In this post we have Provided AHSEC Class 12 Economics Part-A (Micro Economics) Chapter: 1 National Income and Related Aggregate Question Answers as Per AHSEC New Syllabus 2023-24 Academic Session. Each and every question answer crafted as a valuable resource for upcoming examination.
AHSEC Class 12 Economics Notes
PART - A (Micro Economics)
Chapter: 1 National Income and Related Aggregate
Very Short Answer Type Question Answers (1-Marks)
1. What is the value added of a firm?
Ans. Total value of output of a firm- value of intermediate goods used by the firm.
2. Define final goods.
Ans. Those which are used either for consumption or from investment.
3. What is circular flow of income?
Ans. Circular flow of income is the cyclical movement of income between households and the business firms.
4. Define intermediate goods.
Ans. Intermediate goods are those which are used either for resale or for further production in the same year.
5. What is National Income?
Ans. National Income is the total money value of all final goods and services produced by a country during a particular period of time.
6. Define Gross Investment.
Ans. The total addition made to the capital stock of economy in a given period is termed as gross investment.
7. Define depreciation.
Ans. Fall in the value of fixed assets due to normal wear and tear and expected obsolescence is called depreciation.
8. What is Gross domestic product?
Ans. Gross domestic product (GDP) is the money value of all final goods and services produced by all the enterprises in the domestic territory of a country in a year.
9. Fill in the blank :
Depreciation is _______of Fixed Assets.
Ans. Consumption.
10. What are consumer goods?
Ans: Consumption goods are the final goods and service used by a consumer.
11. What is gross value added?
Ans. The money value of the output of all sector is termed as gross value added.
12. Why do we need to calculate value added in
measuring the national income?
Ans. To avoid double counting.
13. Fill in the blank :
GNP = GDP +___________
Ans. Net factor income from abroad.
14. What is consumer price index?
Ans. Consumer price index is that type of index which shows the average change in price level of the commodity used by a particular section of people.
15.What is macro economic model?
Ans. The economic which reflects some characteristics of economic activities but not about the real picture of the economy is called macro economic model.
16. What do you mean by Net export?
Ans. The difference between the value of exports and imports is
called Net exports.
17. What do you mean by budget deficit?
Ans. When government expenditure exceeds government revenue is called budget deficit.
18. What is trade deficit?
Ans. Trade deficit implies the situation where export revenue is less than the import expenditure.
19. (I-S) (G-T) = M-X; which part of the equation refers to budget deficit?
Ans. G-T.
20. (I-S) + (G-T) = M-X; which part of the equation indicate trade deficit?
Ans. M-X.
21. Define capital goods.
Ans. Capital goods are those which are used for further production.
22. What is Net Indirect tax?
Ans. Net Indirect tax is Indirect tax minus subsidy.
23. Define per capita Income.
Ans. Per capita income is obtained by dividing national income tototal population of a country.
24. What is Gross Investment?
Ans. The total addition made to the capital stock of economy in a given period is gross investment.
25. What do you mean by Net National Product?
Ans. Net National Product is obtained by subtracting depreciation from the Gross National product of a country.
26. Define real gross domestic product.
Ans. When the gross domestic product of a country is termed as constant price is called real gross domestic product.
27. What do you mean by flow?
Ans. implies that type of measurement taken for a period of time.
28. Mention any two items that flow between the domestic economy to the rest of the world.
Ans. Exports, Imports.
29. 'The value of GDP of a country less than the vage of GNP?' Why?
Ans. Because the net factor income from abroad is included in GNP.
30. What are economic agents?
Ans. Economic agents are those who take the economic decisions.
Short Answer Type Question Answers (2-Marks)
1. What is national disposable Income?
Ans. National Disposable Income refers to the income which is available to the whole country for disposal.
2. What is Net National Product at factor cost?
Ans. Net National Product at factor cost is the net money value of all final goods and service produced by the normal residents of a country during a period of one year.
