factor income earned from abroad = Net Foreign Factor Income (NFFI) refers to the
National Income Minus Domestic Income difference between a nation’s Gross National
(iii) (b) Proceeds from sale of land Product (GNP) and its Gross Domestic Product
(iv) Current (GDP). It measures the net balance of earnings
generated abroad by a nation’s citizens and

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CH 1 : NATIONAL INCOME AND RELATED AGGREGATES

companies versus the income earned by foreign (iii) Domestic demand for goods and services
individuals and companies within the country. refers to:
In most nations, the NFFI level is relatively (a) Value of final goods and services produced
minor as earnings from citizens and payments within the domestic territory which are
to foreigners tend to offset each other. However, being demanded within the country and
in smaller economies with significant foreign abroad.
investment and limited overseas assets, NFFI (b) Value of final goods and services produced
can be substantial. For such nations, GDP might within the country and abroad which are
exceed GNP significantly, as GDP includes the being demanded within the country.
profits foreign companies remit back to their (c) Both (a) and (b)
home countries.
(d) Neither (a) nor (b)
For instance, if a country has high remitted profits
compared to its overseas earnings, the NFFI will (iv) What will be the GDP of a country based on
be negative and its GNP will fall below GDP. the following data:
In today’s globalize world, where cross-border
movement of people and businesses is easier, [Link]. Particulars Amount (in ` crore)
NFFI plays an increasingly significant role in 1. GNP 1,000
understanding national economic dynamics.
2. NFFI 275
(i) From the set of statements given in column (a) `1275 crore
I and column II, choose the correct pair of (b) `875 crore
statements: (c) `725 crore
(d) `1000 crore
Column I Column II
Ans :
1. Value of output A. production (i) (b) 2-B
of goods and (ii) (d) Medical expenses of a firm on treatment
services valued at of employees family
current prices (iii) (b) Value of final goods and services produced
2. Real GDP B. production within the country and abroad which are
of goods and being demanded within the country.
services valued at (iv) (c) `725 crore
constant prices
327. Read the paragraph given below and answer the
3. Depreciation C. market value questions that follow:
of goods and GDP measures both the economy’s total income
services produced and the economy’s total expenditure on goods
during a year and services. Thus, GDP per person tells us the
4. Nominal GDP D. consumption of income and expenditure of the average person
fixed capital in the economy. Because most people would
prefer to receive higher income and enjoy higher
(a) 1-A
expenditure, GDP per person seems a natural
(b) 2-B
measure of the economic well-being of the average
(c) 3-C
individual.
(d) 4-D
GDP is not, however, a perfect measure of well-
(ii) Which of the following items is part of being. Few things that contribute to a good life
compensation of employees? are left out of GDP. One is leisure. Suppose, for
(a) Entertainment allowance to an employee instance, that everyone in the economy suddenly
to entertain business guests started working all the days of the week, rather
(b) Old age pension than enjoying leisure on weekends. More goods
(c) Payment of Insurance claim by LIC to and services would be produced and GDP would
the injured worker rise. Yet despite the increase in GDP, we can not
(d) Medical expenses of a firm on treatment conclude that everyone would be better off. The
of employees family loss from reduced leisure would offset the gain

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CBSE CHAPTERWISE QB CLASS 12 ECONOMICS PAGE 83

from producing and consuming a greater quantity that the GDP concept fails to account for the
of goods and services. “using up” of valuable resources that may have
Because GDP uses market prices to value goods been necessary in order to generate the measured
and services, it excludes the value of almost flow of output.
all activities that takes place outside markets.
Another thing that GDP excludes is the quality (i) Factor income paid to non-residents within
of the environment. Imagine that the government the domestic territory of a country leads to:
eliminated all environmental regulations. Firms (a) Decrease in national income
could then produce goods and services without (b) Increase in domestic income
considering the pollution they create and GDP (c) No change in both domestic and national
might rise. Yet well-being would most likely fall. income
The deterioration in the quality of air and water (d) Both (a) and (b)
would offset the gains from greater production.
(ii) From the set of statements given in column-I
(i) GDP as a measure of welfare includes: and II, choose the correct pair of statements:
(a) Externalities Column-I Column-II
(b) Social progress index
(c) Market transactions 1. GDP measured at A. Nominal GDP
(d) Both (a) and (c) base year prices
(ii) Following is an example of positive externality: 2. Sum of factor B. Domestic
(a) Construction of flyovers incomes generated income
(b) A newly developed park being frequented in the domestic
by anti social elements territory
(c) Opening of water polluting oil refinery
(d) Increase in production of tobacco 3. Difference C. National
between domestic income
(iii) _____ is a better indicator of economic
income and
growth.
national income
(Real GDP/Nominal GDP)
Ans : 4. Sum of factor D. Net factor
incomes earned by income earned
(i) (c) Market transactions normal residents from abroad
(ii) (c) Opening of water polluting oil refinery of a country
(iii) (a) Real GDP
(a) 1-A
328. Read the paragraph given below and answer the (b) 2-B
questions that follow: (c) 3-C
One formal definition of GDP is “the market (d) 4-D
value of all the final goods produced in the
entire country in the course of a year”. The (iii) State the impact of Ban on tobacco products
“market value” component is important because on gross domestic product Ban on and
economists use money prices to solve the problem welfare.
of aggregation. When estimating GDP with real-
(iv) NFIA is negative when:
world data, economists use two approaches. One is
(a) Income earned from abroad is more than
to add up the total income earned by the various
income paid to abroad
factors of production. The other is to add up the
(b) Income earned from abroad is less than
total expenditures on final goods and services
income paid to abroad
that are produced within the country. These two
(c) Income earned from abroad is equal to
approaches are formally equivalent because in a
income paid to abroad
given transaction, the seller’s income equals the
(d) NFIA of current year is the same as that
buyer’s expenditure.
of last year
It is important to remember that GDP is a gross
measure of output (not a net measure), meaning

