Part A: Introductory Macroeconomics

Chapter 1: National Income and Related Aggregates (Basic Concepts)

Q. NO QUESTION MARKS
1 Journey of Bread : 1
A Farmer grows wheat of ₹10000 in his farm. The flour mill owner purchases
this wheat and produces the flour of ₹25000. The bakery shop purchases this
flour to produce bread of ₹ 40000 and sells these to the consumer. What is the
total value added in the Journey of bread?
2 Identify the domestic territory of India: 1
1) Indian embassy in Australia
2) American embassy in India
3) Indian consulates in France
Branch of State bank of India in France
3 Suppose in an economy GDP at Market Price in a particular fiscal year was 1
₹4000, National Income was ₹2500 crore, Net Factor Income paid by the
economy to Rest of the World was ₹400 crore and value of the Net Indirect
Taxes is ₹450 crore. Estimate the value of consumption of fixed capital for the
economy from the given data.
4 New Delhi. The Centre on Thursday eased norms to offer 50% of salary for 1
three months as unemployment allowance to lakhs of workers who are
members of the Employees State Insurance Corporation and lost their jobs due
to the corona virus pandemic.
The move as a major relief for industrial workers, who have lost jobs or are on
the verge of losing jobs to the impact of the pandemic and the lockdown, which
had stalled economic activity. There have been demands from several sections
to provide wage relief to workers hit hard by the pandemic.
Source: m.timesofindia.com, Aug 21, 2020

Unemployment allowance is a -------------- (factor/transfer) income

5 For an open economy (with foreign trade), which one of the following is 1
correct?
a) NDP = NNP
b) NDP > NNP
c) NDP < NNP
d) None Of above
6 Identify the following as Normal Resident of India: 1
a) Indian officials working in India Embassy In China
b) An American tourist who stays in India for 2 months
c) Indian going to Australia for watching the cricket match
Indian employees working in WHO , located in India
7 Assertion (A): The goods which are used either for resale or for further 1
production in the same year are Intermediate goods.
Reason (R): Intermediate goods are included in National Income
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A)
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the
correct explanation of Assertion (A)
c) Assertion (A) is true but Reason (R) is false.
d) Assertion (A) is false but Reason (R) is true
8 Assertion (A): Goods that meant for final use and will not pass through any 1
more stages for production or transformation is called a final good.
Reason (R): It will not under go any further transformation at the hands of any
producer, but many such final goods are transformed during their consumption.
a) Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A)
b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the
correct explanation of Assertion (A)
c) Assertion (A) is true but Reason (R) is false.
d) Assertion (A) is false but Reason (R) is true

9 NVAFC equals: 1
(a) ∑Factor Payments
(b) ∑ Current Transfer Payments
(c) ∑ Capital Transfer Payments
(d) Net Current Transfer from Rest of the World
10 The difference between indirect tax and subsidy is known as __________. 1
(a) Net Factor Income from Abroad
(b) Capital Consumption Allowances
(c) Depreciation
(d) Net Indirect Tax
11 Reeta’s Mother is a teacher. She also teaches Reeta. How will you treat this act 1
of teaching Reeta while calculating National Income and Domestic Income?

a. It will be included in the National Income but not in Domestic Income

b. It will not be included in the National Income but in Domestic Income
c. It will be included both in the National Income and Domestic Income
It will neither be included in the National Income and nor in Domestic Income
12 Mohan is a farmer. He produces wheat and sells for Rs 750 to a miller who 1
grinds it into flour and sells it to baker for Rs 1360. The baker sells bread to the
consumers for Rs 1795. Calculate the value of total value added.
d. 750
e. 1350
f. 1795
3900
13 Which of the following is an example of normal residents of India? 1
a. Foreign worker working in WHO located in India
b. The German working as director in IMF office located in India
c. Ambassador in India from rest of the world
Ambassador of India in rest of the world
14 In an economy, the vaue of Net Factor Income from Abroad is Rs. 300 crores 1
and the value of Factor Income to Abroad is Rs. 50 crores, identify the value
of Factor Income from Abroad.
a. Rs. 250 crores
b. Rs. 350 crores
c. Rs. 360 crores
d. Rs. 300 crores

