case study on national income class 12

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Class 12 Economics Case Study Questions

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In this article, we will discuss how to download CBSE class 12 Economics Case Study Questions from the myCBSEguide App and our Student Dashboard for free. For the students appearing for class 12 board exams from the commerce/ humanities stream, Economics is a very lucrative and important subject. It is a very high-scoring subject that aids the students to increase their percentile and excel in academics.

The exam is divided into 2 parts:

• Macro Economics
• Indian Economics Development

12 Economics Case Study Questions

CBSE introduced case-based questions for class 12 in the year 2021-22 to enhance critical thinking in students. CBSE introduced a few changes in the question paper pattern to enhance and develop analytical and reasoning skills among students. Sanyam Bharadwaj, controller of examinations, CBSE quoted that the case-based questions would be based on real-life situations encountered by students.

The purpose was to drift from rote learning to competency and situation-based learning. He emphasized the fact that it was the need of the hour to move away from the old system and formulate new policies to enhance the critical reasoning skills of students. Introducing case study questions was a step toward achieving the goals of the National Education Policy (NEP) 2020.

What is a Case Study Question?

As part of these questions, the students would be provided with a comprehensive passage, based on which analytical questions will have to be solved by them. The students will have to read the given passage thoroughly before attempting the questions. In The current examination cycle (2021-22), case-based questions have a weightage of around 20%.

Types of Case Study Questions in Economics

CBSE plans to increase the weightage of such questions in the following years, so as to enhance the intellectual and analytical abilities of the students. Case-based questions are predominantly of 3 types namely:

• Inferential

Local questions

Local questions can be easily solved as the answers are there in the given passage itself.

Global Questions

For Global questions, the students will have to read the passage in depth, analyze it and then solve it.

Inferential questions

Inferential questions are the ones that would require the student to have complete knowledge of the topic and could be answered by application of the concepts. The answers to such questions are tricky and not visible in the given passage, though the passage would highlight the concept on which the questions would be asked by CBSE.

HOTS Questions in Class 12 Economics

Personally, the concept of case-based questions is not new since CBSE has always included questions based on Higher Order Thinking Skills (HOTs). Though now we will have an increased percentage of such questions in the question paper.

Advantages of Case-based Questions

Class 12 Economics has two books and CBSE can ask Case study questions from any of them. Students must prepare themselves for both the books. They must practice class 12 Economics case-based questions as much as possible.

Case study questions:

• Enhance the intellectual and analytical abilities of the students.
• Provide a complete and deeper understanding of the subject.
• Inculcate intellectual reasoning and scientific temperamental in students.
• Help students retain knowledge for a longer time.
• Would definitely help to discard the concept of memorizing insanely and cramming without a factual understanding of the content.
• The questions would help to terminate the existing system of education in India that promotes rote learning.

Sample case study questions (Economics) class 12

Here are some case study questions for CBSE class 12 Economics. If you wish to get more case study questions and other related study material, download the myCBSEguide App now. You can also access it through our Student Dashboard.

Case Study 1

Keeping in view the continuing hardships faced by banks in terms of social distancing of staff and consequent strains on reporting requirements, the Reserve Bank of India has extended the relaxation of the minimum daily maintenance of the CRR of 80% for up to September 25, 2020. Currently, CRR is 3% and SLR is 18.50%.

“As announced in the Statement of Development and Regulatory Policies of March 27, 2020, the minimum daily maintenance of CRR was reduced from 90% of the prescribed CRR to 80% effective the fortnight beginning March 28, 2020 till June 26, 2020, that has now been extended up to September 25, 2020,” said the RBI.

Q.1 The full forms of CRR and SLR are:

• Current Reserve Ratio and Statutory Legal Reserves
• Cash Reserve Ratio and Statutory Legal Reserves
• Current Required Ratio and Statutory Legal Reserves
• Cash Reserve Ratio and Statutory Liquidity Ratio (ans)

Q.2 What will be the value of the money multiplier?

• None of these

Q.3 SLR implies:

• a) Certain percentage of the total banks’ deposits has to be kept in the current account with RBI
• b) Certain percentage of net total demand and time deposits have to be kept by the bank themselves (ans)
• c) Certain percentage of net demand deposits has to be kept by the banks with RBI
• d) None of the above

Q.4 Decrease in CRR will lead to __.

• a) fall in aggregate demand in the economy
• b) rise in aggregate demand in the economy (ans)
• c) no change in aggregate demand in the economy
• d) fall in the general price level in the economy

Case Study 2

An important lesson that the COVID-19 pandemic has taught the policymakers in India is to provide greater impetus to sectors that make better allocation of resources and reduce income inequalities. COVID-19 has also taught a lesson that in crisis the population returns to rely on the farm sector. India has a large arable land, but the farm sector has its own structural problems. However, directly or indirectly, 50 percent of the households still depend on the farm sector. Greater support to MSMEs, higher public expenditure on health and education and making the labour force a formal employee in the economy are some of the milestones that the nation has to achieve.

One of the imminent reforms to be done in the country is labour reforms. Labour laws are outmoded in India, and some of these date back to the last century.

India’s complex labour laws have been blamed for keeping manufacturing businesses small and hindering job creation. Industry hires labour informally because of complex laws and that is responsible for low wages.

• Which types of structural problems are faced by the agricultural sector?
• “It is necessary to create employment in the formal sector rather than in the informal sector.’’ Defend or refute the given statement with valid argument.
• Hired labour comes in …………………. (Informal organisation / formal organisation)
• What do you mean by MSMEs?

Case Study 3

People spend to acquire information relating to the labour market and other markets like education and health. This information is necessary to make decisions w.r.t investment in human capital and its efficient utilization. Thus, expenditure incurred for acquiring information relating to the labour market and other markets is also a source of human capital formation.

Q1. Which of the following is the source of human capital formation in India?

• Acquiring information
• All of these (ans)

Q2. Education provides

• Private benefit
• Social benefit
• Both 1) and 2) (ans)

Q3. __ persons contribute more to the growth of an economy.

Q4. Training given by a company to its employees is generally__________

• Investment (ans)
• Social wastage
• Both 1) and 2)

Tips to Solve Case Study Questions in Economics

Let’s understand how you can solve case study questions in class 12 Economics. The two books are Macroeconomics and Indian Economic Development.

• Read the passage thoroughly
• Can follow a reversal pattern, especially macroeconomics questions, i.e. read questions first and then look for the answers in the passage.
• In case the question asked is about Indian Economic Development, read the passage very carefully as most of the answers would be hidden in the passage itself.
• Macro Economics questions will be more application-based and would test your conceptual clarity.
• Answer briefly and precisely.

Important Chapters – Economics Case Study Questions

Following are some of the very important topics that need to be prepared very thoroughly under CBSE class 12 Economics. We expect that CBSE will certainly ask case-based questions from these chapters.

• National income and its aggregates
• Government budget
• Current challenges faced by the Indian economy

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thanks for your information, dont forget to visit airlangga university website https://www.unair.ac.id/mahasiswa-unair-dan-y20-indonesia-diskusikan-isu-resesi-ekonomi/

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CBSE Class 12 Economics Important Case Study Based Questions for 2023 Board Exams

Cbse class 12 economics important case study based questions: class 12th economics exam is just a few hours away. get important case study questions to practice before cbse class 12 economics board examinations scheduled to be conducted on march 17, 2023. .

Important Case Study Based Questions for CBSE Class 12 Economics Board Exam 2023

Read the following case study paragraph carefully and answer the questions on the basis of the same..

Q1 The central bank of India i.e. Reserve Bank of India, is the apex institution that control the entire financial market. It's one of the major functions is to maintain the reserve of foreign

exchange. Also, it intervenes in the foreign exchange market to stabilise the excessive fluctuations in the foreign exchange rate.

In other words, it is the central bank's job to control a country's economy through monetary policy; if the economy is moving slowly or going backward, there are steps that central bank can take to boost the economy. These steps, whether they are asset purchases or printing more money, all Involve injecting more cash into the economy. The simple supply and demand economic projection occur and currency will devalue.

When the opposite occurs, and the economy is growing, the central bank will use various methods to keep that growth steady and in-line with other economic factors such as wages and prices.

Whatever the central bank does or in fact don't do, will affect the currency of that country.

Sometimes, it is within the central bank's interest to purposefully effect the value of a currency.

For example, if the economy is heavily reliant on exports and their currency value becomes too high, importers of that country's commodities will seek cheaper supply; hence directly effecting the economy.

1 Which of the following tools are used by the central bank to control the flow of money in domestic economy?

(a) Fiscal tools (b) Quantitative monetary tools

(c) Qualitative monetary tools (d) Both (b) and (c)

• a) Tighten the money supply in the economy
• b) Ease the money supply in the economy
• c) Allow commercial banks to work under less strict environment
• d) Both (b) and (c)

3 Which of the following steps should be taken by the central bank if there is an excessive rise in the foreign exchange rate?

(a) Supply foreign exchange from its stock

(b) Demand more of other foreign exchange

(c) Not intervene in the market as the exchange rate is determined by the market forces

(d) Help central government to stabilize the foreign exchange rate.

Answer: 

1(d) Both (b) and (c)

2(a) Tighten the money supply in the economy

3(a) Supply foreign exchange from its stock

Q2 Changes in aggregate demand bring about changes in the level of output, employment, income, and price. These changes are generally cyclical in nature. These changes, more generally, follow a cycle of four different stages namely boom, recession, depression and recovery. The cyclical nature of economic activity is known as trade cycle or business cycle. Boom is a stage of economic activity characterized by rising prices, rising employment, rising purchasing power.

• During the time of ‘excess demand’, Govt. should .................. the public expenditure.
• a) Reduce b) increase c) unchanged d) none of these.
• Investment depends on: a) Supply b) income c) saving d) Both (a) and (c)

Answer: Income.

Q3 In the modern world, govt. aims at maximizing the welfare of the people and the country. It

requires various infrastructure and economic welfare activities. These activities require huge govt. spending through appropriate planning and policy. Budget provides a solution to all these concerns. Budget is prepared by the government at all levels.

Estimated expenditure and receipts are planned as per the objectives of the government. In India, budget is prepared by the parliament on such a day as the president may direct. The parliament approves the budget before it can be implemented. The receipts and expenditures as shown in the budget are only the estimated values for the upcoming fiscal year, and not the actual figure.

• a) Reallocation of resources.
• b) Re distribution of income
• c) Reducing expenditure
• d) Economic stability.

Answer: c) Reducing expenditure

Answer: False

Q4 India’s balance of payments position improved dramatically in 2013-14 particularly in the last three quarters. this moved in large part to measure taken by the government and the Reserve Bank of India (RBI) and eat some part to the overall macro-economic slowdown that fed into the external sector. current account deficit (CAD) declined sharply from a record high of U.S. dollar 88.2 billion (4.7% of GDP) in 2012 -1/3 to U.S. dollars 32.4 billion (1.7% of GDP) in 2013 -14. After staying at perilously unsustainable levels off well over 4.0 percentage of GDP in 2011 -12 and 2012 -13, the improvement in BOP position is a welcome relief, and there is need to sustain the position going forward. This is because even as CAD came down, net capital flows moderated sharply from U.S. dollars 92.0 billion in 2012 -13 do U.S. dollar 47.9 billion in 2013-14, that two after a special swap window of

The RBI under the nonresident Indian (NRI) scheme / overseas borrowings of banks alone yielded U.S. dollar 3 4.0 billion. This led to some increase in the level of external debt, but it has remained at the manageable levels. the large depreciation of the rupee during the course of the year, note with standing sizable accretion to reserve in 2013 – 14, could partly be attributed to frictional forces and partly to the role of expectations in the forex market. the rupiah has stabilized the recently, reflecting an overall sense of confidence in the forex market as in the other financial markets of a change for better economic

prospects there is a need to nurture and build upon this optimism through creation of an enabling environment for investment inflows so as to sustain the external position in an as yet uncertain global milieu. --------- The Hindu, archives

• a) credit, capital account
• b) debit, capital account
• c) credit, current account
• d) debit, current account
• a) current account
• b) revenue account
• c) capital account
• d) official reserves
• a) outward flow of foreign exchange
• b) inward flow of foreign exchange
• c) decrease in the level of external debt
• d) decrease in future claims

Answers: 1.b 2. c 3. b 4. d

Q5 The green revolution for the third agricultural revolution is the set of research technology

e-transfer initiatives earring between GNE E and the late 1960 that increased agricultural

production worldwide beginning most markedly in the late 1960 the initiative resulted in

the adoption of new technologies including high yield varieties of CSR rules of cells

especially does wheat and rice it was associated with chemical fertilizers agrochemicals

and controlled water supply and newer methods of cultivation including machine isolation

National bank for agriculture and rural development is and apex development finance

institution fully owned by government of India the bank has been entrusted with Martyrs

concerning policy planning and operations in the field of credit for agriculture and other

economic activities in rural areas in India.

1 Who among the following is known as the father of green revolution

(a) Dr. M S Swaminathan

(b) Dadabhai Naoroji

(c) Vikram Sarabhai

(d) all of these

2 Green revolution is also known as ..................

(a) Golden revolution

(b) milk revolution

(c) Wheat revolution

(d) None of this

3 Which of the following institutions were setup as the apex body in rural areas to support the small farmers in the adoption of modern farming methods?

