Question

(a) Define GNP at MP.

(b) Calculate National Income by Income and Expenditure methods.

$\begin{array}{ccc}\text{Items}& \text{(Rs. in crores)}& \\ \left(i\right)& \text{Rent}& 1,500\\ \left(ii\right)& \text{Net factor income from abroad}& 50\\ \left(iii\right)& \text{Wages and salaries}& 25,000\\ \left(iv\right)& \text{Indirect tax}& 1,000\\ \left(v\right)& \text{Government final consumption expenditure}& 11,200\\ \left(vi\right)& \text{Subsidies}& 300\\ \left(vii\right)& \text{Royalty}& 200\\ \left(viii\right)& \text{Net exports}& (-)200\\ \left(ix\right)& \text{Interest}& 6,400\\ \left(x\right)& \text{Corporate tax}& 200\\ \left(xi\right)& \text{Profit after tax}& 4,000\\ \left(xii\right)& \text{Households final consumption expenditure}& 26,000\\ \left(xii\right)& \text{Change in stock}& 100\\ \left(xiv\right)& \text{Net domestic fixed capital formation}& 600\\ \left(xv\right)& \text{Final consumption expenditure of private non-profit}& \\ & \text{institutions serving households}& 300\end{array}$

OR

Which of the following will be included in national income?

(a) Renovation of a residential building

(b) Repair and maintenance of residential building

(c) Interest on car loan by a household

Answer 1

a) GNP at MP: It is the market value of all the final goods and services produced by the normal residents of the country in a given time period. It includes depreciation.

(b) National Income
By income method—
$ND{P}_{fc}$ = Wages and salaries + Royalty + Interest + Corporate tax + Profit after tax + Rent
= 25000 + 200 + 6400 + 200 + 4000 + 1500 = 37300
$NN{P}_{fc}=ND{P}_{fc}$ + NFIA = 37300 + 50 = 37350

By expenditure method-

$GD{P}_{mp}$ = Final consumption expenditure of private non-profit institutions serving households + Households final consumption expenditure + Government final consumption expenditure + Net domestic fixed capital formation + depreciation + change in stock + net exports
= 300 + 26000 + 11200 + 600 + 0 + 100 + (- 200) = 38000

$NN{P}_{fc},=GD{P}_{mp}$ - Depreciation + NFIA - NIT
= 38000 - 0 + 50 - (1000 - 300) = 37350 crores

OR

(a) Renovation of a residential building - Included as it is a part of construction of residential building. It is considered as investment by the household.

(b) Repair and maintenance of residential building - Not included as it is considered as an intermediate expenditure by the households.

(c) Interest on car loan by a household - Not included as loan is not used for productive purposes.