Chapter 1: National Income and Related Aggregates (Basic Concepts)

Part A: Introductory Macroeconomics

Q. NO QUESTION MARKS

1 Journey of Bread :

A Farmer grows wheat of ₹10000 in his farm. The flour mill owner purchases

this wheat and produces the flour of ₹25000. The bakery shop purchases this

flour to produce bread of ₹ 40000 and sells these to the consumer. What is the

total value added in the Journey of bread?

2 Identify the domestic territory of India:

1) Indian embassy in Australia

2) American embassy in India

3) Indian consulates in France

4) Branch of State bank of India in France

3 Suppose in an economy GDP at Market Price in a particular fiscal year was

₹4000, National Income was ₹2500 crore, Net Factor Income paid by the

economy to Rest of the World was ₹400 crore and value of the Net Indirect

Taxes is ₹450 crore. Estimate the value of consumption of fixed capital for the

economy from the given data.

4 New Delhi. The Centre on Thursday eased norms to offer 50% of salary for

three months as unemployment allowance to lakhs of workers who are

members of the Employees State Insurance Corporation and lost their jobs due

to the corona virus pandemic.

The move as a major relief for industrial workers, who have lost jobs or are on

the verge of losing jobs to the impact of the pandemic and the lockdown, which

had stalled economic activity. There have been demands from several sections

to provide wage relief to workers hit hard by the pandemic.

Source: m.timesofindia.com, Aug 21, 2020

Unemployment allowance is a -------------- (factor/transfer) income

5 For an open economy (with foreign trade), which one of the following is

correct?

a) NDP = NNP

b) NDP > NNP

c) NDP < NNP

d) None Of above

6 Identify the following as Normal Resident of India:

a) Indian officials working in India Embassy In China

b) An American tourist who stays in India for 2 months

c) Indian going to Australia for watching the cricket match

Indian employees working in WHO , located in India

7 Assertion (A): The goods which are used either for resale or for further

production in the same year are Intermediate goods.

Reason (R): Intermediate goods are included in National Income

a) Both Assertion (A) and Reason (R) are true and Reason (R) is the

correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the

correct explanation of Assertion (A)

c) Assertion (A) is true but Reason (R) is false.

d) Assertion (A) is false but Reason (R) is true

8 Assertion (A): Goods that meant for final use and will not pass through any

more stages for production or transformation is called a final good.

Reason (R): It will not under go any further transformation at the hands of any

producer, but many such final goods are transformed during their consumption.

a) Both Assertion (A) and Reason (R) are true and Reason (R) is the

correct explanation of Assertion (A)

b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the

correct explanation of Assertion (A)

c) Assertion (A) is true but Reason (R) is false.

d) Assertion (A) is false but Reason (R) is true

9 NVAFC equals:

(a) ∑Factor Payments

(b) ∑ Current Transfer Payments

(d) Net Current Transfer from Rest of the World

10 The difference between indirect tax and subsidy is known as __________.

(a) Net Factor Income from Abroad

(b) Capital Consumption Allowances

(d) Net Indirect Tax

11 Reeta’s Mother is a teacher. She also teaches Reeta. How will you treat this act

of teaching Reeta while calculating National Income and Domestic Income?

a. It will be included in the National Income but not in Domestic Income

b. It will not be included in the National Income but in Domestic Income

c. It will be included both in the National Income and Domestic Income

It will neither be included in the National Income and nor in Domestic Income

12 Mohan is a farmer. He produces wheat and sells for Rs 750 to a miller who

grinds it into flour and sells it to baker for Rs 1360. The baker sells bread to the

consumers for Rs 1795. Calculate the value of total value added.

d. 750

e. 1350

f. 1795

3900

13 Which of the following is an example of normal residents of India?

a. Foreign worker working in WHO located in India

b. The German working as director in IMF office located in India

c. Ambassador in India from rest of the world

Ambassador of India in rest of the world

14 In an economy, the vaue of Net Factor Income from Abroad is Rs. 300 crores

and the value of Factor Income to Abroad is Rs. 50 crores, identify the value

of Factor Income from Abroad.

a. Rs. 250 crores

b. Rs. 350 crores

c. Rs. 360 crores

d. Rs. 300 crores

15 Statement 1: Normal residents include both individuals and institutions.

Statement 2: International organizations are treated as

normal residents.

Choose the correct option from the following.

a. Both the statements are true.

b. Both the statements are false

c. Statement-1 is true but Statement-2 is false

Statement-1 is false but Statement-2 is true

16 Statement 1: Money received from the sale of second hand goods will be

considered while calculation National Income.

