Q1. Consider the following statements:
- GDP includes income earned by foreigners within the domestic territory.
- GDP excludes income earned by residents abroad.
- GDP includes intermediate goods to avoid underestimation.
Which of the statements given above is/are correct?
A. 1 and 2 only
B. 2 and 3 only
C. 1 only
D. 1, 2 and 3
Answer: A
Explanation:
- GDP is a domestic concept → based on geographical boundary, not nationality.
- Hence, income of foreigners within India is included, while income of Indians abroad is excluded.
- Intermediate goods are excluded to prevent double counting, ensuring only final value is measured.
Q2. With reference to GNP, consider the following statements:
- GNP includes Net Factor Income from Abroad (NFIA).
- If income earned by Indians abroad exceeds income paid to foreigners, GNP exceeds GDP.
- GNP excludes depreciation.
Which of the statements given above is/are correct?
A. 1 and 2 only
B. 2 only
C. 1 and 3 only
D. 1, 2 and 3
Answer: A
Explanation:
- GNP is a national concept → includes income of residents irrespective of location.
- Therefore, GNP = GDP + NFIA (Statement 1 correct).
- If NFIA is positive, GNP becomes greater than GDP (Statement 2 correct).
- GNP is a gross measure, meaning depreciation is not deducted → Statement 3 incorrect.
Q3. Which of the following correctly represents the relationship?
A. NNPmp = NI − Indirect Taxes + Subsidies
B. NI = NNPmp − Indirect Taxes + Subsidies
C. NI = NNPmp + Indirect Taxes − Subsidies
D. NI = GDP − Depreciation
Answer: B
Explanation:
- National Income = NNP at Factor Cost.
- To convert from Market Price to Factor Cost:
- Subtract Indirect Taxes (they inflate prices but are not factor earnings)
- Add Subsidies (they reduce prices but are part of factor income)
- Hence: NI = NNPmp − Indirect Taxes + Subsidies
Q4. Consider the following components:
- Undistributed corporate profits
- Transfer payments
- Corporate taxes
- Social security contributions
Which of the above are deducted while calculating Personal Income from National Income?
A. 1, 3 and 4 only
B. 1 and 2 only
C. 2, 3 and 4 only
D. 1, 2, 3 and 4
Answer: A
Explanation:
- Personal Income reflects income actually received by individuals.
- Therefore, we deduct incomes not reaching households:
- Undistributed profits
- Corporate taxes
- Social security contributions
- Transfer payments are added, as they are received without current production.
Q5. Which of the following statements is correct?
A. Personal income includes undistributed corporate profits, while private income excludes them.
B. Private income includes transfer payments, while personal income excludes them.
C. Personal income excludes undistributed corporate profits, while private income includes them.
D. Both are always equal in value.
Answer: C
Explanation:
- Private Income includes all income accruing to private sector, including retained earnings (undistributed profits).
- Personal Income includes only income actually received by individuals.
- Hence, undistributed profits are excluded from Personal Income, making PI < Private Income.
