National Income Accounting MCQ Quiz - Objective Question with Answer for National Income Accounting - Download Free PDF

The correct answer is Production goods.

Key Points

• Excise duty is a tax on manufacture or production of goods.
• Excise duty on alcohol, alcoholic preparations, and narcotic substances is collected by the State Government and is called "State Excise" duty.
• The Excise duty on rest of goods is called "Central Excise" duty and is collected in terms of Section 3 of the Central Excise Act, 1944.

Important Points

• Types of excise duty in India are:
• Basic Excise Duty:
  • Basic excise duty is also known as the Central Value Added Tax (CENVAT). This category of excise duty was levied on goods that were classified under the first schedule of the Central Excise Tariff Act, 1985.
  • This duty was levied under Section 3 (1) (a) of the Central Excise Act, 1944. This duty applied to all goods except salt.
• Additional Excise Duty:
  • Additional excise duty was levied on goods of high importance, under the Additional Excise under Additional Duties of Excise (Goods of Special Importance) Act, 1957. This duty was levied on some special category of goods.
• Special Excise Duty:
  • This type of excise duty was levied on special goods classified under the Second Schedule to the Central Excise Tariff Act, 1985.

The correct answer is Transfer payments from the government and firms.

Key Points

• Personal income refers to all income collectively received by all individuals or households in a country. Personal income includes compensation from a number of sources, including salaries, wages, and bonuses received from employment or self-employment, dividends and distributions received from investments, rental receipts from real estate investments, and profit sharing from businesses.
• Personal Income (PI) ≡ NI – Undistributed profits – Net interest payments made by households – Corporate tax + Transfer payments to the households from the government and firms.
• Personal income has a significant effect on consumer consumption. As consumer spending drives much of the economy, national statistical organizations, economists, and analysts track personal income on a quarterly or annual basis.

Additional Information

• National income is a broader national-level economic measure than is personal income. National income includes payments to individuals (income from wages and salaries, and other income), plus payments to government (taxes), plus retained income from the corporate sector (depreciation, undistributed profits), less adjustments (subsidies, government and consumer interest, and statistical discrepancy).
• Disposable personal income measures the after-tax income of persons and nonprofit corporations. It is calculated by subtracting personal tax and nontax payments from personal income.
• Gross national income (GNI) is defined as a gross domestic product, plus net receipts from abroad of compensation of employees, property income and net tax less subsidies on production.

Planning Commission

1. The Planning Commission was set up by a Resolution of the Government of India in March 1950 in pursuance of declared objectives of the Government to promote a rapid rise in the standard of living of the people by efficient exploitation of the resources of the country, increasing production and offering opportunities to all for employment in the service of the community.
2. The Planning Commission was charged with the responsibility of making assessments of all resources of the country, augmenting deficient resources, formulating plans for the most effective and balanced utilization of resources and determining priorities.

• Jawaharlal Nehru was the first Chairman of the Planning Commission.
• The first Five-year Plan was launched in 1951 and two subsequent five-year plans were formulated until 1965 when there was a break because of the Indo-Pakistan Conflict. Two successive years of drought, devaluation of the currency, a general rise in prices, and erosion of resources disrupted the planning process and after three Annual Plans between 1966 and 1969, the fourth Five-year plan was started in 1969.
• The Eighth Plan could not take off in 1990 due to the fast-changing political situation at the Centre and the years 1990-91 and 1991-92 were treated as Annual Plans. The Eighth Plan was finally launched in 1992 after the initiation of structural adjustment policies.
• For the first eight Plans, the emphasis was on a growing public sector with massive investments in basic and heavy industries, but since the launch of the Ninth Plan in 1997, the emphasis on the public sector has become less pronounced and the current thinking on planning in the country, in general, is that it should increasingly be of an indicative nature.

NOTE- The Prime Minister is the Chairman of the Planning Commission, which works under the overall guidance of the National Development Council. The Deputy Chairman and the full-time members of the Commission, as a composite body, provide advice and guidance to the subject Divisions for the formulation of Five Year Plans, Annual Plans, State Plans, Monitoring Plan Programmes, Projects and Schemes.

The correct answer is in the Consolidated Fund of India.

