NCERT Solution Economics Part 2 Class 12 Chapter 2 National Income Accounting
NCERT Solution Economics Part 2 Class 12 Chapter 2 National Income Accounting all questions and answers. Economics Part 2 Class 12 2nd Chapter National Income Accounting exercise solution and experts answer. As one of online learning platforms, we (netex.) are excited to offer the NCERT Solution Economics Part 2 Class 12 Chapter 2. This solution is designed to help students who are looking to brush up on their physics concepts on Chapter 2 National Income Accounting.
1.) What are the four factors of production and what are the remunerations to each of these called?
Ans –
1.) Human labour, remuneration for which is called wage
2.) capital, remuneration for which is called interest
3.) Entrepreneurship, remuneration of which is profit .
4.) Land remuneration for which is called rent.
2.) Why should the aggregate final expenditure of an economy be equal to theaggregate factor payments? Explain.
Ans -The aggregate consumption by the households of the economy is equal to the aggregate expenditure on goods and services produced by the firms in the economy. The entire income of the economy, therefore, comes back to the producers in the form of sales revenue. There is no leakage from the system – there is no difference between the amount that the firms had distributed inthe form of factor payments and the aggregate consumption expenditure that they receive as sales revenue. In the next period the firms will once again produce goods and services and pay remunerations to the factors of production. These remunerations will once again be used to buy the goods and services. Hence year after year we can imagine the aggregate income of the economy going through the two sectors ,firms and households, in a circular way. When the income is being spent on the goods and services produced by the firms, it takes the form of aggregate expenditure received by the firms. Since the value of expenditure must be equal to the value of goods and services, we can equivalently measure the aggregate income by “calculating the aggregate valueof goods and services produced by the firms”. When the aggregate revenue received by the firms is paid out to the factors of production it takes the form of aggregate income.
3.) Distinguish between stock and flow. Between net investment and capital which is a stock and which is a flow? Compare net investment and capital with flow ofwater into a tank.
Ans -Net investment is a example of stock and capital is example of flow . Compare with water in tank. Capita of firm is not fixed and can be changed over time and the amount of investment is total of capital The fixed amount of net investment if stock after all changes in capital and capital be vary time to time this change is flow.
stock |
flow |
1.The good which can added or deducted over period of time called stock. | 1.The measurement of change in stock in specific time called flow . |
2.Ex . capital stock | 2.Ex. Building and machine |
3.Net investment is a example of stock | 3.capital is example of flow |
4.Stocks are defined at a particular point of time | 4.Flows are defined over a period of time. |
5.Net investment is a example of stock | 5.capital is example of flow |
4.) What is the difference between planned and unplanned inventory accumulation? Write down the relation between change in inventories and value added of a firm.
And -Change in inventories may be planned or unplanned. In case of an unexpected fall in sales, the firm will have unsold stock of goods which it had not anticipated. Hence there will be unplanned accumulation of inventories. The example of planned inventories Suppose the firm wants to raise the inventories from100 shirts to 200 shirts during the year. Expecting sales of 1,000 shirts during the year(as before), the firm produces 1000 + 100 = 1,100 shirts. If the sales are actually1,000 shirts, then the firm indeed ends up with a rise of inventories. The new stock of inventories is 200 shirts, which was indeed planned by the firm. This rise isan example of planned accumulation of inventories. Taking cognizance of change of inventories we may write Gross value added of firm, i (GV Ai) ≡ Gross value of the output produced bythe firm i (Qi) – Value of intermediate goods used by the firm (Zi)
5.) Write down the three identities of calculating the GDP of a country by the three methods. Also briefly explain why each of these should give us the same value of GDP
Ans –
1.) The product or value added method.
2.) Expenditure Method.
3.) Income method.
*The product or value added method-In product method we calculate the aggregate annual value of goods and services produced (if a year is the unit of time).The term that is used to denote the net contribution made by a firm is called its value added.Therefore the value added of a firm is, value of production of the firm – value of intermediate goods used by the firm. The value added of a firm is distributed among its four factors of production, namely, labour, capital, entrepreneurship and land. Therefore wages, interest, profits and rents paid out by the firm must add up to the value added of the firm. Value added is a flow variable.The replacement investment is same as depreciation of capital. If we include depreciation in value added then the measure of value added that we obtain is called Gross Value Added. If we deduct the value of depreciation from gross value added we obtain Net Value Added. FORMULA FOR VAT CALUCULATION NDPFC – Depreciation – Net Indirect Taxes.
*Expenditure Method -An alternative way to calculate the GDP is by looking at the demand side of the products. This method is referred to as the expenditure method.the aggregate value of the output in the economy by expenditure method will be calculated in the following way.In this method we add the final expenditures that each firm makes. Final expenditure is that part of expenditure which is undertaken not for intermediate purposes.There may be exceptions when the firms buy consumables to treat their guests or for their employees (b) the final investment expenditure, Ii, incurred by other firms on the capital goods produced by firm i. Observe that unlike the expenditure on intermediate goods which is not included in the calculation of GDP, expenditure on investments is included.GDP ≡ Sum total of all the final expenditure received by the firms in the economy.GDP=C+I+G+(X–M).expenditure method of National Income can be considered as the most common way to calculate GDP as it includes both public and private sector expenses incurred within a nation’s borders. However, this system can only be used to calculate nominal GDP, which is not adjusted for inflation.
