National Income Case Study For Class 12 Economics

NATIONAL INCOME AND RELATED AGGREGATES
CASE STUDY
Net Factor Income from Abroad refers to the difference between factor income received
from the rest of the world and factor income paid to the rest of the world. NFIA is significant
to differentiate between Domestic Income and National Income. In Practical estimates,
domestic income is estimated first and then, National Income is derived from Domestic
Income.
1. How is National Income derived from Domestic Income?
2. What is meant by Factor income from abroad?
3. NFIA is _________ when income earned from abroad is less than income paid to abroad.
4. What is the value of NFIA in a closed economy?
ANSWERS:
1. Domestic Income + NFIA = National Income
2. The income earned by the normal residents of the country from the rest of the world in the form
of wages and salaries, rent, interest, dividend and retained earnings.
3. Negative
4. Zero
ASSERTION and REASONING
ASSERTION (A): The goods which are used either for resale or for further production in
the same year are Intermediate Goods
REASONING ®: Intermediate Goods are included in National Income
a. Both A and R are true and R is the correct explanation of A
b. . Both A and R are true and R is not the correct explanation of A
c. A is true, but R is false
d. A is false, but R is True
Ans: C
Case study based (National income)
Read the following news report and answer Ques 1- 4 ( each carries 1 mark) on the basis of
the same:
The Reserve Bank of India (RBI) in its latest monthly bulletin (November) has dedicated a
chapter on the 'State of the economy' to highlight the key indicators of India’s economic
health. The RBI has now started 'nowcasting' or in simpler terms 'the prediction of the
present or the very near future of the state of the economy'. The first 'nowcast' has predicted
that the country's economy will shrink by 8.6% in the second quarter (July, August,
September) of the current Fiscal Year. This means that India has entered a 'technical
recession' in the first half of the current FY for the first time in history. It is important to
note that the GDP had shrunk by 23.9% in the first quarter (April, May, June). India's GDP
growth contracts by 23.9%:
The RBI Bulletin; March 27th, 2020
1. The continuous fall of GDP leads to ……………………………(choose the correct alternative)

(a) Rise in national income (b) Fall in national income
(c) No change in national income (d) fall in general price level
2. In the situation of continuous fall in demand level in economy it is likely to happen that
a) Amount of subsidies and other transfer payments in national income rises
b) Amount of subsidies and other transfer payments in national income falls
c) Amount of taxes is likely to increase in order to generate additional income for govt.
d) None of the above
3. Under the scheme of ‘Aatam nirbhar bharat’ govt. has given a huge amount of loan to different
sectors of economy particularly to promote MSME. The interest paid by MSME also has loan
moratorium period. Will these interest payments by MSMEs be included in national income? Give
reason.
4. Due to this ‘Covid 19’ pandemic a lots of Indians sent back to India. As a result these NRIs
have to come back and have been staying in India and working from home. Identify which
statement regarding their status in India is true
a) They are treated as normal residents of India
b) Their income will be treated as factor income from abroad
c) Their income will be treated as factor income to abroad
d) No effect on National income of India.
Q2. Read the following statements - Assertion (A) and Reason (R).
Choose one of the correct alternatives given below: ( 1 mark)
Assertion (A):
Value addition can also take place even when the commodity does not go through any
transformation.
Reason(R):
It happens when a commodity is purchased for resale.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion
(c) Assertion (A) is true but Reason (R) is false.
(d) Assertion (A) is false but Reason (R) is true.
OR
Read the following statements - Assertion (A) and Reason (R).
Choose one of the correct alternatives given below:
Assertion (A): Gross domestic capital formation can be less than gross fixed capital formation
Reason(R): If change in stock is negative.
Alternatives:
Assertion (A).
Assertion
(c) Assertion (A) is true but Reason (R) is false
Read the following statements –
Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Alternatives:
a. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A)
c. Assertion (A) is true but Reason (R) is false.
d. Assertion (A) is false but Reason (R) is true.
Assertion (A): An item that is meant for final use and will not pass through any more stages of
production or transformations is called a final good.
Reason (R): It will not undergo any further transformation at the hands of any producer,but many
such final goods are transformed during their consumption
Ans: (a)
Case study
Read the following statement and answer Questions 7-10 on the basis of the same:
One’s ability to buy commodities comes from the income one earns as labourer (earning
wages), or as entrepreneur (earning profits), or as landlord (earning rents), or as owner of
capital (earning interests). In short, the incomes that people earn as owners of factors of
production are used by them to meet their demand for goods and services.
Q7. The statement above is based on the notion” one’s expenditure is other man’s income. (true
/false)
Q8. This exchange is depicted as ----------(real flow/money flow)
Q9. Using up of incomes earned in consumption of goods is called …….( income

distribution/income disposal)
Q10. All the factors of production are owned by ------ household/firms)
Ans: 7. True
8. money flow
9. income disposal
10. households
UNIT -1
1. Assertion(A ) The problem of double counting leads to under estimation of the national
income of the country. (1 M)
Reason (R ) Double counting arises when value of a good is counted more than once while
measuring the value of national income during the production process. (Choose correct
alternative)
A. Both Assertion and Reason are true and Reason is the correct explanation of Assertion.
B. Both Assertion and Reason are true and Reason is not correct explanation of the
Assertion
C. Assertion is true but Reason is false
D. Assertion is false and Reason is true.
2. New Delhi: Asserting that the “ worst is behind us” veteran banker Deepak Parekh
on Thursday said that India’s GDP growth will be in positive territory in the fourth
quarter as demand has started picking up in all sectors . citing an example he said
during the virtual conference organized by Canada – India- based council. He said
toll collections are back to 88 percent of pre COVID 19 level , e way bills are
increasing and electricity consumption has stabilized. India is domestic based
economy and demand is set to rise in coming future.
Source : 9 october 2020, The Economic Times
On the basis of above case let answer the following questions (4 M)

A. Do you think higher level of Real GDP always lead to higher availability of goods per
person in the domestic economy? Comment
B. There is no difference between GDP at market price and GDP at factor cost in two sector
economy. Comment
C. Can we say that GDP is true indicator of welfare? Justify
D. Real GDP is considered as an index of_________________.
Assertion and Reason based questions
1. Assertion(A): Domestic income of a country can be more than its National income.
Reason(R): It is possible when factor income paid abroad is more than factor income
received from abroad
a) Both (A) and (R) are true and (R)is the correct explanation of (A)
b) Both (A) and (R) are true and (R) is not the correct explanation of (A)
c) Both (A) and (R) are false
d) (A) is wrong (R) is true
Ans: Option A is correct
2. Assertion(A): Growing vegetables in a kitchen garden of the house is included in
national income
Reason (R): It is difficult to estimate value of production as it is non market transaction
c) (A) is false and (R) is correct explanation of (A)
d) (A) is true (R) is not correct explanation of (A)
Ans: Option C is correct
Case Study
GDP and welfare
Can the GDP of a country be taken as an index of the welfare of the people of that country? If a
person has more income, he or she can buy more goods and services and his /her material being
improves. So it may seem reasonable to treat his or her income level. GDP is the sum total of
value of goods and services created within the geographical boundary of a country in a particular
year. It gets distributed among the people as incomes (except for retained earnings). So we may
be tempted to treat higher level of GDP of a country as an index of greater well being of the people
of that country(to account for price changes, we may take the value of real GDP instead of nominal
GDP)
Source: Introductory Macoeconomics Textbook for class 12, p.no 27
Questions based on case study

1. Is it reasonable to treat a person’s income level as his or her level of well-being? Give
reason
2. Which is the better measurement of GDP? (Nominal GDP/Real GDP) Why?
3. Do you think that GDP is a true indicator of welfare?(Yes/No)
4. In the given picture, do you think that the distribution of GDP is uniform?
Answers:
1. No. A person’s income alone will not determine his well being. Other determinants like
health, happiness, etc also influence the well being of a person.
2. Real GDP is the best measure of National income as it considers the constant price to
compare physical output of goods and services over different years.
3. GDP is often considered as an index of welfare. Higher GDP is generally taken as
greater welfare of people. But GDP alone does not determine the welfare as it has
following limitations
a) Inequalities of distribution
b) Non-monetary exchanges are not included in GDP
c) Negative externalities like environmental pollution reduces the welfare on
health
d) GDP does not consider the changes in the population of a country
4. No. There is inequality between rich and poor.
The growth our tourists were talking about was in Gross Domestic Product (GDP), which
measures the final value of all goods and services produced by an economy. But GDP
measures quantity not quality. In other words, although it says a great deal about how much
stuff you can churn out, it tells you little about state of your economic development. E.g. GDP
counts all investment as positive, whether or not that investment turns out to be productive
in the longer run. GDP fails to account for the cost of environmental damage. All production
is regarded as positive even if the pollution it causes reduces the production capacity or
pushes up health care costs.
(SOURCE: South China Post May 25,2011)
Q1 Define Gross Domestic Product at Market Price.

A1 It refers to gross market value of all final goods and services produced within the domestic
territory of a country during a period of one year.
Q2 Why comparing the GDP of various nations might not tell you which nation is better off?
A2 The well being of nation or standard of living is measured by per capita income i.e. GDP/Total
Population and not only by GDP.
Q3 What is Green GNP?
A3 Green GNP measures national income or output adjusted for the depletion of natural resources
and degradation of the environment.
Q4 GDP calculation does not directly include the social costs of environmental damages like
global warming, acid rain etc. Do you think these costs should be included in GDP. Why or why
not?
A4 Yes because people’s well being is affected by these environmental damages.
Assertion: Compensation to flood victims is not included while computing national income.
Reason: Transfer income does not contribute to the current flow of good and services.
(A)Both assertion and reason are true and reason is the correct explanation of assertion.
(B)Both assertion and reason are true but reason is not the correct explanation of the assertion.
(C)Assertion is true but reason is false.
(D)Assertion is false but reason is true.
Answer : (A)
Direction: Mark the option which is most suitable

