Question

Calculate gross domestic product at factor cost and factor income to abroad:

$\begin{array}{cc}& \\ \left(1\right)\text{Compensation of employees}& 800\\ \left(2\right)\text{Profits}& 200\\ \left(3\right)\text{Dividends}& 50\\ \left(4\right)\text{GNP at MP}& 1400\\ \left(5\right)\text{Rent}& 150\\ \left(6\right)\text{Interest}& 100\\ \left(7\right)\text{Gross domestic capital formation}& 300\\ \left(8\right)\text{Net fixed capital formation}& 200\\ \left(9\right)\text{Change in stock}& 50\\ \left(10\right)\text{Factor income from abroad}& 60\\ \left(11\right)\text{NIT}& 120\end{array}$

OR

Which of the following will be included in national income?

(a) Production of services for self-consumption

(b) Vegetables grown in the kitchen garden

(c) Imputed value of owner-occupied house

(d) Stock of raw material left last year

Answer 1

Gross domestic product at factor cost

(i) $ND{P}_{fc}$ = Compensation of employees + Profits + Rent + Interest
= 800 + 200 + 150 + 100 = 1250

Gross domestic capital formation
= Net fixed capital formation + Change in stock + Depreciation
Depreciation = 300 - 200 - 50 = 50
$GD{P}_{fc}=ND{P}_{fc}$ + Depreciation
= 1250 + 50 = 1300

(ii) Factor income to abroad
GNP at MP = $GD{P}_{fc}$ + NFIA + NIT
1400 =1300 + (factor income from abroad - factor income to abroad) + 120
1400 = 1300 + (60 - factor income to abroad) + 120
Factor income to abroad = 80 crores

OR

(a) Production of services for self-consumption—Not included as it is not for market purpose and it is difficult to estimate its value

(b) Vegetables grown in kitchen garden—Not included as it is an activity of leisure

(c) Imputed value of owner occupied house—Included as these are the services generated for the owner of the house and its value can be estimated as per the prevailing rates of rent

(d) Stock of raw material left last year- Included as it is considered final if not used within a time span of 1 year