15 Statement 1: Normal residents include both individuals and institutions. 1

Statement 2: International organizations are treated as
normal residents.
Choose the correct option from the following.
 a. Both the statements are true.
b. Both the statements are false
c. Statement-1 is true but Statement-2 is false
Statement-1 is false but Statement-2 is true
16 Statement 1: Money received from the sale of second hand goods will be 1
considered while calculation National Income.
Statement 2: There value is already included and they do not contribute to
current flow of goods and services.
Choose the correct option from the following.
a. Both the statements are true.
b. Both the statements are false
c. Statement-1 is true but Statement-2 is false
Statement-1 is false but Statement-2 is true
17 Assertion (A): Domestic income is equal to National Income in case of a closed 1
economy. Reason (R): Closed economy has no
economic relationship with rest of the world.
Choose the correct option from the following.
a. Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A).
b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the
correct explanation of Assertion (A).
c. Assertion (A) is true but Reason (R) is false
Assertion (A) is false but Reason (R) is true.
18 Assertion (A): Unexpected obsolescence is a part of depreciation. 1
Reason (R): Loss of value of fixed assets owing to un
expected obsolescence is called capital loss.
Choose the correct option from the following.
a. Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A).
b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the
correct explanation of Assertion (A).
c. Assertion (A) is true but Reason (R) is false
Assertion (A) is false but Reason (R) is true.
19 Assertion (A): The stock variable does not have a time dimension. 1
Reason (R): The stock variable is measured over a
period of time.
Choose the correct option from the following.
a. Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A).
b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the
correct explanation of Assertion (A).
c. Assertion (A) is true but Reason (R) is false
Assertion (A) is false but Reason (R) is true.
20 If factor cost is > market price, then it means that : 1
a. Indirect Taxes > Subsidies
b. Indirect Taxes =Subsidies
c. Indirect Taxes <Subsidies
Indirect Taxes ≥ Subsidies
21 “Amar stepped out of his school van and his mother who was waiting for his 1
arrival received him. Before the van driver left, he informed Amar’s mother that
school van service fare will be increased by ₹ 50 from next month onwards.
 When enquired about the reason for such an increase in school van fare, the
driver informed that it is due to high rate of inflation in the economy.”
The rate of inflation as mentioned in the above scenario is studied as part of the
__________. (microeconomics / macroeconomics)
(Fill in the blank from the options given in the bracket)
22 Read the following statements- Assertion (A) and Reason (R) 1

Assertion (A): Savings is one the best way of capital formation and it helps a
great deal in the economic growth of a country.
Reason (R): Investment is also known as capital formation.
Select the correct alternative from the following:
(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct
explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true, and Reason (R) is not the
correct explanation of Assertion (A)
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.
23 Read the following passage and answer the question given below: 1

India’s economic resilience can be seen in the domestic stimulus to growth

seamlessly replacing the external stimuli. The growth of exports may have
moderated in the second half of FY23. However, their surge in FY22 and the
first half of FY23 induced a shift in the gears of the production processes from
mild acceleration to cruise mode. Manufacturing and investment activities
consequently gained traction. By the time the growth of exports moderated, the
rebound in domestic consumption had sufficiently matured to take forward the
growth of India’s economy. Private Consumption as a percentage of GDP stood
at 58.4 per cent in Q2 of FY23, the highest among the second quarters of all the
years since 2013-14, supported by a rebound in contact-intensive services such
as trade, hotel and transport, which registered sequential growth of 16 per cent
in real terms in Q2 of FY23 compared to the previous quarter.
Source: Economic Survey, 2022-23
Read the following statements- Assertion (A) and Reason (R)
Assertion (A): In a two-sector model of circular flow of income, both real flow
and money flow exist as a result of one another.
Reason (R): The export earnings of an economy form a part of the real flow in
2-sector circular flow of income.
Select the correct alternative from the following:
(a) Both Assertion (A) and Reason (R) are true, and Reason (R) is the correct
explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true, and Reason (R) is not the
correct explanation of Assertion (A)
(c) Assertion (A) is true, but Reason (R) is false.
(d) Assertion (A) is false, but Reason (R) is true.
24 Injections are the macroeconomic variables which lead to a rise in the level of 1
output in the economy.
Leakages are the macroeconomic variables which lead to a fall in the level of
output in the economy.

-The circular flow of income remains stable if ________ are exactly equal to
injections. (Fill in the blank)
25 A train running between Mumbai and Chennai at the speed of 160 km/hr 1
includes
(i) Only stock variables
(ii) Only flow variables
(iii) Both a stock and a flow variables
None of the above
26 Read the following statements and choose the correct alternatives among those 1
given below:
Statement 1: Gross investment includes only inventory investment.
Statement 2: Gross investment shows net addition to the existing capital stock.
Alternatives:
(i) Both the statements are true
(ii) Both the statements are false
(iii) Statement 1 is true and statement 2 is false
Statement 2 is true and statement 1 is false
27 “Macroeconomics emerged as a separate branch of economics after the “Great 1
Depression” which began in 1929 in the United States and impacted most of the
western European nations for about a decade.
J.M. Keynes the author of the book,” General Theory of Employment, Interest
and Money”, published in 1936 was instrumental in bringing about this schism.
The problem was not able to resolve itself going by the theories of the then
Classical Economic Thoughts. According to Keynes, certain interventions are
required to solve the short run disequilibrium occurring in an economy.”

