CBSE Class 12 Important Questions for Macro Economics Chapter 2: National Income Accounting

VERY SHORT ANSWER QUESTIONS                                                        (1 Mark)

1. Explain the meaning of non-market activities

a) Production

b) Non-marketable

c) Involuntary

d) Economic

Ans: (b) Non-marketable.

2. Nominal GNP is same as

a) GNP at constant prices

b) Real GNP

c) GNP at current prices

d) GNP less Net factor income from abroad

Ans: (c) GNP at current prices

3. Real flow is the flow of

a) Money

b) Goods only

c) Services only

d) Goods and services

Ans: (d) Goods and services

4. What is national disposable income?

Ans: The term "national disposable income" refers to the amount of money available to the entire economy for spending or disposition.

The formula for calculating national disposable income is NNPMP + Net Current Transfers from Abroad (NDI).

5. What is real flow?

Ans: The flow of services and goods between various segments is referred to as real flow. Flow sector services, for example, flow from household to firm and then back again.

6. Define money flow.

Ans: The flow of money between different sectors of the economy, such as firms, households, and so on, is referred to as money flow. For example, consider the flow of income from firms to households and the flow of consumption expenditure from households to firms.

7. What must be added to domestic factor income to obtain national income?

Ans: To calculate the national income, net factor income from outside the country must be added to domestic factor income.

8. Explain the meaning of non-market activities.

Ans: Non-marketing activities are those that are gained as a result of the purchase of a large number of finished goods and services. They are really not bought and sold on the open market. Vegetables, for example, cultivated in the house kitchen garden.

9. Define Real GNP.

Ans: In economics, real GNP is defined as GNP computed at constant prices, or through a base year price.

10. Money flow is the flow of

a) Factor payments

b) Goods only

c) Services only

d) Goods and services only

Ans: (a) Factor payments

11. State which one of the following is true.

a) Bread is always a consumer good.

b) Gross domestic capital formation is always greater than gross fixed capital

formation.

c) Capital formation is a flow

d) Nominal GDP can never be less that real GDP

Ans: (c) Capital formation is a flow

12. Which of the following is an example of macroeconomics

a) Price determination

b) Consumer’s equilibrium

c) Producer’s equilibrium

d) Inflation

Ans: (d) Inflation

13. Microeconomics is different from macroeconomics as

a) Microeconomics deals with economic behaviour

b) Microeconomics deals with individual behaviour

c) Microeconomics deals with prices only

d) Microeconomics deals with government’s decisions

Ans: (b) Microeconomics deal with individual behaviour

14. Intermediate goods are those

a) Which are sold

b) Which capital can buy

c) Which are for long term use

d) Which are for resale

Ans: (d) Which are for resale

15. An example of transfer payments is

a) Free meals in the company canteen

b) Employers’ contribution for social security

c) Retirement pension

d) Old age pension

Ans: (d) Old age pension

SHORT ANSWER QUESTIONS                                                                              (3/4 Marks)

16. Distinguish between personal income and private income.

Ans: The distinction between the two is as follows:

Individuals' personal income is the sum of their earned and transfer revenues from all sources of income, both within and outside the country. 

Personal Income is computed as follows: Private Income – Corporate Tax – Corporate Savings (undistributed profits)

Factor and transfer income obtained from all private sources within and outside the country is classed as private income.

Personal income (PI) ≡ NI – Undistributed profits – Net interest payments made by households – Corporate tax + Transfer payments to the households from the government and firms.

17. Explain the main steps involved in measuring national income through the product method.

Ans: The most important steps in calculating national income using the product approach:

1. First, divide the manufacturing units into industrial sectors such as primary, secondary, and tertiary.

2. Next, calculate the factor cost's net value added.

3. In the third phase, calculate the output value by adding sales and stock changes.

4. Calculate gross value added by deducting intermediate consumption from output value.

5. Subtract depreciation and net indirect tax from gross value added at market price to get NDPFC (net value added at factor cost).

6. Finally, add net factor income from outside the country to NDPFC to get NNPFC, which is national income once more.

18. What is double counting in the economy? How can it be avoided?

Ans: Doubt counting is the process of calculating the value of goods multiple times at each stage of production. 

The following methods can be used to avoid it:

a) When estimating national income, use the value-added technique.

b) Calculating national income only on the basis of the final commodity's worth.

19. Do you agree with the statement, ‘Machine purchased is always a final good’. Give reason for your answer.

Ans: Yes, we agree with the assertion made here. It is up to the user to decide if a machine is a finished product or not. When a machine is purchased by a household, it is referred to as a final good. On the other hand, if a machine is purchased by a business, it is referred to as a final good. However, if it is purchased by a company for resale, it is referred to as an intermediate good.

20. What are the precautions to be taken while calculating national income through product method, specially value-added method?

Ans: The steps will be as follows:

a) Instead of relying on the value added by each production unit, avoid using the production's doubt counting approach.

b) Inclusion of output produced for self-consumption.

c) The cost of intermediary consumption should never be taken into account.

d) The sale and acquisition of used products should never be included.

g) The value of services rendered must always be factored into sales.