Key Points

• The Consolidated Fund of India is the most important of all the government accounts.
• Revenues received by the government and expenses made by it, excluding the exceptional items, are part of the Consolidated Fund.
• All types of government income and expenditure go to this fund.
• All revenues received, loans raised and all money received by the Government in repayment of loans are credited to this fund and all government expenditures are incurred from this fund.
• This fund was constituted under Article 266 (1) of the Indian Constitution.

 Thus, we can say that all types of government income and expenditure go to the Consolidated Fund of India.

Additional Information

• The Public Account Fund states that 'All other money (other than the ones covered in Consolidated Fund) received by or on behalf of the Indian government are credited to this account.
• The Contingency Fund enables the government to meet unforeseen expenditure.

The correct answer is Capitalist.

Key Points

• A capitalist economy refers to a system of economics in which private persons own and control all means of production for the sake of profit.
• A capitalist economy is a liberal economy.
• Capital assets, such as factories, mines, and railroads, can be privately owned and controlled in a capitalist economy, labour can be bought for money salaries, capital profits accrue to private owners, and prices allocate capital and labour between competing uses.
• In a Capitalist economy, the government's involvement is confined to management and control measures.
• The presence of open markets and the government's lack of involvement in corporate regulation are also characteristics of the capitalist economy.
• The origins of capitalism may be traced back to 18th century England, which was in the midst of the industrial revolution.
• Inequality in income is a result of capitalism.

Additional Information

• In a Socialist economy, the factors of production are all state-owned and all the factories, machinery, plants, capital, etc. are owned by a community in control of the State.
• A mixed economy is one that incorporates elements of both capitalism and socialism.
• The world economy, also known as the global economy, refers to the global economic system, which encompasses all economic activities carried out both within and between nations, such as production, consumption, economic management, work in general, the exchange of financial values, and the trade of goods and services.

The correct answer is Corporate tax.

Key Points

• Direct taxes are paid in entirety by a taxpayer directly to the government.
• The tax where the liability, as well as the burden to pay it, resides on the same individual.
• Direct taxes include tax varieties such as income tax, corporate tax, wealth tax, gift tax, expenditure tax etc.​
• Types of direct tax include :
  • Income Tax: Levied on and paid by the same person according to tax brackets as defined by the income tax department.
  • Corporate Tax: Paid by companies and corporations on their profits.
  • Wealth Tax: Levied on the value of the property that a person holds.
  • Estate Duty: Paid by an individual in case of inheritance.
  • Gift Tax: An individual receiving the taxable gift pays tax to the government.
  • Fringe Benefits Tax: Paid by an employer that provides fringe benefits to employees, and is collected by the state government.

Additional Information

• Indirect tax
  • Taxes, where the liability to pay the tax, lies on a person who then shifts the tax burden to another individual.

The correct answer is Banking method.

Key Points

• National income is the total value of a country’s final output of all new goods and services produced in one year.
• Methods of measuring national income are:

1. Expenditure Method - Under this method, we estimate the disposal of income on the purchase of final goods and services.
2. Income Method - The Income Method measures national income from the side of payments made to the primary factors of production in the form of rent, wages, interest, and profit for their productive services in an accounting year. 
3. Production method - In this method, national income is measured as a flow of goods and services. This method is also called an output method.

Additional Information

• Measurement of National Income
  • There are three methods to measure national income:
    1. Income Method
    2. Production (Value-Added) Method
    3. Expenditure Method
  • Measurement of National Income – Income Method
    • Estimated by adding all the factors of production (rent, wages, interest, profit) and the mixed-income of self-employed.
    • In India, one-third of people are self-employed
    • This is the ‘domestic’ income, related to the production within the borders of the country
  • Measurement of National Income – Production Method
    • Estimated by adding the value added by all the firms.
    • Value-added = Value of Output – Value of (non-factor) inputs
    1. This gives GDP at Market Price (MP) – because it includes depreciation (therefore ‘gross’) and taxes (thus ‘market price’)
    2. To reach National Income (that is, NNP at FC)
    • Add Net Factor Income from Abroad: GNP at MP = GDP at MP + NFIA
    • Subtract Depreciation: NNP at MP = GNP at MP – Dep
    • Subtract Net Indirect Taxes: NNP at FC = NNP at MP – NIT
  • Measurement of National Income – Expenditure Method
    • The expenditure method to measure national income can be understood by the equation given below: 
      • Y = C + I + G + (X-M),
      • where Y = GDP at MP, C = Private Sector’s Expenditure on final consumer goods, G = Govt’s expenditure on final consumer goods, I = Investment or Capital Formation, X = Exports, X- M = Net Exports (difference between exports (X) and imports (M))

