It is net money value of Goods and Services Produced in domestic territory after Depreciation It is also called Net Domestic Product at Factor Price (NDP FC ) Formula NDP FC = GDP FC - Depreciation Example Suppose total value of goods and services produced in DOMESTIC TERRITORY is 100 Depreciation on Maintaining Fixed assets is 20 It is study of individual economic units of an economy. = 830-40-150-70 = Rs. NDP FC 55,915 Indirect Tax 2,590 Less Subsidies 1540 Net Indirect Taxes 1,050 Step 1 We calculate NNPMP NNPMP = GNPMP - Dep = 58,350 - 1625 = 56,725 Step 2 We calculate NDPMP NDPFC - Factor income from abroad + Factor income to abroad = 56,725 - 625 + 865 = 56,965 Step 3 We calculate Net Indirect tax . Are the following a part of countrys Net Domestic Product at Market Price? 3900 crore, Gross National Product at Factor Cost(GNPFC) = Private Final Consumption Expenditure+ Government Final Consumption Expenditure + Net Domestic Capital Formation + Consumption of Fixed Capital + Net Exports + Net Factor Income from Abroad Net Indirect Taxes as well as windfall gains (e.g., from lotteries) are excluded. If you would like to change your settings or withdraw consent at any time, the link to do so is in our privacy policy accessible from our home page.. GDP = Value of Output + Indirect Taxes Subsidies, The measure of a countrys overall economic performance, The measure of a countrys economic output available for consumption or investment, Does not take into account the depreciation of physical capital, Does not take into account indirect taxes and subsidies, Commonly used as a broad indicator of economic activity, Provides a more accurate picture of a countrys economic output, useful in long-term economic analysis. Your email address will not be published. Ans. (b) Gross National Disposable Income (GNDI) =NNPFC + Consumption of Fixed Capital + Net IndirectTaxes Net Current Transfers to Abroad (ii) Yes, it is included while estimation of National Income as it is considered as a change in stock during the year. Introductory Macroeconomics Subject Chosen. 59. The depreciation is also referred to as capital consumption allowance. Calculate sales from the following data (Delhi 2008), Ans. (iii) Expenditure by government on providing free education will be included while estimating NationalIncome, as it is a part of governments final consumption expenditure. The result provides a more accurate picture of a countrys economic output. (ii) Money received by a family in India from relatives working abroad. Explain. =Rs. Investment4. How will you treat the following while estimating National Income of India? Nanda Ashirwad Complex, 3rd Floor, (b) Gross National Disposable Income (GNDI) =NNPFC+ Net Indirect Taxes + Consumption of FixedCapital Net Current Transfer to the Rest of the World (i) Profits earned by a branch of foreign bank in India. While that may take many years, barring unexpected damage or defects, there is a cycle of equipment failure and replacement. = 310+ (20- 10)+ 15+ 25+ (- 5) (b) Net National Disposable Income = GDPFC+ Net Indirect Tax Net Factor Income to Abroad Net Current Transfers to Abroad Depreciation + Private Final Consumption Expenditure + Gross Domestic Capital Formation Net Imports Net Indirect Tax = 750 690 = Rs. Calculate = [400+ (-40)]-250-(20+ 30) NDP FC refers to a total factor income earned by the factor of production within the domestic territory of a country during an accounting year. (i) Family members working free on the farm owned by the family. Required fields are marked *. It is computed as follows: The net domestic product at factor cost is the value acquired by deducting the net indirect tax and depreciation from the gross market value of domestic goods and services. It is broadly classified into four categories: = [800 + (40 50)] 500 [200 -180] + 60 = 500 + 10-200=Rs. Computation of National Income (By Expenditure Method), 8. Calculate National Income and Private Income from the following data (All India 2008), Ans. =610 +130-30 -10-40 Computation of National Income (By Income Method). (i) Salaries paid to Russians working in Indian Embassy in Russia will not be included in estimation of National Income of India, as it is a factor income paid to abroad. 660 crore, 54. It is the total value of domestic production minus net indirect taxes. 39.Calculate Net Value Added at Factor Cost form the following data: 40. 400. Part of the machinery in a factorys production line may need to be replaced while another set of similar machines continues to function within the same factory. Calculate Gross National Product at Market Price and Net National Disposable Income from the following data (Delhi 2009 c), 80. (iii) Interest received by an Indian resident from its abroad firms. Precautions While Using Expenditure Method. However, a wider gap between the GDP and NDP shows an increase in the value of obsolescence. (ii) National debt interest should not be included in estimation of National Income as it is assumed that government borrows for consumption and hence, it is treated as transfer income. = 850-520 It ascertains the economic performance, wealth, and growth of a country. Sum up all factor payments made within domestic territory to get Domestic Income (NDP at FC). It is calculated by adding indirect taxes, subtracting subsidies, and including depreciation to the value of output, which is the value of all goods and services produced within a countrys borders. In other words, the NDP is calculated by subtracting the depreciation of physical capital from the GDP to give a more accurate picture of a countrys economic output that is available for consumption or investment. (b) Gross National Disposable Income (GNDI) Calculate National Income and Gross National Disposable Income from the following: (Delhi 2014), Ans. Calculate (ii) Net Current Transfers from Abroad (All India 2012), 49.Find out (i) Payment of bonus by a firm. (i) Profits earned by a branch of foreign bank will not be included while estimating National Income, as it is a factor income paid to abroad. National Income (NNPFC) = Gross Value Added at Market Price by the Primary Sector+ Gross Value Added at Market Price by the Secondary Sector + Gross Value Added at Market Price by the Tertiary Sector-Net Indirect Taxes-Consumption of Fixed Capital + Net Factor Income from Abroad 5. Chapter Chosen. 