*INCOME METHOD- The sum of final expenditures in the economy must be equal to the incomes received by all the factors of production taken together (final expenditure is the spending on final goods, it does not include spending on intermediate goods). GDP in the phase of distribution or Income method.NDPFC = Compensation of Employees + Profit + Rent & Royalty + Interest + Mixed income.Income method calculates national income based on the flow of factor revenues.
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6.) Define budget deficit and trade deficit. The excess of private investment over saving of a country in a particular year was Rs 2,000 crores. The amount of budget deficit was ( – ) Rs 1,500 crores. What was the volume of trade deficit of that country?
Ans – i) Budget deficit-The excess of government expenditure over government income is terms as budget deficit.
ii) Trade deficit- Trade deficit means excess of import expenditure over the export revenue of country.
The excess of private investment over savingof a country in a particular year was Rs 2,000crores
i.e Investment – Saving=2000 cr.
The amount of budget deficit
was ( – ) Rs 1,500 crores
i.e Budget deficit=G -T
1500 cr =G-T
Therefore,
Trade deficit =(I – S) +(G-T)
=2000 cr + (-1500cr)
= 500 cr
7.) Suppose the GDP at market price of a country in a particular year was Rs 1,100 crores. Net Factor Income from Abroad was Rs 100 crores. The value of Indirect taxes – Subsidies was Rs 150 crores and National Income was Rs 850 crores. Calculate the aggregate value of depreciation.
Ans – Given
i.) GDP at market price of country = Rs.1100 cr
ii.) Net Factor Income from Abroad = Rs 100 cr.
iii.) The value of Indirect taxes –
Subsidies = Rs 150 cr
iv.) National Income =Rs 850 cr.
National income =GDP at market price + Net Factor Income from Abroad – Depreciation -(The value of Indirect taxes – Subsidies)
850 =1100 +100 – Depreciation – 150
850=1100- 50 – Depreciation
850 =1050 – Depreciation
Depreciation = 1050 – 850
Depreciation=200 cr.
8.) Net National Product at Factor Cost of a particular country in a year is Rs 1,900 crores. There are no interest payments made by the households to the firms/government, or by the firms/government to the households. The Personal Disposable Income of the households is Rs 1,200 crores. The personal income taxes paid by them is Rs 600 crores and the value of retained earnings of the firms and government is valued at Rs 200 crores. What is the value of transfer payments made by the government and firms to the households?
Ans -Given:
i.) Net National Product at Factor Cost = 1900 cr.
ii.) The Personal Disposable Income = Rs 1,200 cr.
iii.)The personal income taxes = Rs 600 cr.
iv.) The value of retained earnings= 200cr.
The personal Disposal income = Net national product at factor cost – The value of retained earnings + The value of transfer payments – Personal tax.
1200=1900 -200+The value of transfer payment -600
1200 = The value of transfer payment +1100
The value of transfer payment =1200 – 1100
The value of transfer payment= 100 cr.
9.) From the following data, calculate Personal Income and Personal Disposable Income. Rs (crore) (a) Net Domestic Product at factor cost 8,000
(b) Net Factor Income from abroad 200
(c) Undisbursed Profit 1,000
(d) Corporate Tax 500
(e) Interest Received by Households 1,500
(f) Interest Paid by Households 1,200
(g) Transfer Income 300 (h) Personal Tax 500
Ans -i.) Personal income =Net Domestic Product at factor cost + Net Factor Income from abroad + Transfer Income – Undisbursed Profit – Corporate Tax – Net interest paid by households
Personal income = 8000 +200+300-1000-500 – (1200 – 1500)
Personal income = 8000+ 200+ 300- 1000- 500-(-300).
Personal income = 8000 +200+300-1000-500+300.
Personal income= Rs. 7300 cr.
Personal Disposal income = personal income- personal payment
Personal disposal income=7300 – 500
Personal disposal income= Rs 6800 cr
10.) In a single day Raju, the barber, collects Rs 500 from haircuts; over this day, his equipment depreciates in value by Rs 50. Of the remaining Rs 450, Raju pays sales tax worth Rs 30, takes home Rs 200 and retains Rs 220 for improvement and buying of new equipment. He further pays Rs 20 as income tax from his income. Based on this information, complete Raju’s contribution to the following measures of income (a) Gross Domestic Product (b) NNP at market price (c) NNP at factor cost (d) Personal income (e) Personal disposable income.
Ans – i.Gross Domestic Product( GDP) = Rs. 500 … ( Barber collects from haircuts).
NNP at market price = GDP – Depreciation
= 500 – 50
= Rs 450
iii. NNP at factor cost = NNP – sales tax
= 450 -30
= Rs. 420
iii.) Personal income = NNP at factor cost – retained earning
= 420- 220
= Rs. 200
iv.) Personal disposable income = personal income – income tax.
= 200 – 20
= Rs 180.
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