Important Points

• GDP: Gross Domestic Product is the sum of the money of all the final goods and services produced solely within the boundaries of a country, at a specific time.
  • GDP includes the income of foreigners staying in the country.
  • It excludes the income of nationals of the country staying abroad and also excludes the remittances sent from abroad.
• GNP: Gross National Product is the sum of the money of all the final goods and services produced both within and outside of a country by nationals during a specific period of time.
  • GNP includes remittances.
  • It excludes income generated locally by non-nationals.

The correct answer is None of the above.

Key Points

• GDP:
  • GDP’s full form is Gross Domestic Product is evaluated regularly to account for changing production structure, relative prices, and better recording of economic activities.
  • Gross Domestic Product (GDP) is the total money value of final goods and services produced in the economic territories of a country in a given year. Hence, statement 1 is not correct.
  • Non-monetary goods and services (e.g. cooking by housewife) are not included in GDP calculation. Hence, statement 2 is not correct.
  • Economic transactions virtually include everything economic in the country. For e.g., if a stockbroker sells and purchases the same stock worth Rs. 1000 five times in a day, it does not increase the GDP of the country by Rs. 5000.
  • Economic transactions may also include buying and selling of bonds, FII inflows, and outflows, etc. Hence, statement 3 is not correct.
  • GDP includes the value of all goods and services produced within a country within a year.
• Source Link- https://ncert.nic.in/ncerts/l/leec102.pdf

The correct answer is the National Statistical Office.

Important Points

• The National Sample Survey Office became the National Statistical Office (NSO).
• The National Sample Survey Office (NSSO) is now merged with the Central Statistical Office to form the National Statistical Office (NSO).
• This merger was approved by the Government on 23rd May 2019.

Key Points

• Recently cabinet approved the merger of CSO and NSSO into the National Statistics Office.
• The Ministry of Statistics and Programme Implementation approved the merging of the Central Statistics Office (CSO) and National Sample Survey Office (NSSO) into a single statistics wing, which will be known as the National Statistical Office (NSO).
• The NSO would be headed by the Secretary, Ministry of Statistics and Programme Implementation. A committee will be constituted to recommend the operational steps required for the merger. Note that a proposal to create the NSO by merging the NSSO and CSO had been made earlier in July 2005.
• Currently, the CSO, an attached office of the Ministry, coordinates statistical activities in the country and evolves statistical standards.
• The NSSO, a subordinate office (field agency) under the Ministry, conducts large scale sample surveys across diverse fields on an all India basis and publishes the results.
• The Ministry of Statistics and Programme Implementation comprises of
  • The Statistics wing (National Statistical Organisation), and
  • The Programme Implementation wing.
  • The National Statistical Organisation consists of Central Statistics Office (CSO), and the National Sample Survey Office (NSSO). 

The correct answer is It is included only in intermediate goods.

Key Points:

• The following are the main characteristics of national income:
  • Macroeconomic concepts include national income.
  • Taking into account the monetary value of goods and services is national income.
  • An extended period of time is used to measure national income.
  • Considerations for national income include the net total values of products and services.
  • National income solely takes into account the value of final items to prevent double counting.
• When calculating national income, the value of intermediate items is not taken into account.
• Net factor income from abroad is included in national income (NFIA).

Additional Information:

• In the simplest terms, national income refers to a country's riches.
• The value of the commodities and services generated in an economy serves as a gauge of its prosperity.
• It represents the overall monetary worth of the commodities and services that a country produces in the course of a fiscal year.
• Rent, wages, profits, and interests are a few examples of payments that can be paid to different kinds of resources.
• The idea of national income is under the ambit of macroeconomics.

The correct answer is Gross National Product.

