Question

(a) Can a truck be an intermediate good? Give reasons for your answer.

(b) Calculate GDP at factor cost by Income and Expenditure method.

$\begin{array}{ccc}\text{S. No.}& \text{Items}& \text{Rs. in crores}\\ \left(i\right)& \text{Personal consumption expenditure}& 730\\ \left(ii\right)& \text{Wages and salaries}& 700\\ \left(iii\right)& \text{Employer's contribution to social security schemes}& 100\\ \left(iv\right)& \text{Gross business fixed investment}& 60\\ \left(v\right)& \text{Profit}& 100\\ \left(vi\right)& \text{Gross residential construction investment}& 60\\ \left(vii\right)& \text{Government purchases of goods and services}& 200\\ \left(viii\right)& \text{Gross public investment}& 90\\ \left(ix\right)& \text{Rent}& 50\\ \left(x\right)& \text{Inventory investment}& 20\\ \left(xi\right)& \text{Exports}& 40\\ \left(xii\right)& \text{Interest}& 50\\ \left(xiii\right)& \text{Imports}& 20\\ \left(xiv\right)& \text{Net factor income from abroad}& (-)10\\ \left(xv\right)& \text{Mixed income}& 100\\ \left(xvi\right)& \text{Depreciation}& 20\\ \left(xvii\right)& \text{Subsidies}& 10\\ \left(xviii\right)& \text{Indirect taxes}& 20\end{array}$

OR

Give reasons, on the treatment assigned to the following while estimating national income:

(a) Expenditure on medicines by a government hospital

(b) Expenditure on medicines by Fortis Hospital

(c) Salaries paid to the residents of USA working in Indian Embassy in USA

(d) Rent received by Indian residents for their buildings rented out to foreigners in India

Answer 1

(a) A truck can be an intermediate good if it is purchased for resale purpose.

(b) By income method:

$ND{P}_{fc}=ii+iii+v+ix+xii+xv=700+100+100+50+50+100=Rs.1100$

$GD{P}_{fc}=ND{P}_{fc}$+ Depreciation = 1100 + 20 = Rs. 1120 crores

By expenditure method

$GD{P}_{mp}=i+iv+vi+vii+viii+x+xi-xiii=730+60+60+200+40+20+40-20=Rs.1130$

$GD{P}_{fc}=GD{P}_{mp}-NIT=1130-(20-10)$ = Rs. 1120 crores

OR

(a) Expenditure on medicines by a government hospital: It will be included as it is a government final consumption expenditure.

(b) Expenditure on medicines by Fortis Hospital: It will not be included as it is purchased to sell further to the patients so it is an intermediate goods.

(c) Salaries paid to the residents of USA working in Indian Embassy in USA: It will not be included as salary is not received by normal residents of a country.

(d) Rent received by Indian residents for their buildings rented out to foreigners in India: It will be included as it is received by the normal residents of India.