question_answer

Giving reasons, explain the treatment assigned to the following while estimating national income.

(i) Expenditure on adding a floor to building.

(ii) Payment of fees to a lawyer engaged by a firm.

(iii) Payment of interest by a government firm.

Or             Calculate National Income by (i) Product method (ii) Expenditure method.            

S.No	Items	(Rs.) in crores
(i)	Gross Value Added at Market Price by Primary Sector	600
(ii)	Private Final Consumption Expenditure	1,500
(iii)	Consumption of Fixed Capital	300
(iv)	Net Indirect Tamxes	240
(v)	Gross Value Added at Market Price by Secondary Sector	400
(vi)	Net Domestic Fixed Capital Formation	440
(vii)	Change in Stock	\[(-)\]40
(viii)	Gross Value Added at Market Price by Tertiary Sector	1,400
(ix)	Net Imports	100
(x)	Government Final Consumption Expenditure	300
(xi)	Net Factor Income from Abroad	40

Answer:

Treatment assigned to the following while estimating national income are as follows: (i) Expenditure on adding a floor to building is included in national income because it is a part of investment expenditure. (ii) Payment of fees to a lawyer engaged by a firm is not to be included in estimation of national income as it is treaded as part of intermediate consumption. (iii) Payment of interest by a government firm should be included while estimating national income because it is a kind of factor payment. Or (i) By Product Method Gross Domestic Product at Market Price\[(GD{{P}_{MP}})\] Gross Value Added at Market Price in Primary Sector + Gross Value Added at Marker Price in secondary Sector + Gross Value Added at Market Price in Tertiary Sector                            = 600+400+1,400                          \[GD{{P}_{MP}}\]=Rs. 2,400 crore Net National Product at Factor Cost\[(NN{{P}_{Fc}})=GD{{P}_{MP}}\]+Net Factor Income from Abroad Consumption of Fixed Capital \[-\]Net Indirect Tax \[~=Rs.\,\,2,400+40-300-240\Rightarrow Rs.\,\,2,440-300-240\] \[\therefore NN{{P}_{FC}}\] =Rs. 1,900 crore (ii) By Expenditure Method Gross Domestic Product at Market Price\[(GD{{P}_{MP}})\] = Private Final Consumption Expenditure + Government Final Consumption Expenditure + Gross Domestic Capital Formation (Net Domestic Fixed Capital Formation + Consumption of Fixed Capital + Change in Stock) + Net Exports = \[Rs.\,\,1500+300+[440+300+(-40)]+(-100)\]             \[=Rs.\,\,1,800+700-100=Rs.\,\,2,500-100\]             \[\therefore GD{{P}_{MP}}\]=Rs. 2,400 crore Net National Product at Factor Cost\[(NN{{P}_{FC}})\]  \[GD{{P}_{MP}}-\]=Net Indirect Tax + Net Factor Income from Abroad \[-\] Depreciation \[=Rs\,\,2,400-240+40300\,\,Rs.\,\,2,440-540\] \[NN{{P}_{FC}}\]= Rs.1, 900 crore