Key Points

• Net National Product (NNP):
  • NNP is obtained by subtracting depreciation value (i.e. capital stock consumption) from GNP.
  • Net National Product (NNP) = Gross National Product − Depreciation.

Additional Information

• Gross Domestic Product (GDP):
  • It is the total money value of all final goods and services produced within the geographical boundaries of the country during a given period of time.
  • GDP = C + G + I
    • C = Consumption expenditure
    • G = Government expenditure
    • I = Investment expenditure
• Gross National Product (GNP):
  • It refers to the money value of the total output of production of final goods and services produced by the nationals of a country during a given period of time, generally a year.
• National Income (NI):
  • When NNP is calculated at factor cost (FC) it is called National Income.
  • The measure is calculated by deducting indirect taxes and adding subsidies in NNP at Market Price (MP).
  • In India, the Wholesale Price Index (WPI) is the weighted average price of 676 items with the base year 2011-12.

The correct answer is the Co-existence of the public and private sectors.

Key Points

• A mixed economy is an economy organized with some free-market elements and some socialistic elements, which lies on a continuum somewhere between pure capitalism and pure socialism.
  • It refers to a type of economy where the public and private sectors coexist.
  • Mixed economies typically maintain private ownership and control of most of the means of production, but often under government regulation.
  • Mixed economies socialize select industries that are deemed essential or that produce public goods.
  • The public sector works alongside the private sector but may compete for the same limited resources.
  • Mixed economic systems do not block the private sector from profit-seeking, but do regulate business and may nationalize industries that provide a public good.

Important Points

• India is a mixed economy.
• In fact, all known historical and modern economies fall somewhere on the continuum of mixed economies.

The correct answer is GDP - Depreciation.

Key Points

• Net domestic product (NDP) is an annual measure of the economic output of a nation that is adjusted as per the depreciation effect.
• The NDP is calculated by subtracting depreciation from the gross domestic product (GDP).
• An increased NDP indicates growth in economic health, while a decrease would indicate a slowdown of the economy of the country.
• Depreciation is the measure of the decreased monetary value of an asset over time due to use, wear and tear, or obsolescence.

Additional Information Gross National Income (GNI)

• Gross National Income (GNI) is the total amount of money earned by a nation's people and businesses.
• It is used to measure and track a nation's wealth from year to year.
• The number is calculated using the nation's gross domestic product (GDP) plus the income it receives from abroad.
• India GNI per capita for 2020 was $1,900.

Net National Product (NNP)

• Net national product (NNP) is the monetary value of finished goods and services produced by a country's citizens, overseas and domestically, in a given period.
• It is the equivalent of the Gross National Product (GNP), the total value of a nation's annual output, minus the depreciation.
• NNP is often examined on an annual basis as a way to measure a nation's success.

The correct answer is National Statistical Office (NSO).

Key Points

• The National Statistical Office (NSO), Ministry of Statistics and Programme Implementation is the nodal agency for Estimates of National Income.
   
• CSO was merged with National Sample Survey Office (NSSO) to form the National Statistical Office (NSO) in 2019.
   

Method of Calculating National Income:

• Product Method
• Income Method
• Consumption Method

Additional Information

History of National Income Estimation In India:

• The first attempt to calculate the National Income of India was made by Dadabhai Naoroji in 1867- 68.
• The first official attempt was made by the National Income Committee headed by Professor P.C. Mahalanobis in 1949.

RBI: The Reserve Bank of India is India's Central bank which controls the issue and supply of Indian rupees.

Ministry of Finance: It is the ministry within the government of India, concerned with the economy of India.

The correct answer is Decreases.

The value of money during inflation decreases.

Key Points

Inflation:

• Inflation is a persistent rise in the price levels of goods and services leading to a fall in the currency’s purchasing power.
• Causes of Inflation:
  • Printing too much money.
  • Increase in production cost.
  • Tax rises.
  • A decline in exchange rates.
  • War or other events causing instability.
  • Increase in money supply in the economy
• Measures to Control Inflation:
  • Increasing the bank interest rates.
  • Regulating fixed exchange rates of the domestic currency.
  • Controlling prices and wages.
  • Providing cost of living allowances to citizens.
  • Regulating black and speculative market.