Statement 2: There value is already included and they do not contribute to

current flow of goods and services.

Choose the correct option from the following.

a. Both the statements are true.

b. Both the statements are false

c. Statement-1 is true but Statement-2 is false

Statement-1 is false but Statement-2 is true

17 Assertion (A): Domestic income is equal to National Income in case of a closed

economy. Reason (R): Closed economy has no

economic relationship with rest of the world.

Choose the correct option from the following.

a. Both Assertion (A) and Reason (R) are true and Reason (R) is the

correct explanation of Assertion (A).

b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the

correct explanation of Assertion (A).

c. Assertion (A) is true but Reason (R) is false

Assertion (A) is false but Reason (R) is true.

18 Assertion (A): Unexpected obsolescence is a part of depreciation.

Reason (R): Loss of value of fixed assets owing to un

expected obsolescence is called capital loss.

Choose the correct option from the following.

a. Both Assertion (A) and Reason (R) are true and Reason (R) is the

correct explanation of Assertion (A).

b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the

correct explanation of Assertion (A).

c. Assertion (A) is true but Reason (R) is false

Assertion (A) is false but Reason (R) is true.

19 Assertion (A): The stock variable does not have a time dimension.

Reason (R): The stock variable is measured over a

period of time.

Choose the correct option from the following.

a. Both Assertion (A) and Reason (R) are true and Reason (R) is the

correct explanation of Assertion (A).

b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the

correct explanation of Assertion (A).

c. Assertion (A) is true but Reason (R) is false

Assertion (A) is false but Reason (R) is true.

20 If factor cost is > market price, then it means that :

a. Indirect Taxes > Subsidies

b. Indirect Taxes =Subsidies

c. Indirect Taxes <Subsidies

Indirect Taxes ≥ Subsidies

21 “Amar stepped out of his school van and his mother who was waiting for his

arrival received him. Before the van driver left, he informed Amar’s mother that

school van service fare will be increased by ₹ 50 from next month onwards.

When enquired about the reason for such an increase in school van fare, the

driver informed that it is due to high rate of inflation in the economy.”

The rate of inflation as mentioned in the above scenario is studied as part of the

__________. (microeconomics / macroeconomics)

(Fill in the blank from the options given in the bracket)

22 Read the following statements- Assertion (A) and Reason (R)

Assertion (A): Savings is one the best way of capital formation and it helps a

great deal in the economic growth of a country.

Reason (R): Investment is also known as capital formation.

Select the correct alternative from the following:

(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct

explanation of Assertion (A)

(b) Both Assertion (A) and Reason (R) are true, and Reason (R) is not the

correct explanation of Assertion (A)

(d) Assertion (A) is false, but Reason (R) is true.

23 Read the following passage and answer the question given below:

India’s economic resilience can be seen in the domestic stimulus to growth

seamlessly replacing the external stimuli. The growth of exports may have

moderated in the second half of FY23. However, their surge in FY22 and the

first half of FY23 induced a shift in the gears of the production processes from

mild acceleration to cruise mode. Manufacturing and investment activities

consequently gained traction. By the time the growth of exports moderated, the

rebound in domestic consumption had sufficiently matured to take forward the

growth of India’s economy. Private Consumption as a percentage of GDP stood

at 58.4 per cent in Q2 of FY23, the highest among the second quarters of all the

years since 2013-14, supported by a rebound in contact-intensive services such

as trade, hotel and transport, which registered sequential growth of 16 per cent

in real terms in Q2 of FY23 compared to the previous quarter.

Source: Economic Survey, 2022-23

Read the following statements- Assertion (A) and Reason (R)

Assertion (A): In a two-sector model of circular flow of income, both real flow

and money flow exist as a result of one another.

Reason (R): The export earnings of an economy form a part of the real flow in

2-sector circular flow of income.

Select the correct alternative from the following:

(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct

explanation of Assertion (A)

(b) Both Assertion (A) and Reason (R) are true, and Reason (R) is not the

correct explanation of Assertion (A)

(d) Assertion (A) is false, but Reason (R) is true.

24 Injections are the macroeconomic variables which lead to a rise in the level of

output in the economy.

Leakages are the macroeconomic variables which lead to a fall in the level of

output in the economy.

-The circular flow of income remains stable if ________ are exactly equal to

injections. (Fill in the blank)

25 A train running between Mumbai and Chennai at the speed of 160 km/hr

includes

(i) Only stock variables

(ii) Only flow variables

(iii) Both a stock and a flow variables

None of the above

26 Read the following statements and choose the correct alternatives among those

given below:

Statement 1: Gross investment includes only inventory investment.