4 Green revolution was the ............... set of agricultural reforms brought in India

Answer: 1 (a) 2 (c) 3 (d) 4(c)

• Narasimha Rao. This policy opened the door of the India Economy for the global exposure for the first time. In this New Economic Policy P. V. Narasimha Rao governmentreduced the import duties, opened reserved sector for the private players, devalued the Indian currency to increase the export. This is also known as the LPG Model of growth. New Economic Policy refers to economic liberalization or relaxation in the import tariffs, deregulation of markets or opening the markets for private and foreign players, and reduction of taxes to expand the economic wings of the country. Former Prime Minister Manmohan Singh is considered to be the father of New Economic Policy (NEP) of India. Manmohan Singh introduced the NEP on July 24,1991. Main Objectives of New Economic Policy – 1991, July 24 The main objectives behind the launching of the New Economic policy (NEP) in 1991 by the union Finance Minister Dr. Manmohan Singh are stated as follows:

The main objective was to plunge Indian Economy in to the arena of ‘Globalization and to give it a new thrust on market orientation. The NEP intended to bring down the rate of inflation.

1 New Economic Policy of India was launched in the year 1991 under the

• P. V. Narasimha Rao
• Atal Bihari Bajpayi
• Sharad Pawar
• None of these

2 .................................. is also known as the LPG Model of growth. ((choose

the correct alternative)) (New Economic Policy / New Education Policy)

Answer: New Economic Policy

3 State whether the given statement is true or false:

Former Prime Minister Manmohan Singh is considered to be the father of New Economic Policy (NEP) of India. ((choose the correct alternative))

True / False

Answer: True

Q7 Both forms of capital formation are the outcomes of conscious investment decisions. The decision regarding investment in physical capital is taken on the basis of one’s knowledge in this regard. The ownership of physical capital is the outcome of the conscious decision of the owner the physical capital formation is mainly an economic and technical process.

Human capital formation takes place in one’s life when she/he is unable to decide whether it would maximize her/his earnings. Children are given different types of school education and health care facilities by their parents and society. Moreover, the human capital formation at this stage is dependent upon the already formed human capital at the school level. Human capital formation is partly a social process and partly a conscious decision of the possessor of the human capital.

• a) Human capital is intangible whereas physical capital is tangible.
• b) Human capital can cope up with the changing technology whereas physical cannot.
• c) Human capital generates both personal and societal benefits whereas physical capital generates only personal benefit.
• d) Human capital gets obsolete with time whereas physical capital does not.
• In the context of the paragraph, it can be argued that human capital depreciates faster than the physical capital. The given statement is:
• c) Partially true
• d) can’t comment due to lack of proper estimation mechanism
• Machines and industrial tools are examples of _
• a) Physical capital
• b) Human capital
• c) Both physical and human capital
• d) Natural capital
• Investment in education by parents is the same as_______
• a) Investment in intermediate goods by companies
• b) Investment in CSR activity by companies
• c) Investment in capital goods by companies
• d) None of the above

Answer: – c) Investment in capital goods by companies

Q8 The central government will spend Rs. 9800 crores on livestock development over the next five years in a bid to leverage almost Rs. 55000 crore of outside investment into the Animal Husbandry Sector. It would do this by merging a slew of schemes of the Department of Animal Husbandry and Dairying into three main programmes, focused on indigenous cows and dairy development, livestock health and infrastructure development, an official statement said. The Cabinet Committee on Economic Affairs approved the implementation of the special livestock sector package by revising and realigning the various components of the existing schemes in order to boost growth and make animal husbandry more remunerative for the 10 crore farmers engaged in it.

1) Livestock production provides ------------- for the family without disrupting other food producing activities

(a)Increased stability in income 

(b) food security

(c)transport and fuel 

Answer: (d) all of these

2) The central bank undertakes to invest on livestock development in ----------- (horticulture/ animal husbandry) sector

Answer: animal husbandry

3) State one limitation of livestock sector in India

Answer: The livestock productivity is quite low as compared to other countries

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• CBSE Class 12 Macro Economics Chapter 2 – National Income Accounting Class 12 Notes

National Income Accounting Class 12 Revision Notes 

We will introduce the concept of national income accounting by providing national income accounting class 12 notes. We will be beginning by introducing some basic concepts of Macro Economics.  Thus, we will illustrate some primary ideas we shall work with. Then, we will describe the circular flow of income across different sectors in a circular way. Moreover, we will study the three methods to calculate the national income. These will include gaining knowledge of namely product method, expenditure method and income method.  Furthermore, we will describe the various sub-categories of national income.

Also, we will describe some of the Macro Economic identities.  Moreover, we will define different price indices like GDP deflator, Consumer Price Index, Wholesale Price Indices. Also, we will discuss the problems associated when we take the GDP of a country as an indicator of the aggregate welfare of the people of the country.

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Sub-Topics Covered Under National Income Accounting :

• Some Basic Concepts of Macroeconomics : Under this Subtopic, we will discuss the basic concepts in Macro Economics. We will get familiar with terms: final goods, capital goods, intermediate goods, etc.
• Circular Flow of Income and Methods of Calculating National Income :  Here, we will describe the circular flow of income across different sectors. Also three ways to calculate the national income: product method, expenditure method, and income method.
• Expenditure Method and Income Method :  Here, we will discuss the expenditure method and income Methods in detail.
• Some Macroeconomic Identities : Here, we will study about some macroeconomic identities such as Gross National Product (GNP), Net National Product (NNP), Personal Income (PI), etc., in detail.
• Goods, Prices, GDP and Welfare : Here we will learn to calculate Real GDP. Also, we will get to know as to how the GDP of a country be taken as an index of the welfare of the people of that country.

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CBSE Class 12 Macro Economics Revision Notes

• CBSE Class 12 Macro Economics Chapter 4 – Income Determination Class 12 Notes
• CBSE Class 12 Macro Economics Chapter 3 – Money and Banking Class 12 Notes
• CBSE Class 12 Macro Economics Chapter 6 – Open Economy Macroeconomics Class 12 Notes
• CBSE Class 12 Macro Economics Chapter 5 – Government Budget and the Economy Class 12 Notes 
• CBSE Class 12 Macro Economics Chapter 1 – Introduction to Macro Economics Class 12 Notes

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National Income and Related Aggregates Class 12 Notes: A Comprehensive Guide

Master the concepts of Class 12 Macroeconomics Chapter 2 National Income and Related Aggregates (also known as National Income Accounting) with these class 12 notes, designed to provide a clear and concise understanding of the topic. Check out these comprehensive notes and study materials to help you ace your exams.

Success is not the key to happiness. Happiness is the key to success. If you love what you are doing, you will be successful. - Albert Schweitzer

Class 12 Economics: National Income Accounting Class 12 Notes

Final goods and intermediate goods.

Final Goods

• Goods that are used either for final consumption by consumers or for investment by producers are known as final goods. These goods do not pass through the production process and are not used for resale. For example, bread, butter, biscuits, etc. used by the consumer
• It is not in the nature of the good but in the economic nature of its use that a good becomes a final good : Whether a good is a final good or an intermediate good depends on its use. For example, milk used by a sweet maker is an intermediate good but when it is used by the consumer it becomes a final good.

Types of Final Goods -

• Consumer goods can be durable (TV, Mobiles, etc.) and non-durable (bread, milk, etc.)
• Capital goods are durable.
• Investment is an addition to capital stock.

Intermediate Goods

• Intermediate goods are those goods that are meant either for reprocessing or for resale. Goods used in the production process during an accounting year are known as intermediate goods. Goods that are purchased for resale are also treated as intermediate goods. For example, Rice, wheat, sugar, etc. purchased by a retailer/wholesaler.
• Intermediate goods are not included in the calculation of national income. Only final goods are included in the calculation of national income because the value of intermediate goods is included in the value of final .goods. If it is included in national income it will lead to the problem of double counting .

Stock and Flow

• A stock is a quantity that is measured at a point of time i.e. at 4 p.m., on 31st March, etc.
• It has no time dimension.
• Wealth, population, money supply, wealth, stock, inventory, etc. are stock concepts.
• A flow is a quantity that is measured over a period of time i.e. days, months, years, etc.
• It has a time dimension.
• National income, population growth, income, change in stock, value-added, change in inventory, etc. are flow concepts.

Gross Investment and Net Investment

• Part of our final output that comprises capital goods constitutes a gross investment of an economy.
• These may be machines, tools, and implements; buildings, office spaces, storehouses, or infrastructure like roads, bridges, airports, or jetties.
• A part of the capital goods produced this year goes for the replacement of existing capital goods and is not an addition to the stock of capital goods already existing and its value needs to be subtracted from gross investment for arriving at the measure for net investment. This part is called Depreciation.
• Depreciation is also known as 'Consumption of Fixed Capital'.
• Net Investment = Gross Investment - Depreciation
• Depreciation is thus an annual allowance for the wear and tear of a capital good.

• Depreciation is an accounting concept. No real expenditure may have actually been incurred each year yet depreciation is annually accounted for.

Circular Flow of Income

There may fundamentally be four kinds of contributions that can be made during the production of goods and services:

• the contribution made by human labor, remuneration for which is called wage
• the contribution made by capital, remuneration for which is called interest
• the contribution made by entrepreneurship, remuneration of which is profit
• the contribution made by fixed natural resources (called ‘land’), remuneration for which is called rent.

Circular flow of income in a two-sector economy

• Households are owners of factors of production, they provide factor services to the firms (producing units). Firms provide factor payments in exchange for their factor services. So, factor payments flow from firms (producing units) to households.
• Households purchase goods and services from firms (producing units) for which they make payments to them. So, consumption expenditure (spending on goods and services) flows from households to firms.
• The aggregate consumption by the households of the economy is equal to the aggregate expenditure on goods and services produced by the firms in the economy.
• The aggregate spending of the economy must be equal to the aggregate income earned by the factors of production (the flows are equal at A and C).
• Real Flow: Real flow is the flow of factor services and goods and services between households and firms.
• Nominal Flow: Nominal flow/Money flow is the flow of factor payments and payments for goods and services between households and firms.

Factor Cost and Market Price

Factor cost includes only the payment to factors of production, it does not include any tax. In order to arrive at the market prices, we have to add to the factor cost the total indirect taxes less total subsidies.

Market price - Indirect taxes (IT) + Subsidies = Factor Cost

Factor costs + Indirect taxes (I.T.) - Subsidies = Market price

⇒ Factor costs + Net Indirect tax (NIT) = Market price

• GDP mp = GDP fc + I.T. - Subsidies
• GDP mp = GDP fc + net I.T.

National Product and Domestic Product

Gross Domestic Product measures the aggregate production of final goods and services taking place within the domestic economy during a year. But the whole of it may not accrue to the citizens of the country. For example, a citizen of India working in Saudi Arabia may be earning her wage and it will be included in the Saudi Arabian GDP. But legally speaking, she is an Indian. Is there a way to take into account the earnings made by Indians abroad or by the factors of production owned by Indians? When we try to do this, in order to maintain symmetry, we must deduct the earnings of the foreigners who are working within our domestic economy, or the payments to the factors of production owned by the foreigners. For example, the profits earned by the Korean-owned Hyundai car factory will have to be subtracted from the GDP of India.

The macroeconomic variable which takes into account such additions and subtractions is known as Gross National Product (GNP).

GNP = GDP + Factor income earned by the domestic factors of production employed in the rest of the world – Factor income earned by the factors of production of the rest of the world employed in the domestic economy

Hence, GNP = GDP + Net factor income from abroad (NFIA)

• The national product includes the production activities of residents irrespective of whether performed within the economic territory or outside it.
• In comparison, the domestic product includes the production activity of the production units located in the economic territory irrespective of whether carried out by the residents or non-residents.

Gross and Net

Gross - depreciation (consumption of fixed capital) = Net

Methods of Calculating National Income

• The Product or Value Added Method Or Production Method
• Expenditure Method Or Final Expenditure Method
• Income Method or Income Distribution Method

1. Value Added Method Or Production Method

It is now a matter of general practice to group all the production units of the economic territory into three broad groups: primary sector, secondary sector, and tertiary sectors.

Inventory : In economics, the stock of unsold finished goods, semi-finished goods, or raw materials which a firm carries from one year to the next is called inventory. It is a stock variable.

Change of inventories of a firm during a year ≡ production of the firm during the year – sale of the firm during the year. It is a flow variable.

Inventories are treated as capital. Addition to the stock of capital of a firm is known as an investment. Therefore, a change in the inventory of a firm is treated as an investment.

There can be three major categories of investment.

• First is the rise in the value of inventories of a firm over a year which is treated as investment expenditure undertaken by the firm.
• The second category of investment is fixed business investment , which is defined as the addition of the machinery, factory buildings, and equipment employed by the firms.
• The last category of investment is residential investment , which refers to the addition of housing facilities.

Changes in inventories may be planned or unplanned.

• In case of an unexpected fall in sales, the firm will have unsold stock of goods that it had not anticipated. Hence there will be an unplanned accumulation of inventories .
• In the opposite case where there is an unexpected rise in sales, there will be unplanned decumulation of inventories .

