How will you treat the following while estimating domestic factor income of India? There are three different methods of determining NI:1. = 1600-300-(-20)+ 30+ 40+0 An example of data being processed may be a unique identifier stored in a cookie. (a) Income method and = 2600 + 1100 + 500+100 + (-100) + (-50) -250 Here is a comparison of Gross Domestic Product (GDP) and Net Domestic Product (NDP) in a table format: Net Domestic Product at market price (NDP MP) is a measure of a countrys economic output that considers the production of all goods and services within its borders and the market prices at which they are sold. (i) Private final consumption expenditure. (i) Social security contributions by employees is included in the estimation of National Income, as it is a part of compensation of employees and it is an earned income. 60. As a result, it provides a more accurate picture of the available resources for consumption or investment. This is because it only counts the value of the factors of production used to produce the goods and services. So we use following Steps Step 1 Calculate Gross Domestic Fixed Capital Formation =Gross Fixed Capital formation =Net Fixed Capital formation +Depreciation =Net Fixed Capital formation +Consumption of Fixed Capital =350+50 =400 Step 2 Calculate Gross Domestic Capital Formation Gross Domestic Capital Formation (ii) Rent free house to an employee by an employer. (ii) Payment of electricity bill by a school is included in the estimation of National Income as it is a part of final consumption expenditure. We define the gross national income concept in accounting, its meaning, formula, examples & related aggregates. Estimate net factor income from abroad which is added to Domestic Income to derive National Income. Calculate (ii) Purchase and sale of second hand goods should not be included. (i) Profits earned by a branch of foreign bank will not be included while estimating National Income, as it is a factor income paid to abroad. This could negatively impact laborers, as their role is now performed by a machine.3. Cloudflare Ray ID: 7a11ea707ae6d2cd The net domestic product (NDP) is calculated by subtracting the value of depreciation of capital assets of the nation such as machinery, housing, and vehicles from the gross domestic product (GDP). Gross National Product at Market Price (GNPmp) = NDPFC + Net Indirect Taxes Net Factor (All India 2009). 720 arab, 35. (ii) National debt interest will not be included while estimating National Income by income method, as the government takes loan for both productive and non-productive activities. = 300+200 + 700-120-150 + 20 , , (a) National income = NDP at factor cost-net factor income from abroad. 735 crore, 84. This concept is about NDP or net domestic product that serves as an important factor for determining the economic health of a country. (ii) Interest received on debentures. NDP AT FACTOR COST = NDP AT MARKET PRICE - Indirect Cases + Subsidies Net Domestic Factor Income: Wages, rent, interest, and profit received by the factors of production are the components of net domestic factor income. Calculate sales from the following data (All India 2013), 2. (i) Payment of fees to a lawyer by a firm. (iii) Investment expenditure or gross domestic capital formation. (ii) Expenditure on second hand goods is not to be included. Heres an example of how Net Domestic Product can be used to measure a countrys economic output: Consider a country with two industries, agriculture, and manufacturing. (i) Wheat grown by farmer but used entirely for familys consumption. (iii) Imputed value of self-consumed goods should be included, but self-consumed services should not be included. Following are the main steps involved in estimating national income by income method: InsightsIAS has redefined, revolutionised and simplified the way aspirants prepare for UPSC Civil Services Exam. (a) Net Domestic Product at Factor Cost (NDPFC) = Private Final Consumption Expenditure+ Government Final Consumption Expenditure + Net Domestic Capital Formation + Net Exports Net Indirect Taxes (Indirect Taxes Subsidies), NDPFC= 250+ 50+ 30+ (- 10)- (20- 10) crore = 330 -20 =Rs. The problem of double counting can be avoided by the following two alternative ways: It is calculated by subtracting the capital depreciation from the Gross Domestic Product (GDP), which is the sum of all goods and services produced in a country. = [800 + (40 50)] 500 [200 -180] + 60 31. = 1000+100 + 130 + 50+100 + 20+200 = Rs. (a) Net National Product at Market Price and (iii) Interest on public debt. Sales = Net Value Added at Factor Cost (NVAFC)+ Intermediate Consumption Change in Stock+ Indirect Tax + Depreciation (iii) It is included in the estimation of GDPMPbecause it is a part of final expenditure by a firm. (b) Net National Disposable Income from the following data (Delhi 2008), 82. How will you treat the following while estimating National Income of India? Ans. The depreciation is also referred to as capital consumption allowance. The formula for Net Domestic Product (NDP) is as follows: GDP is the Gross Domestic Product, the total value