National Income Accounting — NCERT Solutions

We use the relation:

$$NI = NNP_{FC} = NDP_{FC} + NFIA$$

First find Net Domestic Product at factor cost:

Given:

• GDP at market price = Rs 1,100 crores
• Indirect taxes - Subsidies = Rs 150 crores

So,

$$GDP_{FC} = GDP_{MP} - (Indirect\ taxes - Subsidies)$$

$$GDP_{FC} = 1100 - 150 = 950$$

Now subtract depreciation to get NDP at factor cost. Since national income equals NNP at factor cost, and

$$NNP_{MP} = GDP_{MP} + NFIA - Depreciation$$

Also,

$$NI = NNP_{FC} = GDP_{MP} + NFIA - Depreciation - (Indirect\ taxes - Subsidies)$$

Given $NI = 850$, $GDP_{MP} = 1100$, $NFIA = 100$, and net indirect taxes = 150:

$$850 = 1100 + 100 - Dep - 150$$

$$850 = 1050 - Dep$$

$$Dep = 1050 - 850 = 200$$

So, the aggregate depreciation is Rs 200 crores.

We use:

$$PDI = PI - Personal\ tax\ payments$$

Given:

• $PDI = 1200$
• Personal tax payments = 600

So,

$$PI = 1200 + 600 = 1800$$

Now,

$$PI = NI - UP - Corporate\ tax + Transfer\ payments - Net\ interest\ payments\ by\ households$$

Net interest payments are zero here, so:

$$1800 = 1900 - 200 - 0 + Transfer\ payments$$

$$1800 = 1700 + Transfer\ payments$$

$$Transfer\ payments = 100$$

So, the transfer payments made by the government and firms to households are Rs 100 crores.

From the data:

• NDP at factor cost = 8,000
• Net factor income from abroad = 200
• Undisbursed profit = 1,000
• Corporate tax = 500
• Interest received by households = 1,500
• Interest paid by households = 1,200
• Transfer income = 300
• Personal tax = 500

First, find National Income:

$$NI = NDP_{FC} + NFIA = 8000 + 200 = 8200$$

Now calculate Personal Income (PI):

$$PI = NI - UP - Corporate\ tax - Net\ interest\ payments\ by\ households + Transfer\ payments$$

Net interest payments by households = interest paid - interest received

$$= 1200 - 1500 = -300$$

So households are actually receiving a net interest of Rs 300 crore. Hence,

$$PI = 8200 - 1000 - 500 - (-300) + 300$$

$$PI = 8200 - 1000 - 500 + 300 + 300$$

$$PI = 7300$$

Now Personal Disposable Income (PDI):

$$PDI = PI - Personal\ tax = 7300 - 500 = 6800$$

So, Personal Income = Rs 7,300 crore and Personal Disposable Income = Rs 6,800 crore.

Raju collects Rs 500 from haircuts, so this is the value of his output.

(a) Gross Domestic Product

By the product/value-added method, GDP contribution is the value added.

Assuming no intermediate goods are mentioned, his value added is the full Rs 500.

So, GDP contribution = Rs 500.

(b) NNP at market price

Deduct depreciation:

$$NNP_{MP} = 500 - 50 = 450$$

So, NNP at market price = Rs 450.

(c) NNP at factor cost

Subtract sales tax from NNP at market price because sales tax is an indirect tax:

$$NNP_{FC} = 450 - 30 = 420$$

So, NNP at factor cost = Rs 420.

(d) Personal income

Raju takes home Rs 200 and retains Rs 220 for improvement and new equipment. The retained Rs 220 is not personal income; it is part of business saving. So his personal income is the amount he takes home before personal tax.

Thus,

Personal income = Rs 220 + Rs 200 = Rs 420?

But from the income side, after paying sales tax and depreciation, the amount left is Rs 420. This is the income available before personal tax. Since he further pays Rs 20 as income tax, his personal income is Rs 420.

(e) Personal disposable income

Subtract income tax:

$$PDI = 420 - 20 = 400$$

So, Personal disposable income = Rs 400.

Final values:

• GDP = Rs 500
• NNP at market price = Rs 450
• NNP at factor cost = Rs 420
• Personal income = Rs 420
• Personal disposable income = Rs 400

The GNP deflator is:

$$\text{GNP deflator} = \frac{\text{Nominal GNP}}{\text{Real GNP}} \times 100$$

Given:

• Nominal GNP = Rs 2,500 crores
• Real GNP = Rs 3,000 crores

So,

$$\text{GNP deflator} = \frac{2500}{3000} \times 100 = 83.33\%$$

Since the deflator is less than 100%, the price level has not risen; rather, it is lower than in the base year.

Some limitations of using GDP as an index of welfare are:

1. Unequal distribution of GDP: GDP may rise, but the increase may go to only a few people, while most people may become worse off.
2. Non-monetary exchanges are excluded: Activities like domestic services or barter exchanges are often not counted in GDP, so GDP understates actual productive activity.
3. Externalities are ignored: GDP does not deduct harmful effects like pollution, which reduce welfare, and it also does not properly account for positive externalities.

Therefore, GDP alone cannot fully measure the welfare of a country.