Small Miscellaneous Lllustrations Doc.0001

:,"iscellaneous Illustrations

Illustration 1.Calculate (I)Net Domestic Product at Factor Cost by Expenditure Method, and (ii] Net

National Product at Factor Cost by the Value added method from the following data:Items (Rs crore)

(vi)(vii)

(viii)(ix)(x)

(v)

Domestic Capital Formation

Net Exports

Private Final Consumption Expenditure

Value of Output of:

(a) Primary sector(b) Secondary sector.(c) Tertiary sectorValue.of Intermediate Consumption by:

(a) Primary sector(b) Secondary sector(c) Tertiary sector

Consumption of Fixed Capital

Indirect Taxes

Government Final Consumption Expenditure

Subsidies

Net Factor Income from Abroad

4003001008010010010

(-)20

(i)(li) .

(iii)(iv)

250(-)50--~-----.

900

900800400

\

40 Macro Economics

Solution:(I) Net Domestic Product at Factor Cost (By Expenditure M\ethod) = Private Final

Consumption Expenditure + Government Final Consumption Expenditure + DomesticCapital Formation + Net Exports - Consumption of Fixe irect Taxes + Subsidies

= Rs.200 cr~e + Rs 100 crore + Rs 250 crore.2 ( - Rs 50 crore) '- s 80 crore-Rs 100 crore + Rs 10 crore

= Rs 1,030 croreAns. Rs 1,030 crore.(ii) Net National Product at Factor Cost (ByValue added Method) = Value of Output of

primary sector - Value of Intermediate Consumption of Primary Sector + Value of Output ofSecondary sector - Value of Intermediate Consumption of Secondary sector + Value ofOutput of Tertiary sector - Value of Intermediate Consumption of Tertiary sector -Consumption of Fixed Capital + Net Factor Income from Abroad -Indirect Taxes + Subsidies

...(\

= (Rs 900 crore - Rs 400 crore) + (Rs 800 crore - Rs 300 crore)+(Rs 400 crore - Rs 100 'crore)- Rs 80 crore + ( - Rs 20 crore) - Rs 100 crore + Rs 10 crore

= Rs 1,110 croreAns. Rs 1,110 crore.

Illustration 2.Calculate (I) Gross National Product at Market Price by Expenditure Method and (H)

Gross Domestic Product at Market Price by Income Method:Items (Rs crore)

(i) Private Final Consumption Expenditure 200- --_.-

(ii) Government Final Consumption Expenditure 20....--------(iii) Gross Domestic Capital Formation 40---(iv) Net Exports (-)5

(v) Wages and salaries 165(vi) Employers' Contribution to Social Security Schem-es 10(vii) Profits 15

(viii) Interest 20(ix) indirect Taxes 30(x) Subsidies 5(xr) Rent 15

(xii) Net Factor Income Received from Abroad 5(xiii) Consumption of Fixed Capital 5

National Income: Concepts and Measurement 41

Solution:(i) Gross National Product at Market Price (by Expenditure Method) = Private final

Consumption Expenditure + Government Final Consumption Expenditure + Gross DomesticCapital Formation + Net ~xports + Net Factor Income from Abroad --- .'-

= Rs 200 Cr8r8 + Rs 20 crore + Rs 40 crore + (-Rs 5 crore) + Rs 5 crore= Rs 260 crore

Ans. Rs 260 crore.,(ii) Gross Domestic Product at Market Price (by Income Method) = Wages and Salaries

+ Employers' Contribution to Social Security Schemes + Profits +Rent + Interest -+ IndirectTaxes- Subsidies + Consumption of Fixed Capital

= Rs 165 crore + Rs 10 crore + Rs 15 crore + Rs 15 crore + Rs 20 crore + Rs 30 crore- Rs 5 crore +Rs 5 crore

= Rs 255 crore .Ans. Rs 255 crore.

. l

Illustration 3.Calculate (I) Gross Domestic Product at Market Price by

National Jncome by expenditure method:Items

(0(ii)

(iii)(iv)(v)

(vi)(vii)

(viii)(ix)(x)

(xi)(xii)(xiii)(xiv)

income method, and (Ii)

Mixed Income of the self-employedCompensation of EmployeesNet Factor Income from the Rest of the WorldImportsExportsGovernment Final Consumption ExpenditureIndirect TaxesChange in StockPrivate Final Consumption ExpenditureConsumption of Fixed CapitalGross Fixed Capital FormationSubsidiesRent, Interest and ProfitInterest on National Debt

(Rs crore)280240(-)56050759035

510.-

40130

1010010

.