A .If both assertion and reason are true, and reason is the correct explanation of assertion.
B .If Both assertion are true but reason is not the correct explanation of assertion.
C. If assertion is true,but reason is false
D. If both assertion and reason are false.
Assertion: National Income is always greater than domestic income.
Reason: National Income is greater than domestic income only when net factor income from
abroad is some positive number
Ans. A.
Case Based Question
On November 12,2020,Finance Minister Smt. Nirmala Sitharaman announced the fourth

economic stimulus package. During the announcement the Finance Minister introduced the
Atma Nirbhar Bharat Rojgar yojna”.The measures included the production linked incentive
scheme for 10 sectors with a purposed expenditure of 1.46 lakh crore over five years.
Source : The Hindu 13 November
2020
Que. 1 What is the need of Stimulus package?
Que2. What is production incentive linked scheme?
Que 3. What is the purpose of Atma Nirbhar Bharat Rojgar yojna?
Que 4. What is the need of PLI scheme?
Ans. 1 .To boost job creation, To provide liquidity support to stressed sectors
Ans 2. PLI scheme aims to give companies incentives on incremental sales from
manufactured in domestic units.
Ans 3. To Spur Job creation
Ans 4.To attract investment, To enhance exports
Read the following statements- Assertion (A) and Reason (R). Choose one of the correct
alternatives given below:
ASSERTION (A): Nominal Value is money value or value measured in term of prices that prevail
at the time of measurement.
REASON (R): A Russian worker who lives and works in Spain and sends a large part of her
income to her family in Russia. The value of output is included in Spain’s GDP, but her income
sent to Russia is part of Russia’s GNI.
Alternatives:
a. Both Assertion (A) and Reason (R)are true and Reason (R)is the correct explanation of
Assertion (A).
b. Both Assertion (A) and Reason (R)are true and Reason (R)is not the correct explanation of
Assertion (A).
c. Assertion (A) is true but Reason (R)is false.
d. Assertion (A)is false but Reason (R)is true.
SOLUTION:
(b)-Both Assertion (A) and Reason (R)are true and Reason (R)is not the correct explanation of
Assertion (A).
CASE STUDY:
India is forming a national database of natural resource accounting (NRA) that is to help
calculate the cost of recovery of degraded resources, as well as to calculate green GDP. It is
expected that the value of green GDP will be significantly lower than conventionally
measured real GDP. China had similarly calculated its green GDP in 2004 and had found
losses due to environmental damage valued at 3% of GDP.
Economists have debated the concepts of NRA and green GDP over many years,
but with little agreement over how natural resources should be valued. These concepts are
now gaining acceptance because of growing recognition of the limitations of GDP as the
traditional indicator of growth. Green GDP will take into account of the current situation of
resource depletion and will provide a long-term perspective on economic growth and its
effects.
Source: Adapted from Suchmi Dey and Anto Antony, ‘Green resources to colour GDP’ in
The Economic Times, 11 June 2009.
(i) What is Green GDP?

(ii) Which one is better? Real GDP or Nominal GDP.
(iii) Why is Green GDP expected to be lower than conventionally measured GDP?
(iv) What might be the benefits for India from calculations of green GDP? (any one)
SOLUTIONS:
(i) Green GDP measures domestic income or output adjusted for the depletions of natural
resources and degradation of the environment.
(ii) Real GDP as it truly reflects the growth of an Economy.
(iii) It is lower because it is involves the subtraction of GDP from all the costs of
environmental externalities and pollution .
(iv) It will help to attain a sustainable use of natural environment and equitable distribution
of benefits of developments.
Case Study
Gross Domestic Product (GDP) defines the economic worth of products and services
manufactured in a country in a definite financial year. It also accounts for the revenue
received by foreign citizens locally and the insufficient income earned by country’s residents
abroad. Whenever the measurement of GDP is at current values, it represents nominal GDP
and the real GDP is evaluated at fixed prices.
Both the GDP are financial tools for estimating a nation’s economic development and
growth. However, there is still confusion on which GDP indicates the nation’s development
better.
Q1.GDP Inflation is adjusted in Nominal GDP .( True/ False) 1

Q2. When can Real GDP be greater than Nominal GDP? 1
Q3. If Real GDP is ₹ 500 and price index is 125, calculate the Nominal GDP. 1
Q4. The ratio of Nominal GDP to Real GDP is a well-known index of prices, called_________.
1
Q5. Distinguish between Real GDP and Nominal GDP 3
Answers:
1. False
2. When base year prices are higher than the current year prices.
3. ₹ 625
4 GDP Deflator
Assertion( A) & Reason ( R)
Read the following statements - Assertion (A) and Reason (R). Choose
one of the correct alternatives given below:
Assertion (A): NDPFC is the income earned by the factors of production in the form of wages,
profits, rent, interest, etc. within the domestic territory of a country.
Reason (R): Domestic income generated in the production process within the domestic territory of
the country get distributed among the factors of production.
Alternatives:
a. Both Assertion (A) and Reason (R) are true and Reason (R) is the
correct explanation of Assertion (A)
b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the
Answer : a. Both Assertion (A) and Reason (R) are true and Reason (R) is the
Read the following statements assertion(A) and Reason(R). Choose one of the correct alternatives
given below:-
Assertion:Finance Minister Nirmala Sitharaman has announced another “Rahat package
programme” to revive GDP of country.
Reason: IMF says, India’s GDP may contract 10.3% in FY21..
a.both assertion and reason are true and Reason is the correct explanation of assertion
b. both assertion and reason are true but reason is not the correct explanation of assertion
c. Assertion is true but reason is false
d. assertion is false but reason is true
Answer:——-b.
Case based questions

Read the following paragraph carefully and answer the questions on the basis of the same:—
The overall objective of political activities in Democratic societies is to ensure the highest
possible level of welfare for the countries citizens now and in the future. When politicians
,macroeconomists and others discuss welfare and economic development ,they often focus
on Gross domestic product(GDP).
GDP is a measure of the economic prosperity of a country compiled as output or
income.However,GDP is regularly criticised for not presenting a fair view of welfare.If GDP
is a poor measure of welfare, focusing one-sidedly on increasing GDP may lead to misguided
political decisions. For example Nobel laureate Joseph Stiglitz has argued that the objective
of the highest possible GDP growth will result in reduced welfare.
The criticism of GDP is not new.and over last 30-40 years ,efforts have been made to put
together alternative objectives.The debate has revived recently, partly as a result of
publication of recent report .
Q 1 _________ (RealGDP /NominalGDP) is considered as a better indicator of economic growth
of an economy.
Q 2 GDP is not considered as a better measure of development.Which of the following reasons
could be accounted for same?
i.Externalities.
ii. Non marketable services
iii.Production of harmful products
iv.All of these
Q 3 A course of action by one economic agent which has an adverse impact on other economic
agent without cost sharing is called ___________ externality.
Q 4 Which of the following measures of GDP considers base years’ price for calculations of gross
income?
i. Nominal GDP
ii. Green GDP
iii. GDP deflator
iv. Real GDP
Answers:———
1.Real GDP
2.All of these
3.Negative
4.Real GDP
Read the following statements - Assertion (A) and Reason (R). Choose one of the correct
Case based questions
Read the following case study paragraph carefully and answer the questions on the basis of the
same.
The overall objective of political activities in democratic societies is to ensure the highest possible
level of welfare for the country's citizens now and in the future. When politicians,
macroeconomists and others discuss welfare and economic development, they often focus on the
Gross Domestic Product (GDP). GDP is a measure of the economic prosperity of a country
compiled as output or income. However, GDP is regularly criticised for not presenting a fair view
of welfare. If GDP is a poor measure of welfare, focusing one-sidedly on increasing GDP may
lead to misguided political decisions. For example, Nobel laureate Joseph Stiglitz has argued that
the objective of the highest possible GDP growth will result in reduced welfare. The criticism of
GDP is not new, and over the last 30-40 years, efforts have been made to put together alternative
objectives. The debate has revived recently, partly as a result of the publication of a recent report
concerning the limitations of GDP as a measure of economic performance and social progress. The
report was written by the two Nobel laureates for economy, Joseph Stiglitz and Amartya Sen,
among others.
1______ (Real GDP/Nominal GDP) is considered as a better measure of economic growth of an
economy.
Ans Real GDP
2. GDP is not considered as a better measure of development. Which of the following reasons
could be accounted for the same?
(a) Externalities (b) Non-marketable services (c) Production of harmful goods (d) All of these
Ans (d)All
3. A course of action by one economic agent which has an adverse impact on other economic agent
without cost sharing, is known as _______(positive/negative) externality.
Ans Negative
4. Which of the following measures of GDP considers base year's price for calculation of gross
income?
(a) Green GDP (b) Nominal GDP (c) GDP deflator (d) Real GDP
Ans (d) Real GDP
Assertion (A): Purchase of a car always means the purchase of a final good.
Reason (R): It depends on the end-use of the car. If it is purchased by a household, it is a final
good. It is like a consumer durable, If it is purchased by taxi.
Alternatives:
Assertion (A)
b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
Answer d.
CASE STUDY
person has more income, he or she can buy more goods and services and his or her material well-
being improves. So, it may seem reasonable to treat his or her income level as his or her level of
well-being. GDP is the sum total of value of goods and services created within the geographical
boundary of a country in a particular year. It gets distributed among the people as incomes (except
for retained earnings). So, we may be tempted to treat higher level of GDP of a country as an index
of greater well-being of the people of that country.
Answer the following question-
1. Is it reasonable to treat a person's income level as his or her level of wellbeing?
2. What is GDP?
3.Do you think that the distribution of GDP is uniform?
4. Do you think that GDP is a true indicator of welfare?
National Income
Refer the following figure and answer Questions 1-4 on the basis of the same:
Gross Domestic Product measures the
aggregate production of final goods and
services taking place within the domestic
economy during a year. But the whole of
it may not accrue to the citizens of the
country. For example, a citizen of India
working in Saudi Arabia may be earning
her wage and it will be included in the
Saudi Arabian GDP. But legally speaking, she is an Indian. Is there a way to take into
account the earnings made by Indians abroad or by the factors of production owned by
Indians? When we try to do this, in order to maintain symmetry, we must deduct the
earnings of the foreigners who are working within our domestic economy, or the
payments to the factors of production owned by the foreigners. For example, the profits
earned by the Korean-owned Hyundai car factory will have to be subtracted from the
GDP of India. The macroeconomic variable which takes into account such additions
and subtractions is known as Gross National Product (GNP).
1. Gross Domestic Product measures the aggregate ________ of final goods and services 1
taking place within the domestic economy during a year.
Production
2. State the concept in the passage related to ‘additions and subtractions to GDP’. 1
Net factor income from abroad
3. Discuss an example given in the passage related to the figure. 1
The profits earned by the Korean-owned Hyundai car factory will have to be
subtracted from the GDP of India.
4. GNP takes macroeconomic variable related to payments and receipts into account by: 1
a) Subtractions
b) Additions
c) Additions and subtractions
d) Multiplication and Division
5. Read the following statements - Assertion (A) and Reason (R). Choose one of the 1
correct alternatives given below:
Assertion (A): The change of inventories of a firm during a year ≡ production of the
firm during the year – sale of the firm during the year.
Reason (R): Inventory is a stock variable.
Alternatives:
a. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
explanation of Assertion (A).
b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
The economics of firecrackers
As the air quality worsened in northern parts of India and the Covid-19 pandemic witnessed a new
wave in the national capital in the festive season, all focus shifted to firecrackers and their sales
across the country.
India’s firecracker industry is estimated to be around Rs 5,000 crore, with the majority of the
production in Sivakasi in Tamil Nadu. However, government flip-flops and intervention by courts
have plunged it into a crisis.
The uncertainty around sales of green crackers allowed by the Supreme Court in 2018 has not
helped the industry either.
In a statement on 8 November, B.C. Bhartia, president of the Confederation of All India Traders,
pointed out that the firecracker industry provides employment to about 10 lakh people and
estimated the total manufacturing at Rs 5,000 crore. “In the absence of any clear policy on
firecrackers, the industry is dying its own death,” he said.
The Tamil Nadu Fireworks and Amorces Manufacturers Association (TNFAMA) estimates that
there are 1,000 licensed cracker units in Sivakasi with a market size of Rs 2,500 to Rs 3,000 crore.
But there are several units that are unregistered and operate out of sheds and small homes.
“On an average, production has dropped by 30 per cent,” said TNFAMA president P. Ganesan. He
added that many of the manufacturers take huge loans during the festival season. If they are unable
to sell the crackers, they will face heavy financial losses, further impacting Sivakasi’s economy
and people depending on it.
A lot of these manufacturers are producing green crackers in Sivakasi, though many are unable to
get the formula to make green crackers the right way.
Source The Financial Express, 8th November 2020

