(ii) Profits earned by an Indian bank from its abroad branches. Net Value Added at Factor Cost (NVAFC) = Value of Output (Sales + Change in Stock)-Purchase of = 1000+100 + 130 + 50+100 + 20+200 = Rs. Suppose a countrys economy produces $100 million worth of goods and services in a year, and the depreciation of its physical capital is $20 million. 5. Chapter Chosen. Net Value Added at Factor Cost (NVAFC) = Sales + Change in Stock (Closing Stock- Opening Stock)- Purchase of Intermediate Goods Consumption of Fixed Capital Indirect Tax Find Net Value Added at Market Price (Delhi 2012), 7. Personal Disposable Income = Private Income Corporation Tax Corporate Savings Direct Tax NNPFC = NDPFC + NFIA. 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 (i) Family members working free on the farm owned by the family should included as it is a part of mixed income. (i) Profits earned by a branch of foreign bank. CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. (a) Income method and This is important as failure to take action would result in a decrease in the country's GDP. The formula for NDP can be expressed as follows: Depreciation = Depreciation of capital assets such as equipment, vehicles, housing, and more. 3. (vii) If intermediate purchases are given, then imports are not included. 76. 685 arab (All India 2011), Ans. 25.Giving reason, explain how should the following be treated while estimatingNational Income (All India 2012) Simply put 'it is study of the economy as a whole'. (ii) Profits earned by an Indian company from its branches in Singapore. What Is GDP and Why Is It So Important to Economists and Investors? = Rs. NDP = GDP - Depreciation N DP = GDP. Expenditure Method: NI = C (household consumption) + G (government expenditure) + I (investment expense) + NX (net exports).3. = 500 +200+120 + (-20) + 20-30 -100 -(-10) -20 680 crore (b) Gross National Disposable Income (GNDI) =NNPFC + Consumption of Fixed Capital + Net IndirectTaxes Net Current Transfers to Abroad Imputed rent of owner occupied dwellings and value of production for self-consumption is included but value of self-consumed services like those of housewife is not Included. (v) Transfer earnings like old age pensions, unemployment allowances, scholarships, pocket expenses, etc, should not be included. Calculate National Income and Net National Disposable Income from the following data (Delhi 2008), Ans. = Rs. (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. It can be classified into following components: (iii) Purchase by a foreign tourists will be included while estimating National Income as it is consideredas exports of goods and services. Calculate Gross National Product at Market Price by production method and income method (All India 2010), 67. The NDP also takes into account the other factors such as obsolescence and complete destruction of the asset. = 810 + 60 + 80-(-10) In this theoretical example, the NDP considers the depreciation of physical capital, providing a more accurate picture of the countrys economic output. You must give reason for your answer. 37. (i) NDP (at MP) : Net Domestic Product at market price. = 1550 190 = Rs. 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. 290 crore (i) Only final expenditure is to be taken into account to avoid error of double counting. (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. = 790-500-20+60 This is the market value of output, while income payments made to factors of production amount to Rs. We are not permitting internet traffic to Byjus website from countries within European Union at this time. Ans. 60. (a) By Income Method as well as windfall gains (e.g., from lotteries) are excluded. Calculate National Income and Net National Disposable Income from the following (All India 2014), Ans. (i) Income from illegal activities like smuggling, theft, gambling, etc, should not be included. = 800+ 400+ 250+150+ 60+ (-10) = Rs. 26.How should the following be treated while estimating National Income? What do you understand by domestic income (NDP FC)? Sum up all factor payments made within domestic territory to get Domestic Income (NDP at FC). Since net value added by an enterprise is the result of services of factors of production, therefore, the same is distributed in the form of money income (rent, wages, interest, etc.) 62.Calculate(a) Gross Domestic Product at Market Price and 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. Study of problem of unemployment in India or general price level is a macroeconomic study because they relate to Indian economy as a whole.Let it be known that an English economist J.M. (a) Gross Value Added at Market Price by A and B (ii) Payment of electricity bill by a school. = [400+ (-40)]-250-(20+ 30) When you visit the site, Dotdash Meredith and its partners may store or retrieve information on your browser, mostly in the form of cookies. Ans. Depending on the way, the income is earned. Income Method By this method, the total sum of the factor payments received during a given period is estimated to obtain the value of Domestic Income. It is a measure of the total value of all goods and services produced within a countrys borders, adjusted for the decline in the value of physical capital over time due to wear and tear, obsolescence, and other factors. 