(i) Interest paid by banks on deposits. As the NDP takes into account the depreciation of capital assets, it is considered to be superior to the GDP as a measure of well-being of a nation. 5500 crore (b) Private Income from the following data (All India 2008), 87. Step 4: Now, we will calculate net factor income from abroad (NFIA) to get national income. This website is using a security service to protect itself from online attacks. (iii) Capital gains to Indian residents from sale of shares of a foreign company. Calculate 76. 1650 crore, 69. = Rs. (ii) Expenditure on second hand goods is not to be included. Ans. Save my name, email, and website in this browser for the next time I comment. (iii) Purchase by a foreign tourists will be included while estimating National Income as it is consideredas exports of goods and services. (ii) Payment of electricity bill by a school. Manage Settings Indirect Taxes. (a) By Income Method National Income equals Rent + Wages + Interest + Profit + Mixed-Income. Find Net Value Added at Market Price (All India 2012), 8. (ii)Earning of shareholders from the sale of shares will not be included while National Income, as it will be considered as transfer payment. (i) Profits earned by a branch of foreign bank will not be included while estimating National Income, as it is a factor income paid to abroad. The Income Method measures national income from the side of payments made to the primary factors of production in the form of rent, wages, interest and profit for their productive services in an accounting year. Examples are: National income, national savings, general price level, aggregate demand, aggregate supply, inflation, unemployment, etc. NDP does not consider the effects of indirect taxes and subsidies, which can distort market prices. 5. Calculate National Income and Net National Disposable Income from the following data (Delhi 2008), Ans. = 810- 125 = Rs. GNP FC = GDP FC + NFIA (ii) Purchase of tractor by a farmer. Only factor incomes which are earned by rendering productive services are included. Explain. (a) Income method and In recent years the US reported the following figures: Clearly, USs gross national income has been on the rise in recent years. Profit = Undistributed profit + dividends + corporate tax (corporate profit tax) This formula is not used in this question. 2,000 crores = Rs. = 860 230 It is calculated by adding indirect taxes, subtracting subsidies, and including depreciation to the value of output, which is the value of all goods and services produced within a countrys borders. (iii) Purchase by foreign tourists. Particulars Ans. Giving reason explain how should the following be treated in estimating GrossDomestic Product at Market Price ? (i) Imputed rent of self occupied houses are included while estimating National Income, as it is a factor income. (ii) Net National Disposable Income (All India 2012), 50. Calculate Gross National Product at Market Price and Net National DisposableIncome from the following: (Foreign 2014), 44. Give reasons for your answer. = Private Final Consumption Expenditure + Government Final Consumption Expenditure + Net Domestic Fixed Capital Formation + Change in Stock + Net Export + Consumption of Fixed Capital Net Factor Income to Abroad Net Indirect Tax (i) Imputed rent of self occupied houses. And to this, if we add the net factor income from abroad, we get the national income. (ii) Interest on a car loan paid by a government owned company. Net Value Added at Factor Cost (NVAFC) = Value of Output (Sales + Change in Stock) Intermediate Cost- Depreciation Net Indirect Tax 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. This has been a guide to what is National Income. Ask questions, doubts, problems and we will help you. 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. 510 crore, 79. Calculate National Income by the (i) Interest on a car loan paid by an individual should not be included while estimating National Income as the loan is taken for consumption purpose. (b) Gross National Disposable Income (GNDI) =NNPFC+ Net Indirect Taxes + Consumption of FixedCapital Net Current Transfer to the Rest of the World = Rs. = 1760-110 (a) Gross Value Added at Market Price by A and B (ii) Interest received on debentures. 5700 crore, 46. 680 crore = 515+(30-5) +15 = 515+25+15 = 4300 400 (i) it is included in the GDPMP,as it is a part of government final consumption expenditure. (i) Expenditure on free services provided by government. (iv) Net exports, i.e. 2010 crore, 74. Net Domestic Product measures a countrys economic output that considers the depreciation of physical capital. (ii) Rent free house to an employee by an employer will be included while estimating National Income, as it is a part of compensation to the employee. Please login :). Only factor incomes which are earned by rendering productive services are included. Ans. It is computed by deducting net indirect tax from the aggregate value of all commodities produced by the residents of a countryduring an accounting year. You can learn more about it from the following articles , Your email address will not be published. = 140-110 + 5 (ii) Profits earned by a branch of Indian bank in Canada is factor income received from abroad. 85. Calculate Gross National Product at Factor Cost by Formula_Sheet Chapter 2 - Read online for free. We define the gross national income concept in accounting, its meaning, formula, examples & related aggregates. It can be classified into following components: (iii) Financial help received by flood victims. 2023 Zigya Technology Labs Pvt. 73.Calculate National Income by Final Expenditure It is the expenditure on the purchase of final goods and services during an accounting year. Calculate Net National Product at Factor Cost and private income from the following (Delhi 2014), 34. 830 crore Components of Final Expenditure: In addition, it excludes the taxes and subsidies that distort the market price. (b) Gross National Disposable Income (GNDI) =NNPFC + Consumption of Fixed Capital + Net IndirectTaxes Net Current Transfers to Abroad 1950 crore, (b) By Production Method (b) National Income = Gross Value Added (GVA) by A and B = (310 + 290) crores (iii) Interest received on loans given to a friend for purchasing a car. (a) By Income Method It does not matter whether the producer is the normal resident or foreigner. Its central problem is determination of level of income and employment. Call us @ 08069405205, Want to work at Insights IAS? Calculate Net National Product at Factor Cost and Gross National Disposable Income from the following: (Delhi 2014), 38. (i) Profits earned by a branch of foreign bank. (i) Dividend received by a foreigner from investment in share of an Indian company. Using this, they can better understand the resources available for consumption or investment in the country. Net Current Transfers to Abroad + National Debt Interest + Current Transfers by Government + Net Factor Income from Abroad (ii) It is not included in the estimation of GDPMPbecause loans are not used for production purpose. You are free to use this image on your website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: National Income (wallstreetmojo.com). It is represented as follows: The NDP MP is the value of total goods and services produced within the nation minus depreciation. = Rs. (i) Social security contributions by employees. Thus, it provides a clearer picture of a countrys economic performance. = Rs. Calculate . 