Q1. What will be the effect of ban on sale of firecrackers on India’s GDP?
a. GDP will increase
b. GDP will decrease
c. GDP will not be affected
d. GDP may increase or decrease.
Ans. b) GDP will decrease
Q2. Policy makers argue that burning of fire crackers lead to decrease in social welfare in the
economy. This represents an example of :
a. Positive externality
b. Negative externality
c. Increase in GDP
d. Non-marketable activities
Ans. b) Negative externality
Q3. “There are several units that are unregistered and operate out of sheds and small homes.” The
incomes of such units will be taken under the category of
a. Operating surplus
b. Income from property
c. Income from entrepreneurship
d. Mixed income of self employed
Ans. d) Mixed income of self employed
Q4. “The firecracker industry provides employment to about 10 lakh people and estimated the total
manufacturing turnover at Rs 5,000 crore.”What is the other name for turnover used in national
income accounting?
a. Value added
b. Mixed income
c. Value of output
d. Capital formation
Ans. Value of output
In the question given below, there are two statements marked as Assertion (A) and Reason (R).
Read
the statements and chose the correct option:
Options:
a. Both A and R are true and R is the correct explanation of A.
b. Both A and R are true but R is not the correct explanation of A.
c. A is true but R is false.
d. A is false but R is true
Q1. Assertion (A): Change in taste and preference of Indian consumers towards MNCs and
imported goods leads to decrease in its GDP.
Reason (R): Expenditure on imports of goods is subtracted from final expenditure in order to
estimate GDP.
Ans. a
Q2. Assertion (A): Expansion of Indian industries abroad leads to increase in income of the country
but does not adds to the per capita GDP of the country.
Reason (B): Production done in subsidiaries of Indian industries abroad adds to the GDP of the
country in which they are operating.
Ans. A
Topic-National Income
Consumption is the final aim of all economic activities. But it must be preceded by
production, distribution and exchange. National income is the final outcome of all economic
activities of a nation. In India, a systematic measurement of National income was first
attempted in 1949. Now the task of estimating national income is performed by CSO in its
publication Estimates of National income. National income may be considered of a closed
economy or an open economy. National income is the aggregate money value of all goods and
services produced in a country during one year. The factor income is produced by factors of
production and hence distributed between them. However, it should be noted that what is
produced is more important.
Q1. Which of the following are economic activities?
i) Distribution
ii)Production
iii) Consumption
iv) All of the above
Q2.What is the full form of CSO
i) Central service organisation
ii) Central Statistics office

iii) Central statistical organisation
iv) Country service organisation
Q3. What is the need for the study of national income?
i) To measure the size of the economy
ii) To measure the level of economic performance of the country
iii) To make international comparison of peoples living standard
iv) To help government to formulate plans and policies to increase growth rate
a) i,ii,and iv
b) ii,iii,and iv
c) i,iii and iv
d) All of the above
Q4. In a closed economy _________ is not included.
i) Household
ii) Firms
iii) Government
iv) Foreign sector
Q5. In the estimation of national income, only the value of ___________goods is taken into
account.( Intermediate/Final)
Q6. ___________ is the year during which production of goods and services is estimated in the
domestic economy.(Accounting year/Calendar year)
Q7. Which of the following is not included in factor income?
i) Rent
ii) Wages
iii)Gifts from abroad
iv) Profit
Q8. Higher production of _________ goods leads to higher level of welfare of the economy.
(Consumption/Capital)
Q9. National income does not include data from the following activities
i) Income from illegal activities
ii) Work done by housewives
iii) Income from lotteries
iv) Production of goods for self-consumption
a) i,iii and iv
b) ii,iiiand iv
c) i,ii and iii
d) iv,i and ii
Choose one of the correct alternative given below:
Assertion: Services are non material goods which cannot be seen or touched.
Reason: Goods satisfy human wants directly whereas Services satisfy human wants indirectly.
1. Both Assertion(A) and Reason (R) are true and Reason(R) is the correct explanation of
Assertion(A)
2. Both Assertion(A) and Reason (R) are true and Reason(R) is the not correct explanation of
Assertion(A).
3. Assertion(A) is true but Reason(R) is false.
4. Assertion (A) is false but Reason (R) is true.
Ans: (3) As Goods and services both satisfy human wants directly.
Read the following case study and answer the following:
If growth rate of population is higher than the growth rate of GDP, then per capita GDP would
become lower. In other words, per capita availability of goods and services declines. In such case
also mere rise in GDP cannot become an index of economic welfare.
Q-1 What is GDP?
Q-2 What do you mean by per capita availability decline ?
Q-3 Which limitation of economic welfare , discussed in above case ?
Ans 1 Total production of goods and services produced in an economy over a period of time in all
sectors of an economy.
Ans 2 As growth rate of population is increasing than the growth rate of GDP so goods available
to per person is decreasing.
Ans 3 Growth rate of Population
National Income Accounting
Assertion / reasoning
Q1. Read the following statements - Assertion (A) and Reason (R). Choose
Assertion (A): Part of the output produced by a farmer and used for his own family consumption
is not included under product method.
Reason (R): One of the ways to avoid double counting, is to take only value added instead of total
output
Alternatives:
a. Both Assertion (A) and Reason (R) are true, and Reason (R) is the
correct explanation of Assertion (A).
b. Both Assertion (A) and Reason (R) are true, and Reason (R) is not the
c. Assertion (A) is true, but Reason (R) is false.
d. Assertion (A) is false, but Reason (R) is true.
Answer: (d)
Note: Q is from precautions of product method
_____________________________________________________________
Case Study
Read the following extract and answer the questions given below
On 21st June, 2015, the 1st World Yoga Day was celebrated.
In India, it was significantly observed in Delhi, with more than 3500 people, including dignitaries
from 84 nations and the prime minister Narendra Modi. It was organised by the Ministry of
AYUSH. It widely publicised through campaigns on various media to spread awareness about the
benefits of Yoga among the masses. T-shirts with the yoga day logo, yoga mats and other related
items were distributed to the enthusiasts. Trained yoga experts were appointed to help beginners
who participated in the event.
Q1. Government incurs expenditure to popularise yoga among the masses. What is its impact on
Welfare?
a. Welfare rises
b. Welfare falls
c. Government expenditure has no impact on welfare
d. None of the above
Q2. Government incurs expenditure to popularise yoga among the masses. What is its impact on
GDP?
a. GDP rises, because government incurs expenditure
b. GDP falls, because government incurs expenditure
c. No effect on GDP
d. None of the above
Q3. The term `welfare` refers to

a. Sense of pride in the nation
b. Increase in purchase of services
c. Sense of well-being among the people
d. Strict control by the government
Q4. GDP at constant prices is also called _________________