4. Copyright 2023 . Calculate Gross National Product at Market Price and Net National Disposable Income from the following data (Delhi 2009 c), 80. (ii) National debt interest. = 5500 + 250- 150 + 100 = 5850- 150 (a) National Income (NNPFc)= Private Final Consumption Expenditure + Government Final Consumption Expenditure + Gross Domestic Fixed Capital Formation + Net Change in Stocks Net Imports Depreciation Net Indirect Tax Net Factor Income to Abroad (iv) Own account production should be included. (iii) Interest received on loans given to a friend for purchasing a car. (i) Expenditure on education of children by a family is included in the estimation of National Income as it is a part of final consumption expenditure by the household. GDP = Total National Income + Sales Taxes + Depreciation + Net Foreign Factor Income. National Income (NNPFC) = Compensation of Employees + Rent + Interest + Profit Net Factor Income to Abroad (i) Expenditure on fertilisers by a farmer. (i)Interest on a car loan paid by an individual. = 500 + (-20) 250 -40 + 30 Study of cotton textile industry is a microeconomic study. GDPMP = Net Domestic Product at FC (NDPFC) + Depreciation + Net Indirect Tax #2 - Gross Domestic Product at Factor Cost (GDPFC) It is the total value of domestic production minus net indirect taxes. = 520-490 = Rs. Net Domestic Product measures a countrys economic output that considers the depreciation of physical capital. (a) Income method and The GNPMP is the value of overall goods or services manufactured by a nations residents. = 7370 70 = Rs. Ans. = 830-40-150-70 = Rs. NDP at FC = Compensation to Employees + Operating Surplus + Mixed-Income from Self-Employment. Gross Value Added at Factor Cost (GVAFC) = Value of Output (Sales + Change in Stock)- Purchase of Raw Materials Indirect Tax (Sales Tax + Excise Duty) Net domestic product (NDP) is an annual measure of the economic output of a nation that is calculated by subtracting depreciation from gross domestic product(GDP). Calculate (i) National Income . Net Exports. Giving reasons, explain how the following are treated while estimating National Income? Value Added by a Firm = Value of Output of the Firm Intermediate Consumption of the Firm. PRODUCT METHOD (Value added method): Theory-only the value of final goods is to be included; otherwise there arises a problem of double counting. The problem of double counting can be avoided by the following two alternative ways: = Rs. National Income equals C + G + I + NX. Hence, according to the value-added method: National Income = (NDP FC) + Net factor income from abroad. (iii) Investment expenditure or gross domestic capital formation. Give reasons for your answer. (iii) It is included in the estimation of GDPMPbecause it is a part of final expenditure by a firm. How will you treat the following while estimating National Income? = 750+ (-30)-500-60-100 Ans. Ans. Find Gross Value Added at Factor Cost (All India 2012), 9. (i) Wheat grown by farmer but used entirely for familys consumption will be included while estimating National Income, as the production is done for self-consumption purpose and relate to current production. (i) Remittances from non-resident Indians to their families in India. 31. The action you just performed triggered the security solution. 9. (ii) Rent free house to an employee by an employer. Ans. = Rs. Indirect Taxes. Calculation of Natinal Domestic Prodeuct (NDP) at Factor Cost (FC) 1. (i) Profits earned by a branch of foreign bank in India. + Government Final Consumption Expenditure + Net Domestic Fixed Capital Formation + Change in Stock + Consumption of Fixed Capital- Net Imports Net Indirect Tax Net Factor Income to Abroad From the following data calculate Net Value Added at Factor Cost (Delhi 2011 c), Ans. Calculate Gross National Product at Market Price from the following data (All India 2013), Ans. Requested URL: byjus.com/commerce/income-method/, User-Agent: Mozilla/5.0 (iPhone; CPU iPhone OS 14_7_1 like Mac OS X) AppleWebKit/605.1.15 (KHTML, like Gecko) Version/14.1.2 Mobile/15E148 Safari/604.1. In other words, problem of double counting arise when the value of intermediate goods is also added in total output, e.g. 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. + Net Value Added by Tertiary Sector Net Indirect Taxes 29.Giving reason, explain how are the following be treated in estimation of NationalIncome by income method (All India 2010) The frequency and scope of such replacements can vary by type of capital assets. National income is the total value of all economic activities carried out in production capacities owned and run by a nations residents. 43. (a) National Income (NNPFC)= Private Final Consumption Expenditure + Government Final Consumption Expenditure + Net Domestic Capital Formation Net Imports Net Indirect Tax- Net Factor Income to Abroad (i) Gross National Product at Market Price Ans. Save my name, email, and website in this browser for the next time I comment. Calculate Net National Product at Market Price and Gross National Disposable Income. 950 crore, (b) By Production Method Computation of National Income (By Income Method). Examples are: Individual income, individual savings, price determination of a commodity, individual firm's output, consumers equilibrium. While that may take many years, barring unexpected damage or defects, there is a cycle of equipment failure and replacement. 2800 crore, 65. 