3. What is Personal Disposable Income?
Ans. Personal Disposable Income is the income left with individuals after deduction of all taxes levied against their income and property by the government.
4. Explain the concept in the context of national income accounting.
Ans. Depreciation implies a fall in the value of fixed assets due to normal wear and tear and expected obsolescence. In national accounting gross variables like gross income, gross investment etc. are inclusive of depreciation.
5. Suppose the Net National product at market price (NNP) of a country is 1600 crore. If the total indirect tax is 100 crore and the total amount of subsidy paid by the government is 80 crore, find the national income of the country.
Ans:- To find the national income of the country, we can use the formula:
National Income (NI) = Net National Product (NNP) - Indirect Tax + Subsidies
Given:
NNP = 1600 crore
Total Indirect Tax = 100 crore
Total Subsidy = 80 crore
Now, let's calculate the National Income:
NI = 1600 crore - 100 crore + 80 crore
NI = 1580 crore
So, the national income of the country is 1580 crore.
6. What is GDP deflator?
Ans:- GDP deflator is a tool that is used to measure the average level of prices of all goods and services that make up GDP
7. Mention the methods of measuring national income.
Ans. The methods are-
(i) Product Method
(ii) Income Method
(iii) Expenditure Method
8. Name any two economic agents.
Ans. Household, firm.
9. Write any two differences between money flow and real flow.
Ans:- (i) Money flow is the exchange of money between the major sectors. Real flow is the exchange of goods and services between the major sectors.
(ii) In Money flow, the households are rewarded for facto services rendered by them in money terms. But in rea flow, factor services flow from the household sector to firms.
10. What are the two types of final goods?
Ans. Consumers goods and capital goods.
11. What are transfer payments? Give two examples.
Ans. Transfer payments is the income received without providing any good or service in return. e.g., gifts, subsidies.
12. Why does national income account in money terms?
Ans. Because the value of final goods and services are measured in money terms while calculating national income.
13. Define flow and stock.
Ans. Flow variables are measured over a period of time. Stock variable are defined at a point of time.
14. What is gross value added and net value added?
Ans. The money value of all final goods and services produced by all the sectors in an economy during a particular year is called gross value added.
Net value added is the gross value added minus depreciation.
15. Distinguish between gross national product and gross domestic product.
Ans. (i) Gross National Product refers to the market value of final goods and services produced by normal residents of a country. Gross domestic product refers to the money value of all final goods and services in the domestic territory of a country.
(ii) Gross national product include net factor income from abroad. Gross domestic product exclude net factor income from abroad.
16. What are the divisions of consumers goods?
Ans. (i) Non durable consumer goods.
(ii) Durable consumer goods.
17. Define non durable consumer goods and durable consumer goods.
Ans. Non durable goods are those which are exhausted with a single consumption. Durable goods are those which are used for the long term.
18. Define gross investment and Net Investment.
Ans. The total addition made to the capital stock of economy in a given period is termed as gross investment. Net investment refers to gross investment minus depreciation.
19. What does expenditure method of national income accounting indicate?
Ans. Expenditure method measures the national income by aggregating all final expenditure in a year.
20. What are the elements of gross domestic product in price?
Ans. Personal consumption expenditure, Gross domestic personal investment, Government expenditure and Net exports.
21. What do you mean by private income?
Ans. Private income refers to the income which accures to private sector from all sources.
22. What is personal income?
Ans. Personal income is the income actually received by persons from all sources in the form of current transfer payments and factor incomes.
23. What is personal disposable income?
Ans. Personal disposable income is the income left with individuals after deduction of all taxes levied against their income and property by the government.
24. What is national disposable income?
Ans. National disposable income is equal to the net national income at market prices plus net of current transfers from rest of the world.
25. Suppose the GDP at market price of a country is crores. Again net factor income from abroad is 150 crores and depreciation is 80 crores. Now, if the value of indirect taxes - subsidies is 120 crores. Find out the value of national income.