Statement 2: Gross investment shows net addition to the existing capital stock.

Alternatives:

(i) Both the statements are true

(ii) Both the statements are false

(iii) Statement 1 is true and statement 2 is false

Statement 2 is true and statement 1 is false

27 “Macroeconomics emerged as a separate branch of economics after the “Great

Depression” which began in 1929 in the United States and impacted most of the

western European nations for about a decade.

J.M. Keynes the author of the book,” General Theory of Employment, Interest

and Money”, published in 1936 was instrumental in bringing about this schism.

The problem was not able to resolve itself going by the theories of the then

Classical Economic Thoughts. According to Keynes, certain interventions are

required to solve the short run disequilibrium occurring in an economy.”

The Great Depression of 1929 was caused due to

(i) Rising Aggregate Demand

(ii) Falling Aggregate Demand

(iii) Both (i) & (ii)

None of the above

28 “Net Factor income from Abroad is the excess of factor incomes earned from

abroad over factor incomes paid to abroad”.

Calculate the Net Factor Income from abroad (NFIA), if the Factor Income

from Abroad is ₹ 700 crores and Factor Income to Abroad is ₹ 400 crores.

29 A new machine is bought for ₹40 lakh. It has a useful life of 10 years, after

which it becomes obsolete and needs to be replaced. This means that the scrap

value of the machine will be zero after 10 years. Calculate the annual

depreciation on the machine.

30 Gross Investment - ____________ = Net Investment 1

31 1. In the production of sugar ,sugarcane is an

(a) Final Good (b)capital good

32 2. Foreign embassies in India are a part of India

(a) Economic territory (b) Geographical territory

3. Depreciation reserves fund is needed for:

A Inventory Stock B Advertisement

C Replacement Investment D None of these

34 4.A car running between Kanpur and Jaipur at a speed of 150Km per hour

includes:

A Only Stock Variable B Only Flow Variable

C Both a Stock and flow variable D None of these

35 Goods purchased for satisfaction of wants are

A Capital Goods B Final Goods

C Consumption goods D Intermediate goods

36 National Income = Domestic income when:

A NFIA is Positive B NFIA is Negative

C NFIA is Zero D None of the above

37 Flow of goods and services across different sectors of the economy is called:

A Real Flow B Circular Flow

C Monetary Flow D Inventory Flow

38 Statement Based Questions

A Statement 1 is true and statement 2 is false

B Statement 1 is false and statement 2 is true

C Both statement 1 and 2 are true

D Both statement 1 and 2 are false

Statement 1: Net investment is a stock concept

Statement 1: Capital is a flow concept

39 With a rise in real national income ,welfare of the people :

a) Rises b) falls

Remain unchanged d) None of these

40 Assertion and Reasoning

A) Both Assertion and Reason are true and Reason is the correct

explanation of assertion

B) Both Assertion and Reason are true and Reason is not the correct

explananation of assertion

C) Assertion is true but Reason is false

D) Assertion is false but Reason is true

Assertion (A) Car purchased by taxi driver is to use a taxi is a consumer

good

Reason (R) Consumer good are those which directly satisfying the wants of

consumers

41 Increase in production of goods and services means increase in GDP. If a

country increases its production of Guns, Tanks, and bombs, will it increase its

welfare of people? Give two arguments.

42 “Machine purchased is always a final good”, Do you agree? Give reasons for

your answer.

43 Classify the following as intermediate gods or final goods:

a) Paper purchased by publisher

b) Milk purchased by household

c) Computers installed in an office

Fees paid to the lawyer by a producer

44 Do you agree with the statement, ‘Machine purchased is always a final good’?

Give reason for your answer.

45 Read the following passage and answer the questions given below.

“The Economic Survey, 2018-19 describes the vicious cycle of growth where

increase in the rate of fixed investment accelerates the growth of GDP that in

turn induces a higher growth in consumption. Higher growth of consumption

improves the investment outlook, which results in still higher growth of fixed

investment that further accelerates the growth of GDP, including a still higher

growth of consumption. This cycle of higher fixed investment, higher GDP and

higher consumption growth generates economic development in the country.”

(a) ____________ (Gross investment/ Net investment) includes investment

for the maintenance of fixed assets.

