Net Domestic Product at Factor Cost(NDPFC) = Private Final Consumption Expenditure+ Government Final Consumption Expenditure + Net Domestic Fixed Capital Formation + Net Change in Stocks Net Imports Indirect Taxes (ii) Interest paid by an individual on a car loan taken from a bank. Solved Example for You = 500 + (-20) 250 -40 + 30 = 630 + 120 30 = Rs. (i) Expenditure on education of children by a family. 200 crore Giving reason, explain the treatment assigned to the following while estimatingNational Income (All India 2011) Ans. (i) Profits earned by a branch of foreign bank in India. It is net money value of Goods and Services Produced in domestic territory after Depreciation It is also called Net Domestic Product at Factor Price (NDP FC ) Formula NDP FC = GDP FC - Depreciation Example Suppose total value of goods and services produced in DOMESTIC TERRITORY is 100 Depreciation on Maintaining Fixed assets is 20 = 3950-50 = Rs. 30 crore, 12. This leads to over estimation of the value of goods and services produced. = Rs. Calculate Net National Product at Market Price and Gross National Disposable Income. This differs from an expansion of factory operationsfor example, the opening of a new site, adding to the total number of factories. Explain. (iii) It is included in the estimation of GDPMPbecause it is a part of final expenditure by a firm. Direct taxes such as income tax which are paid by the employees from their salaries and corporate tax, which is paid by the joint stock company from its profit, are included. This method is also known as 'Income Disposal Method'. = 515+(30-5) +15 = 515+25+15 It is computed as follows: The net domestic product at factor cost is the value acquired by deducting the net indirect tax and depreciation from the gross market value of domestic goods and services. + Private Final Consumption Expenditure + Gross Domestic Capital Formation Net Imports Net Indirect Tax Ans. (a) Gross National Product at Factor Cost (GNPFC) It deals with aggregates like national income, general price level and national output, etc. How will you treat the following while estimating National Income of India? The site owner may have set restrictions that prevent you from accessing the site. Give reasons for your answer. = NNPFC+ Net Indirect Tax + Consumption of Fixed Capital Net Current Transfer to Abroad = 685 + (120-20) + 35 -(- 15) = Rs. = 900 + 400 + 250-30-100-20 + (-40) (b) GNP at factor cost = GNP at market price + net indirect tax (c) National income = Domestic income + Net factor income from abroad. The acquisition of new machines for the new factory would represent a gain because the demand was driven by the need to increase the scope of the operations, rather than serve as a replacement. (ii) Prize won in a lottery. (ii) Payment of salaries to its staff by an embassy located in New Delhi. 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Also explain, two alternative ways of avoiding the problem. Ans. From the following data calculate Net Value Added at Factor Cost, Ans. Gross National Product at Factor Cost (GNPFC) = Compensation of Employees + (Rent + Interest+ Profits) + Net Factor Income from Abroad + Consumption of Fixed Capital Income Method: NI = Rent + Compensation + Interest + Profit + Mixed Income.2. The resulting total is called Domestic Income or Net Domestic Product at FC (NDP FC)- By adding net factor income from abroad to domestic income, we get National Income (NNP FC)- Mind, in income method national income is measured at the stage when factor incomes are paid out by enterprises to owners of factors of productionland, labour, capital and enterprise. This would mean the purchased machine would qualify as a gain for the NDP. Hence, value of national income method should be the same as the one calculated by value added method. (ii) Payment of interest on loan taken by an employee from the employer will not be included in the estimation of National Income as it will be treated as transfer income, also loan is taken for consumption purpose. (ii) GNP (at FC): Gross National Product at factor cost. Home Economy National Income accounting Methods of estimating National Income Income method. (ii) Interest paid by an individual on a loan taken to buy a car. = 810 + 60 + 80-(-10) Examples are: Individual income, individual savings, price determination of a commodity, individual firm's output, consumers equilibrium. Some of our partners may