Ans GDP mp - depreciation - NFIA - NIT
= 1100 - 80 + 150 -120 Crores
= 1050 Crores
Long Answer Types Question (4-Marks)
1. Explain how to calculate gross national product from gross domestic product.
Ans. Gross National Product refers to market value of final goods and services produced by normal residents of a country. It is calculated from GDP by adding net factor income from abroad, i.e.,
GNP GDP+NFIA.
2. Distinguish between gross investment and net investment.
Ans. The total addition made to the capital stock of economy in a given period is termed as gross investment. But the actual addition made to the capital stock of economy in a given period is termed as Net Investment. Net Investment = Gross Investment - Depreciation.
3. What is Net National Product at factor cost?
Ans. Net National Product at factor cost is defined as the sum total of factor incomes generated within the domestic territory in a country and NFIA during a year. It is the aggregate income earned by the normal residents of the Thus,
NNP = NNP-Net Indirect taxes.
4. A firm produces goods of 500 per year and intermediate goods used by the firm is of worth 250. the cost of consumption is 20 per year. Calculate gross value added and net value added by the firm.
Ans. Gross value added,
GVA = Value of output - Intermediate goods
=500 - 250
=250
∴ Net Value Added,
NVA = GVA-Capital Consumption cost
=250-20
= 230
5. Distinguish between consumers goods and capital good
Ans.
6. What do you mean by the problem of double counting? Explain the need for avoiding double counting in the estimation of national income.
Ans. Double counting means counting of the value of same product more than once.
While calculating national income, value of only final goods produced by all the production units during a year should be counted. But in actual practice, value of intermediate goods also included national income. Thus, certain items are counted more than once which is called double counting.
7. Define personal Income and private income and distinguish between them.
Ans. Personal Income is the income actually received by persons from all sources in the form of current transfer payments and factor
Private income the total of factor income from sources including net factor income from abroad and current transfers, interest on national debt accuring to private sector. The concept of private income is wider than the personal income. Corporate tax is deducted from private income to obtain personal income.
8. What are the four factors of production? Write down the name of the remuneration to each of them.
Ans. The four factors of production are- Land, Labour, Capital and organisation.
The remunerations are rent for land, wage for labour, Interest for capital and profit to the organisation.
9. Distinguish between factor income and transfer Income.
Ans. (i) Factor payment comprises rent, wages, Interest and profit. But transfer income comprises gift, subsidies and donations etc.
(ii) Factor income received in return of rendering productive services. But transfer income is received without providing any service in return.
(iii) Factor income is earned income. But transfer income is unearned income.
(iv) Factor payment is bilateral payment. But transfer income is unilateral payment.
10. Define Intermediate goods, final goods, consumer goods and Investment goods.
Ans. Intermediate goods are those goods which are used as raw materials for further production or for resale in the same year.
Final goods are those goods which are used for final consumption and for final investment.
Consumer goods are those used by the people for satisfying their wants directly. Investment goods are the goods which are used in the production of other goods and services.
11. What is investment? What are the main divisions?
Ans. Investment means increase in the stock of capital in an accounting year.
Investment are of following types -
(i) Gross investment and Net investment.
(ii) Planned investment and Real Investment.
12. Distinguish between nominal GDP and real GDP.
Ans. (i) Nominal GDP refers to the production of goods and services valued at current price whereas Real GDP calculated at constant price.
(ii) Nominal GDP may increase without any increase in physical output whereas Real GDP is affected the change in physical output.
(iii) Nominal GDP is GDP at current price. But real GDe is GDP at constant price.
13. What is inventory? Explain the concept of unplanned accumulation and unplanned decumulation of inventories. Ans. The unsold products of a firm during a particular year is called inventory. When the sale of product of a firm reduced compared to their planned sale then the amount in the stock increased and it is called unplanned accumulation of inventories.
Again, the firm needs to sell the number of items more than their planned sale and it will be filled up by the previous stock is called unplanned decumulation of inventories.