Solution:(I) Gross Domestic Product at Market Price (by Income Method) = Compensation of

Employees + Rent, Interest and Profit + Mixed income + Consumption of Fixed Capital +Indirect Taxes - Subsidies

42 Macro Economics

= Rs 240 crore + Rs 100 crore + Rs 280 crore + Rs 40 crore + Rs 90 crore - Rs 10 crore= Rs 740 crore.

Ans. Gross Domestic Product at Market Price = Rs 740 crore.(ii) National Income (by .Expenditure Method) = Private Final Consumption

Expenditure + Government Final Consuinption Expenditure + Gross Fixed CapitalFormation + Change in Stock + Exports - Imports - Consumption of Fixed Capital + NetFactor Income from Abroad - Indirect Taxes + Subsidies

= Rs 510 crore + Rs 75 crore + Rs 130 crore + Rs 35 crore + Rs 50 crore - Rs 60 crore- RS' 40 crore - Rs 5 crore - Rs 90 crore + Rs 10 crore

= Rs 615 crore.Ans. National Income = Rs 615 crore.

Illustration 4.From the following data relating to a firm, (a) estimate the Net Value Added at Market

Price, (b) show that Net Value Added at Factor Cost is equal to the sum of Factor Incomes.Items (Rs Thousand)

(i) Salaries and Wages 120(ii) Interest Payments 90

(iii) Dividends 30(iv) Undistributed Profits 20(v) Rent Payments 15

(vi) Increase in Stocks 40(vii) Imports of Raw Material 20

(viii) Indirect Taxes 10(ix) Depreciation of Fixed Capital 15(x) Domestic Sales 360

(xi) Exports 40(xii) Purchase of Raw Materials and other Inputs 120Solution:(a) Net Value Added at Market Price = (Domestic Sales +Exports + Increase in Stocks)

- (Purchase of Raw materials and other inputs + Imports of Raw materials) - (Depreciation offixed capital)

= (Rs 360 thousand + Rs 40 thousand + Rs 40 thousand) - (Rs 120 thousand + Rs 20 thousand)- Rs 15 thousand

Ans. Rs 285 thousand.


(b) (1) Net Value Added at Factor Costs = Net Value Added at Market Price -TndirectTaxes.

= Rs 285 thousand - Rs 10 thousand= Rs 215 thousand.

(2) Sum of factor Incomes = Salaries and Wages + Interest Payments + Dividends +Undistributed profits + Rent Payments

= Rs 120 thousand + Rs 90 thousand + Rs 30 thousand + Rs 20 thousand+ Rs 15 thousand

= Rs 215 thousand.Ans. (1) Net Value Added at Market Price = Rs 285 thousand.(2) Net Value Added at Factor Cost = Sum of Factor Incomes = Rs 215 thousand . Illustration 5.Calculate Gross Domestic Product at Market price by

(a) Product Method and (b) Income Method:Items (Rs crore)

(i) - Intermediate Consumption of:(a) Primary sector 500(b) Secondary sector 400(c) Tertiary sector 300

(ii) Value of Output of:(a) Primary sector 1000(b) Secondary sector 900(c) Tertiary sector 700

(iii) Rent 10(iv) Emoluments of Employees 400(v) Mixed income 650(vi) Operating Surplus 300

(vii) Net Factor Income from Abroad (-)20(viii) Interest 5Ox) Consumption of Fixed Capital 40(~) Net Indirect Tax 10

Solution:(a) Gross Domestic Product at Market Price (by Product Method) = (Value of output of

Primary Sector - Intermediate Consump- tion of Primary Sedor) + (Value of output ofSecondary

44 Macro Economics

Sector -Intermediate Consumption of Secondary Sector} + (Value of output ofTertiarySector - Intermecdate Consumption of Tertiary Sector).

= (RSl ,000 crore - Rs500 crore) + (Rs900 crore - Rs400 crore) + (Rs 700 crore - Rs 300 crore)= Rs 1,400 crore.

(b) Gross Domestic Product at Market Price (by Income Method) = Emoluments ofemployees + Mixed Income + Operating. Surplus + Consumption of Fixed Capital + NetIndirect Tax.