Also, Change of inventories = production of the firm – sale of the firm

⇒ Production of the firm = Change of inventories + Sale of the firm

∴ Equation (i) can also be written as

Net Value Added = Gross Value Added - Depreciation

If we sum the gross value added of all the firms of the economy in a year, we get a measure of the value of the aggregate amount of goods and services produced by the economy in a year. Such an estimate is called Gross Domestic Product (GDP) .

In the production method, we first find out Gross Value Added at Market Price (GVA mp ) in each sector and then take their sum to arrive at GDP mp .

Thus, GDP mp = Sum total of gross value added (GVA mp ) of all the firms in the economy.

2. Income Method

In this method, we first estimate factor payments by each sector. The sum of such factor payments equals Net Value Added at Factor Cost (NVA fc ) by that sector. Then we take sum total of NVA fc by all the sectors to arrive at NDP fc .

The components of NDP fc are:

• Compensation of employees
• Rent and royalty

i.e., (1) + (2) + (3) + (4) = NDP fc

Compensation of employees : It is the total remuneration in cash or in kind, payable by an enterprise to an employee in return for work done by the latter during the accounting period.

The main components of compensation of employees are :

• Social security contributions by employers.

Rent : It is the amount receivable by a landlord from a tenant for the use of land.

Royalty : It is the amount receivable by the landlord for granting the leasing rights of sub-soil assets.

Interest : It is the amount payable by a production unit to the owners of financial assets in the production unit. The production unit uses these assets for production and in turn makes interest payments, imputed or actual.

Profit : It is a residual factor payment by the production unit to the owners of the production unit.

The main source of data on factor payments is the accounts of production units. Since accounts of most production units are not available to the estimators, and also since the accounting practices differ, it is not possible for the estimators to clearly identify the components. Therefore, in cases where total factors payment is estimable but not its different components, an additional factor payment item called ‘mixed income’ is added. Since this problem arises mainly in the case of self-employed people like doctors, chartered accountants, consultants, etc, this factor payment is popularly called “ mixed income of the self-employed ”.

In case there is such an item then,

NDP fc = Compensation of employees + Rent and royalty + Interest + Profit + Mixed income (if any)

There is another term used in factor payments. It is ‘ operating surplus ’. It is defined as the sum of rent and royalty, interest, and profits.

Operating Surplus = Rent and royalty + Interest + Profit

∴ NDP fc = Compensation of employees + operating surplus + mixed income (if any)

Once we estimate NDP fc , we can find NNP fc , or national income, by adding NFIA.

NDP fc + NFIA = NNP fc .

3. Final Expenditure Method

In this method, we take the sum of final expenditures on consumption and investment. This sum equals GDPmp. These final expenditures are on the output produced within the economic territory of the country.

Its main components are: Private final consumption expenditure (PFCE) + Government final consumption expenditure (GFCE) + Gross domestic capital formation (GDCF) (Gross Investment) + Net exports (= export - imports) (X-M) = GDP mp

=GDP mp - Depreciation + NFIA -NIT

= National Income

• GDCF= Net domestic fixed capital formation + (Closing stock - Opening stock) + Consumption of fixed capital
• Closing stock - opening stock = Net change in stocks.

Precautions in making estimates of National Income:

A. value added (production) method:.

• Avoid Double Counting : Value added equals value of output less intermediate cost. There is a possibility that instead of counting ‘value added’ one may count the value of output. You can verify by taking some imaginary numerical example that counting only values of output will lead to counting the same output more than once. This will lead to an overestimation of national income. There are two alternative ways of avoiding double counting: (a) count only value-added and (b) count only the value of final products.
• Do not include the sale of second-hand goods : Sale of the used goods is not a production activity. The good should not be treated as fresh production and therefore doesn’t qualify for inclusion in national income. However, any brokerage or commission paid to facilitate the sale is a fresh production activity. It should be included in production but to the extent of brokerage or commission only.
• Self-consumed output must be included : Output produced but retained for self-consumption, rather than selling in the market, is output and must be included in estimates. Services of owner-occupied buildings, farmers consuming their own produce, etc. are some examples

B. Income Distribution Method:

• Avoid transfers : National income includes only factor payments, i.e. payment for the services rendered to the production units by the owners of factors. Any payment for which no service is rendered is called a transfer, and not a production activity. Gifts, donations, charities, etc. are the main examples. Since transfers are not a production activity it must not be included in national income.
• Avoid capital gain: Capital gain refers to the income from the sale of second-hand goods and financial assets. Income from the sale of old cars, old houses, bonds, debentures, etc. are some examples. These transactions are not production transactions. So, any income arising to the owners of such things is not a factor income.
• Include income from the self-consumed output : When a house owner lives in that house, he does not pay any rent. But in fact, he pays rent to himself. Since rent is a payment for services rendered, even though rendered to the owner itself, it must be counted as a factor payment.
• Include free services provided by the owners of the production units : Owners work in their own units but do not charge salaries. Owners provide finance but do not charge any interest. Owners do production in their own buildings but do not charge rent. Although they do not charge, the services have been performed. The imputed (estimated) value of these must be included in national income.

C. Final Expenditure Method:

• Avoid intermediate expenditure : By definition, the method includes only final expenditures, i.e. expenditures on consumption and investment. Like in the value-added method, the inclusion of intermediate expenditures like that on raw materials, etc, will mean double counting.
• Do not include expenditure on second-hand goods and financial assets: Buying second-hand goods is not a fresh production activity. Buying financial assets is not a production activity because financial assets are neither goods nor services. Therefore they should not be included in estimates of national income.
• Include the self-use of own-produced final products : For example, a house owner using the house for himself. Although explicitly he does not incur any expenditure, implicitly he is making payment of rent to himself. Since the house is producing a service, the imputed value of this service must be included in national income.
• Avoid transfer expenditures : A transfer payment is a payment against which no services are rendered. Therefore no production takes place. Since no production takes place it has no place in national income. Charities, donations, gifts, scholarships, etc. are some examples.

National Product and Other Aggregates

First, let us note that out of NI (NNP fc ), which is earned by the firms and government enterprises, a part of the profit is not distributed among the factors of production. This is called Undistributed Profits (UP) . We have to deduct UP from NI to arrive at PI since UP does not accrue to households. Similarly, Corporate Tax , which is imposed on the earnings made by the firms, will also have to be deducted from the NI, since it does not accrue to the households. On the other hand, the households do receive interest payments from private firms or the government on past loans advanced by them. And households may have to pay interest to the firms and the government as well, in case they had borrowed money from either. So, we have to deduct the net interest paid by the households to the firms and government. The households receive transfer payments from the government and firms (pensions, scholarships, prizes, for example) which have to be added to calculate the Personal Income of the households.

However, even PI is not the income over which the households have a complete say. They have to pay taxes from PI. If we deduct the Personal Tax Payments (income tax, for example) and Non-tax Payments (such as fines) from PI, we obtain what is known as Personal Disposable Income.

Personal Disposable Income is the part of the aggregate income which belongs to the households. They may decide to consume a part of it and save the rest.

The idea behind National Disposable Income is that it gives an idea of what is the maximum amount of goods and services the domestic economy has at its disposal. Current transfers from the rest of the world include items such as gifts, aids, etc.

• The sum of net value added by all the production units in the domestic territory is net domestic product of factor cost (NDP fc ). All the income generated in a year is not received by consumer households. Income from property and entrepreneurship accruing to the departmental commercial enterprise of the government is retained by the government. Secondly, non-departmental enterprises of the government save a part of their profits for future expansion. This sum also is not available for distribution. It these two sums are deducted from NDP fc , we get income from domestic product or NDP fc accruing to the private sector.
• Income from domestic product accruing to the private sector = NDP fc – income from property and entrepreneurship accruing to the government administration department - savings of non-departmental enterprises.
• 'National debt interest’ is the interest paid by the government on loans taken to meet its administrative expenditure, a consumption expenditure. Since interest on loans taken to meet consumption expenditure is not a factor income it was not included in NDP fc . But since it is a disposable income it is added to NDP fc to arrive at disposable income of the private sector, called Private Income.

Remember this Formula Chart for solving Numerical Problems:

Basic national income aggregates, nominal and real gdp.

GDP Deflator : It is the ratio of nominal GDP to real GDP.

GDP Deflator = ( Nominal GDP / Real GDP x 100) %

Consumer Price Index (CPI) : We calculate the cost of purchase of a given basket of commodities in the base year. We also calculate the cost of purchase of the same basket in the current year. Then we express the latter as a percentage of the former. This gives us the Consumer Price Index of the current year vis-´a-vis the base year.

Wholesale Price Index (WPI) : It is worth noting that many commodities have two sets of prices. One is the retail price that the consumer actually pays. The other is the wholesale price, the price at which goods are traded in bulk. These two may differ in value because of the margin kept by traders. Goods that are traded in bulk (such as raw materials or semi-finished goods) are not purchased by ordinary consumers. Like CPI, the index for wholesale prices is called Wholesale Price Index (WPI). In countries like USA, it is referred to as Producer Price Index (PPI) .

GDP and Welfare

If a person has more income he or she can buy more goods and services and his or her material well-being improves. So it may seem reasonable to treat his or her income level as his or her level of well-being.

But there are at least three reasons why this may not be correct:

• Distribution of GDP – how uniform is it : If the GDP of the country is rising, the welfare may not rise as a consequence. This is because the rise in GDP may be concentrated in the hands of very few individuals or firms. For the rest, the income may in fact have fallen. In such a case the welfare of the entire country cannot be said to have increased.
• Non-monetary exchanges : Many activities in an economy are not evaluated in monetary terms. For example, the domestic services women perform at home are not paid for. In barter exchanges, goods (or services) are directly exchanged against each other. But since money is not being used here, these exchanges are not registered as part of economic activity. In developing countries, where many remote regions are underdeveloped, these kinds of exchanges do take place, but they are generally not counted in the GDPs of these countries. This is a case of underestimation of GDP. Hence, GDP calculated in a standard manner may not give us a clear indication of the productive activity and well-being of a country.
• Externalities : Externalities refer to the benefits (or harms) a firm or an individual causes to another for which they are not paid (or penalized). For example, let us suppose there is an oil refinery that refines crude petroleum and sells it in the market. The output of the refinery is the amount of oil it refines. We can estimate the value added by the refinery by deducting the value of intermediate goods used by the refinery (crude oil in this case) from the value of its output. The value added by the refinery will be counted as part of the GDP of the economy. But in carrying out the production the refinery may also be polluting the nearby river. This may cause harm to the people who use the water of the river. Hence their well-being will fall. Pollution may also kill fish or other organisms of the river on which fish survive. As a result, the fishermen of the river may be losing their livelihood. In this case, the GDP is not taking into account such negative externalities. Therefore, if we take GDP as a measure of the welfare of the economy we shall be overestimating the actual welfare. This was an example of a negative externality. There can be cases of positive externalities as well. In such cases, GDP will underestimate the actual welfare of the economy.

Frequently Asked Questions

What is National Income Accounting?

National Income Accounting is the process of measuring the total economic output of a country over a specific period of time. It is used to evaluate the economic performance of a country and to make comparisons between countries.

What are the components of National Income?

The components of National Income include compensation of employees, gross operating surplus, taxes on production and imports, and net property income from abroad.

What is Gross Domestic Product (GDP)?

Gross Domestic Product (GDP) is the total value of all goods and services produced within a country's borders in a specific period of time. It is one of the most widely used indicators of a country's economic performance.

What is Gross National Product (GNP)?

Gross National Product (GNP) is the total value of all goods and services produced by a country's residents, regardless of where they are located in the world. It includes income earned by citizens working abroad and excludes income earned by foreigners within the country.

What is the difference between GDP and GNP?

The main difference between GDP and GNP is that GDP only considers the economic activity within a country's borders, while GNP includes economic activity by a country's citizens, regardless of where it occurs.

Why is National Income Accounting important?

National Income Accounting is important because it provides a framework for analyzing the economic performance of a country and making comparisons between countries. It helps policymakers to identify areas where economic growth can be encouraged and to assess the impact of economic policies.

What is the difference between nominal GDP and real GDP?

Nominal GDP is the total value of goods and services produced in a country using current market prices, while real GDP is the total value of goods and services produced in a country adjusted for inflation. Real GDP is considered a more accurate measure of a country's economic growth over time.

How is net domestic product (NDP) calculated?

Net domestic product (NDP) is calculated by subtracting the depreciation of capital goods from the gross domestic product (GDP).

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CBSE 12th Standard Economics Subject Case Study Questions with Solutions

By QB365 on 20 May, 2021

QB365 Provides the updated CASE Study Questions for Class 12 , and also provide the detail solution for each and every case study questions . Case study questions are latest updated question pattern from NCERT, QB365 will helps to get  more marks in Exams 

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CBSE Class 12 Economics Case study Questions & Answers For Chapter (Microeconomics & Macroeconomics)

Understudies can discover the chapter astute vital questions for course 12th Economics within the table underneath. These imperative questions incorporate questions that are regularly inquired in a long time. Moreover, arrangements are to give for these questions, with extraordinary accentuation on ease-of-study. Tap on the joins underneath to begin investigating.