Long Answer Type Question (6-Marks)
1. Explain the circular flow of income in a simplified economy with two sectors- households and firms.
Ans. A simple economy assumes the existence of only two sectors, ie, households and firm sector. Household sector are the owners of factors of production and it provides service factor to the firms. Firm produces
Goods and services and sell them to the household The flow of income can be shown with the help of the diagram.
2. Explain the income method of calculating GDP.
Ans. According to this method, all the incomes that accrue to the factor of production by way of wages, Profits, rent, interest etc. are summed up to obtain the national income. The components of factor income are-
(a) Compensation of employees.
(b) Rent and Royalty
(c) Interest
(d) Profit
(e) Mixed income
Therefore, GDP = compensation of employees + Rent and Royalty + Interest + Profit + mixed income + depreciation + net indirect taxes.
3. Discuss the reasons why it will not be correct to say that GDP is the index for measuring welfare of the people of a country.
Ans. GDP is not a satisfactory index for measuring welfare of the people because
(i) An increase in GDP can be mainly due to increased production of war equipments and ammunitions instead of machinery and capital equipments. Such increase in GDP will not improve welfare of the people.
(ii) If increase in GDP is due to rise in prices and not due to increase in physical output, then it will not be a reliable index of economic welfare.
(iii) Many activities in an economy is not evaluated in monetary terms. So not included in GDP. But such activities influence on economic welfare of the country.
4. Explain the value added method of calculating GDP.
Ans. To calculate GDP, we calculate gross value added of each sector, i.e, GVA of primary sector plus GVA of secondary sector plus GVA of territory sector and sum total of GVA of all sectors gives GDP, i.e,
Σ GVA = GDP
The steps involved in value added method are identification and classification of productive enterprise, calculation of net factor income from abroad and estimation of net value added.
5. From the following data, find out personal income and personal disposable income.
Rs in crore
(i) NDP at factor cost 9,000
(ii) Net factor income from abroad 150
(iii) Undistributed Profit 500
(iv) Corporate tax. 600
(v) Interest received by household 1200
(vi) Interest paid by Household 1000
(vii) Transfer income 400
(viii) Personal tax 600
Ans. Personal Income
= (1) + (ii) - (iii) - (iv) + (v) - (vi) + (vii)
= 9000+150-500-600+ 1200 - 1000+ 400
= 8,650 crores
Personal disposable Income Personal Income - Personal tax
= 8,650 crores - 600 crores
= 8,050 crores.
6. Explain the precautions needed to be taken while calculating National income by expenditure method.
Ans. The Precautions are-
(i) Expenditure on second hand goods are excluded.
(i) No production takes place against transfer payments. hence it has no place in national income.
(iii) Self use of own produced final goods must be included in national income.
(iv) Expenditure on shares and Bonds are excluded.
(v) National Income is estimated at market price. In order to calculate national income at factor cost, no indirect taxes to be deducated. Explain the expenditure method of measuring national income.
7.Explain the expenditure method od measuring national income.
Ans. Under expenditure method, national income is estimated by aggregating all the final expenditure in the economy during a year. In other words, expenditure method measures the disposal of gross domestic product. By adding up all the items of final consumption expenditure and final Investment expenditure within the domestic economy, we get the aggregate called GDP. By substracting depreciation and net MP indirect taxes from GDP and adding net factor income from abroad to it, we get NNP or national income.
8. Explain the precautions needed to be taken while calculating national income by income method.
Ans. The precautions are-
(i) Transfer payments should not be included in national income.
(ii) It include income from self consumed output.
(iii) Income method include free services provided by the owners of the production units.
(iv) Value of self consumed domestic services is not included.
(v) Income from illegal activities should not be included.
(vi) Windfall gains are not included.
(vii) Sale proceeds from the sale of second hand goods not included.
(viii) Money received by selling shares and bonds in the market is not treated as income.
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