The Great Depression of 1929 was caused due to

(i) Rising Aggregate Demand
(ii) Falling Aggregate Demand
(iii) Both (i) & (ii)
None of the above
28 “Net Factor income from Abroad is the excess of factor incomes earned from 1
abroad over factor incomes paid to abroad”.
Calculate the Net Factor Income from abroad (NFIA), if the Factor Income
from Abroad is ₹ 700 crores and Factor Income to Abroad is ₹ 400 crores.
29 A new machine is bought for ₹40 lakh. It has a useful life of 10 years, after 1
which it becomes obsolete and needs to be replaced. This means that the scrap
value of the machine will be zero after 10 years. Calculate the annual
depreciation on the machine.
30 Gross Investment - ____________ = Net Investment 1
31 1. In the production of sugar ,sugarcane is an 1
(a) Final Good (b)capital good
(C) Intermediate Good (d) none of these
32 2. Foreign embassies in India are a part of India 1

(a) Economic territory (b) Geographical territory

 (c) both (d) none of these
33 1
3. Depreciation reserves fund is needed for:
A Inventory Stock B Advertisement
C Replacement Investment D None of these

34 4.A car running between Kanpur and Jaipur at a speed of 150Km per hour 1
includes:
A Only Stock Variable B Only Flow Variable
C Both a Stock and flow variable D None of these

35 Goods purchased for satisfaction of wants are 1

A Capital Goods B Final Goods
C Consumption goods D Intermediate goods

36 National Income = Domestic income when: 1

A NFIA is Positive B NFIA is Negative
C NFIA is Zero D None of the above

37 Flow of goods and services across different sectors of the economy is called: 1
A Real Flow B Circular Flow
C Monetary Flow D Inventory Flow

38 Statement Based Questions 1

A Statement 1 is true and statement 2 is false
B Statement 1 is false and statement 2 is true
C Both statement 1 and 2 are true
D Both statement 1 and 2 are false
Statement 1: Net investment is a stock concept
Statement 1: Capital is a flow concept
39 With a rise in real national income ,welfare of the people : 1
a) Rises b) falls
Remain unchanged d) None of these
40 Assertion and Reasoning 1
A) Both Assertion and Reason are true and Reason is the correct
explanation of assertion
B) Both Assertion and Reason are true and Reason is not the correct
explananation of assertion
C) Assertion is true but Reason is false
D) Assertion is false but Reason is true

Assertion (A) Car purchased by taxi driver is to use a taxi is a consumer

good
Reason (R) Consumer good are those which directly satisfying the wants of
consumers
41 Increase in production of goods and services means increase in GDP. If a 3
country increases its production of Guns, Tanks, and bombs, will it increase its
welfare of people? Give two arguments.
42 “Machine purchased is always a final good”, Do you agree? Give reasons for 3
your answer.
43 Classify the following as intermediate gods or final goods: 3
a) Paper purchased by publisher
b) Milk purchased by household
c) Computers installed in an office
Fees paid to the lawyer by a producer
44 Do you agree with the statement, ‘Machine purchased is always a final good’? 3
Give reason for your answer.
45 Read the following passage and answer the questions given below. 3
“The Economic Survey, 2018-19 describes the vicious cycle of growth where
increase in the rate of fixed investment accelerates the growth of GDP that in
turn induces a higher growth in consumption. Higher growth of consumption
improves the investment outlook, which results in still higher growth of fixed
investment that further accelerates the growth of GDP, including a still higher
growth of consumption. This cycle of higher fixed investment, higher GDP and
higher consumption growth generates economic development in the country.”
(a) ____________ (Gross investment/ Net investment) includes investment
for the maintenance of fixed assets.
(b) Inventory investment includes :
g. stock of finished goods
ii. stock of semi-finished goods
iii. stock of raw materials
iv. all of these
Depreciation is a component of Net investment. (True/ False)
46 Giving valid reasons explain which of the following will not be included in the 3
estimation of the National Income of India?
a. Purchase of shares of X Ltd. by an investor in the National Stock Exchange.
b. Salaries paid by the French Embassy, New Delhi to the local workers of the
housekeeping department.
c. Compensation paid by the Government of India to the victims of floods.
47 Read the following passage and answer the question given below: 3

Slower growth in OECD economies — especially in the high-tech sector in the

United States that could affect the demand for information technology (IT)
workers and lead to a diversion of formal remittances toward informal money
transfer channels — is likely to impact the flow of remittances this year.
India, which registered a growth of more than 24% to reach a record-high $111
billion in remittances in 2022, is expected to post a growth of just 0.2% in
remittance inflows in 2023, according to the World Bank’s latest Migration
and Development Brief.
Source : Indian Express, 27 June 2023

(i) Distinguish between factor income and transfer receipt.