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CH 1 : NATIONAL INCOME AND RELATED AGGREGATES

Ans : (iii) Increase in GDP may not lead to increase in

(i) (d) Both (a) and (b) welfare as Increased GDP may be concentrated
(ii) (b) 2-B in a few hands leading to inequality in income
(iii) Ban on tobacco products will lead to decrease distribution. (True/False)
in the gross domestic product of the country Ans :
but will definitely improve welfare of the
(i) (d) Both (a) and (b)
society.
(ii) As we know,
(iv) (b) Income earned from abroad is less than
income paid to abroad Real GDP = Nominal GDP # 100
GDP deflator
329. Read the paragraph given below and answer the Nominal GDP = 1, 100 # 120 = `1, 320
100
questions that follow:
In Gross domestic product, “gross” means that (iii) True
GDP measures production regardless of the various
uses to which the product can be put. Production 330. Read the paragraph given below and answer the
can be used for immediate consumption, for questions that follow:
investment into fixed assets or inventories, or for The Budget Estimate for total spending in 2021-
replacing fixed assets that have been depreciated. 22 is `34.83 lakh crore, compared to the Revised
“Domestic” means that the measurement of GDP Estimate (RE) of `34.5 lakh crore for 2020-21.
contains only products from within its borders. Considering a nominal GDP growth projection of
Nominal GDP is calculated by using the prices 14.4% and a real GDP forecast of 11%, the GDP
that are current in the year in which the output is deflator is 3.4%. To maintain spending at the
produced. It takes into account all of the changes same real level, central spending should have risen
that occurred for all goods and services produced to `35.7 lakh crore. Since this increase has not
during a given year. It is the market value of all occurred, the 2021-22 budget indicates a negative
final goods produced in a geographical region, fiscal stimulus for the economy.
usually a country. That market value depends on However, it could be argued that 2020-21 was
the quantities of goods and services produced and an exceptional year and the government may be
their respective prices. Therefore, if prices change justified in reducing its welfare spending as the
from one period to the next and the output does economy unlocks and vaccinations progress. This
not change, the nominal GDP would change even reflects a strategic rollback of pandemic-related
though the output remained constant. fiscal measures.
Real GDP is calculated using the prices of a (i) State the significance of GDP deflator.
selected base year. To calculate Real GDP, you
must determine how much GDP has been changed (ii) If the real GDP is ‘500 and price index (base
by inflation since the base year and divide out the = `100) is 125, the value of Nominal GDP
inflation each year. Real GDP, therefore, accounts will be _____.
for the fact that if prices change but output does
not, nominal GDP would change. (iii) State why expenditure on intermediate goods
In contrast, real gross domestic product accounts are not included while estimating National
for price changes that may have occurred due to Income from expenditure method.
inflation. In other words, real GDP is nominal
(iv) Expenditure on shares and bonds is excluded
GDP adjusted for inflation.
while estimating National Income Aggregates
(i) Change in nominal GDP includes: as it implies paper claims only. It does not
(a) Change in current year prices add to the flow of goods and services. (True/
(b) Change in production of goods and False)
services Ans :
(c) Change in base year prices
(d) Both (a) and (b) (i) The GDP deflator, also called implicit price
deflator, is a measure of inflation. It is the
(ii) If GDP deflator is 120 % and real GDP is ratio of the value of goods and services an
1100, then what will be nominal GDP. economy produces in a particular year at
current prices to that of prices that prevailed

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CBSE CHAPTERWISE QB CLASS 12 ECONOMICS PAGE 85

during the base year.

(ii) As we know,
Nominal GDP = Real GDP # Price Index
100
= 500 # 125 = `625
100
(iii) Expenditure on intermediate goods is not
included while estimating GDP through
expenditure method as it has already been
included in the value of final product. If it is
included, it will lead to the problem of double
counting.
(iv) True

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