Class 12
Macro Economics Chapter National Income Accounting
Pankaj Bhanwani
#9899971997
How the following should be treated in National Income
Q1 Will the following be a part of domestic factor income of India?
Give reasons for your answer.
(i) Old age pension given
by the government.
(ii) Factor income from
abroad
(iii) Salaries to Indian
resident working in Russian Embassy in India.
(iv) Profits earned by a
company in India, which is owned by non-residents.
Ans. (i) This
is transfer given by the govt., so it will not be included in domestic factor
income of India.
(ii)
As it is the factor income received from external sector, so it will not be
included in domestic factor income of India.
(iii)
It will not be considered a part of domestic factor income of India as Russian
embassy in India is not a part of domestic territory of India.
(iv)
This profit will not be included in the domestic factor income of India as it
will be a part of NFIA due to its ROW component.
Q.2 Will the following factor
incomes be included in domestic factor income of India? Give reason for your
answer
(i) COE to the resident of
Japan working in Indian embassy in Japan.
(ii) Profits earned by a
branch of foreign bank in India.
(iii) Rent received by an
Indian resident from Russian Embassy in India.
(iv) Profits earned by a
branch of State Bank of India in England.
Ans. (i) This
income will be included in the domestic factor income of India as Indian
Embassy in Japan is a part of domestic territory of India.
(ii)
As the foreign bank is situated within the domestic territory of India so it
will be included in the domestic factor income of India.
(iii)
This will not be a part of domestic factor income of India as Russian Embassy
is not a part of domestic territory of India.
(iv)
This profits will not be included in the domestic factor income of India as SBI
is situated outside the domestic territory of India.
Q.3. Will the following be
included in the national income of a country? Give reasons for your answers.
(i) School fees paid by
students.
(ii) Purchase of new
shares of a domestic firm.
(iii) Gift received from
abroad
(iv) Furniture purchased
by households.
Ans. (i) School
fees are the payment given by the students for getting education i.e.
service/consumption so it will be included in the national income.
(ii)
These are just change in ownership of paper claims, i.e. without production, so
it will not be included is national income.
(iii)
As these are transfer payments i.e. unilateral in nature, so these will not be
included in national income.
(iv)
As this is part of private final consumption expenditure, so it will be
included in national income.
Q.4. Giving reasons, explain
how the following are treated while estimating national income.
(i) Payment of fees to the
lawyer engaged by a firm.
(ii) Rent free house to an
employee by an employer.
(iii) Purchases by foreign
tourists
Ans. (i) As it
is an intermediate expenditure so it will not be included in national income.
(ii)
As it is a part of COE so it will be included in national income.
(iii)
This will lead to the flow of goods & services i.e. production so it will
be included in national income.
Q.5. How will you treat the
following while estimating domestic factor income of India? Give reasons for
your answer.
(i)
Remittances from non-resident Indians to their families in India.
(ii)
Rent paid by the embassy of Japan in India to a resident Indian.
(iii)
Profits earned by branches of foreign bank in India.
(i)
It will not be included in the domestic factor income of India as it is earned
outside the domestic territory of India.
(ii)
It will not be included in the domestic factor income of India as it is the
part of NFIA.
(iii)
It will also not be included in domestic factor income of India as it is a component
of NFIA.
Q.6. Giving reason explain how
should the following be treated in estimating national income:
(i) Expenditure on
fertilizers by a farmer.
(ii) Purchase of tractor
by a farmer.
Ans. (i) It is
intermediate cost for the farmer and deducted from value of output while
arriving at national income. Therefore, not included.
(ii)
It is included because it is capital formation/investment by the farmer.
Q.8. Giving reason explain how
should the following be treated in estimating national income:
(i) Payment of bonus by a
firm
(ii) Payment of interest
on a loan taken by an employee from the employer
Ans. (i) Bonus
is included because it is compensation of employees.
(ii)
Not included because the loan is taken for consumption.
Q.9. Giving reason explain how
should the following be treated in estimating national income:
(i) Interest paid by banks
on deposits by individuals.
(ii) National debt
interest.
Ans. (i) It is
included because it is a factor payment by a producer.
(ii)
It is not included because it is a loan taken by government to meet its
consumption expenditure.
Q.10. Should the following be
treated as final ‘expenditure or intermediate expenditure? Give reasons for
your answer.
(i) Purchase of furniture
by a firm.
(ii) Expenditure on
maintenance by a firm.