Is remittance a factor income or transfer receipt?
48 Which of the following will not be included in the estimation of national 3
income? Give reasons.
(i) Purchase of shares of a limited company by an investor in the
Bombay Stock Exchange.
(ii) Salaries paid by the Japanese Embassy, New Delhi to the local
workers of the housekeeping department.
Compensation paid by the Government of India to the victims of earthquake.
49 Between ‘investment’ and ‘capital’ which is a stock and which is a flow 3
variable? Explain with an illustration.
50 ‘Machine purchased is always a final good’ do you agree? Give reason for 3
your answer
51 Which among the following are capital goods and which are consumer goods 3
and why?
a)A car is used as a taxi
b) Refrigerator in a hotel
c)AC in a house
52 Subsidies to the producers should be treated as transfer payments . Defend or 3
refute the given statement with valid reason
53 GNPmp of an imaginary economy is ₹1,20,000 crore and its capital stock is 4
worth ₹3,00,000 crore. If capital stock depreciation is @20% per annum,
indirect taxes amount to ₹30,000 crore and subsidies are ₹15,000 crore. What is
national income?
54 “ Economic value of Daily routine works done by home maker in Indian Family 4
are not a part of national income while service by maid to a family is included
in National Income” What do you think that not included of home maker
service must be included in calculation of national income?
55 Read the following news report and answer the questions that follow. 4
In India, flattening sequential recovery, accelerating inflation and a weak
labour market will Continue to act as an impediment to sustained economic
revival. Capital goods and consumer durable goods have witnessed negative
growth rate in double digits. The government might
also need to look at policies to boost consumption by the poor, who have a
much higher
Marginal Propensity to Consume rather than thinking about the relatively well
off, such as government employees, who were the target of expenditure
boosting measures. Overall, the
amount of demand stimulus is underwhelming and we view the impact on both
fiscal and
growth as quite limited. Hindustan Times; October 13th,
2020
(a) Refrigerator purchased by a confectionery shop is a __________ good.
(i) capital
(ii) intermediate
(iii) non-durable
(iv) None of these

(b) Which of the following is/are non-durable good(s)?

(i) Milk
(ii) Bread
(iii) Both (i) and (ii)
(iv) None of these

(c) Real growth of an economy can only be measured through __________ at

constant
prices.
(i) per capita income
(ii) national income
(iii) nominal income
(iv) real income
(d) Goods purchased for __________ purpose are final goods.
(i) satisfaction of wants
(ii) investment in firm
(iii) Both (i) and (ii)
(iv) None of these
56 Read the following statements and answer the questions. 4
a. Domestic/household services performed by a woman may not be considered
as an economic activity’. Defend or refute the given statement with a valid
reason.
b. ‘Compensation to the victims of a cyclone is an example of a welfare
measure taken by the government’. State with a valid reason, should it be
included/not included in the estimation of the national income of India.

57 Distinguish between domestic product and national product. When can 4

domestic product be more than the national product?
58 Explain why subsidies are added to and indirect taxes deducted from domestic 4
product at market price to arrive at domestic product at factor cost?
59 Distinguish between ‘capital good’ and ‘capital stock’ by giving a proper 4
illustration.
60 Classify the following into intermediate goods and final goods. Give valid 4
reasons for your answers:
(i) A sewing machine purchased by a household
(ii) Machinery used for production by a firm
(iii) Air conditioner purchased by a shopkeeper to be used in his shop
Purchase of ticket for train journey by an individual
61 India's factory output growth surged to more than 7 per cent in April on the 4
back of growth in capital goods and consumer durables sector.

Capital goods sector surged by 14.7 per cent in April while the consumer
durables sector rose by 8.5 per cent compared to same period last year.
The tepid growth in non-durable sector remains a cause for concern. It
remained almost flat at 0.3 per cent showing that the consumers are wary to
spend amid high inflation.
NSO further said the primary goods, intermediate goods, infrastructure/
construction goods, and consumer non-durables sectors expanded by 10.1 per
cent, 7.6 per cent, 3.8 per cent, and 0.3 per cent, respectively.
The manufacturing sector reported a growth of 6.8 per cent while electricity and
mining showed an increase of 11.8 and 7.8 per cent respectively.
India's economy entered the FY23 fiscal with a host of macroeconomic
challenges. Inflation risks and tightening interest rates are likely to slow down
the economy as the RBI and government act to tame rising prices.