Below we posted all the Case Study Questions & Answers for Class 12 Economics all Chapters –

CBSE Class 12 Case Study Question for Economics

Case study 01:.

(a) From the following data calculate the value of Domestic Income:

Ans:- Domestic Income (NDP@fc)

=(i)+(ii)+(iv)+(vii)+(viii)+(x)

=₹2000+₹800+₹460+₹940+₹300+₹200

=₹4,700 crore

(b) Distinguish between ‘Value of Output’ and ‘Value Added’.

Ans: Value of output is the estimated money value of all the goods and services, inclusive of change in stock and production for self-consumption. Whereas,

Value added is the excess of value of output over the value of intermediate consumption.

(a) Given the following data, find Net Value Added at Factor Cost by Sambhav (a farmer) producing Wheat:

Ans: Net Value Added at Factor Cost (NVA @ FC)

=(i)+(iii)+(iv)+(vi)-(v)

=₹6800+₹200+₹50+₹20-₹100

=₹6,970crore

(b) State any two components of ‘Net Factor Income from Abroad’.

Ans: Component of net factor income from abroad are:

(i)  Net compensation of employees

(ii) Net income from property and entrepreneurship

(iii) Net retained earnings of resident companies abroad

(a) ‘Pesticides are chemical compounds designed to kill pests. Many pesticides can also pose health risks to people even if exposed to nominal quantities. ‘In the light of the above statement, suggest any two traditional methods for replacement of the chemical pesticides.

Ans: The traditional practices can help in controlling contamination without the use of chemical fertilizers, as follows:

(i) Neem trees and its by products are a natural pest-controller, which has been used since ages in India. Recently, the government promoted the sale Neem coated urea as a measure of natural pest control.

(ii) Large variety of birds should be allowed to dwell around the agricultural areas, they can clear large varieties of pests including insects

(b) ‘In recent times the Indian Economy has experienced the problem of Casualisation of the workforce. This problem has only been aggravated by the outbreak of COVID-19.’ Do you agree with the given statement? Discuss any two disadvantages of casualisation of the workforce in the light of the above statement.

Ans:- The given statement is quite appropriate with reference to the ‘casualisation of labour’ in India.

(i) For casual workers, the rights of the labour are not properly protected by labour laws. Particularly, during pandemic times, as demand for goods and services fell the casual workers were left jobless, without any compensation or support.

(ii) During the COVID-19 lockdown millions of casual workers lost their jobs, raising the question of their survival. Also, additional health expenditure added to their troubles.

Key questions for 12th review Biology are outlined agreeing to the CBSE NCERT program. All address sorts are accessible within the PDF, from one-word to one-line answers, brief reply sorts to five point long reply sorts. Hence, understudies can plan for exams and indeed clarify their concepts through them. On the off chance that they refer to these questions, it’ll get ready their minds to pick up a competitive advantage. Understudies will gotten to be commonplace with question patterns and the sorts of questions that will show up on exams.

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Commerce Aspirant » Economics Class 12 » National Income and its Aggregates Class 12 Notes Economics

National Income and its Aggregates Class 12 Notes Economics

National income and related aggregates class 12 notes CBSE , would cover various aggregates of national income such as GDP MP , NDP FC , etc…. and Methods of Calculating National Income and its Aggregates Class 12. We will also study about Gross Domestic Product “GDP” and the various manner in which it contributes to welfare.

These national income notes provide the Definition, Factor Income, measurement of national income class 12, Measurement Problems, and Estimate (With Diagram)! Go through these national income notes if your goal is to secure good marks in class 12 Economics.

National Income and its Related Aggregates Notes

National Income and its related aggregates are an important concept of macroeconomics.

What is National Income?

National income is the sum total of the entire Factor incomes, of a country generated by normal residents of that country.  It is the net national product at factor cost in the market.

Question and Answers for doubts on Factor Incomes 

1. what are factor incomes.

Factor incomes are rewards received by owners of Factors of Production (Land, Labour, Capital, and entrepreneurship) from the firms who use the factor services. These can be in the form of compensation like rent for use of Land, Salaries for employees for providing Labour, interest on capital, and profit for Entrepreneurs). 

2. Is there any difference between Factor Incomes and Factor Payments?

Since Factor Incomes are paid by firms, they are also called Factor Payments.

3. National Income includes Factor Income and Transfer Payments. Is this statement true?

National Income includes only Factor Income and hence this statement is False.

4. Transfer Payments are rewards for use of Services. Is this statement true?

Transfer Payments are not rewards for use of Services but are one-sided payments like Charity etc, where the payor may not get any economic returns.

Question and Answers on Normal residents in Economics: – 

Aggregates of National Income

Aggregates of National Income are similar factors that can also be called national income in the economy.

Question and Answers on Aggregates of National Income in Economics: – 

Define the various aggregates of national income?

There are 8 aggregates of national income which are broadly classified as Domestic aggregates of national income and National aggregates of national income. These aggregates of national income are defined as under: –

Aggregate 1 – What is  GDP MP or Gross Domestic Product at Market Price? 

Gross Domestic Product at Market Price refers to the gross value added by all final goods and services produced within the domestic territory of a country during a period of time. It is computed based on market price.

The following aspect needs to be considered in respect of Gross Domestic Product at Market Price.

• Gross Domestic Product – “Gross” in Gross Domestic Product means the value is computed without making any provision of depreciation.
• Gross Domestic Product – Domestic in Gross Domestic Product means that the goods and services are produced within the domestic territory.
• Market price – Market price means the price of goods and services in the market, including net indirect taxes.

Additional Questions: –

1. state which of the following are true : –.

• Gross Domestic Product at Market Price refers to the net value added by all final goods and services – False
• Gross Domestic Product at Market Price is in respect of goods produced   in the domestic territory – True
• Gross Domestic Product at Market Price includes gross value added by all final and intermediate goods and services –  False

Aggregate 2 – What is Net Domestic Product at Market Price or NDP MP ?

Net domestic product at market price refers to the net value-added,  by all final goods and services at market price , which is produced within the domestic territory of a country, during a given period of time..

The following aspect needs to be considered in respect of  Net Domestic Product at Market Price.

• Net Domestic Product – Net Domestic Product means the value is computed after deducting depreciation.
• Domestic in Net  Domestic Product – Domestic in Net Domestic Product means that the goods and services are produced in the domestic territory.
• Market Price – Market price means the price of goods and services in the market, including net indirect taxes.

Aggregate 3 – What is Gross National Product at Market Price or GNP MP? 

Gross national product at market price refers to the gross value added  by all final goods and services at market price produced by the normal resident of a country during a period of time..

The following aspect needs to be considered in respect of Gross National Net Domestic Product at Market Price.

• “Gross” in Gross National Product means the value is computed without making any provision of depreciation.
• National  in Gross National Product – National means goods and services are produced by normal resident

NNP MP or Net National Product at Market Price

It refers to the net value added by all final goods and services at market price produced by a normal resident of a country during a period of time.

• Net means that depreciation is deducted from the value.
• National means goods and services are produced by normal residents.
• Market price means goods and services include net indirect taxes.

GDP FC or Gross Domestic Product at Factor Cost

It refers to the gross value added by all final goods and services at money value (factor cost) produced within the domestic territory of a country during a period of time.

• Gross means there is no provision of depreciation.
• Domestic means goods and services are produced in the domestic territory.
• Factor cost means goods and services do not include net indirect taxes.

NDP FC or Net Domestic Product at Factor Cost

It refers to the net value added by all final goods and services at money value (factor cost) produced within the domestic territory of a country during a period of time. It is also called DOMESTIC INCOME .

• Net means depreciation is deducted from the value.

GNP FC or Gross National Product at Factor Cost

It refers to the gross value added by all final goods and services at money value (factor cost) produced by the normal resident of a country during a period of time.

• National means goods and services are produced by the normal resident.

NNP FC or Net National Product at Factor Cost

It refers to the net value added by all final goods and services at money value (factor cost) produced by the normal resident of a country during a period of time. It is also called NATIONAL INCOME .

HOW TO CALCULATE NNP FC FROM GDP M P ?

DIFERENCE BETWEEN NATIONAL AND DOMESTIC INCOME

Methods of calculating national income and its aggregates class 12, methods of calculating national income class 12 – value-added method.

This method is used to calculate national income from the various phases of the circular flow of income. It shows the contribution of each production unit in producing goods and services. This method is also known as the Product Method, Production Method, or Net Output Method.

VALUE ADDED refers to the addition of value to the raw materials by a firm through its production activities. It is calculated as the difference between the value of output and the value of intermediate consumption. The value-added method gives us the result as GDP MP (an aggregate of national income).

Value Added= Value of Output- Intermediate Consumption

INTERMEDIATE CONSUMPTION is not included while calculating national income. Therefore it is deducted from the value of output. If intermediate consumption is given, then imports are not separately included as they are a part of intermediate consumption.

VALUE OF OUTPUT is the market value of all goods and services produced in an economy during a period of one year. Value of output includes the sales made during a particular year and the unsold stock of goods left out during that year. Sales are calculated by multiplying output with a price. Exports are not separately included in national income through this method as they are already a part of sales of that year.

*Value Added Method*

PRECAUTIONS OF VALUE-ADDED METHOD

• Intermediate goods are not included in calculating national income.
• The sale and purchase of second-hand goods are not included.
• Production of services for self-consumption is not included.
• Production of goods for self-consumption is included.
• Change in the stock of goods will be included.
• The imputed value of the house occupied by the owner is taken as the rent of that place.

While measuring national income, only the value of final goods is to be included to avoid the problem of double-counting while passing through various stages of the production process.

METHODS OF CALCULATING NATIONAL INCOME CLASS 12 – INCOME METHOD

According to this method, all the income received or accrued to be received by the factors of production through wages, salaries, interests, rent, royalty, profits, etc…. are summed up to get the national income. The income methods give NDP FC  (an aggregate of national income). This is also called “ domestic income ”. This method includes all the incomes earned by the normal resident of our country during the year. This method is also known as the “factor payment method” .

COMPONENTS OF INCOME METHOD

• Compensation of Employees : It is the amount paid by employers to their employees for giving production services. It includes payment in cash as well as kind, directly or indirectly received by the employees. It includes “wages and salaries in cash”, “wages and salaries in kind” and “employers contribution to social security schemes”.
• Operating surplus : It refers to the sum total of income received by factors of production (land, capital, and entrepreneur). It includes “rent and royalty”, “interest” and “profit”. Interest income includes the interest taken for production purposes only. Profit includes corporate tax, retained earnings, and dividends.

• Mixed-Income: It is the income earned by self-employed persons and has components of more than one type of income from factors of production. For example, farmers produce wheat on their own farming land.

NDP FC = Compensation of Employees+ Operating Surplus+ Mixed-Income 

PRECAUTIONS OF INCOME METHOD

• Transfer incomes are not included in national income.
• Income from the sale of second-hand goods is not included in national income.
• Income from the sale of shares, bonds, debentures, etc…. is not included. However, the brokerage on the sale is included.
• Windfall gains such as lottery incomes are not included.
• Payment out of the previous savings is not included in national income.
• Indirect taxes are not included in national income.
• The imputed value of factor services provided by the owners for production purposes is included.

METHODS OF CALCULATING NATIONAL INCOME CLASS 12 – EXPENDITURE METHOD

The factor income earned by the factors of production is spent in the form of consumption expenditure and received back by the firms. The expenditure is made by the households, business firms, government, and the foreign sector. This final expenditure is a sum totaled to get GDP MP (an aggregate of national income). This method is also known as the “Income Disposable Method”.

COMPONENTS OF EXPENDITURE METHOD

• Private Final Consumption Expenditure: It refers to all the expenditure made by households and private non-profit organizations on all types of goods (durable, semi-durable, non-durable, and services) earned by the normal resident of India.
• Government Final Consumption Expenditure: It refers to the expenditure made by the government on administration services such as defense, law, and order, education, etc….
• Gross Domestic Capital Formation: It refers to the addition to the capital stock of the economy. It includes- Gross Fixed Capital Formation and Inventory Investment . Gross Fixed Capital Formation refers to the expenditure made on the purchase of fixed assets. It includes Gross business fixed investment, gross residential construction investment, and gross public investment . Inventory Investment refers to the change in the stock of raw materials or goods kept with the producer.

Gross Domestic Capital Formation= Gross Fixed Capital Formation+ Inventory Investment

Gross Fixed Capital Formation= Gross Business Fixed Investment+ Gross Residential Construction Investment+ Gross Public Investment

Inventory Investment= Closing Stock- Opening Stock

• Net Exports: It refers to the difference between the exports and imports of a country during a period of time. Exports refer to the purchase of domestic goods by a foreign country. Imports refer to the purchase of foreign goods by a domestic country.

GDP MP = Private Final Consumption Expenditure+ Government Final Consumption Expenditure+ Gross Domestic Capital Formation+ Net Exports

PRECAUTION OF EXPENDITURE METHODS

• Expenditure on intermediate goods is not included in national income.
• Purchase of second-hand goods is not included in national income.
• Purchase of financial assets is not included in national income but the brokerage or commission on the sale is included in national income.
• Expenditure on goods produced for self-consumption will be included in national income.

