CA Foundation · Paper 4 · Business Economics

Chapter 6 · Unit 1 · National Income Accounting

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Question 01

National income refers to:

money earned only by government money value of final goods and services produced in an economy in a year income of companies only only export earnings of a country

National income broadly measures the money value of final goods and services produced during a year.

Question 02

Which of the following is included while estimating national income?

sale of second-hand goods transfer payments illegal income not officially recorded in basic accounts production of final goods and services during the year

National income accounting includes current final production, not mere transfer of existing assets or transfer payments.

Question 03

The problem of double counting arises when:

value of intermediate goods is counted more than once only final goods are counted exports are excluded depreciation is deducted

Double counting happens if intermediate goods are counted along with final goods.

Question 04

To avoid double counting, national income generally includes:

all goods whether final or intermediate only imported goods only final goods and services or value added only transfer incomes

The standard solution is to count final output or value added at each stage.

Question 05

Gross Domestic Product at market price means:

income earned by residents abroad only money value of final goods and services produced within domestic territory at market prices sum of transfer incomes domestic production excluding depreciation and indirect taxes

GDPMP measures final output produced within the domestic territory valued at market prices.

Question 06

Net Domestic Product is obtained by deducting ______ from GDP.

depreciation net indirect taxes exports personal taxes

Net aggregates are obtained by subtracting depreciation, also called consumption of fixed capital.

Question 07

Gross National Product differs from Gross Domestic Product because of:

indirect taxes depreciation transfer payments net factor income from abroad

GNP = GDP + Net Factor Income from Abroad.

Question 08

National income at factor cost is generally represented by:

GDP at market price NNP at market price NNP at factor cost personal income

In standard macro accounting, national income is usually taken as NNP at factor cost.

Question 09

Factor cost differs from market price because of:

exports and imports indirect taxes and subsidies depreciation only transfer incomes only

Market price includes net indirect taxes, while factor cost reflects returns to factors of production.

Question 10

To convert from market price to factor cost, we:

subtract net indirect taxes add depreciation subtract exports add personal taxes

Factor cost = Market price − indirect taxes + subsidies, that is, subtract net indirect taxes.

Question 11

Which of the following is a transfer payment?

rent of a shop wages of labour interest on business loan old age pension

Transfer payments are received without corresponding current production of goods and services.

Question 12

Transfer payments are excluded from national income because:

they are always illegal they are paid only by households they do not represent current production they are paid in cash only

National income measures current production, not redistribution of income.

Question 13

Which of the following is included in domestic product?

income generated within domestic territory whether by residents or non-residents income earned by residents abroad only transfer incomes from government only capital gains only

Domestic product is based on place of production, not ownership by residents.

Question 14

National product is based mainly on:

territory only normal residents market taxes only population size only

National product includes production associated with normal residents.

Question 15

Which of the following methods is used to measure national income?

product method income method expenditure method all of these

All three are standard approaches to measuring national income.

Question 16

The product method measures national income by summing:

value of final goods and services or value added all transfer receipts only salaries and wages only business profits

The product method is based on output or value added.

Question 17

The income method measures national income by adding:

consumer expenditure and investment only exports and imports only factor incomes like wages, rent, interest and profit all government transfers

Income method adds factor payments generated in production.

Question 18

The expenditure method measures national income by summing:

factor incomes only final expenditure on goods and services only indirect taxes only depreciation and subsidies

Expenditure method adds final spending on current output.

Question 19

Which of the following is an intermediate good?

bread bought by a family for consumption car bought by household for personal use textbook bought by a student flour purchased by a bakery for making bread

Intermediate goods are used for further production, not final use.

Question 20

Value added by a firm is equal to:

value of output minus value of intermediate consumption value of output plus imports sales tax minus subsidy profits only

Value added measures a firm's own contribution to production.

Question 21

Personal income differs from private income because of:

imports only undistributed profits, corporate taxes, social security contributions and transfer payments depreciation only exports only

Personal income is what households actually receive, after adjustments from private income.

Question 22

Disposable personal income means:

personal income plus personal taxes national income minus subsidies personal income minus personal taxes GNP minus depreciation

Disposable income is the income available for consumption and saving after paying personal taxes.

Question 23

Depreciation refers to:

wear and tear of fixed capital increase in value of land export surplus government subsidy

Depreciation measures consumption of fixed capital over time.

Question 24

Which of the following is excluded from national income accounting?

salary of a teacher rent from a shop profit of a firm from current production sale of shares and bonds

Financial transactions like sale of shares do not represent current production of goods and services.

Question 25

Imputed rent of owner-occupied houses is:

excluded because no money changes hands included to correctly measure housing services treated as transfer income counted as export income

Imputed values are included where necessary to reflect actual services produced and consumed.

Question 26

If GDP at market price is ₹5000 crore and depreciation is ₹400 crore, then NDP at market price is:

₹4600 crore ₹5000 crore ₹4600 crore ₹5400 crore

NDPMP = GDPMP − depreciation = 5000 − 400 = ₹4600 crore.

Question 27

If GDP is ₹8000 crore and net factor income from abroad is ₹200 crore, then GNP is:

₹8200 crore ₹7800 crore ₹8000 crore ₹8400 crore

GNP = GDP + NFIA = 8000 + 200 = ₹8200 crore.

Question 28

If NNP at market price is ₹7000 crore and net indirect taxes are ₹500 crore, then NNP at factor cost is:

₹7500 crore ₹7000 crore ₹6800 crore ₹6500 crore

NNPFC = NNPMP − net indirect taxes = 7000 − 500 = ₹6500 crore.

Question 29

Which one is a final good?

steel bought by a car manufacturer car purchased by a household for personal use cotton bought by a textile mill wheat bought by a flour mill

A final good is purchased for final use and not for resale or further production.

Question 30

The central purpose of national income accounting is to:

measure aggregate production and income of an economy systematically measure profits of one firm only record share prices calculate only tax revenue

National income accounting gives a systematic picture of total production, income and expenditure in the economy.

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