(b) Inventory investment includes :

g. stock of finished goods

ii. stock of semi-finished goods

iii. stock of raw materials

iv. all of these

Depreciation is a component of Net investment. (True/ False)

46 Giving valid reasons explain which of the following will not be included in the

estimation of the National Income of India?

a. Purchase of shares of X Ltd. by an investor in the National Stock Exchange.

b. Salaries paid by the French Embassy, New Delhi to the local workers of the

housekeeping department.

c. Compensation paid by the Government of India to the victims of floods.

47 Read the following passage and answer the question given below:

Slower growth in OECD economies — especially in the high-tech sector in the

United States that could affect the demand for information technology (IT)

workers and lead to a diversion of formal remittances toward informal money

transfer channels — is likely to impact the flow of remittances this year.

India, which registered a growth of more than 24% to reach a record-high $111

billion in remittances in 2022, is expected to post a growth of just 0.2% in

remittance inflows in 2023, according to the World Bank’s latest Migration

and Development Brief.

Source : Indian Express, 27 June 2023

(i) Distinguish between factor income and transfer receipt.

Is remittance a factor income or transfer receipt?

48 Which of the following will not be included in the estimation of national

income? Give reasons.

(i) Purchase of shares of a limited company by an investor in the

Bombay Stock Exchange.

(ii) Salaries paid by the Japanese Embassy, New Delhi to the local

workers of the housekeeping department.

Compensation paid by the Government of India to the victims of earthquake.

49 Between ‘investment’ and ‘capital’ which is a stock and which is a flow

variable? Explain with an illustration.

50 ‘Machine purchased is always a final good’ do you agree? Give reason for

your answer

51 Which among the following are capital goods and which are consumer goods

and why?

a)A car is used as a taxi

b) Refrigerator in a hotel

c)AC in a house

52 Subsidies to the producers should be treated as transfer payments . Defend or

refute the given statement with valid reason

53 GNPmp of an imaginary economy is ₹1,20,000 crore and its capital stock is

worth ₹3,00,000 crore. If capital stock depreciation is @20% per annum,

indirect taxes amount to ₹30,000 crore and subsidies are ₹15,000 crore. What is

national income?

54 “ Economic value of Daily routine works done by home maker in Indian Family

are not a part of national income while service by maid to a family is included

in National Income” What do you think that not included of home maker

service must be included in calculation of national income?

55 Read the following news report and answer the questions that follow.

In India, flattening sequential recovery, accelerating inflation and a weak

labour market will Continue to act as an impediment to sustained economic

revival. Capital goods and consumer durable goods have witnessed negative

growth rate in double digits. The government might

also need to look at policies to boost consumption by the poor, who have a

much higher

Marginal Propensity to Consume rather than thinking about the relatively well

off, such as government employees, who were the target of expenditure

boosting measures. Overall, the

amount of demand stimulus is underwhelming and we view the impact on both

fiscal and

growth as quite limited. Hindustan Times; October 13th,

2020

(a) Refrigerator purchased by a confectionery shop is a __________ good.

(i) capital

(ii) intermediate

(iii) non-durable

(iv) None of these

(b) Which of the following is/are non-durable good(s)?

(i) Milk

(ii) Bread

(iii) Both (i) and (ii)

(iv) None of these

constant

prices.

(i) per capita income

(ii) national income

(iii) nominal income

(iv) real income

(d) Goods purchased for __________ purpose are final goods.

(i) satisfaction of wants

(ii) investment in firm

(iii) Both (i) and (ii)

(iv) None of these

56 Read the following statements and answer the questions.

a. Domestic/household services performed by a woman may not be considered

as an economic activity’. Defend or refute the given statement with a valid

reason.

b. ‘Compensation to the victims of a cyclone is an example of a welfare

measure taken by the government’. State with a valid reason, should it be

included/not included in the estimation of the national income of India.

57 Distinguish between domestic product and national product. When can

domestic product be more than the national product?

58 Explain why subsidies are added to and indirect taxes deducted from domestic

product at market price to arrive at domestic product at factor cost?

59 Distinguish between ‘capital good’ and ‘capital stock’ by giving a proper

illustration.

60 Classify the following into intermediate goods and final goods. Give valid

reasons for your answers:

(i) A sewing machine purchased by a household

(ii) Machinery used for production by a firm

(iii) Air conditioner purchased by a shopkeeper to be used in his shop

Purchase of ticket for train journey by an individual

61 India's factory output growth surged to more than 7 per cent in April on the

back of growth in capital goods and consumer durables sector.

Capital goods sector surged by 14.7 per cent in April while the consumer

durables sector rose by 8.5 per cent compared to same period last year.