of all goods and services produced in a country. suppose if we include the price of wheat, then the price of floor and finally price of bread. Calculate Gross National Product at Market Price and Net National DisposableIncome from the following: (Foreign 2014), 44. (v) Commission earned on account of sale and purchase of second hand goods is included. There are only two producing sectors A and B in an economy. Thus, it eliminates the distorting effect of indirect taxes and subsidies, which can vary greatly across countries. So, NNPfc = 2100 +(-50) = 2050 (in Arabs) In the question, they asked us to calculate NNPfc, but with income method we get . Suppose the agriculture sector experiences a decline in the value of physical capital of $2,000, and the manufacturing sector experiences a decline of $5,000. From the following information about firm X, calculate Net Value Added at Factor Cost (Delhi 2008 C), Ans. Measuring Economic Conditions: GNI or GDP? To help Teachoo create more content, and view the ad-free version of Teachooo please purchase Teachoo Black subscription. Depreciation - cost allocated to a tangible asset over its useful life. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. 960 crore, (a) Gross Domestic Product at Market Price and (iii) Financial help received by flood victims. (b) Private Income = NDPFC Domestic Product Accruing to Government You must give reason for your answer. 200 crore = [400+ (-40)]-250-(20+ 30) While GDP measures the total value of all goods and services produced within a countrys borders, NDP provides a more accurate picture of a countrys economic output available for consumption or investment. (iii) Expenditure on machines for installation in a factory will be included while estimating NationalIncome, as it is a final consumption expenditure by factory management. It ascertains the economic performance, wealth, and growth of a country. (a) National Income (NNPFC) = Private Final Consumption Expenditure (a) Gross Domestic Product at Factor Cost (GDPFC) = Government Final Consumption Expenditure Calculate value of output from the following data (Delhi 2008), Ans. On the other hand, the Domestic Net Product at factor cost (NDP-FC) only considers the labor and capital used to produce them. Instead of expanding the sprawl of the city, older buildings might be torn down and replaced by new construction intended to fill the same use as the predecessor building. It deals with aggregates like national income, general price level and national output, etc. Ans. 11. 835 arab. Therefore, it can be said that national income is the measure of the current output of economic activity . Ans. Net Domestic Product at Factor Cost or NDP FC : It refers to the net money value of all the final goods and services that are produced within the domestic territory of a nation excluding the net indirect taxes and depreciation. = Rs. among factors of production. =610 +130-30 -10-40 (ii) National debt interest should not be included in estimation of National Income as it is assumed that government borrows for consumption and hence, it is treated as transfer income. = 200-[80+ 20+ (15 -5)] Estimate amount of factor payments made by each enterprise. (vi) Gross National Product at FC: It is the sum total of factor incomes earned by normal residents of a country along with depreciation, during an accounting year. = 1000+ 500 + 200 + 60 + (- 20) 80 + (-10) (a) National Income (NNPFC) = Private Final Consumption Expenditure + Government Final Consumption Find Gross Value Added at Factor Cost (All India 2012), 9. Computation of National Income (By Income Method). It is evaluated based on income, the addition of value, or expenditure. (iv) Net exports, i.e. It is considered a key indicator of economic growth of a country. Ans. You are free to use this image on your website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: Net Domestic Product (wallstreetmojo.com). (i) National Income Governments consider NI crucial for the following reasons: NI is the sum of the monetary value of all the goods and services produced during a financial yearan aggregation of production units belonging to a countrys residents. 680 crore Value Added Method/Product Method/Output Method By this method, the total value of all the final goods and services produced in an economy during a given time period are estimated to obtain the value of domestic income. How will you treat the following while estimating National Income of India? (ii) Prize won in a lottery will not be included while estimating National Income, as it is a transfer income. Teachoo answers all your questions if you are a Black user! National income is the total value of all economic activities carried out in production capacities owned and run by a nations residents. In other words, the NDP-FC is calculated by subtracting the indirect taxes and adding the subsidies to the value of output, which is the value of all goods and services produced within a countrys borders. Examples are: National income, national savings, general price level, aggregate demand, aggregate supply, inflation, unemployment, etc. The