process your data as a part of their legitimate business interest without asking for consent. (b) Private income from the following data (All India 2011), Ans. Ans. The formula for NDP-FC is: NDP-FC = Value of Output - Indirect Taxes + Subsidies In other words, the NDP-FC is calculated by subtracting the indirect taxes and adding the subsidies to the value of output, which is the value of all goods and services produced within a country's borders. Calculate Gross National Product at Factor Cost by The NDP better assesses a countrys economic output by subtracting this value from GDP. (iii) Financial help received by flood victims. (ii) Addition to stocks during a year. 232, Block C-3, Janakpuri, New Delhi,
Requested URL: byjus.com/commerce/income-method/, User-Agent: Mozilla/5.0 (iPhone; CPU iPhone OS 14_7_1 like Mac OS X) AppleWebKit/605.1.15 (KHTML, like Gecko) Version/14.1.2 Mobile/15E148 Safari/604.1. small group of firms) but deals with the study of broad economy-wide aggregates like total output, size of national income, level of employment, aggregate consumption, aggregate saving, aggregate investment, general price level, balance of payment, rate of inflation, size of poverty etc. Sales = Net Value Added at Factor Cost (NVAFC)+ Intermediate Consumption Change in Stock+ Indirect Tax + Depreciation 990 crore. There are only two producing sectors A and B in an economy. 515 crore, (b) Net National Disposable Income (NNDI) = NNPFC + Net Indirect Taxes + Net Current Transfers fromAbroad Net domestic product (NDP) is an annual measure of the economic output of a nation that is adjusted to account for depreciation. 510 crore, 79. National Income (NNPFC) = Private Final Consumption Expenditure + Government Final Consumption Expenditure + Net Domestic Capital Formation + Net Exports Net Indirect Taxes Net Factor Income to Abroad Suppose the agriculture sector experiences a decline in the value of physical capital of $2,000, and the manufacturing sector experiences a decline of $5,000. (i) Imputed rent of self occupied houses. (iii) It is included in the estimation of National Income as it is a part of government final consumptionexpenditure. Meaning. Its main tools are demand and supply of particular commodity/factor. (ii) Expenditure on second hand goods is not to be included. NDP FC = GDP MP - Depreciation - Net Indirect Taxes NDP FC is also known as Domestic Income or Domestic factor income. And by adding the NVA FC of all industries, we get the net domestic product at factor cost, which is represented as NDP FC. (iii) Entertainment tax received by government is not included while estimating the National Income ofIndia as it is a indirect tax and not included at factor cost. 300 lakh, 19. (All India 2009). Sale and purchase of second-hand goods are excluded since they are not part of production of current year but commission paid on sale of second-hand goods is included as it is reward for rendering productive services. (iii) Purchase by a foreign tourists will be included while estimating National Income as it is consideredas exports of goods and services. = Rs. Depreciation. NDPFC = Compensation of Employees + Profit + Rent & Royalty + Interest + Mixed income. Calculate Net National Product at Factor Cost and private income from the following (Delhi 2014), 34. It is used to measure the total economic output of a country, taking into account depreciation and capital consumption. = Rs. Click to reveal (ii) Government final consumption expenditure. 64. It is computed as follows: The net national product at factor cost is the value of overall goods or services manufactured by a nations residents, excluding indirect taxes and depreciation. = Rs. NDP, along with GDP, gross national income (GNI), disposable income, and personal income, is one of the key gauges of economic growth that is reported on a quarterly basis by the Bureau of Economic Analysis (BEA). (ii) Corresponding to production for self consumption, the generation of income of economy to be taken into account. 