Ans. (i) It is
final expenditure because it is investment expenditure.
(ii)
It is intermediate expenditure because it is an expenditure on single use
producer goods.
Q.11. Giving reason, explain
how should the following be treated while estimating national income:
(i) Expenditure on free
services provided by government
(ii) Payment of interest
by a government firm
Ans. (i) It
should be included because it is private final consumption expenditure
(ii)
It should not be included because it is an intermediate cost.
Q.12. How should the following
be treated while estimating National Income? Give reasons.
(i) Expenditure on education of
children by a family.
(ii) Payment of electricity
bill by a school.
Ans. (i) It
should be included because it is private final consumption expenditure.
(ii)
It should not be included because it is an intermediate cost.
Q.13. Giving reasons classify
the following into intermediate products and final products:
(i) Furniture purchased by
a school.
(ii) Chalks, dusters, etc.
purchased by a school
.
.
Ans. (i) It is
a final product because it is purchased for investment.
(ii)
These are intermediate products because these are taken to be used up
completely during the same year (or these are meant for resale).
Q.14. Giving reasons classify
the following into intermediate products and final products:
(i) Computers installed in
an office.
(ii) Mobile sets purchased
by a mobile dealer.
Ans. (i) These
are final products because these are purchased for investment.
(ii)
These are intermediate products because these are purchased for resale.
Q.15. Giving reason identify
whether the following are final expenditures or intermediate expenditure:
(i) Expenditure on
maintenance of an office building.
(ii) Expenditure on
improvement of a machine in a factory.
Ans. (i) These
are final products because these are purchased for investment.
(ii)
These are intermediate products because these are purchased for resale.
Q.16. Giving reasons, explain
the treatment assigned to the following while estimating national income:
(i) Family members working
free on the farm owned by the family.
(ii) Payment of interest
on borrowings by general government.
Ans. (i)
Imputed salaries of these members will be included in national income.
(ii)
It will not be included in national income because it is a non-factor payment
as general government borrows only for consumption purpose.
Q.17. Giving reasons, explain
the treatment assigned to the following while estimating national income:
(i) Social security
contributions by employees,
(ii) Pension paid after
retirement
Ans. (i) Not
included in national income because it is paid out of compensation of employees
which is already included in national income.
(ii)
Not included in national income in the year of actual payment because it was
already counted as pension during the period when the person was employed/
because it is a deferred pa5anent.
Q.18. Giving reasons, explain
the treatment assigned to the following while estimating national income:
(i) Expenditure on
maintenance of building.
(ii) Expenditure on adding
a floor to the building
.
.
Ans. (i) It is
treated as intermediate expenditure and so deducted from the value of output
for arriving at national income.
(ii)
It is treated as fresh expenditure on investment capital formation and
therefore included in the estimation of national income.
Q.19. Giving reasons, classify
the following into intermediate and final goods:
(i) Machines purchased by
a dealer of machines.
(ii) A car purchased by a
household.
Ans. (i)
Intermediate as purchased for resale.
(ii)
Final as purchased for consumption.
Q.20. How will you treat the
following while estimating national income of India? Give reasons for your
answer.
(i) Dividend received by a
foreigner from investment in shares of an Indian company.
(ii) Profits earned by a
branch of an Indian bank in Canada.
(iii) Scholarship given to
Indian students studying in India by a foreign company.
Ans. (i) It is
factor income to abroad, so it will be deducted from NDP to get NNP.
(ii)
It is factor income from abroad, so it is included in NI.
(iii)
It is a transfer payment. So, it is not included in NI.
Q.21 How will you treat the
following while estimating domestic factor income of India? give reasons for
your answer.
(i) Remittances from
non-resident Indians to their families in India.
(ii) Rent paid by the embassy
of Japan in India to a resident Indian.
(iii) Profits earned by
branches of foreign bank in India
.
.
Ans. (i) Not
included because it is a transfer payment.
(ii)
Not included because embassy of Japan is not a part of domestic territory of
India.
(iii)
Included because the branch of the foreign bank is located within the domestic
territory of India.
Q.22. How will you treat the
following while estimating national income of India? Give reasons for your
answer.
(i) Salaries received by
Indian residents working in Russian Embassy in India.
(ii) Profits earned by an
Indian bank from its branches abroad.
(iii) Entertainment tax
received by the government.
Ans. (i)
Included in national income because it is factor income from abroad.
(ii)
Included because it is factor income from abroad.
