question_answer

                                                                          From the following information, calculate Gross National Product at Market Price  by

(i) Income method

(ii) Expenditure method

S, No	Items	(Rs.) In crores
(i)	Factor Income from Abroad	100
(ii)	Wages of Employees	1,500
(iii)	Net Domestic Capital Formation	500
(iv)	Private Final Consumption Expenditure	2,200
(v)	Factor Income to Abroad	150
(vi)	Change in Stock	150
(vii)	Consumption of Fixed Capital	150
(viii)	Interest	400
(ix)	Exports	200
(x)	Imports	250
(xi)	Indirect Taxes	300
(xii)	Rent	400
(xiii)	Subsidies	100
(xiv)	Government Final Consumption Expenditure	850
(xv)	Profit	1,000

Explain briefly the steps taken in estimating national income by the value added method. Also, explain any two precautions required to be taken in this method.    

Answer:

Ans.  (i) Gross National Product at Market Price       \[(GN{{P}_{MP}})\]by Income Method              Net Domestic Product at Factor Cost\[(ND{{P}_{FC}})\]= Compensation of Employees + Operating Surplus (Interest+Rent+Profit)+Mixed Income     \[=Rs.\,\,1,500+(400+400+1,000)+0\]                 =Rs. 1,500+1,800 = Rs. 3,300 crore                                    \[GN{{P}_{MP}}=ND{{P}_{FC}}\]+Net Indirect Tax (Indirect tax ? Subsidies) +Net Factor Income from Abroad (Factor income from abroad - Factor income to abroad)        + Depreciation                            \[=Rs.\,\,3300+(300-100)+(100-150)+150~\] \[=Rs.\,\,3,300+200+(-50)+150=3,300+300\] =Rs. 3,600 crore                              (ii) Gross National Product at Market Price\[(GN{{P}_{MP}})\]by Expenditure Method                    (ii) Gross Domestic Product at Market Price\[(GD{{P}_{MP}})\]=Private Final Consumption Expenditure         + Government Final Consumption Expenditure + Gross Domestic Capital Formation + Net Exports \[=Rs.\,\,2,200+850+(500+150)+(200-250)\] \[=Rs.\,\,2,200+850+650+(-50)\] \[=Rs.\,\,2,200+850+600\] \[=Rs.\,\,3,650\text{ }crore\] \[GN{{P}_{MP}}=GD{{P}_{MP}}\]+Net Factor Income from Abroad \[=Rs.\,\,3,650+(WO-750)=3,650-50\] =Rs. 3,600 crore Or Steps for measuring National Income by Value Added Method (Product method) are enumerated below: Step I Classify All the Production Units The units are traditionally classified into primary, secondary and tertiary sectors which are further classified into sub-sectors like agriculture, manufacturing, banking, etc. Step II Estimate\[NV{{A}_{FC}}\]of each industrial sector by taking the following sub-steps: (i) Estimate Value of Output It can be estimated by two ways: A sum of sales and net addition to stocks (If entire output is not sold within the year). Quantity of output multiplied by price (If entire output is sold within the year). (ii) Deduct Intermediate Consumption It should be deducted from the value of output to arrive at\[GV{{A}_{MP}}\](Intermediate consumption already includes imports). (iii) Deduct Consumption of Fixed Capital It should be deducted from\[GV{{A}_{MP}}\]to arrive at \[NV{{A}_{MP}}\] . (iv) Deduct Net Indirect Tax It should be deducted from\[NV{{A}_{MP}}\]to arrive at\[NV{{A}_{FC}}\]of an industrial sector. Step III Take the sum of\[NV{{A}_{FC}}\]of all the industrial sectors of the economy. By doing so, we will arrive at net domestic product at factor cost.             \[\Sigma \,NV{{A}_{FC}}=ND{{P}_{FC}}\] Step IV Add net factor income from abroad to arrive at National Income. National Income\[(NN{{P}_{FC}})=ND{{P}_{FC}}\]+ Net Factor Income from Abroad (NFIA)                   Precautions to be taken while computing National Income by this method are given below: (i) Take the value of final product only i.e. intermediate goods not to be included. (ii) Do not include exports, if total sales are given.