GDP AND WELFARE

GDP refers to all the goods and services produced by a domestic country in a financial year. There are TWO types of GDP: Real GDP and Nominal GDP.

Nominal GDP: – It is also called GDP at the current year price. It is estimated on the basis of the prices of the same year in which the output is produced. It is inclusive of the inflation in the market.

Real GDP: – It is also called GDP at base year/ constant price. It is estimated on the basis of prices of some base year in which there was no or less inflation. It tells us the real increase in the GDP. It truly reflects the growth of the Economy.

Real GDP is better than  Nominal GDP as it shows the true economic growth.

GDP DEFLATOR: – It measures the average price level of all goods and services produced in the economy that constitute the GDP. It is also known as “PRICE INDEX”.

GDP is often considered as a measurement of welfare. Higher GDP means higher welfare. But it may not stand true all the time. Following are certain situations: –

1. Distribution of income: Due to the rise in GDP, the gap between rich and poor may also increase, As GDP  does not consider inequalities in the distribution of income. . So, welfare does not rise with rising in GDP.

2. Non- monetary exchanges: Some of the transactions may not be measured in monetary terms i.e., they will not be included in the GDP of the economy but these activities influence the welfare of the economy in a positive way. For example, work done by the housewife.

3. Externalities: These refer to the benefits or harms caused by the external factors which are not recorded in GDP. For example, a factory set up near a residential area causes pollution which harms the welfare but at the same time increases the GDP. On the other hand, a public park set up near a residential area does not affect the GDP but at the same time increases the welfare of the people.

4. Rate of population growth: GDP does not take into account population growth. If the population rises at an increase in comparison to the increase in the GDP then it will lead to less availability of goods and services for an individual. This will adversely affect the welfare of the economy.

5. Change in prices: Due to an increase in prices the nominal GDP will rise but it will lead to inflation in the market. This will decrease the economic welfare adversely as there is no increase in the physical output available.

RECONCILIATION OF METHODS OF NATIONAL INCOME AND ITS AGGREGATES

CBSE Class 12 Economics  Notes  Term II Syllabus

Part A: Introductory Macroeconomics

• Circular Flow of Income Class 12 Notes
• Basic Concepts of Macroeconomics Class 12 Notes
• National Income and Related Aggregates Class 12 Notes – 10 Mark
• National Income and Related Aggregates Class 12 Numericals
• Aggregate Demand and Its Related Concepts Class 12 Notes
• Excess Demand and Deficit Demand Class 12 Notes
• National Income Determination and Investment Multiplier Class 12 Notes

Part B: Indian Economic Development

Current challenges facing Indian Economy – 12 Marks

• Employment Class 12 Notes
• Infrastructure Class 12 Notes
• Sustainable Economic Development Class 12 Notes

Development Experience of India – A Comparison with Neighbours – 6 Marks

• Comparative Development Experience of India and its Neighbours Class 12 Notes
• Economics Class 12 Notes
• Business Studies Class 12 Notes
• Accountancy Class 12 Notes
• Economics Class 12 MCQs
• Business Studies Class 12 MCQs
• Accountancy Class 12 MCQs

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National Income Accounting Class 12 Notes CBSE Macro Economics Chapter 2 (Free PDF Download)

• Revision Notes
• Economics: Macro Economics
• Chapter 2 National Income Accounting

Revision Notes for CBSE Class 12 Macro Economics Chapter 2 - Free PDF Download

Macroeconomics Class 12 Chapter 2 mainly deals with one of the most significant topics of Macroeconomics namely National Income Accounting. Vedantu focuses on providing a picturesque description of Class 12 Macroeconomics Chapter 2 notes along with some other very significant topics. In Class 12 Economics Chapter 2 notes, you will be exposed to numerous components of National Income Accounting such as final products, intermediate goods, capital goods, investment, and so on. If you want to get high grades in Economics, go over the notes PDF completely.

Download CBSE Class 12 Macro Economics Revision Notes 2024-25 PDF

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Related Chapters

Access Class 12 Economics (Introductory Macroeconomics) Chapter 2- National Income Accounting Notes

Important terminology, goods: .

In economics, goods are products and resources that meet people's needs and demands. A good can be a physical object, a man-made object, a service, or a mix of the three that can command a market price. 

Types of goods:

a. Consumption Goods:  

Consumption goods are items that are utilised directly to satisfy human demands. Consumption goods support the core goal of an economy, which is to sustain the consumption of the economy's entire population. 

These are not used in the manufacturing of other goods. 

Consumption products, often known as final goods, are intended for final consumption. 

For instance, a television, a pen, or a pair of shoes.

b. Capital Goods:  

Capital goods are goods used by one business to assist another in the production of consumer goods. 

Capital goods can not be easily transformed into cash. 

They are long-lasting and do not degrade easily. 

Equipment, machinery, buildings, computers, are some common examples of capital goods.

d. Final Goods:  

Final goods are commodities produced by a corporation for subsequent consumption by the consumer. 

These commodities satisfy a consumer's demands or desires.

e. Intermediate Goods:  

Intermediate goods are utilised in the production of finished goods or consumer goods. 

They can also be considered to act as inputs in other commodities and to comprise the final goods as ingredients.

Investment:  

An investment is an asset or object purchased with the intention of earning income or increasing in value. 

When a person buys a good as an investment, the intention is not to consume the good but rather to use it to build wealth in the future.

Gross Investment:  

A company's capital investment before depreciation is referred to as its gross investment or gross capital investment. 

The absolute investment value made by the company in purchasing assets each year is shown by gross investment. 

Net investment:  

It is defined as gross investment minus depreciation on existing capital. Net investment, in a nutshell, is the increase in productive stock.

Net investment = Gross Investment – Depreciation

Depreciation:  

Depreciation, in economic terms, is a way of dividing the cost of a tangible or physical asset over its usable life or life expectancy. Depreciation is a measurement of how much of the value of an asset has been diminished.

Capital Formation:  

Capital formation is the process of gradually increasing the stock of capital over time.

Factor Cost: 

These are the earnings obtained by the owners of factors of production in exchange for providing factor services to the producer.

Basic Prices: 

The basic price is the amount a producer receives from a purchaser for a unit of a thing or service provided as output, less any tax due and any subsidy due on that unit as a result of its production or sale. 

Basic price = Factor cost + Production taxes – Production subsidy

Market Prices: 

The market price of a commodity is the price at which it is sold on the open market. It comprises the costs of production such as wages, rent, interest, input prices, profit, and so on. 

It also includes government-imposed levies and government-provided producer subsidies.

Market price = Basic price + Product taxes – Product subsidy

Transfer Payments: 

Transfer payment refers to payment received without the provision of any service or goods in exchange. 

These are one-time payments with no expectation of a return. These are unearned incomes for recipients.

These are given to you for free, with no need to make any current or future payments in exchange. 

Transfer payments are essentially government welfare expenditures.

Stock Variable: 

A stock variable is a variable that is measured at a certain point in time. 

Stock does not have a temporal dimension. 

It influences the flow. 

Wealth, capital, etc are examples.

Flow Variable: 

A flow is a quantity that is measured over a specific timeframe. 

Flows are thus described in terms of a given period, such as hours, days, weeks, months, or years. 

It has a time dimension to it.

In the context of a circular flow of income model, leakage is an economic term that characterizes capital or money that escapes an economy or system. 

It lowers aggregate demand and income levels. 

For example, taxes, savings, and imports.

Injection:  

When funds are added to an economy from sources other than people and enterprises, this is referred to as an injection. 

It raises aggregate demand as well as income levels. 

Injections can come from a variety of sources, including government spending, investment, and exports.

Consumer Price Index: 

The consumer price index (CPI) reflects variations in the overall level of prices of products and services that a reference population obtains, consumes, or pays for consumption across time.

Wholesale Price Index:  

A wholesale price index (WPI) is an indicator that monitors and tracks changes in the price of products before they reach the retail level.

Circular Flow of Income

The continual flow of commodities and services, revenue, and expenditure in an economy is referred to as the circular flow. 

It depicts the circular redistribution of revenue between the manufacturing unit and households.

Economic Territory

The geographical territory managed by a government constitutes a country's economic territory. 

People, goods, and capital may freely circulate inside this zone. 

The economic territory encompasses not just land but also national air space, territorial waters, and natural oil and gas resources in international waters. 

Scope of Economic Territory:

Territorial seas and airspace are examples of political boundaries. 

Residents' ships and aircraft that travel between two or more countries. 

Embassies, consulates, military bases, and other international institutions.

Residents operating fishing vessels, oil and gas rigs in foreign waters.

Normal Residents of a  Country

A person or entity that regularly dwells in a country and has its centre of economic interest in that country is referred to as a normal resident of that country.

Exceptions for Normal Residents of a country: 

Diplomats and embassy officials from other countries.

People who work for international organisations such as WHO, IMF, UNESCO, and others are treated as normal citizens of the country to which they belong.

Commercial travellers, tourists, students, and so on.

Aggregates of National Income

1. Gross Domestic Product at Market Price (GDP MP )

It is the market value of all final products and services generated by all manufacturing units located on a country's domestic territory within an accounting year. 

Gross domestic product at market prices equals the sum of all resident producers' gross values added at market prices plus taxes and fewer import subsidies. 

${\mathrm{GDP}}_{\mathrm{MP}}=\;\mathrm{Net}\;\mathrm{domestic}\;\mathrm{product}\;\mathrm{at}\;\mathrm{Factor}\;\mathrm{Cost}\;\left({\mathrm{NDP}}_{\mathrm{FC}}\right)+\mathrm{Depreciation}\;+\mathrm{Net}\;\mathrm{Indirect}\;\mathrm{Tax}$ or,

GDP = C + I + G + (X-M)

2. Gross Domestic Product at Factor Cost (GDP FC )

It is the total worth of all final goods and services produced within a country's domestic territory excluding net indirect taxation.

${\mathrm{GDP}}_{\mathrm{FC}}={\mathrm{GDP}}_{\mathrm{MP}}-\mathrm{Indirect}\;\mathrm{tax}\;+\;\mathrm{Subsidy},\;\mathrm{or}\;\\{\mathrm{GDP}}_{\mathrm{FC}}={\mathrm{GDP}}_{\mathrm{MP}}-\mathrm{NIT}$ 

GDP FC = Compensation of Employees + Rent + Interest + Profit + Depreciation

3. Net Domestic Product at Market Price (NDP MP )

It is the depreciation-free market value of final goods and services produced in the country's domestic area within a year.

Hence, it is the monetary worth of all final goods and services produced within a country's domestic territory within an accounting year, excluding depreciation.

${\mathrm{NDP}}_{\mathrm{MP}}={\mathrm{GDP}}_{\mathrm{MP}}-\mathrm{Depreciation}$ 

4. Net Domestic Product at Factor Cost (NDP FC )/ Domestic Income:

It is the factor income received by owners of factors of production for providing factor services in domestic territory throughout a fiscal year.

It is the total worth of all finished goods and services excluding depreciation and net indirect tax. 

Thus, it is equivalent to the sum of all factor incomes (compensation of employees, rent, interest, profit, and mixed income of self-employed) created in the country's domestic area.

${\mathrm{NDP}}_{\mathrm{FC}}\;=\;{\mathrm{GDP}}_{\mathrm{MP}}\;–\;\mathrm{Depreciation}\;–\;\mathrm{Indirect}\;\mathrm{tax}\;+\;\mathrm{Subsidy}$ or

NDP FC = Compensation of Employees + Rent + Interest + Profit 

5. Net National Product at Factor Cost or National Income (NNP FC )/ National Income: 

It is the aggregate of all factor earnings earned by ordinary people of a country in the form of wages. During an accounting year, rent, interest, and profit are calculated.

It is the sum of all factor incomes earned by ordinary citizens of a nation throughout an accounting year, including employee pay, rent, interest, and profit.

${\mathrm{NNP}}_{\mathrm{FC}}={\mathrm{NDP}}_{\mathrm{FC}}+\mathrm{Factor}\;\mathrm{income}\;\mathrm{earned}\;\mathrm{by}\;\mathrm{normal}\;\mathrm{residents}\;\mathrm{from}\;\mathrm{abroad}\;–\;\mathrm{Factor}\;\mathrm{payments}\;\mathrm{made}\;\mathrm{to}\;\mathrm{abroad}.\\\mathrm{OR}\\{\mathrm{NNP}}_{\mathrm{FC}}={\mathrm{NDP}}_{\mathrm{FC}}+\mathrm{NFIA}=\mathrm{National}\;\mathrm{Income}$

6. Gross National Product at Market Price (GNP MP )

It is the market value of all finished goods and services generated by a country's normal citizens (both domestically and overseas) throughout an accounting year.

${\mathrm{GNP}}_{\mathrm{MP}}({\mathrm{MNP}}_{\mathrm{FC}})=\;{\mathrm{GDP}}_{\mathrm{MP}}\;+\;\mathrm{NFIA}\;\;\\\mathrm{Or}\;\\{\mathrm{GNP}}_{\mathrm{MP}}\;=\;{\mathrm{NNP}}_{\mathrm{FC}}\;+\;\mathrm{Dep}\;+\;\mathrm{NIT}$

7. Net National Product at Market Price (NNP MP )

It is the sum of the factor incomes earned by normal citizens of a country throughout an accounting year, including net indirect taxes.