720 arab, 35. Gross National Product at Factor Cost (GNP at FC) GNP at factor cost is the sum of total factor earnings received by the owners of factors of production in the form of wages and salaries, rent, interest, and profit as a result of their contribution to . NDP is a measure of a countrys economic performance that considers the depreciation of physical capital, unlike GDP, which only reflects the sum of all goods and services produced within a countrys borders. This website is using a security service to protect itself from online attacks. So we use following Steps Step 1 Calculate Gross Domestic Fixed Capital Formation =Gross Fixed Capital formation =Net Fixed Capital formation +Depreciation =Net Fixed Capital formation +Consumption of Fixed Capital =350+50 =400 Step 2 Calculate Gross Domestic Capital Formation Gross Domestic Capital Formation (i) Private final consumption expenditure. Ans. (iii)Purchase of taxi by a taxi driver. = Net Value Added by Primary Sector + Net Value Added by Secondary Sector Net Value Added at Factor Cost (NVAFC) = Value of Output (Sales + Change in Stock)- (Purchase of Raw Material + Import of Raw Material) Consumption of Fixed Capital + Subsidies (a) By Expenditure Method Calculate Gross Value Added at Factor Cost from the following data, Ans. In this theoretical example, the NDP considers the depreciation of physical capital, providing a more accurate picture of the countrys economic output. 6570 crore, (b) Net National Disposable Income (NNDI) = GNPFC + Net Indirect tax Consumption of Fixed Capital+ Net Current Transfers from Rest of the World = 6570+ 800 100 + (70 40) (Delhi 2014) You must give reason for your answer. (ii) Rent free house to an employee by an employer. (b) National Income (All India 2009), Ans. (ii) National debt interest. (b) Net National Disposable Income from the following data (Delhi 2008), 82. (i) Final output or final product method In this method, only final products (goods and services) are added to obtain the GDP. 610 crore From the following data calculate Net Value Added at Factor Cost (Delhi 2011 c) 2,000 crores = Rs. Giving reason, explain whether the following are included in domestic product of India. Cookies collect information about your preferences and your devices and are used to make the site work as you expect it to, to understand how you interact with the site, and to show advertisements that are targeted to your interests. = Rs. Value Added or Product Method: NI = GDP Depreciation Indirect Taxes + Overseas Net Factor Income., Following are the four components of NI accounts:1. The NDP also takes into account the other factors such as obsolescence and complete destruction of the asset. (i) Dividend received by a foreigner from investment in shares of an Indian company will be deducted from National Income as it is factor income to abroad. Give reasons for your answer. = 200-[80+ 20+ (15 -5)] are excluded. The acquisition of new machines for the new factory would represent a gain because the demand was driven by the need to increase the scope of the operations, rather than serve as a replacement. Giving reason explain how should the following be treated in estimating GrossDomestic Product at Market Price ? (All India 2009). (d) GDP at factor cost = NDP at factor cost - depreciation Answer: (c) See The Explanation Income to Abroad + Consumption of Fixed Capital Calculate Net Domestic Product at Factor Cost by 43. Net Current Transfers to Abroad + National Debt Interest + Current Transfers by Government + Net Factor Income from Abroad (b) Private Income from the following data (All India 2008), 87. (iii) Interest received on loans given to a friend for purchasing a car. GDPMP = Net Domestic Product at FC (NDPFC) + Depreciation + Net Indirect Tax #2 - Gross Domestic Product at Factor Cost (GDPFC) It is the total value of domestic production minus net indirect taxes. (ii) Expenditure on second hand goods is not to be included. There are several actions that could trigger this block including submitting a certain word or phrase, a SQL command or malformed data. Calculate Gross Value Added at Factor Cost (Delhi 2012), 5. (i) Salaries paid to Russians working in Indian Embassy in Russia. = 600 + (-10)-300 = Rs. Gross National Product: Gross National Product (GNP) is defined as the total market value of all final goods and services produced in a country during a specific period of time, usually one year. (Delhi 2009) The construction of new homes on previously unused real estate can also represent a gain for the NDP if the residences are not intended to replace defunct or demolished property. You are free to use this image on your website, templates, etc., Please provide us with an attribution link, Net Domestic Product at factor cost (NDP-FC), Gross Domestic Product vs Net Domestic Product. Save my name, email, and website in this browser for the next time I comment. This differs from an expansion of factory operationsfor example, the opening of a new site, adding to the total number of factories. = 2600 + 1100 + 500+100 + (-100) + (-50) -250 We define the gross national income concept in accounting, its meaning, formula, examples & related aggregates. (a) Income method and I have written it for you to memorize it. You can find out more about our use, change your default settings, and withdraw your consent at any time with effect for the future by visiting Cookies Settings, which can also be found in the footer of the site. 61.Explain the problem of double counting in estimating national income, with thehelp of an example. It refers to the sum total of factor . Its central problem is determination of level of income and employment. (i) it is included in the GDPMP,as it is a part of government final consumption expenditure. Ltd. Download books and chapters from book store. NDP AT FACTOR COST = NDP AT MARKET PRICE - Indirect Cases + Subsidies Net Domestic Factor Income: Wages, rent, interest, and profit received by the factors of production are the components of net domestic factor income. Computation of National Income (By Value Added Method). 