(per capita GDP / real GDP)
Answers
1. a
2. a
3. c
4. real GDP
Q1 : In the question given below, there are two statements marked as Assertion (A) and Reason(R).
Read the statements and choose the correct option
Assertion : Real GNP is used for making comparisons of international standards of living and
rates of economic growth of various countries.
Reason : Nominal GNP may be increasing due to rise in price level, the quantity of goods and
services produced may remain constant.
Options:
a. Both A and R is true and R is the correct explanation of A.
b. Both A and R is true and R is not the correct explanation of A.
c. A is correct and R is wrong.
d. A is wrong and R is correct.
ANS : (a)
Case Study
A US based software company set up its business in India and taken a two storeyed office building
on rent @ Rs 4 lakhs per month. It invested Rs 10,00,000 for the purchase of computers for its
employees. Indian government provided subsidies worth Rs 10 LAKHS for balanced regional
growth. The company is incurring Rs 20 Lakhs per month on account of salary . It gave bonus
worth Rs 40 Lakhs to its employees on Diwali. Interest worth Rs 5 lakhs is the mandatory
payment. It earned a profit of Rs 70 Lakhs . Assuming that there is only one firm in the country,
find out the national income of the country.
Solution:
NNPFC= Compensation to employees (salary + Bonus) + Rent+ Interest+ NFIA
=280 +48 lakhs +5+(-70)
=263 LAKHS
WORKING NOTE
Rent = 48 lakhs(4*12)
Compensation to employees (salary+Bonus) = 280 lakhs[(20*12)+40]
Interest = 5LAKHS
NFIA(FIFA-FITA) = -70LAKHS
CASE STUDY In a simplified economy, it is assumed that there are no savings, taxes, exports and
imports. During the production process, four factors of production receive income in the form of
rent, wages interest and profit for their factor service. The sum total of these incomes is the factor
income received during a year. The entire factor income is spent by the factors on purchase of final
goods and services. The sum of these purchases is the aggregate final expenditure during the year.
On the basis of the above case, answer the following questions:
1. What is the impact of the above situation on aggregate final consumption and aggregate factor
payments?
2. What are final goods?
(Ans: 1. Aggregate final consumption will be equal to aggregate factor payments.
2. They have crossed production boundary.)
ASSERTION REASON QUESTION
Assertion: Intermediate goods refer to those goods which are used for resale or for further
production in the same year.
Reason: These goods are purchased by firms for capital formation.
Alternatives:
i. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A).
ii. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation of
Assertion (A).
iii. Assertion (A) is true but Reason (R) is false.
iv. Assertion (A) is false but Reason (R) is true.
Ans: iii. Assertion (A) is true but Reason (R) is false.
Assertion (A): Services produced for self consumption by consumers are not included in the
estimation of national income.
Reason (R): These services do not enter the market and there is no data available of these non
market transactions eg. - electric faults repaired by households.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is not the
Answer :-
QUES 1 Due to the pandemic of covid 19 the government has adopted to support people and
provided free services . Giving reason explain how should the following be treated while
estimating national income
(1) Expenditure on free services provided by government.
Ans - (1) Expenditure on free services provided by government should be included in the
estimation of National Income, as it is a final expenditure of the government.
(2) Payment of interest by a government firm.
Ans- Payment of interest by a government firm should not be included in the estimation of
National Income, as it is
a transfer payment.
QUES 2 Assertion (A): The Net National Product (NNP) is considered as a true measure of
national output.
Reason (R): It is also known as national income.
a. Both (A) and (R) are true and (R) explains (A)
b. Both (A) and (R) are true and (R) does not explain (A)
c. (A) is correct and (R) is false
d. (A) is false and (R) is true
In the given Assertion (A):
Assertion (A): Purchase of wheat in the wholesale market done by the traders is to be treated as
the purchase of intermediate good and by the households is to be treated as the purchase of final
good.
Reason (R): Both traders and households purchase wheat from the wholesale market in bulk but
traders are not the final users of wheat.
Alternatives:
Assertion (A)
Assertion (A)
Answer: a
Case Based Question
Intermediate goods can be used in production, but they can also be consumer goods. How it is
classified depends on who buys it. If a consumer buys a bag of sugar to use at home, it is a
consumer good. But if a manufacturer purchases sugar to use during the production of another
product, it becomes an intermediate good.
Capital goods, on the other hand, are assets that are used in the production of consumer goods.
That means they are purchased to help in the production process. So, the baker who bakes the
bread in the example above will buy an oven to use in the production process. That oven is
considered a capital good, which doesn't transform or change shape, unlike the wheat.
Economists do not factor intermediate goods when they calculate gross domestic product (GDP).
GDP is a measurement of the market value of all final goods and services produced in the
economy. The reason why these goods are not part of the calculation is that they would be counted
twice.
Q1. Bread purchased by a household will be considered as __________ consumption.
Ans: Final
Q2. The addition of the value of bread purchased by a baker while calculating GDP will lead
to ___________.
Ans: Double-counting
Q3. Oven is a _______ good when it is purchased by a baker and a _________ good when it is
purchased by a household.
Ans: Final Producer/ capital good and Final Consumer good
Q4. The good will be considered as intermediate or final, depends on the _______ of the
product.
Ans: end-use
Case study: Is GDP a good indicator of Economic Growth?
How uniform is the distribution of GDP? It still seems that majority of the people are poor
and only some have benefited.
GDP and Welfare
person has more income, he or she can buy more goods and services and his or her material well-
being improves. So it may seem reasonable to treat his or her income level as his or her level of
well-being. GDP is the sum total of value of goods and services created within the geographical
boundary of a country in a particular year. It gets distributed among the people as incomes (except
for retained earnings). So we may be tempted to treat higher level of GDP of a country as an index
of greater well-being of the people of that country (to account for price changes, we may take the
value of real GDP instead of nominal GDP).
Answer the following questions based on the given case:

1. It is_______ (reasonable/unreasonable) to treat a person's income level as his or her level
of well-being?
2. In the given picture, all of the people have benefited. True or false
3. In the given picture, the distribution of GDP is______________ (uniform/unequal).
4. GDP is a true indicator of welfare.(choose the correct alternative)
i. Agree
ii. Partially Agree
iii. Disagree
iv. Partially disagree
Answer: 1. Unreasonable 2. False 3. Unequal 4. Disagree
Assertion reason based question
Assertion (A): During the second quarter of 2020, GDP growth of India has been -23%
Reason (R): Negative GDP growth has adversely affected welfare of people
Alternatives:
Assertion (A)
explanation of Assertion (A)
Answer: Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct explanation
of Assertion (A)
Read the following statement - Assertion (A) and Reason (R). Choose the correct answer
from below:
Assertion (A) – Sneha has a kitchen garden in her house. In the year 2019-20, she grew
vegitables like tomatos, potatos, carrots and beans in her garden. The market value of these
vegitables was Rs. 8200, so the GDP of the country increased by Rs. 8200.
Reason (R) – The value of GDP increased because the value of goods for self-consumption is
included in national income accounting.
a. Both A and R are true and R is the correct explanation of A.

b. Both A and R are true but R is not the correct explanation of A.
c. A is true but R is false.
d. A is false but R is true.
Correct Answer: Option a
2. Answer the following questions on basis of below given diagram of circular flow of
income in two sectors of the economy.
a) From the diagram, name the items which are called money flow.
b) From the diagram, name the items which are called real flow.
c) How money flow different to real flow
d) What do you mean by transfer payments? Give example.
Answer a) Money flow items – factor payment inform of rent, wages, interest, profit
from firms and expenditure from household.
b) Real flow items – FOP from houseld and goods/services from firms.
c) money flow involves the exchange of money between two sectors where as real flow is
only exchange of goods and services between two sectors without involvement of money.
d) Transfer payments are unilateral payment which are non-earned incomes. Ex – oldage
pension, scholarship.
3. In a single day Arman, a saloon owner, collects Rs 3000 from haircuts, over this day, his
equipment depreciates in value by Rs 200. Of the remaining Rs 2800, Arman pays sales tax
worth Rs 300, takes home Rs 1500 and retains Rs 1000 for improvement and buying of new
equipment. He further pays Rs 200 as income tax from his income.
Based on this information, complete Arnav’s contribution to the following measures of

income
a. How much is the contribution of Arnav to GDP at MP?

b. How much is the contribution NNP at market price
c. How much does Arnav contributes to domestic income of the country.
d. The income earned by Arnav from his saloon as per income method of national
income accounting will be considered as ____________.
Answer a) GDPmp = 3000

b) NNPmp = 2800
c) NDPfc = 2500
d) Mixed Income
Ques 1 Reason and Assertion Based Question given below:
Assertion (A): Households are the owners of the factors of production.

Reason (R): National Income is the sum total of factor Income.
Alternatives:
Assertion (A)
Assertion (A)
Answer: Option B
Ques 2 Case Study Based Question

The Indian Economy saw its worst contraction in decades, with GDP shrinking by a record
23.9% in the April to June Quarter in comparison to the same period last year.
The contraction reflects the severe impact of the Covid 19 lockdown, which halted most
economic activities as well as the slowdown trend of the economy even pre Covid 19.
The Indian economy is in a deeply vicious cycle, where demand is contracting so heavily,
while the capacity to neutralise this contraction has also contracted equally because of the
tax revenue contraction.
Agriculture was the only sector which recorded modest growth of 3.4% in year on year
terms and all other sectors saw contraction.
Q.1 The impact of Covid 19 on India’s GDP ______________ (increasing or decreasing).
Q.2 _________ is crucial for revenue collection. (Choose the correct alternative)
a) National Income b) Gross Value Added
c) Net Value Added d) Nominal GDP
Q.3 Who are considered as the owner of Factors of Production?

a) Firms b) Households
c) Government d) Rest of the world
Q.4 Net Indirect Taxes are calculated as________________
ANSWERS
1) GROWING
2) (d) Nominal GDP
3) b) Households
4) IDT - Subsidies
1. Assertion (A): When calculating the total value of goods and services produced in a
country, the value of all goods and services at each stage of production should be
calculated.
Reason (R) : At each stage of production, some value is added to a good or service,
therefore, the value added at each stage of production is added to derive the total value of
goods and services in the economy.
a) Both A and R are true and R is the correct explanation of A.

b) Both A and R are true and R is the not correct explanation of A.
c) A is true but R is false.
d) Both A and R are false.
Ans. d) Both A and R are false.
2. First Advance Estimates of National Income, 2019-20
The National Statistical Office (NSO), Ministry of Statistics and Programme Implementation has
released the First Advance Estimates of National Income at both Constant (2011-12) and Current
Prices, for the financial year 2019-20 along with the corresponding estimates of expenditure
components of the Gross Domestic Product (GDP).
Gross Domestic Product
Real GDP or GDP at Constant Prices (2011-12) in the year 2019-20 is likely to attain a level of
₹147.79 lakh crore, as against the Provisional Estimate of GDP for the year 2018-19 of ₹140.78
lakh crore, released on 31st May 2019. The growth in real GDP during 2019-20 is estimated at 5.0
per cent as compared to the growth rate of 6.8 per cent in 2018-19.
Gross Value Added (GVA) at Basic Prices
Real GVA at Basic Prices is estimated to increase from ₹129.07 lakh crore in 2018-19 to ₹135.40
lakh crore in 2019-20. Estimated growth of real GVA in 2019-20 is 4.9 per cent as against 6.6 per
cent in 2018-19.
Gross Domestic Product
GDP at Current Prices in the year 2019-20 is likely to attain a level of ₹204.42 lakh crore, as
against ₹190.10 lakh crore in 2018-19 showing a growth rate of 7.5 per cent.
National Income
The nominal Net National Income (NNI), also known as National Income (at Current Prices) is
likely to be ₹181.10 lakh crore during 2019-20, as against ₹168.37 lakh crore for the year 2018-
19. In terms of growth rates, the National Income registered a growth rate of 7.6 per cent in 2019-
20 as against the previous year’s growth rate of 11.3 per cent.
Based on the data released by the “Press Information Bureau, Government of India ,Ministry of
Statistics & Programme Implementation”, answer the questions given below:
i) A growing country is one with:
a) Rising GNP at constant prices

b) Constant GNP at constant prices
c) Rising GNP at current prices
d) None of these
Ans. a) Rising GNP at constant prices
ii) Which of the following statements is correct:
a) GDP is derived by subtracting Taxes on Products net of Subsidies on Products to Gross Value
Added at Basic Prices.
b) GDP is derived by adding Taxes on Products and Subsidies on Products to Gross Value Added
at Basic Prices.
c) GDP is derived by adding Subsidies net of Taxes on Products to Net Value Added at Basic
Prices.
d) GDP is derived by adding Taxes on Products net of Subsidies on Products to GVA at Basic
Prices.
Ans. d) GDP is derived by adding Taxes on Products net of Subsidies on Products to GVA at Basic
Prices.
iii) National product at current prices is higher than national product at constant prices during a
period of:
a) Rising prices.
b) Falling prices.
c) Constant prices.
d) Both a and b.
Ans. a) Rising prices.
iv) Value added means value of:
a) Output at market prices.