${\mathrm{NNP}}_{\mathrm{MP}}={\mathrm{NNP}}_{\mathrm{FC}}+\mathrm{Indirect}\;\mathrm{tax}\;-\;\mathrm{Subsidy}$

${\mathrm{NNP}}_{\mathrm{MP}}={\mathrm{NDP}}_{\mathrm{MP}}+\mathrm{Net}\;\mathrm{factor}\;\mathrm{income}\;\mathrm{from};\mathrm{abroad}$

8. Gross National Product at Factor Cost (GNP FC )

It is the sum of a country's normal people's factor earnings over the course of an accounting year, plus depreciation.

${\mathrm{GNP}}_{\mathrm{FC}}={\mathrm{NNP}}_{\mathrm{FC}}+\mathrm{Depreciation},\;\mathrm{or}\\{\mathrm{GNP}}_{\mathrm{FC}}={\mathrm{GDP}}_{\mathrm{FC}}+\mathrm{NFIA}$

9. National Income at Current Prices:  

When products and services generated by ordinary inhabitants within and outside of a country in a year are evaluated at the current year’s values, i.e., current prices, this is referred to as national income at current prices. I

It is also referred to as nominal national income.

Here, 

Y = National income at current prices.

Q = Quantity of goods and services produced in an accounting year.

P = Prices of goods and services during the current accounting year.

10. National Income at Constant Prices:  

National Income at Constant Prices refers to the worth of products and services produced by ordinary inhabitants within and outside of a country in a given year at a constant price, i.e., the base year’s price. 

It is also referred to as actual national income.

Y’ = Q x P’

Y’ = National income at constant prices.

Q = Quantity of goods and services produced during an accounting year.

P’ = Prices of goods and services prevailing during the base year.

11. GVA at Market Prices:  

Production and product taxes are included in GVA at market prices, whereas production and product subsidies are excluded.

GVA at market price =  GDP at market prices

12. GVA at basic prices:  

GVA at basic prices does not include product subsidies but does incorporate production taxes.

GVA at basic prices = GVA MP - Net Production Taxes

13. GVA at factor cost: 

GVA at factor cost does not contain any taxes or subsidies.

GVA at factor cost = GVA at basic prices - Net Production Taxes

GDP and Welfare: 

GDP:  

It is a measure of the economic value of all final goods and services produced within a specific time period, which is typically annually or quarterly. 

A greater GDP suggests that more products and services are produced. It indicates the increased availability of goods and services, but this does not always imply that people were better off throughout the year. 

GDP is classified into two categories-

Real GDP:  

Real gross domestic product (real GDP) is an inflation-adjusted estimate of the value of all goods and services generated by an economy each year. It is also known as "constant-price" or "inflation-corrected" or "GDP at constant prices". 

It is exclusively affected by changes in physical output, not by changes in the price level. It's referred to as a true indication of economic advancement.

$\mathrm{Real}\;\mathrm{GDP}\;=\;\frac{\mathrm{Nominal}\;\mathrm{GDP}}{\mathrm{Deflator}}$

Nominal GDP: 

The products and services produced by all producing units in a country's domestic territory during an accounting year and valued at the current year's prices or current prices are referred to as nominal GDP or GDP at current prices. 

Changes in both physical output and the price level have an impact on it. It is not regarded as a reliable indicator of economic advancement.

Nominal GDP = Real GDP x GDP Deflator

Conversion of Nominal GDP into Real GDP

$\;\mathrm{Real}\;\mathrm{GDP}\;=\;\frac{\mathrm{Nominal}\;\mathrm{GDP}}{\mathrm{Price}\;\mathrm{Index}}\;\mathrm x\;100$

GDP Deflator:

The nominal-to-real GDP ratio is a well-known price index. This is known as the GDP Deflator. 

Thus, 

If GDP denotes nominal GDP and 

gdp denotes real GDP, 

$\mathrm{GDP}\;\mathrm{Deflator}\;=\frac{\;\mathrm{GDP}}{\mathrm{gdp}}$

The deflator is also expressed in percentage terms. In this scenario,

$\mathrm{GDP}\;\mathrm{Deflator}\;=\frac{\;\mathrm{GDP}}{\mathrm{gdp}}\times100$

Welfare: 

People's material well-being is referred to as welfare. It is determined by a variety of economic elements such as national income, consumption level, product quality, etc, as well as non-economic factors such as environmental pollution, law, and order, and so on. 

Economic welfare refers to welfare that is dependent on economic variables, whereas non-economic welfare refers to welfare that is dependent on non-economic elements. Social welfare is defined as the sum of economic and non-economic well-being. 

Thus, GDP and welfare are directly associated, however, this relationship is incomplete because of the following limitation:

Some limitation of per capita real GDP as an indicator of economic welfare:

The exclusion of non-market transactions

Externalities are not included in GDP but have an impact on wellbeing.

GDP does not accurately reflect the quality of economic development.

Not all products make contributions to economic welfare.

Some products may have a detrimental impact.

Inflation may create the impression of a decline.

Methods of Calculating National Income

a. Product Method/ Value Added Method:  

It refers to a firm's production activities that add value to raw materials (intermediate goods). Alternatively, value added is defined as an enterprise's contribution to the present flow of products and services. To put it another way, the term "value added" is used to describe a company's net contribution.

As a result, 

Value added of a firm = Value of Output– Value of intermediate goods used by the firm.

Value of output:  

An enterprise's output is the commodities and services it produces during an accounting year. The market worth of all goods and services generated by a firm throughout an accounting year is referred to as the value of output.

Value of Output = Quantity of output x Price

$\mathrm{Value}\;\mathrm{of}\;\mathrm{output}\;=\mathrm{Sales}\; +\mathrm{\Delta Stock}$

Change in  Stock

It is calculated as;

$\mathrm{\Delta Stock}\;=\mathrm{Closing}\;\mathrm{Stock}\;-\mathrm{Opening}\;\mathrm{ Stock}$

Intermediate Consumption:  

It refers to the value of non-factor inputs or raw material which is used in the process of production.

b. Expenditure Method:

It is believed that the value of domestic income is equal to the total sum of expenditures on the purchase of final products and services produced throughout an accounting year within an economy.

Consumption Expenditure: The expenditure by households, individuals, etc on final goods and services.

Government Expenditure: The expenditure by the government on final goods and services.

Investment Expenditure: The expenditure on the purchase of the goods that would be used for further production. It includes fixed investment (on plant, machinery etc) and inventory investment (includes change in stock).

Net exports: The difference between exports(X) and imports(M).

GDP Mp = C + I + G + (X – M)

C = consumer spending on different goods and services, 

I = investments made by businesses, and on capital goods, 

G = government’s spending on goods and services provided to the public, 

X = exports, and 

M = imports.

c. Income Method:  

The income method is a real estate estimating methodology that divides the capitalization tariff or price by the net operating income of the rental payments. 

This calculation is used by investors to evaluate assets depending on their profitability.

It is also called factor payment method, as in this the calculation of national income is through factor incomes.

Classification of Factor Incomes

Compensation of Employees : It comprises salary and wages earned in return for the services and talents you give in the production of goods and services. Travel allowances, bonuses, lodging allowances, and medical expenses are also included. It includes, 

Wages and salaries

Payment in kind

Pension 

Employers contribution

Operating Surplus: It includes.  

Rent is the amount of money paid for the use of land. When determining income, rent only relates to the money obtained from the use of any land. Rent paid for the use of machinery and other equipment is not included in the calculation of rent.

Interest is the cost one pays for borrowing money. This now covers the interest paid when a business obtains a loan for an investment.

Profit, it includes dividends, profit tax, undistributed profits.

Mixed Income: The income of self-employed professionals, farming units, and sole proprietorships is referred to as mixed income.

National Income (NNPFC) = Net Domestic Product at Factor Cost (NDPFC) + Net Factor 

Note: NDPFC = Rent + Compensation + Interest + Profit + Mixed income.

Problem of Double Counting: 

When computing national income, the problem of double counting arises. The national income estimates become muddled when double accounting occurs in the calculation of national income.

Methods to avoid the problem of double counting:

Only the value of finished goods should be counted ( final output method).

Only the value added that equals the value of output less intermediary consumption should be counted (Value added method).

Private Income:  

Private income is the estimated income of all factors and transfers to the private sector, both within and outside the country.

Private Income = Factor income from net domestic product accruing to the private sector + National debt interest + Net factor income from abroad + Current transfers from government + Other net transfers from the rest of the world.

Personal Income: 

The term "personal income" refers to the sum of money received by all people or households in a certain country. Personal income comprises remuneration from a variety of sources, such as salaries, wages, and so on. 

$\mathrm{Personal}\;\mathrm{income}\;(\mathrm{PI})\;\equiv\;\mathrm{NI}\;–\;\mathrm{Undistributed}\;\mathrm{profits}\;–\;\mathrm{Net}\;\mathrm{interest}\;\mathrm{payments}\;\mathrm{made}\;\mathrm{by}\;\mathrm{households}\;–\;\\\mathrm{Corporate}\;\mathrm{tax}\;+\;\mathrm{Transfer}\;\mathrm{payments}\;\mathrm{to}\;\mathrm{the}\;\mathrm{households}\;\mathrm{from}\;\mathrm{the}\;\mathrm{government}\;\mathrm{and}\;\mathrm{firms}$.

Note: NI stands for National Income

Personal Disposable Income:  

Disposable income, also known as personal disposable income, is the amount of money available for household consumption, savings, and spending after deducting income taxes.

$\mathrm{Personal}\;\mathrm{Disposable}\;\mathrm{Income}\;(\mathrm{PDI})\;\equiv\;\mathrm{PI}\;–\;\mathrm{Personal}\;\mathrm{tax}\;\mathrm{payments}\;–\;\mathrm{Non}\;\mathrm{tax}\;\mathrm{payments}$.

Chapter 2 Macroeconomics Class 12: The Key Components

Final Goods: The final goods are the first key component covered in Macroeconomics Class 12 Chapter 2. Final products are commodities that have completed all stages of manufacture and are ready for use by the end users. Final products are sometimes divided into two categories: final consumer goods and final producer goods.

Intermediate Commodities: The commodities which are in the midway of production are known as intermediate commodities.

Consumption Goods: The goods which are directly used for the fulfilment of human wants are termed as consumer goods. These types of goods are not used for the purpose of production of other goods. Consumer goods are classified into four categories namely Durable Goods (TV, radio, car etc), Semi-Durable Consumer Goods (Clothes, Furniture etc), Non-Durable Consumer Goods (Bread) and Services (Doctor, Lawyer etc).

Capital Goods: The next important topic that comes under the Macroeconomics Chapter 2 Class 12 is Capital Goods. The goods used for a long time in the production procedure are called Capital Goods. Capital Goods are of high values.

Investment: Investment is one of the most important components of National Income accounting as well as the Class 12 Macroeconomics Chapter 2. The procedure of formation of capital or a course of the increase in capital stock is termed as Investment. There are two types of investments namely Fixed Investment and Inventory Investment. 

Gross Investment: According to Class 12 Economics Chapter 2 notes Macroeconomics Gross Investment is one of the most important terms as far as the National Income Accounting is concerned. 

Gross Investment: Spending on the consumption of fixed assets during the accounting year + Spending on the inventory stock during the accounting year.

Net Investment: If you follow the notes of Macroeconomics Class 12 Chapter 2 minutely, you will find that Net Investment = Gross Investment – Depreciation (Consumption of fixed capital).

Stock: As per notes of Macroeconomics Class 12 Chapter 2, the quantity of any economic variable which is gauged at a specific point of time is termed as a stock.

Flow: Class 12 Economics Chapter 2 Macroeconomics tells that the quantity of any economic variable which is gauged during a span of time is termed as Flow.

Circular Flow of Income: Circular flow of Income is the involvement of production, income generation and expenditure in the various sectors of the economy. The circular flow is classified into three phases namely Production, Income Generation and Expenditure.

Condition for Equilibrium in Four Sector Economy: If you minutely go through the National Income Class 12 notes, you will find that condition for equilibrium in the four sector economy is: 

C+S+T= C+I+G+ (X-M) 

C= Consumption, S= Saving, I= Investment, T= Tax Revenue, G= Govt Expenditure

Class 12 Macro Economics Chapter 2: An Overview

National Income Accounting is the second chapter of CBSE Class 12 MacroEconomics, and it is a highly essential subject since it deals with the fundamental functioning of a simple economy. Final goods, consumer goods, capital goods, intermediate goods, gross investment, net investment, depreciation, gross domestic product (GDP), net domestic product, gross national income, net national income, market price, factor cost, circular flow of income, real GDP, nominal GDP, Consumer Price Index, Wholesale Price Index, and so on are key concepts in this chapter.

These concepts are well explained in the National Income Accounting Revision Notes of Class 12 Macroeconomics. You can download the Class 12 MacroEconomics Chapter 2 Revision Notes from the official website of Vedantu available in free Pdf format and study at your own pace, even without any internet connection. It makes last-minute revision easy for the students.