1. The $80 million is the amount available for consumption or investment in the economy after accounting for the depreciation of physical capital. Ans. Net domestic product (NDP) is an annual measure of the economic output of a nation that is calculated by subtracting depreciation from gross domestic product(GDP). (i) Fees to a mechanic paid by a firm. (a) Income method and Thus, it includes indirect taxes and subsidies, as well as the depreciation of physical capital. Thus, from the money value of NNP at market price or NNI we deduct the amount of indirect taxes to arrive at the net national income at factor cost. = 300+200 + 700-120-150 + 20 , , (b) Gross National Disposable Income from the following data, Ans. 510 crore, 79. It facilitates standard of living comparisons between different nations. (All India 2010) An example of data being processed may be a unique identifier stored in a cookie. (i) Capital gain on sale of a house. = Rs. Calculate 200 crore To read more about such interesting concepts on economics for commerce, stay tuned to our website. Solved Example for You (i) Payment of bonus by a firm is not Included in the estimation of National Income as it is not a part of factor income. Depreciation is the reduction in the value of physical capital due to aging, wear and tear, or obsolescence. Domestic income is the sum total of factor incomes generated by all the production units located within the domestic territory of a country during a period of account. Give reasonsfor your answer. Giving reasons, explain whether the following are included in National Income. (All India 2011), Ans. Ans. Net Value Added at Factor Cost (NVA FC) = Sales + Change in Stock (Closing Stock- Opening Stock)- Purchase of Intermediate Goods - Consumption of Fixed Capital - Indirect Tax = 500+ (80-60)-350-90-50 = 520-490 = Rs. The value added by a firm is the difference between value of output and the value of intermediate products of each firm of the country. The depreciation accounted for is often referred to as capital consumption allowance and represents the amount needed to replace those depreciated assets. (a) By Expenditure Method Net Domestic Product at market price includes indirect taxes and subsidies, as well as the depreciation of physical capital. (iii) It is included in the estimation of National Income as it is a part of government final consumptionexpenditure. 27. = 2000+100 + 30+10+60 + 300 + 300 = Rs. Ans. How should the following be treated while estimating National Income? Profit = Undistributed profit + dividends + corporate tax (corporate profit tax) This formula is not used in this question. From the following data calculate Net Value Added at Factor Cost (Delhi 2011 c), Ans. (iii) Capital gains to Indian residents from sale of shares of a foreign company. If the country is unable to replace the capital stocks that are lost through depreciation, it experiences a fall in the GDP of the country. Ans. NDP, along with GDP, gross national income (GNI), disposable income, and personal income, is one of the key gauges of economic growth that is reported on a quarterly basis by the Bureau of Economic Analysis (BEA). 64. (ii) Rent free house to an employee by an employer will be included while estimating National Income, as it is a part of compensation to the employee. NDP at FC = Income from domestic products accruing to private sector + Income from domestic products accruing to public sector = Rs. (b) Gross National Disposable Income from the following data, 47.Find out Consumption2. In other words, GDP measures the total value of all goods and services produced within a country. (i) Expenditure on free services provided by government. It measures the output generated by a country's organizations located domestically or abroad. When we divide NI by a countrys total population, we get residents per capita income. Calculate intermediate consumption from the following data, Ans. Calculate Gross National Product at Market Price from the following data (All India 2013), Ans. (ii) Expenditure method (a) Net Domestic Product at Factor Cost (NDPFC) = Wages and Salaries + Rent + Interest Paid byProduction Units + Corporation Tax + Dividends + Undistributed Profits + Social Security Schemes by Employers NNP FC = NDP FC + Factor income earned by normal residents from abroad - factor payments made to abroad. NDP is a more accurate measure of a countrys economic output, as it considers the wear and tear of physical capital, which is a key factor in long-term economic growth. (a) Gross National Product at Market Price and = 4100 -2150 = Rs. 950 crore = Rs. (i) The value of intermediate goods should not be included. (b) Net National Disposable income from the following data It is evaluated as follows: GDPMP = Net Domestic Product at FC (NDPFC) + Depreciation + Net Indirect Tax. (iii) Imputed value of self-consumed goods should be included, but self-consumed services should not be included. It is considered a key indicator of economic growth of a country. 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