b) Output less depreciation.
c) Output less intermediate cost.
d) Output plus intermediate cost.
Ans. c) Output less intermediate cost.
MACRO ECONOMICS
Section –A
1. Read the following statements - Assertion (A) and Reason (R). Choose one of the (1)
Assertion (A) : Decline in G.D.P.
Reason (R) : India’s economy is affected by demand depression, high
unemployment , resulting in poverty.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
correct explanation of Assertion
(A).
Ans: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
Assertion (A): About 27.79 lakh of loss is recorded in primary sector due to
COVID-19 Pandemic.
Reason (R) : Limited migratory harvest labour and Agri-machinery due to

absence of transport facilities clubbed with vigilant blocking of roads with other
factors.
Alternatives:
(A).
Case Studies
1. Read, the following hypothetical Case Study, carefully and answer the below (4)
question on the basis of the same. 1 mark
for each
Using the World Bank's headline projections about India, of 3.2% contraction in question.
2020-21 and 3.1% growth in 2021-22, it becomes easier for us to calculate the
projected growth for different sectors of the economy. This comes to a 7.2%
contraction in 2020-21 and 1.4% growth in 2021-22. Since the big jolt given by
pandemic Covid-19 in March 2020, India has been facing a huge decline in
government revenues and growth of the income. Businesses across the world
namely hospitality, entertainment, aviation etc., have seen a major negative
impact. Various sports events such as IPL and Olympics have been postponed.
Schools and colleges have been closed. The virus has also disrupted the
functioning of various online giants. There is a big shift in the world economic
market and the share market has witnessed crashes day by day. Factories,
Restaurants, Pubs, Markets, Flights, Super Markets, Malls, Universities and
Colleges etc. have been shut down for 2 quarters. In this backdrop, how fragile is
India's unorganized sector, has been sufficiently proven when on 27 May 2020,
lakhs of daily wagers, migrant workers and people of small means, on being
deprived of food and shelter, were constrained to move back to their native places.
Undoubtedly, this has been the biggest recession after Second World war. The
COVID-19 pandemic pushed our economy into a Great Lockdown, which helped
contain the virus and save lives, but triggered the worst recession since the Great
Depression of 1930. It faces an uphill task in its battle to recover from the
COVID-19 setback.
Q.1. The impact of Covid 19 on India’s GDP is ____________( growing or

declining).
Q.2. The impact on Factor income from abroad will
__________________(increase or decrease)
Q.3. Will there be increase in taxes by the Government? Give reason.
Q.4. The government should provide more subsidies or reduce subsidies? Give
Reason.
Ans: 1. Growing 2. Decrease 3. Yes as there is huge decline in government

revenues this year. 4. Students can give both answer but reason should be valid.
(a) Should provide subsidies as the economy is in recession. (b) Should not
provide subsidies as the government has huge decline in government revenues.
for each
MSME contributes about 30-35% to our GDP, while engaging more than 6 lakh question.
micro, small and medium units, out of which 49% are located in rural and 51% in
urban areas. All India Manufacturers Organization survey (AIMO survey June
2020) shows since March, 2020, around 35% of MSMEs and 43% of self-
employed have been under closure resulting into 12 crore unemployed masses.
The worst-hit have been consumer goods, readymade garments and logistic
companies. The Service sector enterprises are still in a better position, trading
atleast, slowly though. Similarly, the Online/Internet businesses and start-ups
share approx.. 950 billion US$ in our GDP. The nationwide lockdown has
tremendously affected the operations of the E-commerce industry especially at a
time when there is a huge demand for home delivery of goods.
Q.1. High unemployment in industrial sector will result in high ________

(poverty/richness) in agriculture sector or tertiary sector.
Q.2. Will Make in India Scheme help in growth of the MSME sector? Give
reason.
Q.3. The contribution from secondary sector will _________( increase / decrease)
in this year’s GDP.
Q.4. Why E-commerce Industry is affected in spite of a huge demand of home
delivery goods? Give reason.
Ans: 1. Poverty 2. Yes, as Make in India scheme will provide subsidies to

necessary MSME industries and thus will help them to grow. 3. Decrease 4.
Because the production in secondary sector is reducing and service sector trading
is slow.
Can the GDP of a country be taken as an index of the welfare of the

people of that country? If a person has more income he or she can buy more
goods and services and his or her material well-being improves. So it may
seem reasonable to treat his
or her income level as his or her level of well-being. GDP is the sum total of
value of goods and services created within the geographical
boundary of a country in a particular year. It gets distributed
among the people as incomes (except for retained earnings). So we
may be tempted to treat higher level of GDP of a country as an index of
greater well-being of the people of that country (to account for price
changes, we may take the value of real GDP instead of nominal GDP).
Which of the following makes GDP an appropriate index of welfare?
a) Non-monetary transactions
b) Externalities
c) Composition and distribution of GDP
d) All of these
Ans:
d) All of these
What are the different factors of production?
Ans:
Land, labour, capital and entrepreneurship.
The summation of factor incomes earned from the factors of production is
termed as _______________ income.
Ans:
Domestic income.
Profit earned by a company in India, which is owned by a non-resident is

included in national income of India? (True or false)
Ans:
False. The income earned does not belong to the normal resident of India.
__________ causes the difference between GDP and NDP. (depreciation/

net indirect taxes)
Ans:
Depreciation
Read the following statements - Assertion (A) and Reason (R). Choose one
of the correct alternatives given below: 
Assertion (A) – Government provides services for social welfare.

Reason (R)– Government provides free medical services.
explanation of Assertion (A)  
correct explanation of Assertion (A)  
c. Assertion (A) is true but Reason (R) is false.  
d. Assertion (A) is false but Reason (R) is true.  
Ans:
b. Both Assertion (A) and Reason (R) are true and Reason (R) is not
the correct explanation of Assertion (A)  
National income and related aggregates

Case study: It has been observed by leading economists of the world that standard measures of
national income such as gross domestic product (GDP) fail to capture important environmental
and social factors. This can result in misleading measurements of national well-being. UK has
offered variety of methods that can be used to correct GDP measures or to provide alternatives. It
believes that estimates of natural capital depreciation measure the depletion of natural resources
such as oil, timber, minerals, and agricultural soils, in monetary units. Figures for these losses
should be subtracted from the standard measures of national income and investment. The results
for many developing countries will indicate a substantial impact of natural resource depletion
and environmental degradation. For developed countries, expenditures on pollution control and
cleanup, as well as the cumulative impacts of long-lived pollutants, are significant factors. It is
also possible to estimate the value of environmental services such as water purification, nutrient
recycling, flood control, and provision of wildlife habitat. Systematic calculation of such factors
can give a measure of social progress that often differs significantly from GDP. Social as well as
environmental conditions affect calculations of national income. Natural resources may be sold
below their true costs, leading to a net loss for the country despite an apparent trade surplus.
Q.1 How can trade surplus in current account balance of a country impact national income of
that country? (1)
Ans: Trade surplus in current account implies net inflow of forex, so it will have a positive
impact on National Income and National income may rise. (1)
Q.2 Give meaning of externalities.
Ans: Externalities refer to benefits (positive externalities) or harms (negative externalities) which
are caused by one unit to another with no payment received for the benefit and no payment made
for the harm.
Q.3 Identify two negative externalities from above case study. (1)
Ans: Two negative externalities mentioned in above case study are:
Pollution, Soil depletion due to excessive use of chemicals to increase agricultural production.
Q.4 Why do you think that green GDP is a better measure of a country’s growth? Take reference
from above case study to explain your answer. (1)
ANS: Green GDP can be a better measure for the welfare of the people of a country.
Green GDP = GDP – Net fall in stock of Natural capital
It helps to achieve a sustainable use of natural environment and equitable distribution of National
income.
R/A type questions
Directions: For the Assertions (A) and Reasons (R), choose the correct alternative from the
following:
(a) Both A and R are true and R is the correct explanation of A.
(b) Both A and R are true but R is not the correct explanation of A
(c)A is true but R is false
(d) A is false but R is true.
(e) If both A and R are false
Assertion: Expenditure on replacement of engine in a car owned by a corporate enterprise is

intermediate consumption.
Reason: Expenditure on new parts of the fixed assets is included in intermediate consumption.
Answer: (e) Both A and R are wrong.
Although expenditure on new parts of the fixed assets is included in intermediate consumption
but the conditions are i) the life of new part may be around one year or slightly more.
ii) The value should be relatively small.
Replacement of engine thus does not qualify for intermediate consumption.
UNIT -1
3. Assertion(A ) The problem of double counting leads to under estimation of the national
income of the country. (1 M)
Reason (R ) Double counting arises when value of a good is counted more than once
while measuring the value of national income during the production process. (Choose
correct alternative)
E. Both Assertion and Reason are true and Reason is the correct explanation of
Assertion.
F. Both Assertion and Reason are true and Reason is not correct explanation of the
Assertion
G. Assertion is true but Reason is false
H. Assertion is false and Reason is true.
Ans: D
4. New Delhi: Asserting that the “ worst is behind us” veteran banker Deepak Parekh
onThursday said that India’s GDP growth will be in positive territory in the fourth quarter
as demand has started picking up in all sectors . citing an example he said during the
virtual conference organized by Canada – India- based council. He said toll collections
are back to 88 percent of pre COVID 19 level , e way bills are increasing and electricity
consumption has stabilized. India is domestic based economy and demand is set to rise in
coming future.
Source : 9 october 2020, The Economic Times
On the basis of above case let answer the following questions (4 M)

E. ___________the growth of GDP, greater is the flow of goods and services.
F. There is no difference between GDP at market price and GDP at factor cost in two sector
economy. True/ false. Justify
G. With every increase in the level of GDP , social welfare definitely increases in the
economy.(True/ False) justify
H. Real GDP is considered as an index of_________________.
Answers: A. Higher
B. True: difference is of net indirect taxes
NIT= IT- subsidies
C. False: if increase in GDP is associated with higher level of income inequality, social welfare
may not increase.
D. Welfare of people.
Case study on national Income :
One particularly misleading number-play was on the forefront — that US GDP contracted 32 per
cent, while India only contracted 23.9 per cent in the June quarter.
The Indian economy contracted nearly a quarter in April-June, shrinking more than expected.
After recording the first GDP contraction in more than 40 years, India's Q1 performance is now
eliciting different responses from different quarters.
Based on the above case study answer the following questions
Q.1 what is the reason for such contraction in GDP ? (1)
Ans : the reason for contraction in India’s GDP is COVID - 19 , which has drastically affected
the employment situation and overall production capacity.
Q.2 How the Real GDP and nominal GDP differ from each other. (1)
Ans : Real GDP is calculated on the basis of base year price whereas Nominal GDP is calculated
on the basis of current years price
Real GDP is far more better option to compare the GDP
Q.3 which situation it creates in the economy ? (1)

