Maharashtra State Board Class 12 Economics Solutions Chapter 7 National Income
1. Complete the following statements:
2. Complete the Correlation:
1) ……………… :C+I+G+(X-M)::GNP:C+I+G + (X-M) + (R-P).
2) Output method : ……………… :: Income method : Factor cost method
3) Theoretical difficulty : Transfer payments :: ……………… : Valuation of Inventories
Answer:
3. Identify the incorrect pair:
a) National Income Committee — 1949
b) Financial year 1’ April to 31st March
c) Income method — National Income = Rent + Wages + Interest + Profit + Mixed income + Net Income from abroad
d) Expenditure method – National Income = Rent + Wages + Interest + Profit
Options:
1) a 2) b 3) c 4) d
Answer:
d) Expenditure method — National Income = Rent + Wages + Interest + Profit
4. Identify and Explain the following concepts:
5. Answer the following
(A) Household is the basic consuming unit. It) centres around a family. Its main function j is to consume goods and services. Business firm is the basic producing unit. Its main function is to produce goods and services with the aim of maximising profits. When s the household supplies factor services (land, ^ labour, capital, enterprise to business firms, business firms supply goods and services to the household. This is known as Real Flow.
(B) In a money economy when the household supplies factor services, there is a flow of income from the business firm to the j household in form of rent, wages, interest and profit. This income comes from the firms to the household sector. The household ; sector uses this income to satisfy the wants. Therefore, there is a flow of consumption expenditure from the household to the business firms. The flow of factor payments from business sector to household sector and corresponding flow of consumption expenditure from household sector to business firms. This is known as Money Flow. Both the money flow and real flow should balance for the smooth functioning of the economy. If the money flow is greater j than real flow there would be inflation and if the money flow is less than the real flow there would be deflation.
(C) In the above diagram, the inner circle represents the Real flow and the outer circle represents the Money flow. There is circular and continuous flow of money income as production is a continuous activity due to never ending human wants. The circular J flow shows interdependence in the economy.
(2) Avoid Double Counting: While estimating National Income we include only the value of final goods and services and not the value of intermediate goods or raw materials to avoid double counting.
(3) National Income is the net aggregate value : National Income includes net value of goods and services produced. It does not include depreciation cost. Depreciation is wear and tear of capital goods due to their continuous use in production.
(4) Transfer Income : Transfer Income in J the form of old age pension, lottery prize, scholarship, etc. are not to be included as they are received without contributing anything to the current national income.
(5) National Income is money valuation of goods: National Income is always expressed ( in money terms. Only those goods and services which are exchanged for money are included. Unpaid services like the service of housewife should not be included.
(6) National Income is calculated for one year : National Income is always expressed with reference to time period i.e. generally one financial year from 1st April to 31st March of every year.
(7) Net Income from Abroad: While estimating National Income net Income from abroad i.e. difference between exports and imports (X – M) as well as net income from foreign investment should be included (R – P).
(8) Macro Economic Concepts : National Income is a macro economic concepts as it is the aggregate income of the country. It includes the value of goods and services produced in the different sectors of the economy. National Income data present the (1) There are many theoretical difficulties picture of the performance of the economy in the measurement of National Income, during a given period of time.
(9) National Income is calculated at current and constant price: National Income when calculated at the prevailing market price it is called National Income at current price and when it is calculated at the base year price, it is called National Income at constant price
The features of Green GNP are :
6. State with reasons, whether you agree or disagree with the following statements:
7. Answer in detall:
Practical Difficulties or Statistical Difficulties :
Importance of National Income (NI) :
For the economy : National income data are particularly important for macro economic analysis and performance of the economy.
(A) The Income Method : This method is also known as factor cost method. According to this method national income is the sum of income received by all factors of production in a year. So national income is the income received by all the citizens of the country in a year. In income method national income studied from the distribution side. According to income method national income or GNP is
NI = R + W + I + P + MI + (X – M)
Precautions :
(B) Expenditure Method :
This method also known as outlay method. NI = C + I + G + (X – M) + (R – P)
National Income can also be calculated by adding up the expenditure incurred on purchase of final goods and services. We can get National Income by summing up all consumption expenditure, investment expenditure made by all individuals, firms as well as the government of a country during a year.
Precautions :
The following precautions should be taken while estimating National Income.