question_answer

Why are exports included in the estimation of domestic product by the expenditure method? Can Gross Domestic Product (GDP) be greater than Gross National Product (GNP)? Explain.                                                                          Or From the following data, calculate National Income by income method and expenditure method.                                                                   

S. No.	Items	(Rs.) in crores
(i)	Government Final Consumption Expenditure	100
(ii)	Subsidies	10
(iii)	Rent	200
(iv)	Wages and Salaries	600
(v)	Indirect tax	60
(vi)	Private Final Consumption Expenditure	800
(vii)	Gross Domestic Capital Formation	120
(viii)	Social Security Contributions by Employer	55
(ix)	Royalty	25
(x)	Net Factor Income Paid to Abroad	30
(xi)	Interest	20
(xii)	Net Domestic Capital Formation	110
(xiii)	Profits	130
(xiv)	Net Export	70

           

Answer:

According to Expenditure method, National Income is measured in terms of expenditure on purchase of final goods and services in the economy during an accounting year. Net exports is the difference between exports and imports during an accounting year. If goods exported exceed the goods imported, then this will result in increase in the income of the country. With increased income, the expenditure will also increase, because of this reason exports are included in the estimation of domestic product by expenditure method. Gross Domestic Product (GDP) can be greater than Gross National Product (GNP) if net factor income from abroad is negative. Net Factor income from abroad will be negative if factor payments from abroad are less than factor payments to abroad.                                                            National Income by Income Method Net National Product at Factor Cost\[(NN{{P}_{FC}})\]= Rent + Wages and salaries + Social security contribution by Employer + Royalty + Interest + Profits - Net Factor Income paid to Abroad                                                                                               =200+600+55+25+20+130-30                                                                          =Rs.1,000 crore                                    National Income by Expenditure Method                                                 Net National Product at Factor Cost\[(NN{{P}_{FC}})\]= Private Final consumption Expenditure + Government Final consumption Expenditure + Gross Domestic Capital Formation + Net Exports - Depreciation ? Net Factor Income to Abroad - Net Indirect Taxes                                                                                    \[=800+100+120+70-10-30-50\]                                                       =Rs. 1,000 crore                                    Note:    (i) Depreciation = Gross Domestic Capital Formation ? Net Domestic Capital Formation                        \[Depreciation=120-110=Rs.\,\,10\,\,crore\]                                                               (ii) Net Indirect Taxes = Indirect Tax - Subsidy                                               \[\therefore Net\,\,Indirect\,\,Taxes~=60-10=Rs.\,\,50\,\,crore\]