Ans. This has created a situation of depression in the economy or rather Deflation.
Q.4 what are the possible measures that can be taken by government to tackle such situation (1)
Ans : To overcome this situation govt. Can take following steps :
1. Reduction in taxes
2. Increase in govt. Expenditure
A & R question
Assertion : India’s GDP contracted by 23.9 % in the last quarter
Reason : COVID -19 had a negative impact on the world economy.
Choose the correct option :
A) Assertion is correct and Reason is supporting assertion

B) Assertion is correct but reason is not supporting assertion
C) Assertion and reason both are incorrect
D) None of the above
Ans: a)
Read, the following Case Study, carefully & answer the below question on the basis of the
same.
In a peculiar trend, the inequality gap in India is expected to narrow after the Covid-19 pandemic
even as per capita income (PCI) is projected to decline by 5.4% during the ongoing fiscal to Rs
1.43 lakh, according to a State Bank of India (SBI) Research report released on Tuesday.
This was attributed to the likely higher PCI decline of around 10-12% in rich states like
Maharashtra and Tamil Nadu compared to a less than 8% decline for relatively poorer states like
Uttar Pradesh and Bihar, the report said.
According to the report, it takes an economy longer to recover in PCI terms to normal levels after
a crisis as compared to an average of four years to reach pre-crisis gross domestic product (GDP)
levels.
Questions:
Q.1. The GDP of India _____________ (rise/fall) due to Covid 19.
Q.2 The contribution from different sector will (increase/ decrease) in this year.
Q.3. Per Capita Income calculated as =
Q.4. The PCI of an economy is an important metric as it indicates the standard of living and the
_____________ status of a country.
Answers:
1. Fall
2. Tertiary
3. Total National Income
Total Population
4. development
Read the following statements - Assertion (A) and Reason (R).

Assertion (A) :
“Gross Domestic Product (GDP) does not give us a clear indication of economic welfare of
a country.”
Reason (R) :
GDP may not take into account Non-monetary exchanges like services of housewife,
Externalities i.e. benefits and harms which are caused due to economic activities and Distribution
of income.
Alternatives:
Assertion (A).
Assertion (A).
Answer:
(b) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A).
MACRO ECONOMICS
Section –A
Assertion (A) : All capital goods are producer goods, but all producer goods are
not capital goods.
ANSWER. TRUE,
Reason (R) : Producers goods are defined as all those goods which are used in
the production of others goods which includes capital and intermediate goods,
whereas, capital goods are the fixed assets (like machinery,
building, etc) used by the producers in the production of goods and services
Alternatives:
(A).
Ans: (a) Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
Case Studies
for each
While the COVID-19 pandemic is constantly growing and showing little signs of question.
containment as of 15 April 2020, its adverse impact on economic growth of the
country will probably be very serious. The UN warned that the coronavirus
pandemic is expected to have a significant adverse impact on global economy, and
most significantly, GDP growth of India for the present economy is projected to
decline to 4.8 per cent (United Nation 2020).
Economic Survey 2019–2020 had provided advance estimates for growth in real
GDP during 2019– 2020 at 5.0 per cent, as compared to the growth rate of 6.8 per
cent in 2018–2019. The nominal GDP is estimated at `204,400 billion in 2019–
2020 with a growth of 7.5 per cent over the provisional estimates of GDP (
`190,100 billion) for 2018–2019. (Economic Survey, 2020)
On 28 February 2020, the National Statistical Office announced revised estimates

of GDP growth, from 8 per cent to 7.1 per cent in the first quarter, from 7 per cent
to 6.2 per cent in the second quarter and from 6.6 per cent to 5.6 per cent in the
third quarter. Goldman Sachs estimated the growth rate of GDP at 1.6 per cent,
declining by 400 basis points because of 21-day lockdown (Goldman Sachs,
2020).
Mr Yashwant Sinha, former Finance Minister of India, estimated the cost of 21-
day countrywide lockdown at 1 percentage point of GDP. The global recession
and uncertainties of future might make a 2 percentage point decline in growth rate
(for 2020–2021) possible.
Q.1. The above case study on impact of Covid 19 on India’s GDP indicates
____________ GDP.
a. Increase in GDP at higher rate than previous year
b. Fall in GDP than previous year
c Increase in GDP at slower rate than past years
d Fall in GDP in coming few years
Q.2. What is the difference between Real GDP and Nominal GDP
Q.3. As per the United Nations estimate, what would be the estimated value of
Nominal GDP in the year 2020-21.
Q.4. Do you think increase in Real GDP ensures increase in economic welfare?
.Ans 1 c. Increase in GDP at slower rate than previous years
Ans2 The gross value of goods and services produced within domestic territory
when calculated at constant (base year ) prices is known as Real GDP.
Whereas the gross value of goods and services produced within domestic territory
when calculated at current prices is known as Nominal GDP
Ans3: 214,211 billion
Ans 4: No, Real GDP does not ensure increase in welfare as it does not consider
many factors like per capita GDP , externatilities, non monetary exchages etc.
NATIONAL INCOME- Assertion/Reason Questions

1. Read the following statements- Assertion (A) and Reason (R). Choose [1]
Assertion (A): Machine bought by a firm for its own use is a final good.
Reason (R): Final goods include both consumption and investment
expenditure.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and the Reason (R) is
the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and the Reason (R) is
not the correct explanation of Assertion (A)
(d) Assertion (A) is false but Reason (R) is true
Ans- Both Assertion (A) and Reason (R) are true and the Reason (R)
is the correct explanation of Assertion (A)
2. Read the following statements- Assertion (A) and Reason (R). Choose [1]
Assertion (A): Payment of Corporate Tax by a firm is not included in
national income.
Reason (R): Profit is a residual factor payment by the production unit to
factor service providers.
Alternatives:
(a) Both Assertion (A) and Reason (R) are true and the Reason (R) is
the correct explanation of Assertion (A)
(b) Both Assertion (A) and Reason (R) are true and the Reason (R) is
not the correct explanation of Assertion (A)
Ans- Both Assertion (A) and Reason (R) are true and the Reason (R)
is not the correct explanation of Assertion (A)
NATIONAL INCOME- Case Study Questions

Read the following excerpt carefully and answer the questions that follow [4]
on your understanding of the same.
According to the survey, COVID-19 is having a 'deep impact' on Indian

businesses, over the coming month's jobs are at high risk because firms are
looking for some reduction in manpower. Further, it is added that already
COVID-19 crisis has caused an unprecedented collapse in economic
activities over the last few weeks.
The present situation is having a "high to very high" level impact on their
business according to almost 72 per cent respondents. Further, 70 per cent
of the surveyed firms are expecting a degrowth sales in the fiscal year 2020-
21.
COVID-19 no doubt disrupted human lives and global supply chain but the
pandemic is a severe demand shock which has offset the green shoots of
recovery of the Indian economy that was visible towards the end of 2019
and early 2020. The revised Gross Domestic Product (GDP) estimates for
India downwards by 0.2 percentage points for the fiscal year 2020 to 4.8
per cent and by 0.5 per cent for the fiscal year 2021 to 6 per cent. Further,
it is stated that the extent of the actual impact will depend upon the severity
and duration of the outbreak.
An outbreak of COVID-19 impacted the whole world and has been felt
across industries. The outbreak is declared as a national emergency by the
World Health Organisation. In India the three major contributors to GDP
namely private consumption, investment and external trade will all get
affected. World and Indian economy are attempting to mitigate the health
risks of COVID-19 with the economic risks and necessary measures needed
will be taken to improve it.
Q1. The COVID 19 will bring about a/an __________ in National Income.
(increase/decrease)
Q2. How will the external trade be affected in terms of factor income?
Q3. _____________ GDP is the indicator of economic growth.
(Real/Nominal)
Q4. In light of the expenditure method, state the components of the GDP.
Answers:
A1. Decrease
A2. It will adversely impact both external and internal trade since
income has fallen, demand has fallen causing a decline in investment
too. (Open for more elaboration)
A3. Real
A4. Consumption exp, Government exp, Investment exp and Net
exports.
Read the following excerpt carefully and answer the questions that [4]
follow on your understanding of the same.
National income of India constitutes total amount of income earned by the