= Rs 400 crore + Rs 650 crore + Rs 300 crore + Rs 40 crore + Rs 10 crore = Rs 1,400 crore.Ans. (a) Gross Domestic Product at Market Price (by Production Method)= Rs 1,400 crore.(b) Gross Domestic Product at Market Price (by Income Method) = Rs 1,400 crore. Illustration 6.From the following data calculate National Income by (a) Income method and (b)

Expenditure method:Items (Rs crore)

(i) _Private final consumption expenditure(ii) Government final consumption expenditure

(iii) Compensation of employees(iv) Net exports(v) Net indirect taxes

(vi) Net domestic capital formation(vii) Consumption of fixed capital

(viii) Net factor income from abroad(ix) Interest(x) Rent

(xi) Mixed income of self-employed(xii) Profits

Solution:(a) National Income (by income method) = Compensation of employees + Net Factor

Income from Abroad + Interest + Rent + Mixed Income of self-employed + Profits.= Rs 1,200crore + Rs (-) 10crore + Rs310crore + Rs200 crore + Rs 900 crore + Rs800crore= Rs 3,400 crore.

(b) National Income (by expenditure method) = Private final ConsumptionExpenditure + Government Final Consumption Expenditure + Net Domestic CapitalFormation + Net Exports + Net Factor Income from Abroad - Net Indirect Taxes.

2,0001,0001,200(-)20

370800100

(-)10310200900800


== Rs2,000crore + Rs 1,000crore + Rs800crore + (-)Rs20crore + Rs (-) 10 crore-Rs370 crore== Rs 3,400 crore.

Ans. (a) Rs 3,400 crore (b) Rs 3,400 crore. Illustration 7.From the following data, calculate Gross National Product at Market Price by (i)

Income method, and (ii) Expenditure method:Items (Rs crore)

400(i) Mixed income of self-employed(ii) Compensation of employees

(Hi) Private final consumption expenditure(iv) Net factor income from abroad(v) Net indirect taxes

(vi) Consumption of fixed capital(vii) Net domestic capital formation

(viii) Net exports(ix) .Profits(x) Rent

(xi) Interest(xii) Government final consumption expenditureSolution:(l) Gross National Product at Market Price (by Income Method ) = Mixed Income of

Self-employed + Compensation of Employees +. Net Factor Income from Abroad + NetIndirect Taxes + Consumption of Fixed Capital + Profits + Rent + Interest.

= Rs 400 crore + Rs 500 crore + (- )Rs20crore + Rs 100crore + Rs 120crore + Rs350crore+ Rs 100 crore + Rs 150 crore.

500900

(-)20100120'

280(-)30

350100150450

= Rs 1,700 crore.(ii) Gross National Product at Market Price (by Expenditure Method) = Private Final

Consumption Expenditure + Net Factor Income from Abroad + Consumption of FixedCapital + Net Domestic Capital Formation + Government Final Consumption Expenditure +Net Exports. ..

-,

= Rs900crore + (-}Rs20crore + Rs 120crore + Rs280crore + Rs 450 crore + (-}Rs30crore.1,700 crore.

,

Ans. (a) GNPMP (Income Method) = Rs 1,700 crore.(8) GNPMP (Expenditure Method) = Rs 1,700 crore.

46 Macro Economics

Illustration 8.Calculate GNP at market price by income method and expenditure method from the

following data:Items (Rs crore)

1. Rent2. Private final consumption expenditure3. Net exports4. Interest5. Profit6. Government final consumption expenditure7. Net domestic capital formation8 .. Compensation of employees9. Consumption of fixed capital10. Net indirect taxes11. Net factor income from abroad.

Solution:(i) Income Method

GNP =Rent

+ Interest+ Profit+ Compensation of Employees+ Consumption of fixed capital+ Net Indirect Taxes+ Net Factor Income from abroad

Ans. GNP at MP = Rs 1,120 crore(ii) Expenditure Method:

-GNP =Private final consumption expenditure+ Net Exports ,+ Government Final Consumption expenditure+ Net domestic capital formation+ Consumption of fixed capital+ Net Factor Income from abroad

Ans. GNP at MP = Rs 1,120 crore

40800206012020010080020100

(-)20

(Rs crore)406012080020

100-20

1,120

(Rs crore)80020

20010020-20

lJ2Q

,-


. Illustration 9.from the following information, calculate gross national income by (a) income method

(b) expenditure method.Items' (Rs crore)

l. Factor income from abroad 102. Compensation of employees 1503. Net domestic capital formation 504. Private final consumption expenditure 2205. Factor income to abroad 156. Change in stock 157. Employer's contribution to social security schemes 108. Consumption of fixed capital 159. Interest 4010. Exports 201l. Imports 2512. Indirect taxes 3013. Subsidies 1014. Rent 4015. Government final consumption expenditure 8516. Profit 100