Techniques of Measurement of National Income

As per Class 12 Macroeconomics Chapter 2 notes, there are three methods of measurement of National Income which are as follows:

Product or Value Added Method

Income Method

Expenditure Method

Components of Domestic Factor Income

There Are Three Components of Domestic Factor Income Which Are As Follows:

Compensation to Employees (wages and salaries in cash, compensation in kind and contributions of the employees to the various social security schemes)

Operating Surplus (property income and entrepreneurship income)

Mixed-Income of the self-employed persons

National Income: The main content of Macroeconomics Class 12 Chapter 2 is the National Income. National Income is referred to as the aggregate of factor incomes accruing to the residents residing in the boundary of a particular country.

GDP: Class 12 Economics Chapter 2 notes highlight GDP, the most essential feature of the current economic condition. It is the sum of employee compensation, operating surplus, mixed income, and fixed capital consumption within the boundaries of a certain country over a one-year period. GDP is classified into two types: nominal GDP (GDP at current prices) and real GDP (GDP at constant price).

Why Should You Choose Vedantu?

Vedantu is the finest alternative for Macroeconomics Class 12 Chapter 2 notes if you want to do well in the test. There are various causes for this, including:

Vedantu's Macroeconomics Chapter 2 Class 12 notes are well-written.

The Class 12 Economics Chapter 2 notes Macroeconomics are prepared by the experienced teachers of Vedantu following all the guidelines of CBSE Board.

You can download the notes of Macroeconomics Class 12 Chapter 2 in PDF version from the official website of Vedantu.

Class 12 Economics Chapter 2 notes are very easy to download and they are completely free of cost.

Chapter Wise Revision Notes for Class 12 Macro Economics

CBSE Class 12 Macro Economics Revision Notes Chapter 1 - Introduction to Macro Economics

CBSE Class 12 Macro Economics Revision Notes Chapter 3 - Money and Banking

CBSE Class 12 Macro Economics Revision Notes Chapter 4 - Determination of Income and Employment

CBSE Class 12 Macro Economics Revision Notes Chapter 5 - Government Budget and the Economy

CBSE Class 12 Macro Economics Revision Notes Chapter 6 - Open Economy Macroeconomics

Chapter Wise Revision Notes for Class 12 Micro Economics

CBSE Class 12 Micro Economics Revision Notes Chapter 1 - Introduction to Micro Economics

CBSE Class 12 Micro Economics Revision Notes Chapter 2 - Theory of Consumer Behaviour

CBSE Class 12 Micro Economics Revision Notes Chapter 3 - Production and Costs

CBSE Class 12 Micro Economics Revision Notes Chapter 4 - The Theory of the Firm under Perfect Competition

CBSE Class 12 Micro Economics Revision Notes Chapter 5 - Market Equilibrium

CBSE Class 12 Micro Economics Revision Notes Chapter 6 - Non-competitive Markets

Study Materials Related to Class 12 Macro Economics Chapter-2

Important Questions for CBSE Class 12 Macro Economics Chapter 2 - National Income Accounting

NCERT Solutions for Class 12 Macro Economics - Chapter 2 - National Income Accounting

Other Related Links

CBSE Syllabus for Class 12 Economics Term (1 & 2)

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Previous Year Question Paper for CBSE Class 12 Economics with solutions

Important Questions for CBSE Class 12 Economics

CBSE Sample Papers for Class 12 Economics with Solution & Marking Scheme

Conclusion 

National Income Accounting is a vital concept in CBSE Macro Economics that allows us to measure and assess the overall economic performance of a country. It provides a framework for understanding the level of economic activity, income distribution, and standard of living within an economy.

Through the use of various measurement techniques such as the income approach, expenditure approach, and production approach, we can calculate the national income by considering different components like consumption, investment, government spending, and net exports. Gross Domestic Product (GDP) is a key indicator of national income, representing the total value of all final goods and services produced within a country's borders during a specific period.

National Income Accounting plays a crucial role in informing policymakers, economists, and analysts about the economic health and growth of a nation. It helps in identifying trends, making comparisons between countries, and formulating effective economic policies. However, it is important to acknowledge the limitations and criticisms of National Income Accounting, such as its inability to capture the informal sector, neglect of non-market activities, and the disregard for environmental and social factors.

FAQs on National Income Accounting Class 12 Notes CBSE Macro Economics Chapter 2 (Free PDF Download)

1. What are NNP at Market Price and NNP Factor Cost?

In the National Income Accounting Class 12 chapter, Net National Income (NNP) is a very important topic. NNP at Market Price refers to the market value of final commodities and services in the current accounting year including factor income from abroad without the depreciation. NNP at Factor Cost refers to the aggregate of factor incomes received by the residents of a country within the boundary in a period of one year.

2. What are the Externalities?

In the Macroeconomics Class 12 Chapter 2, externalities are the benefits a company or an individual causes to another for which they remain unpaid.

3. What is the importance of National Income Accounting?

The amount of economic activity taking place in a country is as important as the quality and quantity of goods that are either produced or imported into the country. This in turn affects the material well being of the citizens of that country. The Indian economy produces a large number of goods such as fruits, vegetables, locomotives, etc. National income accounting provides information on the economic activity of the country. The variations in numbers derived help policymakers formulate efficient policies for both the government and private sector.

4. Is Chapter 2 of Class 12 Economics easy?

Class 12 CBSE Economics Chapter 2 is one such chapter that can be mastered if done the right way. Understanding the various concepts that are introduced in each chapter is very important. Refer to different textbooks within your curriculum to gain different perspectives on the same topic. Vedantu has notes curated specifically for this purpose. You can use them to study topics that you aren't clear with. You can also use these notes as revision material before your examination.

5. Where can I find notes for Chapter 2 of CBSE Class 12 Macroeconomics?

Vedantu is the go-to website for every student when it comes to looking for answers regarding anything academic-related. There are a total of 6 chapters in Macroeconomics for Class 12 CBSE and all of them are extremely important from the examination point of view and complete revision notes for all the chapters is available on Vedantu app and website. Now, coming back to Chapter 2, Vedantu offers a comprehensive structure with revision notes and important questions. 

6. Can I skip Chapter 2 in Grade 12  CBSE Macroeconomics?

All chapters are important when it comes to preparing for the examination. Skipping any chapter may lead to unnecessary loss of marks which could have been otherwise avoided if time management was stressed. However, Vedantu has notes prepared which are concise and easy to understand. These notes can help you grasp the concepts of the lesson in a shorter span of time. You can revisit these notes at your convenience. You can access the notes to Chapter 2 of Grade 12 Macroeconomics free of cost.

7. What is Economics?

Economics can be defined as a subject which deals with the study of production, consumption and transfer of wealth. It is an important subject as it deals with the study of the economic well being of the country. To know more, you can always visit Vedantu as it offers detailed explanations curated by expert teachers.

REVISION NOTES FOR CLASS 12 MICRO ECONOMICS

Cbse study materials.

NCERT Solutions for Class 12 Macroeconomics Chapter 4 Case Study

NCERT Solutions for Class 12 Macroeconomics Chapter 4 Case Study Questions with answers in English Medium designed for session 2024-25. The Case Study MCQ of class 12 Economics chapter 4 Determination of Income and Employment are given here to understand Case Studies and to prepare the Case based questions.

Class 12 Macroeconomics Chapter 4 Case Studies Question Answers

• Class 12 Macroeconomics Chapter 4 Case Study
• Class 12 Macroeconomics Chapter 4 NCERT Solutions
• Class 12 Macroeconomics Chapter 4 MCQ Answers
• Class 12 Indian Eco & Macro Economics Solutions
• Class 12 NCERT Solutions in Hindi & English Medium
• Class 12 NCERT Books in Hindi & English Medium

Aggregate call for refers to the overall cost of very last items and offerings which all of the sectors of an economic system are making plans to shop for at a given stage of profits in the course of a duration of 1 accounting year. In different words, AD is the mixture expenditure that unique sectors of the economic system are inclined to incur in the course of a given duration. It approaches, AD and mixture expenditure imply the equal. It is vital to notice that mixture expenditure refers back to the deliberate expenditure and now no longer the real expenditure. So, AD is the overall costs that each one family, companies, authorities and the relaxation of the arena are making plans to incur in the course of a given duration of time. AD is a go with the drift idea as its miles normally measured during an accounting year.

Components of mixture call for: The diverse additives of mixture call for are:

• Private intake expenditure – It refers to the overall expenditure incurred through families on buy of products and offerings in the course of an accounting year. Consumption expenditure is without delay prompted through the extent of disposable profits i.e., better the disposable profits, extra is the intake expenditure and vice versa. Disposable profits refer back to the profits from all sources that is to be had to families for spending on intake and saving.
• Investment expenditure – It refers to the overall expenditure incurred through all non-public companies on capital items. It consists of addition to the inventory of bodily capital belongings inclusive of machinery, equipment, homes etc. and alternate in stock.
• Government expenditure – It refers to the overall expenditure incurred through authorities on purchaser items and capital items to meet the not unusual place desires of the economic system. It approaches, authorities incur intake expenditure in addition to funding expenditure. Consumption expenditure is incurred to satisfy public desires like regulation and order, education, health, transport, defence, etc. Investment expenditure entails production of highways, roads, energy plants, etc.
• Net Exports – Export suggest call for items produced in the home territory of a rustic through the relaxation of the arena. Imports consult with needs of the citizens of a rustic for the products which have been produced abroad. The distinction among exports and imports is named as NET Exports.
• Question 1: Name the 4 additives of mixture call for.
• Question 2: State whether or not True or False. (a) AD and mixture expenditure imply the equal. (b) AD is the overall costs that each one family, companies, authorities and the relaxation of the arena are making plans to incur in the course of a given duration of time. (c) Imports consult with needs of the citizens of a rustic for the products which have been produced in a rustic. (d) The distinction among exports and imports is named as Gross Exports. (e) AD is a go with the drift idea as its miles normally measured during an accounting year. (f) Investment expenditure consists of addition to the inventory of bodily capital belongings inclusive of machinery, equipment, homes etc. and alternate in stock.
• Question 3: What is Government expenditure?
• Question 4: What is mixture call for and marketplace call for?
• Question 5: Fill with inside the blanks: (a) AD and mixture expenditure imply the _________. (b) Consumption expenditure is incurred to satisfy _________ like regulation and order, education, health, transport, defence, etc. (c) ________ entails production of highways, roads, energy plants, etc. (d) AD is a _________ as its miles normally measured during an accounting year. (e) Export suggests call for items produced in the _________ territory of a rustic through the relaxation of the arena.
• Answer 1: Private intake expenditure, Investment expenditure, Government expenditure and Net exports.
• Answer 2: (a) True, (b) True, (c) False, (d) False, (e) True, (f) True
• Answer 3: Government expenditure refers to the overall expenditure incurred through authorities on purchaser items and capital items to meet the not unusual place desires of the economic system. It approaches, authorities incur intake expenditure in addition to funding expenditure.
• Answer 4: Aggregate call for is the overall call for all items and offerings inside the complete economic system. Whereas, marketplace call for is the overall call for one commodity within the marketplace.
• Answer 5: (a) equal, (b) public desires, (c) Investment expenditure, (d) go with the drift idea, (e) home.

Aggregate deliver refers to cash cost of very last items and offerings that each one the manufacturers are inclined to deliver in an economic system in a given duration of time. It has to be mentioned that AS refers handiest to deliberate manufacturing or preferred output in the course of a given time duration. Aggregate deliver is equals to country wide profits. When AS is expressed in bodily phrases, it refers to general output of products and offerings in an economic system. We recognise that cost of general output is shipped to elements of manufacturing within the shape of rent, wages, hobby and income. The sum general of those element earning at home and country wide stage is named as country wide profits. So, we will say that mixture deliver and country wide profits, are one and the equal thing.

The primary part of country wide profits is spent on intake of products and offerings and the stability is stored. It approaches, profits are both fed on or stored. Consumption expenditure refers to that part of profits that is spent on the acquisition of products and offerings on the given stage of profits. Consumption feature refers to purposeful courting among intake and country wide profits. It represents the willingness of families to buy items and offerings at a given stage of profits in the course of a given time duration. It additionally indicates the intake stage at unique degrees of profits in an economic system. It is a mental idea as its miles prompted through subjective elements like customer’s options and habits, etc.

• Question 1: What is mixture deliver?
• Question 2: What do you recognize through intake feature?
• Question 3: State whether or not True or False. (a) Aggregate deliver and country wide profits, are one and the equal thing. (b) The primary part of country wide profits is spent on intake of products and offerings and the stability is stored. (c) When AS is expressed in bodily phrases, it refers to general output of products and offerings in an economic system. (d) Aggregate deliver isn’t always equals to country wide profits. (e) The sum general of the element earning at home and country wide stage is named as country wide profits.
• Question 4: Fill with inside the blanks: (a) It is a mental idea as its miles prompted through _____________ elements like customer’s options and habits, etc. (b) When AS is expressed in bodily phrases, it refers to ______________ of products and offerings in an economic system. (c) Consumption feature refers to _______________ among intake and country wide profits. (d) It has to be mentioned that AS refers handiest to _______________ or preferred output in the course of a given time duration. (e) Aggregate deliver refers to ______________ of very last items and offerings that each one the manufacturers are inclined to deliver in an economic system in a given duration of time.
• Question 5: How can we calculate country wide profits?
• Answer 1: Aggregate deliver refers to cash cost of very last items and offerings that each one the manufacturers are inclined to deliver in an economic system in a given duration of time.
• Answer 2: Consumption feature refers to purposeful courting among intake and country wide profits. It represents the willingness of families to buy items and offerings at a given stage of profits in the course of a given time duration.
• Answer 3: (a) True, (b) True, (c) True, (d) False, (e) False
• Answer 4: (a) subjective, (b) general output, (c) purposeful courting, (d) deliberate manufacturing, (e) cash cost
• Answer 5: The cost of general output is shipped to elements of manufacturing inside the shape of rent, wages, hobby and income. The sum general of those element earning at home and country wide stage is named as country wide profits.