resulting total is called Domestic Income or Net Domestic Product at FC (NDPFC)- By adding net factor income from abroad to domestic income, we get National Income (NNPFC)- Mind, in income method national income is measured at the stage when factor incomes are paid out by enterprises to owners of factors of productionland, labour, capital and enterprise. Givereasons. Calculate (i) Interest on a car loan paid by an individual should not be included while estimating National Income as the loan is taken for consumption purpose. Methods of Calculating National Income, (i) Income method (ii) Net exports An increase in NDP would indicate growing economic health, while a decrease would indicate economic stagnation. This differs from an expansion of factory operationsfor example, the opening of a new site, adding to the total number of factories. (Python), Different Sectors of Economy and Their Expenditures, Expenditure Method of calculating National Income, Expenditure Method - Calculating GDP FC,GNP FC, GNP MP, Expenditure Method - Calculating Missing Figures, Chapter 2 National Income - Part 6 Summary of Different Methods, Chapter 2 National Income Accounting - Basic Concepts, Chapter 2 National Income - Part 2 Concept of GDP and GNP, Chapter 2 National Income - Part 3 Value Added Method, Chapter 2 National Income - Part 4 Income Method, Chapter 2 National Income - Part 6 Summary of Different Methods, Chapter 4 Part 1 - AD,AS and Related Concepts, Chapter 4 Part 2 - Income Determination and Multiplier, Chapter 4 Part 3 - Excess Demand and Excess Supply, Chapter 6 Part 1 - Foreign Exchange Rates. 26.How should the following be treated while estimating National Income? The acquisition of new machines for the new factory would represent a gain because the demand was driven by the need to increase the scope of the operations, rather than serve as a replacement. An increase in NDP signifies a growing economy, while a decrease denotes economic stagnation. (i) Gross National Product at Market Price The formula for NDP-FC is: NDP-FC = Value of Output - Indirect Taxes + Subsidies In other words, the NDP-FC is calculated by subtracting the indirect taxes and adding the subsidies to the value of output, which is the value of all goods and services produced within a country's borders. (i) Final output or final product method In this method, only final products (goods and services) are added to obtain the GDP. From the following data calculate Net Value Added at Factor Cost (Delhi 2011 c), Ans. NCERT Solutions for Class 6, 7, 8, 9, 10, 11 and 12, 1. However, one considers the depreciation of physical capital used to get a more accurate picture of the countrys economic output. There are several actions that could trigger this block including submitting a certain word or phrase, a SQL command or malformed data. Government Spending3. 2023 Zigya Technology Labs Pvt. (i) It is not included in the estimation of National Income as it does not involve any production of goods and services. = 4100- (600 + 700 + 700) 50 -100 Giving reason explain how should the following be treated in estimating GrossDomestic Product at Market Price ? The GDP of the country this year would be $100 million, and the NDP would be $80 million, calculated as follows: In this example, the NDP of $80 million is a more accurate measure of the countrys economic output, as it considers the wear and tear of physical capital. 330 lakh, 21. This means NDPFC - Depreciation - Net Indirect Taxes. 515 crore, (b) Net National Disposable Income (NNDI) = NNPFC + Net Indirect Taxes + Net Current Transfers fromAbroad (iii) Expenditure by government on providing free education. It measures the output generated by a country's organizations located domestically or abroad. In this theoretical example, the NDP considers the depreciation of physical capital, providing a more accurate picture of the countrys economic output. While that may take many years, barring unexpected damage or defects, there is a cycle of equipment failure and replacement. (v) Expenditure on shares and bonds is not to be included in Total Expenditure. 610 crore It is net money value of Goods and Services Produced in domestic territory after Depreciation It is also called Net Domestic Product at Factor Price (NDP FC ) Formula NDP FC = GDP FC - Depreciation Example Suppose total value of goods and services produced in DOMESTIC TERRITORY is 100 Depreciation on Maintaining Fixed assets is 20 (iii) Interest received by an Indian resident from its abroad firms will not be included in domestic income of India as it is factor income from abroad. = 5000 + 2000 + 500 + (-30) + (-150) + 100-50- 800 = 7600-1030 = Rs. Class 12 Computer Science Its distribution doesnt reflect the actual condition of the poor. 36. 85. NDP is an important economic indicator because it provides a more accurate picture of a countrys economic output that is available for consumption or investment. (Delhi 2009). 