Source : The Economic Times, 10 June 2022

Identify which of the following items are consumer goods and capital goods.

(i) Car purchased by a driver to be used as a taxi

(ii) Sugar used by households
(iii) Services of a doctor or a lawyer used by a household
(iv) Laptop purchased by a household
(v) Machine purchased by a sugar mill
Cloth lying unsold with a trader at the end of the year.
62 What is double counting? How can it be avoided? 4

63 In India ,flattening sequential recovery, accelerating inflation and a weak labour 4

market will continue to act as an impediment to sustained econonomic revival .
 Capital goods and consumer durable goods have witnessed negative growth rate
in double digits. The government might also need to look at policies to boost
consumption by the poor, who have much higher MPC rather than thinking
about the relatively well off such as government employess,who were the target
of expenditure boosting measures, overall , the amount of demand stimulus is
underwhelming and we view the impact on both fiscal and growth as quite
limited.

a) Which type of good is refrigertator purchased by a confectionary shop ?

Explain how capital goods are different from consumer goods ?
64 Sale of petrol and disel car is rising particularly in big cities.Analyese its impact 4
on GDP and welfare
65 Distinguish between the following, giving suitable examples in support of your 6
answer:
a) Domestic product and National Income
Intermediate Goods and final Goods
66 “Increase in domestic income always leads to an increase in national income”. 6
Do you agree with the given statement? Support your answer with valid
example
67 Gross investment is always greater than Net investment. Defend or refute the 6
given statement with valid argument.
68 Distinguish between: 6
a. Final goods and Intermediate goods
Stock and Flow variable
69 Giving reason, explain whether the following are included in domestic product 6
of India.
1. Profits earned by a branch of foreign bank in India
2. Payment of salaries to its staff by embassy located in New Delhi
3. Interest received by an Indian resident from its abroad firms

70 ‘Circular flow of income in a two-sector economy is based on the axiom that 6

one’s expenditure is the other’s income’.
Do you agree with the given statement? Support your answer with valid
reasons.

71 State which of the following items will be included in the estimation of national 6
income. Give valid reasons for your answers.
(i) Payment of interest by bank to its depositors/ payment of interest by
a firm to households.
(ii) Payment of corporate tax by a firm
(iii) Net addition to capital stock
(iv) Profit earned by foreign banks in India.
(v) Expenditure on fertilizers by a farmer
Imputed rent of self-occupied houses
72 State with valid reason, which of the following statement is true or false: 6
(i) Intermediate goods are always durable in nature
(ii) The Indian embassy located in foreign country is a part of the
domestic territory
(iii) All capital goods are producer goods whereas all producer goods
may not be capital goods
(iv) Capital goods are used up to produce other goods
(v) A water tanker containing 500 litres of water in the morning of a day
is a stock concept
 Domestic territory is where there is free movement of goods, capital and people
without any hindrance.
73 (i) ‘Circular flow of income in a two sector economy is based on the 6
axiom that one’s expenditure on other’s income’. Do you agree with
the give statement?
What is the difference between Market Prices and Factor Cost?
74 How are these included in Domestic Income and National Income? 6

1.Profits earned by a branch of foreign bank in India

2. Profits earned by a company in India owned by non-residents.
3. Profits earned by a branch of State bank Of India in England
4. . Rent received by an Indian resident from Russian embassy in India.
75 Should the following be treated as normal resident of India ? Give reason for 6
your answer.

i)Foreigner working in Indian embassy in Taiwan

ii)Indian working in Asian Deaveloment bank in Philipinies
iii) Indian student in UK who has been living there for five years
76 Giving reason ,classify the following into intermediate goods and final goods : 6
I) A refrigerator purchased by a household
II) Wood used for making a dining table by the carpenter
III) An air condition purchased by a builder for his office

ANSWER
1 ₹30000
2 1,2,3
3 Depreciation= GDPMP-NDPMP
NDPMP=NNPFC-NFIA+NIT
=2500-(-400+450=2500+400+450=3350
Depreciation=4000-3350=₹650 crore
4 Transfer income
5 None of these
6 1,3,4
7 c) Assertion (A) is true but Reason (R) is false.
8 a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion
9 (a) ∑Factor Payments