The tepid growth in non-durable sector remains a cause for concern. It

remained almost flat at 0.3 per cent showing that the consumers are wary to

spend amid high inflation.

NSO further said the primary goods, intermediate goods, infrastructure/

construction goods, and consumer non-durables sectors expanded by 10.1 per

cent, 7.6 per cent, 3.8 per cent, and 0.3 per cent, respectively.

The manufacturing sector reported a growth of 6.8 per cent while electricity and

mining showed an increase of 11.8 and 7.8 per cent respectively.

India's economy entered the FY23 fiscal with a host of macroeconomic

challenges. Inflation risks and tightening interest rates are likely to slow down

the economy as the RBI and government act to tame rising prices.

Source : The Economic Times, 10 June 2022

Identify which of the following items are consumer goods and capital goods.

(i) Car purchased by a driver to be used as a taxi

(ii) Sugar used by households

(iii) Services of a doctor or a lawyer used by a household

(iv) Laptop purchased by a household

(v) Machine purchased by a sugar mill

Cloth lying unsold with a trader at the end of the year.

62 What is double counting? How can it be avoided? 4

63 In India ,flattening sequential recovery, accelerating inflation and a weak labour

market will continue to act as an impediment to sustained econonomic revival .

Capital goods and consumer durable goods have witnessed negative growth rate

in double digits. The government might also need to look at policies to boost

consumption by the poor, who have much higher MPC rather than thinking

about the relatively well off such as government employess,who were the target

of expenditure boosting measures, overall , the amount of demand stimulus is

underwhelming and we view the impact on both fiscal and growth as quite

limited.

a) Which type of good is refrigertator purchased by a confectionary shop ?

Explain how capital goods are different from consumer goods ?

64 Sale of petrol and disel car is rising particularly in big cities.Analyese its impact

on GDP and welfare

65 Distinguish between the following, giving suitable examples in support of your

answer:

a) Domestic product and National Income

Intermediate Goods and final Goods

66 “Increase in domestic income always leads to an increase in national income”.

Do you agree with the given statement? Support your answer with valid

example

67 Gross investment is always greater than Net investment. Defend or refute the

given statement with valid argument.

68 Distinguish between:

a. Final goods and Intermediate goods

Stock and Flow variable

69 Giving reason, explain whether the following are included in domestic product

of India.

1. Profits earned by a branch of foreign bank in India

2. Payment of salaries to its staff by embassy located in New Delhi

3. Interest received by an Indian resident from its abroad firms

70 ‘Circular flow of income in a two-sector economy is based on the axiom that

one’s expenditure is the other’s income’.

Do you agree with the given statement? Support your answer with valid

reasons.

71 State which of the following items will be included in the estimation of national

income. Give valid reasons for your answers.

(i) Payment of interest by bank to its depositors/ payment of interest by

a firm to households.

(ii) Payment of corporate tax by a firm

(iii) Net addition to capital stock

(iv) Profit earned by foreign banks in India.

(v) Expenditure on fertilizers by a farmer

Imputed rent of self-occupied houses

72 State with valid reason, which of the following statement is true or false:

(i) Intermediate goods are always durable in nature

(ii) The Indian embassy located in foreign country is a part of the

domestic territory

(iii) All capital goods are producer goods whereas all producer goods

may not be capital goods

(iv) Capital goods are used up to produce other goods

(v) A water tanker containing 500 litres of water in the morning of a day

is a stock concept

Domestic territory is where there is free movement of goods, capital and people

without any hindrance.

73 (i) ‘Circular flow of income in a two sector economy is based on the

axiom that one’s expenditure on other’s income’. Do you agree with

the give statement?

What is the difference between Market Prices and Factor Cost?

74 How are these included in Domestic Income and National Income?

1.Profits earned by a branch of foreign bank in India

2. Profits earned by a company in India owned by non-residents.

3. Profits earned by a branch of State bank Of India in England

4. . Rent received by an Indian resident from Russian embassy in India.

75 Should the following be treated as normal resident of India ? Give reason for

your answer.

i)Foreigner working in Indian embassy in Taiwan

ii)Indian working in Asian Deaveloment bank in Philipinies

iii) Indian student in UK who has been living there for five years

76 Giving reason ,classify the following into intermediate goods and final goods :

I) A refrigerator purchased by a household

II) Wood used for making a dining table by the carpenter

III) An air condition purchased by a builder for his offic

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Chapter 1: National Income and Related Aggregates (Basic Concepts)

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