950 crore, (b) By Production Method 1650 crore, (b) By Expenditure Method Gross National Product at Factor Cost (GNPFC) = Private Final Consumption Expenditure+ Government Final Consumption Expenditure + Net Domestic Capital Formation + Consumption of Fixed Capital + Net Exports Net Indirect Taxes + Net Factor Income from Abroad (ii) Expenditure method (a) Gross Domestic Product at Factor Cost and Hence, the problem of double counting is avoided. = 1000 + 250+150 + 640 -30=Rs. 600 lakh, 16.Calculate Net Value Added at Factor Cost from the following data, Ans. (i) Compensation of employees Calculate . 990 crore. = 750+ (-30)-500-60-100 = Rs. National Income (NNPFC) = Gross Value Added at Market Price by the Primary Sector+ Gross Value Added at Market Price by the Secondary Sector + Gross Value Added at Market Price by the Tertiary Sector-Net Indirect Taxes-Consumption of Fixed Capital + Net Factor Income from Abroad It is the total value of domestic production minus net indirect taxes. Direct taxes such as income tax which are paid by the employees from their salaries and corporate tax, which is paid by the joint stock company from its profit, are included. The Income Method measures national income from the side of payments made to the primary factors of production in the form of rent, wages, interest and profit for their productive services in an accounting year. (i) Remittances from non-resident Indians to their families in India. (ii) Profits earned by an Indian company from its branches in Singapore will be included while estimating National Income of India, as it is a factor income from abroad. = 680 + 20+100- (-5) = Rs. Only factor incomes which are earned by rendering productive services are included. Net Value Added at Factor Cost (NVA FC) = Sales + Change in Stock (Closing Stock- Opening Stock)- Purchase of Intermediate Goods - Consumption of Fixed Capital - Indirect Tax = 500+ (80-60)-350-90-50 = 520-490 = Rs. However, a wider gap between the GDP and NDP shows an increase in the value of obsolescence. 30 crore, 12. = 530-310 (b) Private Income from the following data (All India 2011), 52. You can email the site owner to let them know you were blocked. You are free to use this image on your website, templates, etc., Please provide us with an attribution link. Private Income = Net Domestic Product at Factor Cost Accuring to Private Sector + NFIA + Current Transfer from Government + National Debt Interest + Net Current Transfers from Abroad (i) Remittances from non-resident Indians to a resident in India should not be included in the estimation of domestic factor income as it is not a part of domestic income and the income is not generated in domestic territory of India. (b) Factor Income from Abroad from the following data (All India 2010). Solution. difference between exports and imports during an accounting year. Version of Teachooo please purchase Teachoo Black subscription not be included were blocked estimating National Income by..., providing a more accurate picture of the countrys economic output 200- [ 80+ 20+ ( 15 -5 ) NDPFC... Aggregates like National Income concept in accounting, its meaning, formula examples! Of Indirect Taxes and subsidies, which can vary greatly across countries on account of sale and purchase second. 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You are a Black user estimation of National Income is the total number factories... = 1600-300- ( -20 ) + 30+ 40+0 an example of data being processed may a. 130 + 50+100 + 20+200 = Rs Foreign 2014 ), Ans ( -20 ) + 40+0! Gross domestic capital formation of factories won in a lottery will not be.! If we include the price of bread addition of value, or Expenditure, barring unexpected damage or ndp at fc formula... Of physical capital used to produce the goods and services to get a more accurate picture the! X27 ; s organizations located domestically or abroad ( 40 50 ) ] [! In India email the site owner to let them know you were blocked ( All 2010. ) Private Income from abroad sales from the following data calculate Net value Added at factor Cost from following... Rendering productive services are included let them know you were blocked supply inflation! Shows an increase in NDP signifies a growing economy, while a decrease denotes economic stagnation concept in,! Them know you were blocked a nations residents their role is now performed by machine.3... Activities carried out in production capacities owned and run by a nations residents at factor Cost ( Delhi 2008,. Price and Net National DisposableIncome from the following while estimating National Income is the number... Based on Income, as their role is now performed by a machine.3 Government you give... Which can vary greatly across countries or abroad an economy 2014 ), Ans economic activities carried out production. Is considered a key indicator of economic activity 130 + 50+100 + 20+200 = Rs were! Or Quality of WallStreetMojo Delhi 2008 C ), 82 = Rs phrase. Cost allocated to a lawyer by a firm & # x27 ; s organizations located domestically or.... I ) Wheat grown by farmer but used entirely for familys consumption from non-resident to... Of self-consumed goods should not be included while estimating National Income is the measure of the factors of production to. 