10 (d) Net Indirect Tax

11 d.It will neither be included in the National Income and nor in Domestic Income
12 c.1795
13 d.Ambassador of India in rest of the world
14 b.Rs. 350 crores
15 c.Statement-1 is true but Statement-2 is false
16 d.Statement-1 is false but Statement-2 is true
17 a.Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of Assertion
(A).
18 d.Assertion (A) is false but Reason (R) is true.
19 c.Assertion (A) is true but Reason (R) is false
20 c.Indirect Taxes <Subsidies
21 macroeconomics
22 (d) Assertion (A) is false, but Reason (R) is true.
23 (c) Assertion (A) is true, but Reason (R) is false.
24 Leakages
25 (ii) Only flow variables
This does not represent a stock variable as there is no accumulation of anything over a time.
Instead, it represents a flow variable as it measures the rate of change of the train’s position
over time.
26 (ii) Both the statements are false

27 (ii) Falling Aggregate Demand

28 Net Factor Income from abroad (NFIA) = Factor Income from Abroad - Factor Income to
Abroad i.e., ₹ 700 crores - ₹ 400 crores = ₹ 300 crores
29 𝑐𝑜𝑠𝑡 𝑜𝑓 𝑡ℎ𝑒 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡−𝑠𝑐𝑟𝑎𝑝 𝑣𝑎𝑙𝑢𝑒 4000000−0
Depreciation on capital (annual) =𝑒𝑠𝑡𝑖𝑚𝑎𝑡𝑒𝑑 𝑙𝑖𝑓𝑒 𝑜𝑓 𝑡ℎ𝑒 𝑐𝑎𝑝𝑖𝑡𝑎𝑙 𝑎𝑠𝑠𝑒𝑡 (𝑖𝑛 𝑦𝑒𝑎𝑟𝑠) = 10
= ₹ 4 lakh per year
30 Depreciation
31 C
32 b
33 c
34 C
35 c
36 c
37 a
38 d
39 a
40 d
41 It is partially true that increase in production of goods and services means increase in GDP
because if a country increases its production of Guns, Tanks, and bombs, it will increase the
size of GDP, but people need bread, butter, shelter, drinking water, etc, if guns are produced
people will be unable to purchase bread and butter. So production of weapons will reduce
welfare of people.
42 Whether machine is a final good or it depends on how it is being used end use. If machine is
bought by a household then it is a final good. If machine is bought by a firm for its own use
then also it is a final good. If the machine is bought by a firm for resale then it is an
intermediate good.
43 Final goods: b & c intermediate goods: a & d
44 No, I do not agree with the assertion made here. It is up to the user to decide if a machine is a finished
product or not. When a machine is purchased by a household, it is referred to as a final good. On the
other hand, if a machine is purchased by a business, it is referred to as a final good. However, if it is
purchased by a company for resale, it is referred to as an intermediate good.
45 a.Gross Investment
b.All of these
c.False
46 The following will not be included in the estimation of the National Income of India:
a. As such transactions are mere paper claims and do not lead to any value addition.
c. Compensation paid by the Government of India is a mere transfer payment and does not lead to
any flow of goods and services in an economy.
47 (i) Factor incomes are those payments which are received by households as a result of certain
factor services (land, labour, capital and entrepreneurship) provided by the household for the
 production of goods and services to the firms. Whereas, transfer receipts on the other hand are
those payments which are received by the household without rendering any factor services. In
other words they are the unilateral unrequited payments / transfers.
(ii) Remittance is a transfer receipt as these are the transfers from family members to those
who have not provided any factor services.
48 Following will not be included in the estimation of national income of India.
(i) As such transactions are mere paper claims and do not lead to any value addition.
(iii) Compensation paid by the government of India is mere transfer payment and does not lead
to any flow of goods and services in an economy.
49 Capital is a stock variable as it is measured at a point of time. We often find producers
estimating their capital stock at the end of the year, which refers to a point of time or a
particular date.
Investment means addition to the stock of capital during an accounting year. It is measured for
the year. If a firm has a stock of 10 machines on 31 March 2022 and has 15 machines as on 31
March 2023, it has added 5 machines to the stock of its capital during the year. This is its
investment.
50 Whether machine is a final good or it depends on how it is being used (end use). If machine is
bought by a household, then it is a final good. If machine is bought by a firm for its own use,
then also it is a final good. If the machine is bought by a firm for resale then it is an
intermediate good
51 a) Capital goods ,because it is used for producing services .
b) Capital goods ,because it is used for providing services over a period of time to the
hotel.
Consumer goods ,because it is used for satisfaction of a want by an household
52 No, subsidies to the producers should not be treated as transfer payment .
Subsidies in a form of financial or in kind of support extended to an economic sector
,institution ,business etc. generally with the aim of promoting economic and social policy
53 NNPfc= GNPmp-Dep-NIT
= 120000-(20% of 300000)-(30000-15000)
= 120000-60000-15000
=45000 crore
54 The services of home-makers are non-market services. They are not included in the national
income as it is difficult to calculate their monetary valuation.
55 (a) (i) capital
(b) (iii) Both (i) and (ii)
(c) (ii) national income
(d) (iii) Both (i) and (ii)
56 a. The given statement is defended, as it is difficult to measure the monetary value of the
services performed by a woman (homemaker). Therefore, these activities may not be
considered as an economic activity.
b. Compensation given to the victims of a cyclone is an example of a social welfare measure taken by
the government. However, it is not included in the estimation of national income as it is a transfer
payment that does not lead to a corresponding flow of goods and services.
57 The sum total of all factor incomes generated or produced during an accounting year within
the domestic territory of a country is termed as domestic income or domestic product of a
country. On the other hand, the sum total of all factor incomes earned by the normal residents
of a country, irrespective of the fact that in which part of the world this income is generated,
during an accounting year is called National Income or national product of a country.
National Product = Domestic Product + Net Factor Income from Abroad.
If Net Factor Income from Abroad (i.e. income paid to abroad is more than income received) is
negative, the domestic product is more than the national product.
58 Subsidies by government are grants that decrease the price of a commodity, whereas indirect taxes
are paid by a firm and households that increase the final price of a commodity. Hence, to derive Gross
 Domestic Product at Factor Cost from Gross Domestic Product at Market Price, we deduct indirect
taxes and add subsidies. Also subsidies are the income received while indirect taxes are paid.
59 Capital goods are the durable use producer goods and involve depreciation losses while in use.
Example: plant and machinery. Capital stock is a stock of all man-made goods which can be
used as a means for further production.
Capital goods are only a part of capital stock. Besides capital goods, capital stock also includes
the stock of consumer goods, semi-finished goods or even raw materials which can be used for
the purpose of further production or value addition. Example: stock of wheat with the flour
mill is a part of its inventory stock, and therefore, a part of its capital stock.
60 (i) It is a final good because the household is the final user of the sewing machine and
no value is to be added to the machine
(ii) It is an intermediate good because a firm purchases a machine for further
production of output to be sold to final users
(iii) It is a final good because air conditioner in an investment expenditure as it adds to
the capital stock of the shopkeeper
It is a final good because it is a final consumption expenditure which the passenger purchases
for its own consumption i. e., travelling. No further value addition can be made on it.
61 (i) Capital goods
(ii) Consumer goods
(iii) Consumer goods
(iv) Consumer goods
(v) Capital goods
Capital goods
62 Counting the value of commodities at every stage of production more than one time is called
double counting.
It can be avoided by
a) taking value added method in the calculation of the national income.
b) By taking the value of final commodity only while calculating N.I