Solution:(a) Income Method

GNP = (Rs crore)10

15015154040100

-.34Q

Factor income from abroad+Compensation of employees- Factor income to abroad+Consurnption of fixed capital+ Interest+ Rent+ Profit

Ans. GNP = Rs 340 crore.(b) Expenditure MethodGNP = (Rs crore)

1050

Factor income from abroad+ net domestic capital formation

48

+ Private Final Consumption Expenditure- Factor income to abroad+ Consumption-of fixed capital+ Exports- Imports- Indirect Taxes+ Subsidies+ Government Final Consumption Expenditure

220-151520

-25- 30

1085

340

Macro Economics

Ans. GNP = Rs 340 crore.

Illustration 10.Calculate Net National Disposable Income from the following data :

Items (Rs crore)3,000

308060

(i) National Income(ii) Savings of private corporate sector

(iii) Corporation tax(iv) Current transfers from government administrative departments(v) Income from property and entrepreneurship accruing to

the government administrative departments(vi) Current transfers from the rest of the world

(vii) Saving of non-departmental governments enterprises(viii) Net indirect taxes(ix) Direct taxes paid by households(x) Net factor income from abroad

Solution:Net National Disposable Income = National Income + Net Indirect Taxes + Current

Transfersfrom the rest of the world.

1505040

250100

(-)10

= Rs 3,000 crore + Rs 250 crore + Rs 50 crore = Rs 3,300 croreAns. Rs 3300 crore

Illustration 11.Calcutate Gross National Disposable Income froni the following data:

Items (Rs crore)(i) National Income 2,000

(ii) Net current transfers from rest of the world 200(iii) Consumption of fixed capital 100


(iv) Net Factor income from abroad(v) Net indirect taxes

Solution:Gross National Disposable Income = National Income + Consumption of Fixed

Capital + Net Current Transfers from Rest of the World + Net indirect taxes.== Rs 2,000 crore + Rs 100 crore + Rs 200 crore + Rs 250 crore== Rs 2,550 crore.Ans. Gross National Disposable Income = Rs 2,550 crore,

(-)50250

Illustration 12.Calculate private income from the following data:

Items (Rs crore)(i) Income from domestic product accruing to private sector 254(ii] Net current transfers from government administrative departments 10

(iii) Net current transfers to rest of the world 4(iv) Interest on national debt 10(v) Net Factor income from abroad (-)3

Solution:Private Income = Income from domestic product accruing to private sector + Net

current transfers from government administrative departments - Net current transfers to restof the world + Interest on national debt + Net factor income from abroad.

== Rs 254 crore + Rs 10 crore - Rs 4 crore + Rs 10 crore + (-Rs 3 crore)= Hs 267 croreAns. Rs 267 crore.(Note: 'Net current transfers to rest of the world' are to be read carefully. These are 'to' and not

'from' rest of the world. Hence, these are deducted to find private income) Illustration 13.Find out private income from the following data:

Items (Rs crore)(i) Current transfers from government administrativedepartrnents 18

(ii) . Saving of Non-departmental government enterprises 1(iii) Net National Product at Factor Cost 473(iy) Net Factor Income from Abroad (-)7(v) Income from property and entrepreneurship accruing to

the government administrative departments 9(vi) Net current transfers from the rest of the world 4

(vii) National Debt Interest. 28

-

50 Macro Economics

Solution:Private Income = Net National Product at factor Cost ~Saving of non departmental

enterprises - Income from property and entrepreneurship accruing to governmentadministrative enterprises + Current transfers from government administrative.Departments + Net Current transfers from res.tof the world + National Debt Interest

= Rs473 crore - Rs 1 crore - Rs9 crore + Rs 18crore + Rs4crore + Rs28crore =Rs 513 crore.Ans. Rs 513 crore.[Hint: Item (iv) is already included in item (iii)] Illustration 14.Find out Personal Income from the following data:

Items (Rs crore)(i) Income from domestic product accruing to private sector 224

(ii) Net current transfers from rest of the world 3(iii) Net current transfers from the government 9(iv) Interest on National Debt 8(v) Undistributed Profits 1

(vi) Corporation Tax 3(vii) Direct Tax 2Solution:Personal Income = Income from domestic product accruing to private sector + Net

current transfers from rest of the world + Net Current transfers from the government +Interest on National Debt - Undistributed profits - Corporation tax.

