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

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 Depreciation.

Key Points

• Depreciation​
  • “Depreciation” means a decline in the value of fixed assets due to use, the passage of time or obsolescence. 
  • Depreciation is an accounting term used to determine the value of fixed assets.
  • If a business enterprise procures a machine and uses it in a production process then the value of the machine declines with its usage.
  •  Even if the machine is not used in the production process, we can not expect it to realise the same sales price due to the passage of time or the arrival of a new model.
  • Fixed assets are subject to depreciation.
  • Depreciation has a significant effect in determining and presenting the financial position and results of operations of an enterprise.
  • Hence, Depreciation is NOT included in the circular flow of Income in a simple economy.

Important Points

•  The Net National Product of an economy is the GNP after deducting the loss due to depreciation.
  • NNP = GNP – Depreciation
  • NNP = GDP + income from abroad - Depreciation
• Net Domestic Product (NDP) is GDP estimated after deducting the loss due to depreciation
• This is essentially the net version of GDP, i.e, GDP minus the total value of the wear and tear (depreciation) that occurred in the assets while the products and services were created.
  • NDP = GDP - Depreciation.

The correct answer is gross domestic product.

Key Points

• The money value of all the final goods and services produced within the country during a particular year is called Gross Domestic Product.
• The nominal gross domestic product is the gross domestic product (GDP) evaluated at current market prices.
• Real GDP, on the other hand, is calculated by taking a base year as a determinant.
• Real GDP adjusts for price changes due to inflation/deflation.
• The main difference between nominal GDP and real GDP is the adjustment for inflation.

Additional Information

• The average income received per person in a given area (city, region, world, etc in a given year is determined by per capita income (PCI) or average income. 
• Net domestic product (NDP) is an annual measure of the economic output of a nation that is adjusted to account for depreciation.
• The National Income of any country means the complete value of the goods and services produced by any country during its financial year. 

The correct answer is neither exports nor imports take place.

Key Points

• Closed economy :
  • A closed economy is one that has no trading activity with outside economies.
  • The closed economy is therefore entirely self-sufficient, which means no imports come into the country and no exports leave the country.
  • The goal of a closed economy is to provide domestic consumers with everything they need from within the country's borders.
  • The need for raw materials produced elsewhere that play a vital role as inputs to final goods makes closed economies inefficient.
  • A government may close off a specific industry from international competition through the use of quotas, subsidies, and tariffs.
  • In reality, there are no nations that have economies that are completely closed.

Important Points

• Why There Are No Real Closed Economies? 
  • Maintaining a closed economy is difficult in modern society because raw materials, such as crude oil, play a vital role as inputs to final goods.
  • Many countries do not have raw materials naturally and are forced to import these resources.
  • Closed economies are counterintuitive to modern, liberal economic theory, which promotes the opening of domestic markets to international markets to capitalize on comparative advantages and trade.

Additional Information

• Example of a Closed Economy :
  • In practice, there are no completely closed economies.
  • Brazil imports the least amount of goods—when measured as a portion of the gross domestic product (GDP)—in the world and is the world's most closed economy.
  • Brazilian companies face challenges in terms of competitiveness, including exchange rate appreciation and defensive trade policies.
  • In Brazil, only the largest and most efficient companies with significant economies of scale can overcome barriers to export.

The correct answer is primary deficit.

Key Points

• Primary deficit refers to the difference between the current year's fiscal deficit and the interest payment on previous borrowings.
• It indicates the borrowing requirements of the government, excluding interest.
• As per the Union Budget 2022-23, the target for the primary deficit in 2021-22 is 2.8% of GDP.

Additional Information

• A fiscal deficit is a shortfall in a government's income compared with its spending.
• A revenue deficit occurs when the actual amount of revenue and/or the actual amount of expenditures do not correspond with budgeted revenue and expenditures.
• A fiscal imbalance is the result of a gap between expenditures and income in the public sector - central government, local governments and social insurance.

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.