NCERT Solutions for Class 12 Economics Introductory Macroeconomics Chapter 2

National Income Accounting Class 12

Chapter 2 National Income Accounting Exercise Solutions

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Exercise : Solutions of Questions on Page Number : 30

Q1 :  

What are the four factors of production and what are the remunerations to each of these called?


Answer :

The four factors of production are:

1. Land - It denotes the natural resources like air, water, soil, etc. The payment that is paid by the firms to acquire these services is called rent.

2.Labour - It refers to the physical and mental effort required to do a work. For example, engineer, manager, worker, etc. The payment made to the labour in exchange of his/her services is called as wage.

3. Capital - It refers to the monetary investments and physical and tangible investments like machinery, buildings, technology, tools, etc, which assists in production process. The payment received in exchange of these services is called interest.

4. Entrepreneur - It refers to the individual who undertakes the risk to organise the production process. Entrepreneurs are the risk takers and often are the innovators of new techniques. They receive profit in exchange of their entrepreneurship.

The remunerations paid to the factors of productions are called factor payments or factor incomes. These are the aggregation of rent, wage, interest and profit.

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Q2 :  

Why should the aggregate final expenditure of an economy be equal to the aggregate factor payments? Explain.


Answer :

In a two sector economy, consisting of households and firms, the only way in which the households can dispose their income is on the goods and services produced by the firms. The factors of production use their remuneration to purchase goods and services. Thus, the income will come back to the producers in the form of sales' revenue. So, there is no difference between the amount that firms distribute in the form of factor payments and consumption expenditure incurred by the households. The same process continues year after year. However, if there has been any leakage in the form of savings, imports or taxes, then there arises a difference between the aggregate consumption expenditure and aggregate factor payments. In the case of some leakage, the households will spend less than their factor incomes. Consequently, the firms will receive lesser amount in the form of revenue, which will reduce the production level and employment level. This process will continue in every successive round and production and employment levels will continue to drop. Thus, the equality between the aggregate consumption expenditure and the aggregate factor payments is very necessary for the smooth functioning of the economy.

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Q3 :  

Distinguish between stock and flow. Between net investment and capital, which is a stock and which is a flow? Compare net investment and capital with flow of water into a tank.


Answer :

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Q4 :  

What is the difference between planned and unplanned inventory accumulation? Write down the relation between change in inventories and value added of a firm.


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Q5 :  

Write down the three identities of calculating the GDP of a country by the three methods. Also briefly explain why each of these should give us the same value of GDP.


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Q6 :  

Define budget deficit and trade deficit. The excess of private investment over saving of a country in a particular year was Rs 2,000 crores. The amount of budget deficit was (-) Rs 1,500 crores. What was the volume of trade deficit of the country?


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Q7 :  

Suppose the GDP at market price of a country in a particular year was Rs 1,100 crores. Net Factor Income from Abroad was Rs 100 crores. The value of Indirect taxes - Subsidies was Rs 150 crores and National Income was Rs 850 crores. Calculate the aggregate value of depreciation.


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Q8 :  

Net National Product at Factor Cost of a particular country in a year is Rs 1,900 crores. There are no interest payments made by the households to the firms/government, or by the firms/government to the households. The Personal Disposable Income of the households is Rs 1,200 crores. The personal income taxes paid by them is Rs 600 crores and the value of retained earnings of the firms and government is valued at Rs 200 crores. What is the value of transfer payments made by the government and firms to the households?


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Q9 :  

From the following data, calculate Personal Income and Personal Disposable Income.

Rs (crore)

(a)

Net Domestic Product at factor cost

8,000

(b)

Net Factor Income from abroad

200

(c)

Undisbursed Profit

1,000

(d)

Corporate Tax

500

(e)

Interest Received by Households

1,500

(f)

Interest Paid by Households

1,200

(g)

Transfer Income

300

(h)

Personal Tax

500


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Q10 :  

In a single day Raju, the barber, collects Rs 500 from haircuts; over this day, his equipment depreciates in value by Rs 50. Of the remaining Rs 450, Raju pays sales tax worth Rs 30, takes home Rs 200 and retains Rs 220 for improvement and buying of new equipment. He further pays Rs 20 as income tax from his income. Based on this information, complete Raju's contribution to the following measures of income (a) Gross Domestic Product (b) NNP at market price (c) NNP at factor cost (d) Personal income (e) Personal disposable income.


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Q11 :  

The value of the nominal GNP of an economy was Rs 2,500 crores in a particular year. The value of GNP of that country during the same year, evaluated at the prices of same base year, was Rs 3,000 crores. Calculate the value of the GNP deflator of the year in percentage terms. Has the price level risen between the base year and the year under consideration?


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Q12 :  

Write down some of the limitations of using GDP as an index of welfare of a country.


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Introductory Macroeconomics - Economics : CBSE NCERT Exercise Solutions for Class 12th for National Income Accounting will be available online in PDF book form soon. The solutions are absolutely Free. Soon you will be able to download the solutions.

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