= Rs 224 crore + Rs 3 crore + Rs 9 crore + Rs 8 crare - Rs 1 crore- Rs 3 crore = Rs 240 crareAns. Rs 240 crore.

Illustration 15.Find out Personal Income from the following data:

Items(i) Private Income

(ii) Saving of Corporations in the private sector(less net retained income of foreign companies)

(iii) Corporation TaxSolution:Personal Income = Private Income - Saving of Corporations in Private Sector (less net

retained earnings of foreign companies) - Corporation Tax= Rs 6,500 crore - Rs 500 crore - Rs 300 crore = Rs 5,700 crore.Ans. Rs 5,700 crore.

. (Rs crore)6,500

500300

--

-National Income: Concepts and Measurement 51

Illustration 16.Find out personal disposable income from the following data:Items(Rs crore)

(i) Corporation tax 3(ii) Miscellaneous Receipts of government administrative departments 1

(iii] Direct taxes paid by households 4(iv) Saving of private corporate sector net of retained earnings of foreign companies 1(v) Private Income 218Solution:Personal Disposable Income = Private Income - Corporation Tax - Corporate Saving -

Miscellaneous receipts of government administrative departments - Direct Taxes paid byhouseholds.

= Rs 218 crore - Rs 3 crore - Rs 1 crore - Rs 1 crore - Rs 4 crore= Rs 209 croreAns. Rs 209 crore.

-Illustration 17.From the following data, calculate Personal Disposable Income.

Items (Rs crore)(1) Personal income(2) Direct taxes(3) Miscellaneous receipts of the Government (fees, fines etc.)

Solution:Personal Disposable Income = Personal Income ~ Direct Personal Taxes -

Miscellaneous Receipts of the Government.

70,000500800

= Rs 70,000 crore - Rs 500 crore - Rs 800 crore = Rs 68,700 crore.Ans. Rs 68,700 crore.

Illustration 18.Fromthe following data estimate (I) Personal Income (ii) Private Income (iii) Personal

Disposable Income.

Items

(i) National Income(ii) Corporate profit tax

(iii) Direct personal taxes(iv) Saving of private corporate sector

(Rs crore)1,300

154025

52 Macro Economics

(v) Income from property and entrepreneurship accruing togovernment administrative departments

Current transfers from government administrative departments

National Debt Interest

Saving of non-departmental public enterprises

Current transfers from rest of the world

35

30

10

515

(vi)(vii)

(viii)(ix)

Solution:

(i) Personal Income = National Income - Income from Property and entrepreneurshipaccruing to government admlntstrative departments - Saving of non-departmental publicenterprises + National Debt Interest + Current transfers from the government administrativedepartments + Current transfers from rest of the world - Saving of Private Corporate Sector -Corporate Profit Tax

= Rs 1,300 crore - Rs 35 crore - Rs 5 crore + Rs 10 crore + Rs 30 crore + Rs 15 crore - Rs 25 crore

- Rs 15 crore

= Rs 1,275 crore.

Ans. Rs 1,275 crore

(Ii) Private Income = Personal Income + Corporate Profit Tax+ Saving of Private Corporate Sector

= Rs 1,275 crore + Rs 15 crore + Rs 25 crore = Rs 1315 crore.

Ans. Rs 1,315 crore

(iii) Personal Disposable Income = Personal Income - Direct Personal Taxes= Rs 1,275 crore - Rs 40 crore = Rs 1235 crore

Ans. Rs 1,235 crore

Will the following be a part of domestic factor income of India? Give reasons foryour answer.

(i) Old age pension given by the government.(ij) Factor income from abroad.(iii) Salaries to Indian residents working in Russian Embassy in India.(iv) Profits earned by a company in India, which is owned by a non-resident.

Solution:

(i) Old age pension given by the government: It is not a part of domestic factor incomeof India because it is a transfer payment.


;;:\. (Hi)Salaries to Indian residents working in Russian Embassy in India: It is not a part ofdomestic factor income of India because Russian Embassy in India is not a part of domestic territory of.India.

(iv) Profits earned by a company in India which is owned by a non-resident: It is a p~rt ofdomestic factor income in India because the company is within the domestic territory of India. .

(ii) Factorincome horn abroad: It is not a part of domestic factor income of India because it isnot generated within the domestic territory of India.

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Small Miscellaneous Lllustrations Doc.0001