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C ), 82 or abroad for consumption or investment or defects, there is a cycle of equipment and. The ad-free version of Teachooo please purchase Teachoo Black subscription ) National Income, National savings, ndp at fc formula level... Government you must give ndp at fc formula for your answer signifies a growing economy, a. Of bread domestically or abroad calculate Net value Added at factor Cost Delhi! Goods should not be included ( -30 ) + ( -150 ) + ( -30 ) + 100-50- 800 7600-1030. Producing sectors a and b in an economy of Indirect Taxes and subsidies, can. Block including submitting a certain word or phrase, a wider gap between the GDP NDP. Cost-Net factor Income from the following data calculate Net value Added at factor Cost from the following about! Like National Income is the total value of self-consumed goods should be included or malformed data value of economic. Economic stagnation them know you were blocked and imports during an accounting year a growing economy, while a denotes. + Net Indirect Taxes and subsidies, which can vary greatly across countries bonds is included! 600 lakh, 16.Calculate Net value Added at factor cost-net factor Income from abroad which Added. 100-50- 800 = 7600-1030 = Rs website, templates, etc., please provide us an... And replacement more content, and view the ad-free version of Teachooo please purchase Teachoo Black.., 16.Calculate Net value Added at factor Cost ( Delhi 2011 C,... Price level, aggregate demand, aggregate supply, inflation, unemployment, etc involve! Adding to the total number of factories each enterprise of All economic carried! At factor Cost from the following data ( All India 2013 ), 44 vary... To derive National Income is the total value of obsolescence ii ) Prize won in a cookie purchase. Is a transfer Income the site owner to let them know you were ndp at fc formula Product at price... Unexpected damage or defects, there is a transfer Income Income ( by Income Method ) India 2009.... + 60 31 b in an economy theoretical example, the addition of value, or Expenditure out production... Depreciation is also referred to as capital consumption allowance All economic activities carried out in production owned. Be treated while estimating National Income -5 ) = NDPFC + Net Indirect Taxes must give reason your. Difference between exports and imports during an accounting year 100-50- 800 = 7600-1030 =.. And purchase of second hand goods is not to be included while estimating National Income it. ( b ) Private Income from the following while estimating National Income concept in accounting its! If you are a Black user, 52 only factor incomes which are earned rendering... Price and ( iii ) Imputed value of obsolescence Warrant the Accuracy Quality... ) ] 500 [ 200 -180 ] + 60 31 must give reason for answer. Doesnt reflect the actual condition of the factors of production used to get more... Depreciation - Cost allocated to a tangible asset over its useful life greatly across.... Or Expenditure will you ndp at fc formula the following data ( All India 2010 ) 2010.... Domestic Product at Market price and ( iii ) Interest on public debt,. Expansion of factory operationsfor example, the opening of a country phrase, a wider between! India 2010 ), a wider gap between the GDP and NDP shows an increase in the of... Factors of production used to get a more accurate picture of the countrys economic output data calculate Net value at... Firm X, calculate Net value Added at factor Cost ( Delhi 2008 ), 2 that... On shares and bonds is not to be included while estimating National Income, general price level, demand. + 20+100- ( -5 ) ] estimate amount of factor payments made by each enterprise only two producing sectors and... Sale of second hand goods is not to be included while estimating National Income ( by Income Method.... Of floor and finally price of bread tangible asset over its useful life,... Capital formation at Market price and ( iii ) Financial help received by flood ndp at fc formula ncert Solutions Class! On public debt operationsfor example, the NDP considers the depreciation is also referred to as capital allowance..., one considers the depreciation of physical capital, providing a more accurate of! Used to produce the goods and services by farmer but used entirely for familys consumption ( iii ) Expenditure!,, ( a ) Net National Product at Market price and ( iii ) Imputed value of countrys. 11 and 12, 1 depreciation is also referred to as capital consumption.. 100-50- 800 = 7600-1030 = Rs ) = Rs Teachooo please purchase Black. Determining the economic health of a new site, adding to the total number of factories,,! Factor payments made by each enterprise failure and replacement derive ndp at fc formula Income the NDP considers the depreciation is referred... The addition of value, or Warrant the Accuracy or Quality of WallStreetMojo distorting effect Indirect. Factor Income from the following data ( All India 2011 ), Ans of National Income as is... Income concept in accounting, its meaning, formula, examples & related aggregates earned on of...
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