310 crore, Gross Value Added (GVA) by B = Sales by B + Net Change in Stock of B (iii) Expenditure on providing police services by the government = 1000+ 500 + 200 + 60 + (- 20) 80 + (-10) In other words, the NDP is calculated by subtracting the depreciation of physical capital from the GDP to give a more accurate picture of a countrys economic output that is available for consumption or investment. (ii)Earning of shareholders from the sale of shares will not be included while National Income, as it will be considered as transfer payment. It studies not an individual economic units like a household or a firm or an industry (i.e. This compensation may impact how and where listings appear. Net Domestic Product at Factor Cost (NDPFC) Net domestic product (NDP) is an annual measure of the economic output of a nation that is adjusted to account for depreciation. (ii) Net National Disposable Income (Delhi 2012), 48.Find out Intermediate Consumption = Value of Output Net Value Added Thus, national income is calculated by adding up factor incomes generated by all the producing units located within the domestic economy during a period of account. Let us have a look at the examples to understand the concept better. Explain. = 500 + 100 +200 +50-40-70- 120- (- 10) This provides a more comprehensive picture of a countrys economic output, as it considers both the production of goods and services and the market prices at which they are sold, including the effect of government interventions. (i) Dividend received by an Indian firm from its investment in shares of a foreign company. 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. (b) Gross National Disposable Income from the following data, Ans. (b) National Income (All India 2009), Ans. Calculate National Income and Gross National Disposable Income from the following (Delhi 2011), Ans. (Interest paid by banks on deposits by individuals. Calculate National Income from the following data (Delhi 2013), = Private Final Consumption Expenditure + Government Final Consumption Expenditure + Gross Domestic Capital Formation Net Imports Net Indirect Taxes Consumption of Fixed Capital + Net Factor Income from Abroad (i) Payment of bonus by a firm. Above Village Hyper Market, Chandralyout Main Road, difference between exports and imports during an accounting year. (ii) Payment of interest on borrowings by general government. Givereasons for your answer. 515 crore, (b) Net National Disposable Income (NNDI) = NNPFC + Net Indirect Taxes + Net Current Transfers fromAbroad Thus, it eliminates the distorting effect of indirect taxes and subsidies, which can vary greatly across countries. = 700+100+120+ (-20) -80-10 He teaches Science, Economics, Accounting and English at Teachoo, Made with lots of love 355 crore, 81. (ii) Interest paid by an individual on a loan taken to buy a car. The concept has the following drawbacks:1. (iii) Expenditure on transfer payments by the government is not to be included. 64. = Rs. 28.Giving reason, explain the treatment assigned to the following while estimatingNational Income (All India 2011) (iv) Net exports, i.e. Net Current Transfers to Abroad + National Debt Interest + Current Transfers by Government + Net Factor Income from Abroad (i) Wheat grown by farmer but used entirely for familys consumption. (ii) Interest paid by an individual on loan taken to buy a car will not be included while estimating Ntional Income, as loan is taken for consumption purpose. 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 Meaning of microeconomics Briefly, microeconomics is the study of individual economic units of an economy. = Rs. = 700+100+10-130 = Rs. Displaying ads are our only source of revenue. = 1450 + 400 + [200 + (- 50)] (-50) -100 = Rs. among factors of production. Write in to us at, Insta 75 days Revision Tests for Prelims 2022, Difference between economic growth vs economic development, The concept of demand and supply in an economy, Importance of quantifying economic growth, Various types of economic indicators or concepts related to measuring economic growth, Issues associated with National Income accounting in India, Possible solutions to Issues with National Accounting, Structure of Indian economy: a brief overview, Indian economy at the time of independence: Basic characteristics, Basic characteristics of the Indian economy in present times, Overall Solutions to achieve a New India by 2022, Historical evolution of planning in India, Genesis of Planning Commission and its objectives, Framework of planning under the commission, Growth of Indian economy under the various-five year plans of the Planning commission, Analysis of the working of Planning commission, Performance of the AYOG since its inception, Issues plaguing the AYOG and measures 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Take action would result in a decrease in the estimation of GDPMPbecause It is included in the 's... And the GNPMP is the total value of overall goods or services by... Method: National Income ( NDP at FC = Compensation to Employees + Operating Surplus + Mixed-Income from Self-Employment and! While that may take many years, barring unexpected damage or defects, there is a of. This time also takes into account the other factors such as obsolescence and destruction! Institute Does not Endorse, Promote, or Warrant the Accuracy or Quality of.. Intermediate goods is also Added in total output, consumers equilibrium branch of foreign bank India! By general government and b ( ii ) Payment of electricity bill by a branch of foreign bank by. Important to Economists and Investors value Added at Market Price: National Income of Domestic! A friend for purchasing a car loan paid by an Indian company from its branches! Or an industry ( i.e GNPMP is the total value of output, while Income payments made Domestic... All India 2010 ), Ans i ) Only final expenditure is to be included are excluded GDPMPbecause is... ( a ) by production method and this is the total value of output the! Services manufactured by a school and Why is It So important to Economists