63 A) Capital Good
Capital good are those good which are used for producing other goods and services and have
production capacities whereas consumer goods are used by the consumer directly to satisfy
human wants
64 GDP will increase but due to negative externalities its reduces the welfare as the health of the
people gets badly affected by the population
65 Domestic Income implies the income accrued to both residents and non-residents within the
geographical boundaries of the country.

National Income is described as the income accrued to the ordinary residents of the country,
irrespective of their geographical location (i.e. within and outside the country).
66 “Increase in domestic income always leads to an increase in national income”. I don’t agree
because domestic income may increase when a country produces war-heads (i.e Guns, Tanks,
missiles, and bombs)
67 The only difference between gross and net investment is the depreciation of capital assets that
happens over a period of time. Gross investment consists of depreciation whereas net
investment does not include depreciation. Hence, if depreciation is deducted from gross
investment it can be equal to net investment.
68 Final Goods vs Intermediate Goods.
Final goods are those goods that are manufactured to be consumed directly by the consumer.
These goods are finished goods. These goods are available for consumption or can be used for
capital formation. Final goods are considered to be a part of national income and have an
impact on the national income.
 Intermediate goods are referred to as those goods that are used for producing final goods.
These goods are goods that are partly prepared and can be referred to as unfinished goods or
partly finished goods. Intermediate goods are not included in the national income and therefore
have no impact.
Stock and Flow
Stock is defined as a variable that is measured at a particular point in time. It does not have a
time dimension attached with it. Stock is static in nature. Stock influences the flow, as such
greater amount of capital will lead to greater flow of services.
Flow is defined as a variable which is measurable over a period of time. It has a time dimension
attached with it. Flow is dynamic in nature. Flow influences the stock, as in increased flow of money
supply in an economy results in increase in the quantity of money.
69 1. Profits earned by a foreign bank branch in India are included in India's domestic income
because they are earned within the country's borders.
2. Since the embassy in New Delhi is not part of India's domestic territory, salaries paid to its
employees will not be included in the country's domestic income.
3. Interest received by an Indian resident from his or her foreign enterprises is not included
in India's domestic income because it is a factor income.