LONG ANSWER QUESTIONS                                                                                  (6 Marks)

21. Calculate net value added at market price of a firm:

Ans: Value of output: - Sale + Change in stock (300+ (-) 10 = 290/-)
Gross Value added at MP= Value of output - Purchase of intermediate product.

290 - 150 = 140/-

Net Value added at MP = Gross Value added at MP - Depreciation

140 - 20 = 120/-

Thus, the final answer is Rs. 120.

22. Calculate national income and gross national disposable income from the

following data

Ans: Putting the equation together

Net national income (NNPFC) = Net disposable income (NNDPM) 

= (Government final consumption expenditure + private final consumption

expenditure + net domestic fixed capital formation + net exports)

= 200 + 600 + 100 + 10 + (-) 20

= 910 – 20 = 890

So NDP MP = 890 crores

NNPFC = NNDPM + (Net factor income from abroad – Net indirect tax)

= 890 + 5 – 5 

So NNPFC = 890 crores

Depreciation = (Gross domestic fixed capital formation - Net domestic fixed

capital formation)

= 125-100= 25 crores

GNDI = (NNPFC + Net indirect tax + Net current transfers from abroad +

Depreciation)

= 890 + 05 + 15 + 25

 GDNI = 935 crores

23. Calculate NNP at market price by production method and income method.

Ans: 1. By Production Method:

Value added at MP = Value of output - Intermediate consumption

= (1000 + 900 + 700) – (500 + 400 + 300)

= 2600 - 1200

Hence GDPMP = 1400 crores

NNPMP = GDPMP - (Consumptive of fixed capital + Net factor income from

abroad)

= 1400 – 40 = (-20)

NNPMP is equal to 1380 crores

2. By Income Method:

NNPMP = Emoluments of employers + Mixed income + Operating surplus + Net indirect tax + Net factor income from abroad

= 400 + 650 + 300 + 10 + (-20)

NNPMP = 1350 + 10 - 20

 = 1340 crores

24. Giving reason, explain whether the following are included in domestic product

of India.

1. Profits earned by a branch of foreign bank in India

2. Payment of salaries to its staff by embassy located in New Delhi

3. Interest received by an Indian resident from its abroad firms

Ans: 

1. Profits earned by a foreign bank branch in India are included in India's domestic income because they are earned within the country's borders.

2. Since the embassy in New Delhi is not part of India's domestic territory, salaries paid to its employees will not be included in the country's domestic income.

3. Interest received by an Indian resident from his or her foreign enterprises is not included in India's domestic income because it is a factor income.

25. Calculate National Income and Private Income from the following data.

Ans: a) National Income (NNPFC) = (Private final consumption expenditure + Government final consumption expenditure + Net domestic capital formation + Net exports + Net factor income from abroad- Net indirect tax)

= 600 + 100 + 70 + (-20) + 10 - 30

= 780 - 50

= 730 crores

b) Private Income = NNPFC - Net domestic product at factor cost accruing to govt + 

Transfer payments + National debt interest

= 730 – 25 + (10 + 5) + 15

= 760 - 25

= 735 crores

National Income Class 12 Important Questions

National Income is one of the Important chapters of Macro Economics of Class 12. This chapter talks about what is national income, what is the difference between national income and domestic income, how to calculate the national income, its various methods, etc. This is important for both theoretical and practical knowledge. The total number of goods and services produced by the residents of the country in an accounting year is termed as the National Income of the country. There are various methods to calculate the national income of the country which we discussed in this chapter such as product method, income method, and expenditure method. Here, we have come up with important questions of National Income Class 12 which will surely help the students to understand important concepts and allow them to practice important questions so that they can solve the practical problems in their board exams.

Important Topics in Class 12 Economics Chapter 2

The following subjects and sub-topics are covered in the chapter on National Income Accounting. Our specialists have compiled relevant questions and answers from these themes to assist students in studying for their examinations.

• Final Goods

• Intermediate Goods

• Consumption Goods

• Capital Goods

• Investment

• Gross Investment

• Net Investment

• Flow

• Stock

• Circular Flow of Income

• Depreciation

• Real Flow

• Money Flow

• Condition for Equilibrium in the Four Sector Economy

• Leakages

• Factor Incomes

• Normal Residents of a Country

• Transfer Payment

• Domestic Territory of a Country

• Methods of Measurement of National Income

• Value Added

• Planned Change in Inventories

• Unplanned Change in Inventories

• Final Expenditure

• Components of Domestic Factor Income

• Domestic Income

• National Income

• GDP

• NNP at Market Price

• National Income at Current Price

• NNP at Factor Cost

• Private Income

• Personal Income

• National Disposable Income

• Personal Disposable Income

• Real GDP

• Nominal GDP

• Consumer Price Index

• Externalities

• GNP Deflator

Conclusion

All of the crucial questions and answers provided above are in accordance with the most recent CBSE Class 12 rules. This chapter discusses various essential ideas of national income, such as categories of commodities, investments, requirements for equilibrium in a four-sector economy, GDP, the Consumer Price Index, and so on. With the aid of this question-and-answer style, students will be able to simply prepare these topics.

Important Study Material Links for Class 12 Macroeconomics Chapter 2

CBSE Class 12 Economics Important Questions Textbooks

Chapter-wise Links for Macroeconomics Class 12 Questions

Related Study Materials Links for Class 12 Macroeconomics

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