whole nationals of our country and originated both within and outside its
territory during a particular year. The National Income Committee in its
first report wrote, “A national income estimate measures the volume of
commodities and services turned out during a given period, without
duplication.”
The estimates of national income depict a clear picture about the standard
of living of the community. The national income statistics diagnose the
economic ills of the country and at the same time suggest remedies. The
rate of savings and investment in an economy also depends on the national
income of the country.
Moreover, the national income measures the flow of all commodities and
services produced in an economy.
Thus, the national income is not a stock but a flow. It measures the total
productive power of the community during given period. Further, the
National Income Committee has rightly observed, “National income
statistics enable an overall view to be taken of the whole economy and of
the relative positions and inter-relations among its various parts”.
Thus, the computation of national income and its analysis has been
considered an important exercise on economic literature.
Q1. Which territory has been referred to in the first passage of the expert?
Q2. Differentiate between a Stock and a Flow.
Q3. The returns for the productive power is -------------- income.
(transfer/factor)
Q4. In a closed economy, what are savings and investments referred to?
Answers:
A1. Domestic Territory
A2. Stock is measured at a particular point of time and flow is
measured for a particular period of time.
A3. Factor
A4. Leakages and Injections
Read the following statements - Assertion (A) and Reason (R). Choose one of
the correct alternatives given below:
Assertion (A) : Decline in G.D.P.
Reason (R) : India’s economy is affected by demand depression, high
unemployment , resulting in poverty.
Alternatives:
(A).
(1)
2. Read the following statements - Assertion (A) and Reason (R). Choose one of
the correct alternatives given below:
Assertion (A): About 27.79 lakh of loss is recorded in primary sector due to
COVID-19 Pandemic.
Reason (R) : Limited migratory harvest labour and Agri-machinery due to
absence of transport facilities clubbed with vigilant blocking of roads with other
factors.
Alternatives:
(A).
(1)
Case Studies
1. Read, the following hypothetical Case Study, carefully and answer the below question on the
basis of the same.
Using the World Bank's headline projections about India, of 3.2% contraction in 2020-21
and 3.1% growth in 2021-22, it becomes easier for us to calculate the projected growth for
different sectors of the economy. This comes to a 7.2% contraction in 2020-21 and 1.4% growth
in 2021-22. Since the big jolt given by pandemic Covid-19 in March 2020, India has been facing
a huge decline in government revenues and growth of the income. Businesses across the world
namely hospitality, entertainment, aviation etc., have seen a major negative impact. Various
sports events such as IPL and Olympics have been postponed.
Schools and colleges have been closed. The virus has also disrupted the functioning of various
online giants. There is a big shift in the world economic market and the share market has
witnessed crashes day by day. Factories, Restaurants, Pubs, Markets, Flights, Super Markets,
Malls, Universities and
Colleges etc. have been shut down for 2 quarters. In this backdrop, how fragile is India's
unorganized sector, has been sufficiently proven when on 27 May 2020, lakhs of daily wagers,
migrant workers and people of small means, on beingdeprived of food and shelter, were
constrained to move back to their native places. Undoubtedly, this has been the biggest recession
after Second World war.
The COVID-19 pandemic pushed our economy into a Great Lockdown, which helped contain
the virus and save lives, but triggered the worst recession since the Great Depression of 1930. It
faces an uphill task in its battle to recover from the COVID-19 setback.
Q.1. The impact of Covid 19 on India’s GDP is ____________( growing or declining).
Q.2. The impact on Factor income from abroad will __________________(increase or decrease)
Q.4. The government should provide more subsidies or reduce subsidies? Give
Reason.
Ans: 1. Growing 2. Decrease 3. Yes as there is huge decline in government revenues this year. 4.
Students can give both answer but reason should be valid.
(a) Should provide subsidies as the economy is in recession. (b) Should not provide subsidies as
the government has huge decline in government revenues.
(4)
1 mark for each question
2. Read, the following hypothetical Case Study, carefully and answer the below question on the
basis of the same.
MSME contributes about 30-35% to our GDP, while engaging more than 6 lakh micro, small and
medium units, out of which 49% are located in rural and 51% in urban areas. All India
Manufacturers Organization survey (AIMO survey June
(4)
1 mark for each question
2020) shows since March, 2020, around 35% of MSMEs and 43% of self-employed have been
under closure resulting into 12 crore unemployed masses.
Read, the following hypothetical Case Study, carefully and answer the below question on the
basis of the same.
Using the World Bank's headline projections about India, of 3.2% contraction in 2020-21 and 3.1%
growth in 2021-22, it becomes easier for us to calculate the projected growth for different sectors of
the economy. This comes to a 7.2% contraction in 2020-21 and 1.4% growth in 2021-22. Since the
big jolt given by pandemic Covid-19 in March 2020, India has been facing a huge decline in
government revenues and growth of the income. Businesses across the world namely hospitality,
entertainment, aviation etc., have seen a major negative impact. Various sports events such as IPL
and Olympics have been postponed. Schools and colleges have been closed. The virus has also
disrupted the functioning of various online giants. There is a big shift in the world economic market
and the share market has witnessed crashes day by day. Factories, Restaurants, Pubs, Markets,
Flights, Super Markets, Malls, Universities and Colleges etc. have been shut down for 2 quarters. In
this backdrop, how fragile is India's unorganized sector, has been sufficiently proven when on 27
May 2020, lakhs of daily wagers, migrant workers and people of small means, on being deprived of
food and shelter, were constrained to move back to their native places. Undoubtedly, this has been the
biggest recession after Second World war. The COVID-19 pandemic pushed our economy into a
Great Lockdown, which helped contain the virus and save lives, but triggered the worst recession
since the Great Depression of 1930. It faces an uphill task in its battle to recover from the COVID-19
setback.
Q.1. The impact of Covid 19 on India’s GDP is ____________( growing or declining).

Q.2. The impact on Factor income from abroad will __________________(increase or decrease)
Q.4. The government should provide more subsidies or reduce subsidies? Give Reason.
Ans: 1. Growing 2. Decrease 3. Yes as there is huge decline in government revenues this year. 4.
Students can give both answer but reason should be valid. (a) Should provide subsidies as the
economy is in recession. (b) Should not provide subsidies as the government has huge decline in
government revenues.
Read, the following hypothetical Case Study, carefully and answer the below question on the
basis of the same.
MSME contributes about 30-35% to our GDP, while engaging more than 6 lakh micro, small and
medium units, out of which 49% are located in rural and 51% in urban areas. All India Manufacturers
Organization survey (AIMO survey June 2020) shows since March, 2020, around 35% of MSMEs
and 43% of self-employed have been under closure resulting into 12 crore unemployed masses. The
worst-hit have been consumer goods, readymade garments and logistic companies. The Service
sector enterprises are still in a better position, trading atleast, slowly though. Similarly, the
Online/Internet businesses and start-ups share approx.. 950 billion US$ in our GDP. The nationwide
lockdown has tremendously affected the operations of the E-commerce industry especially at a time
when there is a huge demand for home delivery of goods.
Q.1. High unemployment in industrial sector will result in high ________ (poverty/richness) in
agriculture sector or tertiary sector.
Q.2. Will Make in India Scheme help in growth of the MSME sector? Give reason.
Q.3. The contribution from secondary sector will _________( increase / decrease) in this year’s GDP.
Q.4. Why E-commerce Industry is affected in spite of a huge demand of home delivery goods? Give
reason.
Ans: 1. Poverty 2. Yes, as Make in India scheme will provide subsidies to necessary MSME
industries and thus will help them to grow. 3. Decrease 4. Because the production in secondary sector
is reducing and service sector trading is slow.
Question1:
Assertion- Interest on debenture is an integral part of National Income.
Reason- Debenture represents a loan by production unit, thus interest on it is a factor

payment.
a) Both Assertion and Reason are true and reason is the correct explanation of
assertion.
b) Assertion is false but Reason is true.
c) Assertion is true but reason is false.
d) Both Assertion and reason are false.
Correct answer is option (a)
Question 2: Read the following news report from Times of India of Nov 25 2020 and answer
questions on the basis of the same:
Income drop worsens pain
Prices are rising at the fastest rate in 7 years while job loss and pay cuts due to the long
lockdown have reduced people’s means. In the first quarter of 2020-21, GDP shrank by 24% and
the estimates of the second quarter are also not encouraging. In October 2020, CPI inflation
touched 7.6%, a record for Modi years. Inflation in the country had been largely under control
since 2014. Retail price inflation had breached the 6% mark only once-in July 2016- between
September2014 and November 2019. In May 2019, the inflation rate was 1.9% in rural India
and 4.5% in cities. The gap went on reducing and in October 2020 inflation in rural India was at
7.7% as against 7.4% in cities. It seems the steep price rise in villages is a major cause of the
high inflation now.
A. __________ measures the average change in the price level of all goods and services that
constitute GDP. It is also known as _________.
B. During Covid 19 pandemic, India is experiencing ________ and yet prices are rising.
C. How GDP expressed in terms of the current market value of the quantities can be
converted in physical terms?
D. The main reason of high inflation in India in 2020 is due to price rise in _______.
Answers:
A. GDP Deflator, Consumer Price Index.
B. Recession/ Stagflation.
C. Real GDP=Nominal GDP*100/Price Index of current year
D. Villages.
PFA is the snapshot of the published article.

CASE STUDIES BASED QUESTIONS AND ANSWERS
1. Unanticipated localised lockdowns across the country is likely to raise uncertainty

amongst the manufacturers and various other stakeholders in the supply chain who had
planned to resume their operations. As per government data, retail inflation had increased
to 6.09 per cent in June, mainly on account of higher prices of food items.
Suppose you are a member of the high-powered committee constituted by the Reserve
Bank of India (RBI). You have suggested that as the supervisor of commercial banks,
____________ (restriction/release) of the money supply be ensured, by the Reserve Bank
of India (RBI). (Choose the correct alternative)
Ans: Release
2. Turning to growth in India, the implied real GDP growth of 4.7 per cent for 2019-20 in
the second advance estimates of the National Statistics Office, released in February 2020,
within the annual estimate of 5 per cent for the year as a whole is now at risk from the
pandemic’s impact on the economy. As regards the outlook for 2020-21, apart from the
continuing resilience of agriculture and allied activities, most other sectors of the
economy will be adversely impacted by the pandemic, depending upon, I repeat, its
intensity, spread and duration. If COVID-19 is prolonged and supply chain disruptions
get accentuated, the global slowdown could deepen, with adverse implications for India.
The slump in international crude prices could, however, provide some relief in the form
of terms of trade gains. Downside risks to growth arise from the spread of COVID-19 and
prolonged lockdowns. Upside growth impulses are expected to emanate from monetary,
fiscal and other policy measures and the early containment of COVID-19.
The Economic Times; March 27th, 2020
I. To obviate the adverse impact of pandemic on the economy, RBI is likely to
decrease ____.
a) Cash Reserve Ratio
b) Rationing of Credit
c) Both (a) and (b)
d) None of these
Ans: a
II. The continuing resilience of agriculture and allied activities will lead to_______.
a. Rise in aggregate supply
b. Fall in aggregate supply
c. No change in aggregate supply
d. Fall in general price level
Ans: b
III. The__________ is vested with the responsibility of conducting monetary policy.

a) Reserve Bank of India
b) Finance Commission
c) NITI Aayog
d) Both (a) and (c)
Ans: a
IV. _____________(Aggregate demand/Aggregate supply) refers to total ex-ante expenditure

in an economy during an accounting year.
Ans: Aggregate demand
3. TANWA is a project initiated to train women in latest agricultural techniques. It induces

women to actively participate in raising agricultural productivity and family income.
Women are forming Farm Women’s Groups, which function like SHG. Many other Farm
Women’s Groups are creating savings in their group by functioning like mini banks. With
the accumulated savings, they promote small-scale household activities: (like mushroom
cultivation, soap manufactures, doll making or other income- generating activities)
I. Self help groups are voluntary organisation. State true or false.