(iii) Not included
because it is indirect tax and it is not a factor cost.No marks be given if the reason is not given
Will the following be a part of domestic factor income of India?
Give reasons for your answer.
(i) Old age pension given
by the government.
(ii) Factor income from
abroad
(iii) Salaries to Indian
resident working in Russian Embassy in India.
(iv) Profits earned by a
company in India, which is owned by non-residents.
Ans. (i) This
is transfer given by the govt., so it will not be included in domestic factor
income of India.
(ii)
As it is the factor income received from external sector, so it will not be
included in domestic factor income of India.
(iii)
It will not be considered a part of domestic factor income of India as Russian
embassy in India is not a part of domestic territory of India.
(iv)
This profit will not be included in the domestic factor income of India as it
will be a part of NFIA due to its ROW component.
Q.8. Will the following factor
incomes be included in domestic factor income of India? Give reason for your
answer.
(i) COE to the resident of
Japan working in Indian embassy in Japan.
(ii) Profits earned by a
branch of foreign bank in India.
(iii) Rent received by an
Indian resident from Russian Embassy in India.
(iv) Profits earned by a
branch of State Bank of India in England.
Ans. (i) This
income will be included in the domestic factor income of India as Indian
Embassy in Japan is a part of domestic territory of India.
(ii)
As the foreign bank is situated within the domestic territory of India so it
will be included in the domestic factor income of India.
(iii)
This will not be a part of domestic factor income of India as Russian Embassy
is not a part of domestic territory of India.
(iv)
This profits will not be included in the domestic factor income of India as SBI
is situated outside the domestic territory of India.
Q.9. Will the following be
included in the national income of a country? Give reasons for your answers.
(i) School fees paid by
students.
(ii) Purchase of new
shares of a domestic firm.
(iii) Gift received from
abroad
(iv) Furniture purchased
by households.
Ans. (i) School
fees are the payment given by the students for getting education i.e.
service/consumption so it will be included in the national income.
(ii)
These are just change in ownership of paper claims, i.e. without production, so
it will not be included is national income.
(iii)
As these are transfer payments i.e. unilateral in nature, so these will not be
included in national income.
(iv)
As this is part of private final consumption expenditure, so it will be
included in national income.
Q.10. Giving reasons, explain
how the following are treated while estimating national income.
(i) Payment of fees to the
lawyer engaged by a firm.
(ii) Rent free house to an
employee by an employer.
(iii) Purchases by foreign
tourists
Ans. (i) As it
is an intermediate expenditure so it will not be included in national income.
(ii)
As it is a part of COE so it will be included in national income.
(iii)
This will lead to the flow of goods & services i.e. production so it will
be included in national income.
Q.11. How will you treat the
following while estimating domestic factor income of India? Give reasons for
your answer.
Ans. (i)
Remittances from non-resident Indians to their families in India.
(ii)
Rent paid by the embassy of Japan in India to a resident Indian.
(iii)
Profits earned by branches of foreign bank in India.
(i)
It will not be included in the domestic factor income of India as it is earned
outside the domestic territory of India.
(ii)
It will not be included in the domestic factor income of India as it is the
part of NFIA.
(iii)
It will also not be included in domestic factor income of India as it is a component
of NFIA.
Q.12. Find out (a) national
income and (b) net national disposable income:
Q.13. Giving reason explain how
should the following be treated in estimating national income:
(i) Expenditure on
fertilizers by a farmer.
(ii) Purchase of tractor
by a farmer.
Ans. (i) It is
intermediate cost for the farmer and deducted from value of output while
arriving at national income. Therefore, not included.
(ii)
It is included because it is capital formation/investment by the farmer.
Q.14. Giving reason explain how
should the following be treated in estimating national income:
(i) Payment of bonus by a
firm
(ii) Payment of interest
on a loan taken by an employee from the employer
Ans. (i) Bonus
is included because it is compensation of employees.
(ii)
Not included because the loan is taken for consumption.
Q.15. Giving reason explain how
should the following be treated in estimating national income:
(i) Interest paid by banks
on deposits by individuals.
(ii) National debt
interest.
Ans. (i) It is
included because it is a factor payment by a producer.
(ii)
It is not included because it is a loan taken by government to meet its
consumption expenditure.
Q.16. Should the following be
treated as final ‘expenditure or intermediate expenditure? Give reasons for
your answer.
(i) Purchase of furniture
by a firm.
(ii) Expenditure on
maintenance by a firm.
Ans. (i) It is
final expenditure because it is investment expenditure.