50: Solution: GNP at MP = NDP at FC + Depreciation - Net Factor income from abroad + Indirect tax =3,200 + 400-50 + 70 = 3,620 crores. (Delhi 2014) (i) Social security contributions by employees. (a) Net National Product at Market Price and Calculate National Income: (Compartment 2014), = Government Final Consumption Expenditure + Private Final Consumption Expenditure + Net Domestic Capital Formation + Net Exports NIT + NFIA From the following data calculate Net Value Added at Factor Cost (Delhi 2011 c) CFA Institute Does Not Endorse, Promote, Or Warrant The Accuracy Or Quality Of WallStreetMojo. (b) Private Income from the following data (All India 2008), 87. Expenditure + Net Domestic Capital Formation + Net Exports + Net Factor Income from Abroad- Net Indirect Taxes In lakhs GNP at MP 16,000 Subsidies 1,200 . (ii) Value added method This approach or method is a way to avoid the problem of double counting. (ii) Net Current Transfers from Abroad (All India 2012), 49.Find out (b) Expenditure method from the following data (Delhi 2009), Ans. Net Domestic Product at Factor Cost or NDP FC : It refers to the net money value of all the final goods and services that are produced within the domestic territory of a nation excluding the net indirect taxes and depreciation. (ii) Expenditure method (ii) Payment of interest on loan taken by an employee from the employer. 810 crore Part of the machinery in a factorys production line may need to be replaced while another set of similar machines continues to function within the same factory. It is computed by deducting net indirect tax from the aggregate value of all commodities produced by the residents of a countryduring an accounting year. = 200-[80+ 20+ (15 -5)] NNPFC = NDPFC + NFIA. (a) Income method and For example, in many urban areas, efforts may be made to re-purpose underutilized real estate that has fallen into disrepair. It doesnt account for non-marketed goods or services. =Rs. (iii) Net Factor Income from Abroad = 30 + 5 = Rs. = 500 +200+120 + (-20) + 20-30 -100 -(-10) -20 Thus, national income is calculated by adding up factor incomes generated by all the producing units located within the domestic economy during a period of account. It is included in National Income. Ans. The net domestic product (NDP) is calculated by subtracting the value of depreciation of capital assets of the nation such as machinery, housing, and vehicles from the gross domestic product (GDP). Machinery that is put to regular use may need parts replaced regularly until the entire piece of equipment is no longer usable. = 1000+ 500 + 200 + 60 + (- 20) 80 + (-10) (ii) Net exports = 810- 125 = Rs. Imputed rent of owner occupied dwellings and value of production for self-consumption is included but value of self-consumed services like those of housewife is not Included. NDP at FC = 480 - 60 - 20 = 400 crores. (iii) Interest received by an Indian resident from its abroad firms will not be included in domestic income of India as it is factor income from abroad. Intermediate Consumption = Value of Output Net Value Added (All India 2010) 600 lakh, 16.Calculate Net Value Added at Factor Cost from the following data, Ans. Depreciation - cost allocated to a tangible asset over its useful life. You are free to use this image on your website, templates, etc., Please provide us with an attribution link. Net Domestic Product at factor cost measures a countrys economic output considering the production of goods and services. 355 crore, 81. = Rs. Nanda Ashirwad Complex, 3rd Floor, (ii) Operating surplus (rent, profit and interest) Calculate NDP at FC Particular Rs. (ii) Net National Disposable Income (All India 2011), 57. Thus, it eliminates the distorting effect of indirect taxes and subsidies, which can vary greatly across countries. It measures the output generated by a country's organizations located domestically or abroad. (b) National Income (All India 2009), Ans. Though GDP is frequently cited when assessing the economic health of a country, NDP puts into perspective the pace at which capital assets degrade and must be replaced. In addition, NDP helps understand the number of resources available for consumption or investment. (i) Only final expenditure is to be taken into account to avoid error of double counting. (i) Gross National Product at Market Price https://www.zigya.com/share/RUNFTjEyMDUxNjU5. NDP accounts for capital that has been consumed over the year in the form of housing, vehicle, or machinery deterioration. (b) National Income = Gross Value Added (GVA) by A and B = (310 + 290) crores PRODUCT METHOD (Value added method): Theory-only the value of final goods is to be included; otherwise there arises a problem of double counting. Find Gross Value Added at Factor Cost (All India 2012), 9. 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