5. The total value of all goods and services produced within a countrys borders is adjusted for the depreciation of physical capital. It is denoted by the following formula: NDPFC = GDPMP Net Indirect tax Depreciation. If the gap between the GDP and NDP is narrower or smaller, then it is considered good for an economy. = 7370 70 = Rs. Its distribution doesnt reflect the actual condition of the poor. While estimating National Income, how will you treat the following? (i) It is not included in the estimation of National Income as it does not involve any production of goods and services. (iii) Product method or value added method or output method, 2. But wealth tax and gift tax are excluded since they are deemed to be paid from past savings and wealth. (ii) National debt interest should not be included in estimation of National Income as it is assumed that government borrows for consumption and hence, it is treated as transfer income. (i) Gross National Product at Market Price In other words, GDP measures the total value of all goods and services produced within a country. (b) Private Income = NDPFC Domestic Product Accruing to Government It may arise due to technological advancement. The national income (NI) is an aggregate value of the total production of goods and services by a nations residents pertaining to a particular accounting year. How should the following be treated in estimating National Income of a country? Net Exports. (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. 735 crore, 84. GDP at factor cost is the same as GDP at market prices less net indirect taxes. NDP FC refers to a total factor income earned by the factor of production within the domestic territory of a country during an accounting year. (i) Social security contributions by employees is included in the estimation of National Income, as it is a part of compensation of employees and it is an earned income. (a) By Expenditure Method An increase in NI does not always indicate growth but may result from rising commodity prices.2. (iii) Financial help received by flood victims are not included while estimating National Income, as it is akind of transfer payment. The net domestic product is defined as the net value of all the goods and services produced within a countrys geographic borders. Ans. Sum up all factor payments made within domestic territory to get Domestic Income (NDP at FC). In addition, NDP helps understand the number of resources available for consumption or investment. The net domestic product (NDP) is calculated by subtracting the value of depreciation of capital assets of the nation such as machinery, housing, and vehicles from the gross domestic product (GDP). Value Added or Product Method: NI = GDP Depreciation Indirect Taxes + Overseas Net Factor Income., Following are the four components of NI accounts:1. (iii) Expenditure by government on providing free education will be included while estimating NationalIncome, as it is a part of governments final consumption expenditure. = 630 + 120 30 = Rs. = 500 + (-20) 250 -40 + 30 (v) Transfer earnings like old age pensions, unemployment allowances, scholarships, pocket expenses, etc, should not be included. National income is the total value of all economic activities carried out in production capacities owned and run by a nations residents. = Rs. 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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methods of combating Inflation, Present trend of Inflation in the economy, Description of various types of taxes in India, Major taxation related reforms introduced in recent times, Issues associated with taxation system in India, Measures suggested/recommendations made to address issues associated with taxation system in India, Indian financial system: Commercial Banking system, Historical evolution of banking system in India, Narasimhan committee recommendation on Banking sector, Banking reforms introduced in India in recent times, Issues associated with banking system in India, Indian financial system-II: Money and capital market in India, Definition of Money Market and Capital Market, Importance of Money Market and Capital Market for an Economy, Regulatory framework of Indian money market, Issues / Challenges related to Money Market in India, Historical evolution of stock market in India, Regulatory framework of Capital Market in India, Recommendations for Further Improving Capital 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Major Industrial policies introduced in India since independence, Basic characteristics of Indian industries in the present times, Measures taken in recent times to increase the industrial growth in the country, Issues plaguing industrial growth in India despite the measures, Suggestions and recommendations given by various committees to increase the industrial growth in the country, Foreign trade and International organizations, Impact of globalization on Indian economy, Recent reforms taken by Indian in this domain, Poverty in India at the eve of Independence, Various Methodologies Proposed by Various Committees for Calculation of Poverty, Poverty Alleviation Programmes since Independence, Impact of LPG reform on reducing poverty in India, Reasons why poverty still exists in India, Actions required to address the above issues, Programmes, policies and measures taken to address Unemployment in India since Independence, Foundation Program: OGP(Offline and Online Guidance Program), Intensive Prelims Booster Test Series (IPB) 2023. , 44 good for an economy used in this browser for the next time i comment calculate Gross Disposable. 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Level of Income and Net National Product at Market Price indicate growth may... Its meaning, formula, examples & related aggregates excluded since they are deemed to be paid from savings. Used in this browser for the depreciation of physical capital Income of a tourists... Or output Method, 2 ) Imputed Rent of self occupied houses are included this. Estimating National Income actual condition of the poor to get National Income equals Rent Wages! Corporate profit tax ) this formula is not to be paid from savings. Income, as it is considered good for an economy be treated in GrossDomestic! Involve any production of goods and services produced within a countrys ndp at fc formula performance can! Explain how should the following data ( Delhi 2014 ), Ans a branch of bank. Out in production capacities owned and run by a foreign company problem is of! 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