Investors! Vii ) If intermediate purchases are given, then imports are not included buy a car studies... Like old age pensions, unemployment allowances, scholarships, pocket expenses, etc should! ( Delhi 2008 ), 80 NDP FC ) 1 as obsolescence and complete destruction of the intermediate. Loan paid by banks on deposits by individuals ( ii ) Payment of bill... Countries within European Union at this time ( b ) National Income + Sales Taxes Depreciation. + Net foreign Factor Income, while Income payments made to factors of production amount to Rs Union. Up All Factor payments made within Domestic territory to get Domestic Income ( by Income and. Between exports and imports during an accounting year from non-resident Indians to their families in.. Age pensions, unemployment allowances, scholarships, pocket expenses, etc should! Failure to take action would result in a decrease in the country GDP! How the following two alternative ways: = Rs to take action would result in a in. By production method Computation of National Income Main Road, difference between exports and imports during an accounting.! Given to a friend for purchasing a car by an Indian bank from branches... ( All India 2011 ), Ans Chandralyout Main Road, difference between exports and imports during an accounting.. An Indian bank from its branches in Singapore ( v ) Transfer earnings like age! Concept better purchases are given, then imports are not included traffic to Byjus website from countries European... Have a look at the examples to understand the concept better individual firm 's output, e.g unemployment allowances scholarships... Crore, ( b ) Gross value Added at Factor Cost ( FC ) expenditure by a nations.! ) expenditure on Transfer payments by the government is not to be taken into account the other such! To Byjus website from countries within European Union at this time countrys economic output that the... Take action would result in a decrease in the estimation of GDPMPbecause It is microeconomic! 2009 ), Ans cycle of equipment failure and replacement would result in a decrease in country... Imports are not permitting internet traffic to Byjus website from countries within European Union this. Household or a firm or an industry ( i.e ( iii ) Interest received on loans given a... To factors of production amount to Rs the government is not to be included firm or an (! Alternative ways: = Rs It studies not an individual 400+ 250+150+ 60+ ( -10 ) = Rs bank its... All economic activities carried out in production capacities owned and run by a firm or an industry ( i.e Added... Hence, according to the value-added ndp at fc formula: National Income and run a! Can be avoided by the following data, Ans Remittances from non-resident Indians to their families India... By general government friend for purchasing a car and Income method ( India... Product measures a countrys economic output that considers the Depreciation of physical capital action! Estimation of GDPMPbecause It is a part of final expenditure by a nations residents a school of GDPMPbecause It a... Added in total output, e.g production method Computation of National Income and Gross National Disposable Income value. ) Interest paid by banks on deposits by individuals carried out in production owned... + Mixed-Income from Self-Employment there is a cycle of equipment failure and replacement FC Compensation... 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Barring unexpected damage or defects, there is a cycle of equipment failure and replacement -50 ) -100 =.... Gross value Added by a nations residents Domestic territory to get Domestic Income ( Income. Income ( NDP FC ) + Net foreign Factor Income action you just triggered. A car loan paid by banks on deposits by individuals Surplus + Mixed-Income from Self-Employment MP ) Net! The NDP also takes into account the other factors such as obsolescence and complete of... Years, barring unexpected damage or defects, there is a part of final expenditure by a firm or industry. Or an industry ( i.e Employees + Operating Surplus + Mixed-Income from Self-Employment to Economists and Investors Remittances... ( ii ) Payment of electricity bill by a firm during an accounting year you treat the following (. Or Warrant the Accuracy or Quality of WallStreetMojo electricity bill by a branch ndp at fc formula foreign bank in India security... ) Income method ( All India 2013 ), Ans individual firm 's output, while payments... I comment, problem of double counting can be avoided by the government is not to be.... Concept better = value of output of the firm ( Interest paid by an individual ways =! National Income Tax Corporate Savings Direct Tax NNPFC = NDPFC + NFIA Investment expenditure Gross! Economic output that considers the Depreciation of physical capital difference between exports and imports an... Age pensions, unemployment allowances, scholarships, pocket expenses, etc, should not be included Net Factor! Industry ( i.e ( Delhi 2011 ), 80 and run by nations! Mixed-Income from Self-Employment free house to an employee by an Indian firm from its abroad branches website from within... Territory to get Domestic Income ( NDP FC ) Price and Gross Disposable. Employee by an individual economic units like a household or a firm how will you treat following. Savings, Price determination of a foreign ndp at fc formula while Income payments made within Domestic to. + Net Factor Income from the following ( ndp at fc formula India 2010 ), Ans smuggling,,! Or Warrant the Accuracy or Quality of WallStreetMojo Added at Market Price while Income payments made within territory.