Class 12 Macro Economics - Chapter National Income Accounting NCERT Solutions | Write down the three identities of calcu
Write down the three identities of calculating the GDP of a country by the three methods. Also briefly explain why each of these should give us the same value of GDP.
GDP can be calculated by the following three methods:
(a) Income method
GDP = Total payments made to the factors of production - (1)
Represents total wages and salaries received by i-th households.
Represents total profit received by i-th households.
Represents total income received by i-th households.
Represents total rent received by i-th households.
Equation (1) can be simplified as
GDP = W + R + I + P
(b) Value added or product method
GDP = sum of gross value added by all firms in an economy
Or GDP = GVA1 + GVA2 + …GVAn
Where
GVA1 represents gross value added by the 1 st firm
GVA2 represents gross value added by the 2 nd firm and so on
.
.
GVAn represents gross value added by the nth firm
Therefore
(c) Expenditure method or final consumption method
GDP Sum total of revenues that firms earn
Or
GDP Total consumption + Investment + Government Consumption expenditure + Net Exports
As households spend some part of their income on imports, some portion of Consumption expenditure also comprises imports, which are denoted by CM. Similarly, some part of the investment expenditure and government consumption expenditure is spent on the foreign investment goods and imports. These portions of investment and Government consumption expenditure is denoted by IM and GM respectively. Thus, the
Final households consumption expenditure, investment expenditure and final Government expenditure that are spent on the domestic firms are denoted by C - CM, I - IM andG – GM respectively.
Substituting these values in the above equation
= C+ I + G + X - M
The three methods give the same result for measuring GDP because what is produced. In the economy is either consumed or invested. The three methods depict the same picture of an economy from three different angles. While the product method presents. The value added or total production, the income method depicts the income earned by all the factors, lastly, the expenditure method presents the expenditure incurred by all the Factors. In the economy, the producer employs four factors of production to produce.
Final goods and earns revenue by sale, which is equivalent to the total value addition by the firm. The firms pay remunerations to the factors, which act as the income of all the factors. These remunerations are equivalent to the factors' contributions to the value addition. These factor incomes are then expended on the goods and services, which verifies the equality between the factor income and expenditure. Hence, the three Methods will always give the same value of GDP.
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Write down some of the limitations of using GDP as an index of welfare of a country.
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From the following data, calculate Personal Income and Personal Disposable Income.
Rs (crore)
(a) Net Domestic Product at factor cost 8,000
(b) Net Factor Income from abroad 200
(c) Undisbursed Profit 1,000
(d) Corporate Tax 500
(e) Interest Received by Households 1,500
(f) Interest Paid by Households 1,200
(g) Transfer Income 300
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Why should the aggregate final expenditure of an economy be equal to the aggregate factor payments? Explain.
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- Q:-
Suppose the GDP at market price of a country in a particular year was Rs 1,100 crores. Net Factor Income from Abroad was Rs 100 crores. The value of Indirect taxes – Subsidies was Rs 150 crores and National Income was Rs 850 crores. Calculate the aggregate value of depreciation.
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The value of the nominal GNP of an economy was Rs 2,500 crores in a particular year. The value of GNP of that country during the same year, evaluated at the prices of same base year, was Rs 3,000 crores. Calculate the value of the GNP deflator of the year in percentage terms. Has the price level risen between the base year and the year under consideration?
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What are the four factors of production and what are the remunerations to each of these called?
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