70 Yes, the given statement is correct. In a two-sector economy, the firms produce goods and
services and make factors payments to the households. The factor income earned by the
households will be used to buy the goods and services which would be equal to the income of
firms. The aggregate consumption expenditure by the households in the economy is equal to
the aggregate expenditure on goods and services produced by the firms in the economy
(income of the producers).

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.
71 (i) Yes, it is included in national income. Because it is a factor income paid by a
production unit (bank or firm). Banks borrow for carrying out banking services.
The firms borrow money for carrying out production.
(ii) No, it is not included in national income as it is a transfer payment. Corporate tax
accrues to the government. It is not received by the owners of factors of production.
Hence, it is not a factor income.
(iii) Yes, it is included in national income by expenditure method. Because it is net
investment or net capital formation, which is an item of final expenditure.
(iv) No, it will not be included in national income of India. It will be included in
domestic income of India (since the factor income is earned within the domestic
territory). But as it is a factor income paid to abroad, it is subtracted from domestic
factor income to get national income.
(v) No, it is not included in national income. Because it is an intermediate expenditure
for the farmer and hence deducted from value of output while calculating national
income.
 Yes, it will be included in the national income. Because self-occupied houses provide housing
service similar to those as rented house.
72 (i) False, because intermediate goods are those goods which are used up completely in
the production of other goods they are not durable in nature
(ii) True, because the Indian embassy located elsewhere will allow the free movement
of goods, capital and people of India and so they are part of the domestic territory.
(iii) True. Capital goods are those goods which are durable in nature and which can be
used for the production of further goods. While these are used by producers to
produce goods they are also part of producer goods. But producer good contain raw
materials and other items which may be used up completely for production of other
goods. So, all capital goods are not producer goods.
(iv) False, because capital goods are used for the production of other goods but in the
process they themselves are not used up. Depreciation may occur to them with time
but they are not used up.
(v) True. Since the amount of water contained in the tanker is measured at a particular
point of time, it is a stock variable.
True. Domestic territory in economics is different from that of political or geographical
sciences. It is the territory within which there is free movement of goods and services, capital
and people of a particular country.
73 (i) Yes, the given statement is correct. In a two-sector economy, the firms produce
goods and services and make factor payments to the households. The factor income
earned by the households will be used to buy the goods and services which would
be equal to income of firms. The aggregate consumption expenditure by the
households in the economy is equal to the aggregate expenditure on goods and
services produced by the firms in the economy (income of the producers).
Market Prices are the prices which are paid by the consumers while purchasing the goods and
services from market. It is inclusive of net indirect taxes, which is the resultant value of
indirect tax and subsidies provided by the government on production of goods and services.
Factor Cost on the other hand does not include the net indirect taxes. They are the cost
incurred by producers in production of goods and services. They have not crossed the
boundary line of production and hence neither the indirect tax nor subsidies are attached with
goods.
74 Items Domestic Income National Income
1.Profits earned by a Yes, it will be included as No, it will not include
branch of foreign bank income(profits) is as profits will belong to
in India generated in domestic foreign country. It is
territory of India. factor income paid
abroad.
2. Profits earned by a Yes, it will be included as No, it will not be
company in India owned income (profits) is included, as profits will
by non-residents. generated In domestic belong to foreign
territory of India. country. It is factor
income from abroad.
3. Profits earned by a No, it will not be included Yes, it will be included
branch of State bank Of in domestic income as SBI in national income as
India in England. is located outside the this is factor income
domestic territory of India. from abroad.
4. Rent received by an No, it will not be included Yes, it will be included
Indian resident from in the domestic income as as it is facto income
Russian embassy in Russian Embassy is not a from abroad.
India. part of domestic territory
of India.
75 I) Not a normal resident of India as his economic interest doesnot lie in India
 II) Normal resident of India as his economic interest lies in India
Normal resident of India as his economic interest lies in India
76 I) Final goods because the household is the final user of the refrigerator and no value
is to be added to the refrigerator
II) Intermediate goods as it is used as a raw material
Final goods as it is an investment