(ii)
It is intermediate expenditure because it is an expenditure on single use
producer goods.
Q.17. Giving reason, explain
how should the following be treated while estimating national income:
(i) Expenditure on free
services provided by government
(ii) Payment of interest
by a government firm
Ans. (i) It
should be included because it is private final consumption expenditure
(ii)
It should not be included because it is an intermediate cost.
Q.18. How should the following
be treated while estimating National Income? Give reasons.
(i) Expenditure on education of
children by a family.
(ii) Payment of electricity
bill by a school.
Ans. (i) It
should be included because it is private final consumption expenditure.
(ii)
It should not be included because it is an intermediate cost.
Q.19. Giving reasons classify
the following into intermediate products and final products:
(i) Furniture purchased by
a school.
(ii) Chalks, dusters, etc.
purchased by a school.
Ans. (i) It is
a final product because it is purchased for investment.
(ii)
These are intermediate products because these are taken to be used up
completely during the same year (or these are meant for resale).
Q.20. Giving reasons classify
the following into intermediate products and final products:
(i) Computers installed in
an office.
(ii) Mobile sets purchased
by a mobile dealer.
Ans. (i) These
are final products because these are purchased for investment.
(ii)
These are intermediate products because these are purchased for resale.
Q.21. Giving reason identify
whether the following are final expenditures or intermediate expenditure:
(i) Expenditure on
maintenance of an office building.
(ii) Expenditure on
improvement of a machine in a factory.
Ans. (i) These
are final products because these are purchased for investment.
(ii)
These are intermediate products because these are purchased for resale.
Q.22. Giving reasons, explain
the treatment assigned to the following while estimating national income:
(i) Family members working
free on the farm owned by the family.
(ii) Payment of interest
on borrowings by general government.
Ans. (i)
Imputed salaries of these members will be included in national income.
(ii)
It will not be included in national income because it is a non-factor payment
as general government borrows only for consumption purpose.
Q.23. Giving reasons, explain
the treatment assigned to the following while estimating national income:
(i) Social security
contributions by employees,
(ii) Pension paid after
retirement
Ans. (i) Not
included in national income because it is paid out of compensation of employees
which is already included in national income.
(ii)
Not included in national income in the year of actual payment because it was
already counted as pension during the period when the person was employed/
because it is a deferred pa5anent.
Q.24. Giving reasons, explain
the treatment assigned to the following while estimating national income:
(i) Expenditure on
maintenance of building.
(ii) Expenditure on adding
a floor to the building.
Ans. (i) It is
treated as intermediate expenditure and so deducted from the value of output
for arriving at national income.
(ii)
It is treated as fresh expenditure on investment capital formation and
therefore included in the estimation of national income.
Q.25. Giving reasons, classify
the following into intermediate and final goods:
(i) Machines purchased by
a dealer of machines.
(ii) A car purchased by a
household.
Ans. (i)
Intermediate as purchased for resale.
(ii)
Final as purchased for consumption.
Q.26. How will you treat the
following while estimating national income of India? Give reasons for your
answer.
(i) Dividend received by a
foreigner from investment in shares of an Indian company.
(ii) Profits earned by a
branch of an Indian bank in Canada.
(iii) Scholarship given to
Indian students studying in India by a foreign company.
Ans. (i) It is
factor income to abroad, so it will be deducted from NDP to get NNP.
(ii)
It is factor income from abroad, so it is included in NI.
(iii)
It is a transfer payment. So, it is not included in NI.
Q.27. How will you treat the
following while estimating domestic factor income of India? give reasons for
your answer.
(i) Remittances from
non-resident Indians to their families in India.
(ii) Rent paid by the embassy
of Japan in India to a resident Indian.
(iii) Profits earned by
branches of foreign bank in India.
Ans. (i) Not
included because it is a transfer payment.
(ii)
Not included because embassy of Japan is not a part of domestic territory of
India.
(iii)
Included because the branch of the foreign bank is located within the domestic
territory of India.
Q.28. How will you treat the
following while estimating national income of India? Give reasons for your
answer.
(i) Salaries received by
Indian residents working in Russian Embassy in India.
(ii) Profits earned by an
Indian bank from its branches abroad.
(iii) Entertainment tax
received by the government.
Ans. (i)
Included in national income because it is factor income from abroad.
(ii)
Included because it is factor income from abroad.
(iii) Not included
because it is indirect tax and it is not a factor cost. No marks be given if
the reason is not given