There are technical factors of propensity to devour: 1. Average propensity to devour (APC) 2. Marginal propensity to devour (MPC) Average propensity to devour refers back to the ratio of intake expenditure to the corresponding stage of profits. Some vital factors approximately APC are: As lengthy as intake is extra than country wide profits, APC is extra than 1. At the break-even factor intake is same to country wide profits, so APC is equals to 1. Beyond the break-even factor, intake is much less than country wide profits. APC Falls constantly with the growth in profits due to the fact the share of profits spent on intake continues on decreasing. APC may be 0 handiest while intake turns into 0. However, intake is in no way 0 at any stage of profits. Even at 0 stage of country wide profits, there’s self-sustaining intake. Marginal propensity to devour refers back to the ratio of alternate in intake expenditure to alternate in general profits. MPC explains what percentage of alternate in profits is spent on intake. Some vital factors approximately MPC: We recognise, incremental profits are both spent on intake or stored for destiny use. In everyday conditions cost of MPC varies among zero to 1.

MPC of negative is extra than that of wealthy due to the fact negative human beings spend an extra percent in their multiplied profits on intake as maximum in their simple desires continue to be unsatisfied. On the alternative hand, which human beings spend a smaller percentage as they already experience a better popular of living. MPC Falls with successive growth in profits due to the fact as an economic system turns into richer, it has the tendency to devour smaller percent of every increment to its profits.

• Question 1: When does APC turns into 0?
• Question 2: Why does MPC falls with successive growth in profits?
• Question 3: Fill with inside the blanks: (a) In everyday conditions cost of MPC varies among ____________. (b) APC Falls constantly with the ___________in profits due to the fact the share of profits spent on intake continues on decreasing. (c) Incremental profits are both spent on intake or _____________ for destiny use. (d) Average propensity to devour refers back to the ratio of ______________ to the corresponding stage of profits. (e) As lengthy as intake is extra than country wide profits, APC is ______________ than 1. (f) Marginal propensity to devour refers back to the _____________ in intake expenditure to alternate in general profits. (g) Even at 0 stage of country wide profits, there’s ______________ intake.
• Answer 1: APC may be 0 handiest while intake turns into 0. However, intake is in no way 0 at any stage of profits. Even at 0 stage of country wide profits, there’s self-sustaining intake.
• Answer 2: MPC Falls with successive growth in profits due to the fact as an economic system turns into richer, it has the tendency to devour smaller percent of every increment to its profits.
• Answer 3: (a) zero to 1, (b) growth, (c) stored, (d) intake expenditure, (e)extra, (f) ratio of alternate, (g) self-sustaining

Investment refers back to the expenditure incurred on advent of New Capital belongings. It consists of the expenditure incurred on belongings like machinery, building, equipment, uncooked material, etc. This caused growth inside the effective ability of an economic system. The funding expenditure is assessed below heads: Induced funding and self-sustaining funding. Induced funding refers back to the funding which relies upon at the income expectancy and is without delay prompted through profits stage. IT will increase with growth in profits and reduces with the lower in profits. Autonomous funding refers back to the funding which isn’t always suffering from modifications within the stage of profits and isn’t always caused totally through income motive. It isn’t always prompted through alternate in profits.

According to a well-known economist, the selection to spend money on a brand-new task relies upon elements: Marginal performance of funding and Rate of hobby. Marginal performance of funding – It refers back to the anticipated price of go back from an extra funding. It is decided through elements:

• Supply rate refers back to the price of manufacturing a brand-new asset of that kind. It is the rate at which the New Capital Asset may be furnished or replaced.
• Prospective yield refers to internet go back, anticipated from the Capital Asset over its lifetime.
• Rate of hobby – it refers to price of borrowing cash for financing the funding. There exists an inverse courting among ROI and the quantity of funding. At an excessive ROI, the funding spending could be much less and at a low ROI, the funding spending could be extra.
• Question 1: What is ROI?
• Question 2: State whether or not True or False. (a) Induced funding refers back to the funding which relies upon at the income expectancy and is without delay prompted through profits stage. (b) Prospective yield refers to gross go back, anticipated from the Capital Asset over its lifetime. (c) Marginal performance of funding refers back to the anticipated price of go back from an extra funding. (d) Autonomous funding isn’t always suffering from modifications within the stage of profits and isn’t always caused totally through income motive. (e) At an excessive ROI, the funding spending could be extra and at a low ROI, the funding spending could be much less.
• Question 3: Fill with inside the blanks: (a) Rate of hobby refers to price of _____________ cash for financing the funding. (b) The funding expenditure is assessed below heads: ____________ and self-sustaining funding. (c) Supply rate is the rate at which the new _____________ may be furnished or replaced. (d) ___________ funding isn’t always prompted through alternate in profits. (e) ___________ funding will increase with growth in profits and reduces with the lower in profits.
• Question 4: What is funding?
• Answer 1: Rate of Interest refers to price of borrowing cash for financing the funding. There exists an inverse courting among ROI and the quantity of funding. At an excessive ROI, the funding spending could be much less and at a low ROI, the funding spending could be extra.
• Answer 2: (a) True, (b) False, (c) True, (d) True, (e) False
• Answer 3: (a) borrowing, (b) Induced funding, (c) capital asset, (d) Autonomous, (e) Induced.
• Answer 4: Investment refers back to the expenditure incurred on advent of New Capital belongings. It consists of the expenditure incurred on belongings like machinery, building, equipment, uncooked material, etc. This caused growth within the effective ability of an economic system.

Ex-ante variable is the deliberate or anticipated cost of variable, whereas, ex-publish variable is the real or found out cost of the variable. Both those phrases are normally utilized in context of saving and funding. There are factors of saving and Investments: 1) Ex-ante saving and ex-ante funding 2) Ex-publish saving and ex-publish funding Ex-ante saving refers to quantity of financial savings, which families deliberate to keep at unique degrees of profits in the economic system. In different words, ex-ante saving are the deliberate financial savings of an economic system at unique degrees of profits. The quantity of ex-ante or deliberate saving is given through the saving feature. Ex-ante funding refers to quantity of funding which companies plans to make investments at unique degrees of profits within the economic system. The quantity of ex-ante or deliberate funding is decided through the relation among funding call for and price of hobby, i.e., through funding call for feature.

Ex-publish financial savings consult with the real or found out saving in an economic system in the course of a year. Ex-publish or real saving is the sum general of deliberate saving and unplanned saving. Ex-publish funding refers back to the found out or real funding in an economic system in the course of a year. Ex-publish or real funding is the sum general of deliberate funding and unplanned funding. Planned cost of the variables are their ex-ante measures, whereas, found out cost of the variables are their ex-publish measures. The importance of difference among Ex-ante and Ex-publish is that each one the variables inside the principle of profits dedication are ex-ante valuables, i.e., ex-ante variables shape the premise of principle of country wide profits dedication.

• Question 1: What is the difference among ‘ex-ante’ and ‘ex-publish’?
• Question 2: What is ex-publish saving?
• Question 3: Fill with inside the blanks: (a) Ex-publish or real funding is the ______________ of deliberate funding and unplanned funding. (b) Ex-ante saving refers to quantity of financial savings, which families deliberate to keep at unique _____________ with inside the economic system. (c) The quantity of ex-ante or deliberate funding is decided through the _____________ among funding call for and price of hobby. (d) The quantity of ex-ante or deliberate saving is given through the ______________. (e) __________ funding refers back to the found out or real funding in an economic system in the course of a year.
• Question 4: State whether or not True or False (a) Planned cost of the variables are their ex-ante measures, whereas, found out cost of the variables are their ex-publish measures. (b) There are factors of saving and Investments: 1) Ex-ante saving and ex-ante funding. 2) Ex-publish saving and ex-publish funding (c) The quantity of ex-publish saving is given through the saving feature. (d) Ex-publish or real saving is the sum general of deliberate saving and unplanned saving. (e) The quantity of ex-ante or deliberate funding isn’t always decided through the relation among funding call for and price of hobby. (f) Ex-ante variable is the deliberate or anticipated cost of variable, whereas, ex-publish variable is the real or found out cost of the variable.
• Answer 1: The importance of difference among Ex-ante and Ex-publish is that each one the variables with inside the principle of profits dedication are ex-ante valuables, i.e., ex-ante variables shape the premise of principle of country wide profits dedication.
• Answer 2: Ex-publish financial savings consult with the real or found out saving in an economic system in the course of a year. Ex-publish or real saving is the sum general of deliberate saving and unplanned saving.
• Answer 3: (a) sum general; (b)degrees of profits; (c)relation; (d) saving feature; (e)Ex-publish.
• Answer 4: (a) True; (b) True; (c)False; (d) True; (e) False; (f) True.

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• Commerce Important Questions
• Class 12 Economics
• Macro Economics Chapter 2 National Income Accounting

Important Questions for CBSE Class 12 Economics Chapter 2 - National Income Accounting

This article contains the most important questions along with the answers for CBSE  Class 12 Economics  Chapter 2 – National Income Accounting, which is curated by the expert Economics teachers from the latest version of CBSE (NCERT) books.

CBSE Class 12 Macroeconomics Chapter-2 Important Questions

Select the meaning of non-market activities from the following options

a. Production

b. Non-marketable

c. Involuntary

d. Economic

Answer :  b. Non-marketable

What is real flow?

Answer : Real flow is the flow of services and goods between different sectors of an economy. For instance, flow sector services flow from the household to the enterprise and then vice versa, i.e., from the enterprise to the household again.

Differentiate between personal income and private income.

Answer : Mentioned below are the points of differences between personal income and private income:

Calculate the net value added at the market price of a firm:

Value of output = Sale + Change in stock

= 400 + (-) 20

Gross value added at MP = Value of output – Purchase of an intermediate product

= 380 – 250 = 130/-

Net value added at MP = Gross value added at MP – Depreciation

= 130 – 30 = 100/-

Thus, the final answer = ₹ 100/-

Nominal GNP is the same as,

a. GNP at constant prices

b. Real GNP

c. GNP at current prices

d. GNP less net factor income from abroad

Answer : c. GNP at current prices

What must be added to the domestic factor income to avail national income?

Answer : Net factor income from abroad must be added to the domestic factor income to avail national income .

Define real GNP.

Answer : Gross national product calculated at constant prices i.e., via base year price is known as real GNP in economics

Which of the following is an example of transfer payment:

a. Free meals in the company canteen

b. Employers’ contribution to social security

c. Retirement pension

d. Old-age pension

Answer : d. Old age pension

Calculate the nominal income and private income from the following data.

= 600 + 100 + 70 + (-20) + 10 – 30

= 780 – 50

= 730 crores

Private income = NNP – Net domestic product at factor cost accruing to government + Transfer payments + National debt interest

= 730 – 25 + (10+5) + 15

= 760 – 25

= 735 crores

Question 10

Providing the reason, explain whether the following are included in the domestic product of India.

• Profits earned by a branch of the foreign bank in India

Answer : Profits earned by a branch of the foreign bank in India will be included in the domestic income of India because the profits are earned within the domestic territory of India

Question 11

Providing the reason, explain whether the following will be included in the domestic product of India.

• Payment of salaries to its staff by an embassy located in New Delhi

Answer : Payment of salaries to its staff by an embassy located in New Delhi will not be involved in the domestic income of India as it is not a part of the domestic territory of India

Question 12

• Interest received by an Indian resident from its abroad firms

Answer : Interest received by an Indian resident from its abroad firms will not be included in the domestic income of India because it is the factor income from abroad.

Question 13

Microeconomics is different from macroeconomics because:

a. Microeconomics deals with economic behaviour

b. Microeconomics deals with individual behaviour

c. Microeconomics deals with prices only

d. Microeconomics deals with the government’s decisions

Answer : b. Microeconomics deals with individual behaviour

Question 14

Which of the following is an example of macroeconomics?

a. Price determination

b. Consumer’s equilibrium

c. Producer’s equilibrium

d. Inflation

Answer : d. Inflation

Question 15

What is national disposable income?

Answer : National disposable income is the type of an income that is obtainable to the whole economy for the spending purpose or for disposition.

It is computed as, NNP + Net current transfers from abroad (NDI)

Also Check:  Economics MCQs

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Music interviews, jon lampley, a veteran of stephen colbert's talk show, releases his debut album.

by  D. Parvaz ,  Ayesha Rascoe ,  Ryan Benk

Searching for a song you heard between stories? We've retired music buttons on these pages. Learn more here.