Ans: True
II. The main aim of self help group is to :

a. Eradicate poverty
b. Maximise profit
c. Set up industries
d. Create competition for cooperative banks
Ans: a
III. SHG is a type of_____________ Source of rural credit.
a. Institutional
b. Non-institutional
c. Both of the above
d. None
Ans: a
4. Every society has to answer three questions:

➢ What goods and services should be produced in the country?
➢ How should the goods and services be produced? Should producers use more human
labour or more capital (machines) for producing things?
➢ How should the goods and services be distributed among people?
In a market economy, also called capitalism, only those consumer goods will be produced
that are in demand, i.e., goods that can be sold profitably either in the domestic or in the
foreign markets. If cars are in demand, cars will be produced and if bicycles are in
demand, bicycles will be produced. If labour is cheaper than capital, more labour-
intensive methods of production will be used and vice-versa.
In a socialist society the government decides what goods are to be produced in

accordance with the needs of society. The government decides how goods are to be
produced and how they should be distributed. In principle, distribution under socialism is
supposed to be based on what people need and not on what they can afford to purchase.
In Cuba and China, for example, most of the economic activities are governed by the
socialistic principles.
In a mixed economy, the market will provide whatever goods and services it can produce
well, and the government will provide essential goods and services which the market fails
to do.
An economy is a system in which individuals earn a source of livelihood by performing

economic activities. State true or false.
I. India has adopted ____ Economy system for its development.

a. Capitalist
b. Socialistic
c. Mixed
d. Free
Ans: b
II. In which type of economy there is no economic problem found?

a. Mixed
b. Capitalist
c. Socialistic
d. None
Ans: d
III. In a market economy the economic problems are solved by government intervention.
State true or false
Ans: false
IV. An economy is a system in which individuals earn a source of livelihood by

performing economic activities. State true or false.
Ans:True
Case study -NATIONAL INCOME AND BASIC CONCEPTS
The government of India, as well as the state governments, initiate several schemes that assist to
diminish the plight of the farmers. Thus, it focuses on every segment of the agricultural scheme.
Such as, each subdivision from raw material procurement to the transport and marketing of the
produce, subsidies are available. Further, Haryana, the highest agricultural producer in the
country is adopting modernized machinery to encourage agricultural advancements. Thus, few
schemes like RKVY, crop diversification, State plan, NFSM, are ISOPOM aiding the cause.
Central Govt and the State Govt are trying to make farmers more self-reliant and empowered,
with the aim of which the government launched the PM Kisan Tractor Yojana 2020. Under the
PM Kisan Tractor Yojana 2020, the government provides subsidy on the purchase of new
tractors from 20 to 50 percent in a state and 50 percent elsewhere. This subsidy is up to 50
percent of central and state government inclusive.
Q 1 purchase of a tractor by a farmer will be considered as
a)final good
b) capital good
c)intermediate good
d)both (a) and (b)
Q2 which one of the following will be referred to as intermediate goods :
a) fertilizers used by farmers

b) wheat used by flour mill
c) wheat with the retailer
d) all the above
Q3Which of the following will not be included while calculating national income
a) wheat grown by farmer but used entirely for families consumption
b) wheat grown by farmers to sell in market
c) growing vegetables in the kitchen garden of the house
d) family members working free on farm owned by family.
Q4. If factor cost is greater than market price , then it means that:
a) indirect taxes>subsidies
b) Indirect taxes=subsidies
c) Indirect taxes <subsidies
d) Indirect taxes >=subsides
ANSWERS
Q1 d) both(a) and (b)
Q2 d) all the above
Q3c) growing vegetables in the kitchen garden
Q4c) indirect taxes<subsidies
ASSERTION AND REASONING QUESTION
Read the following statement and choose the correct alternative:
Assertion (A) : Public debt is treated as a transfer income.
Reason ( R) : public depth taken by the government from general public is generally used
to meet its consumption or administration.
Alternatives
1.Both Assertion (A)and Reason (R )are true and Reason(R) is the correct explanation of
assertion(A).
2. Both Assertion (A)and Reason ( R) are true but reason ( R )is not the correct explanation of
Assertion (A).
3. Assertion (A) is true but reason( R )is false.

4.Assertion (A) is false but reason ( R) is true.
ANSWER 1.Both Assertion (A)and Reason (R )are true and Reason(R) is the correct
explanation of assertion (A).
Question 1.
Assertion (A) : Exports of goods and services included in in Gross Domestic Product.
Reason (R) : Yes, it will be included in national income as sum total of expenditure of the
domestically produced goods and services during an accounting year is called GDP.
Assertion (A).
Assertion(A).
Answer: (a)
Question 2. Case study
It is sometimes advocated that only the production of those goods should be included in the
estimation of national income which flow from producers to the consumers through the market.
Consider an economy where farming is the only production activity. Also, assume that all the
farmers in the economy produce only for self consumption: they do not sell their produce in the
market, because production is barely enough for consumption by the farming families
themselves. Thus final goods (rice or wheat) are being consumed without any market transaction.
If only such goods which are routed through the market are to be recorded, such an economy
(where production is only for self consumption) would be a zero production economy. It sounds
ridiculous. Can an economy survive without production?
Let it be clearly understood that the imputed value of production for self consumption is always
included in the estimation of national income.
1.Corresponding to production for self consumption, there should be generation of................

(factor income / transfer income) in the economy. (Choose the correct alternative)
2. Imputed value of production for self consumption is taken into account for estimation of
national income because it's a .............. .
a. Transfer Income
b. Earned Income
c. Unearned income
d. Non marketable transaction
3. Is any economy in the world a Zero production economy? (True /False)
4. It is difficult to estimate market value of ............... for self consumption.
a. Production of consumer goods
b. Production of services
c. Production of capital goods
d. Production of green vegetables
Answers:
1. (Factor Income)
2.( Earned Income)
3.(False)
4. ( Production of services)
1. ASSERTION AND REASON
Assertion: Wages earned by Labour will be included in N.I.
Reason: Wages are factor Income.
Answer: Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A).
Assertion: Factor incomes contribute to increase in GDP.

Reason: Scholarship will be added in N.I. as it is a factor payment.
Answer: Assertion (A) is true and Reason (R) is false.
Assertion: Rewards of factor of production are included in calculation of N.I.
Reason: These are the vital components of N.I.
Answer: Both Assertion (A) and Reason (R) is true and Reason (R) is the correct explanation of
Assertion (A).
Assertion: To calculate Value of Output we will add Sales + Exports.
Reason: Sales are equals to Value of Output is there is no Change in Stock.
Answer: Assertion (A) is False but Reason (R) is True.
Report Based/Case Study
Income method accounts for only factor incomes corresponding to which there is flow of goods
and services in the economy. It does not account for such incomes corresponding to which there
is no flow of goods and services or corresponding to which there is no value addition in the
economy. All taxes by the government are compulsory transfer payments. These are not to be
included in the estimation of N.I.
Answer the following questions:
1. Transfer payments are_____________________(included/not included)

while estimating N.I.
2. Factor of production are contributing to change in GDP.(True/False)
3. Money received as gift from Grand Mother is ___________________ (Transfer income/Factor

income).
4. Taxes are _________________________(compulsory/voluntary) payments.
5. Define factor income
Answer: It is the income received by owners of factor of production in form of rent, wages, interest
and profit for the services rendered in production process.
Q1.
Assertion
National income of a country is a stock concept.
Reason It is a flow concept as it is measured over a period of time.
(b) Both A and R are true but R is not the correct explanation of A.
(c) A is true but R is false.
Q2. CASE STUDY
There are only two sectors in the economy: Households and Firms. It means the government and
foreign sector. Household sector supplies factor services only to firms and the firms hire factor
services only from households. Firms produce goods and services and sell their entire output to
the households. Households receive factor income for their services and spend the entire amount
on consumption of goods and services. There are no savings in the economy, i.e. neither the
households save from their incomes, nor the firms save from their profits.
Q1. Name the two dominant sectors of the economy?

Ans. The two main sectors of Indian economy are:
1) Household sector
2) Firms
Q2. What are factor payments?

Ans. Factor payments are the income received for supplying the factors of production.
Q3. What is the importance of consumption expenditure?

Ans. It helps in creating demand in the economy.
Q4. What would happen if householders will be removed from the two sector model of
economy?
Ans. If householders will remove, then the purchasing power in an economy will also decline.
Chapter- National income and related aggregates
Q1. Assertion (A) : Services of housewives are not included in national income.
Reason (R) : Love and affection for family members cannot be measured in terms of money.
c) Both (A) and (R) are false
d) (A) is wrong (R) is true
Ans.a) Both (A) and (R) are true and (R) is the correct explanation of (A).
Q2. Read the following contend and answer the following questions:
Gujarat’s Kevadia, where Sardar Patel’s Statue of Unity has been drawing more tourists than the
Statue of Liberty in the US,has emerged as a family holiday destination of international
standard with a children nutrition park, Arogya Van and camping and river rafting facilities, top
officials said . Described as a ‘ must – visit ‘ place by Prime minister Narendra Modi , the town
nestled amid Satpura and Vindhyachal ranges along the bank of the Narmada river, has a
number of small and big tourist spots.
Development in the town generated direct employment for 3000 tribal boys and girls, and
indirect employment to 10,000 more . It has also opened up new avenues of micro-
entrepreneurship for women.
For nature lover, there is Sardar Patel Zoological Parks and Geodesic Aviary Dome, which is
home to more than 1100 birds and animals and 5lakh plants.
Q1. How does tourism industry contribute to economy of the India?
Ans. 1.Increases employment and income
2. Promotes local entrepreneurship
Q2. When foreign tourists buy from local markets, it increases our _________( exports, factor
income from abroad).
Ans. Exports
Q3. If a tourist get attached to Indian cultural beauty and decides to live here, what conditions
are required for him to become Normal Resident of India?
Ans. 1. He should reside in India for more than one year.
2. His centre of economic interest should lie here.
ASSERTION (A): Corporation Tax is not include in National Income
REASONING (R) : All transfer payments are not included in National Income
b. Both A and R are true and R is not the correct explanation of A
Ans:

ASSERTION (A): An American working in World Bank in India for more than one year is
considered as Normal resident of India.
REASONING (R) : Normal resident is said to be one who ordinarily resides in the country
concerned and whose center of economic interest lies in that country.
Ans:
Q1. Read the following statements - Assertion (A) and Reason (R). Choose one of the correct
Assertion (A) Gross Domestic Product at factor cost is greater than Gross Domestic Product at
market price.
Reason (R): When subsidies are more than indirect taxes
Alternatives: a. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
Assertion (A)
Q2. Read, the following hypothetical Case Study, carefully and answer the following
questions on the base of the same.
It is possible that an income, which is a part of domestic income of India, is not included in the
national income. Similarly, an income which is a part of national income, may not be included in
domestic income it happened because national income includes the income of normal residents
only (irrespective of their place of earning) where as domestic income includes the income of
both residents and non- residents (but, within the domestic Territory of the country) let us clear
this point with the help of an example:
Included in national income but not in domestic income

Salary received by an Indian employee working in the Japanese Embassy in India.
It will be included in the national income as he is a resident of India. of the factor However, such
an income will not be included in India’s domestic income as the Japanese Embassy is not a part
of the domestic territory of India.
i)Profits earned by a branch of foreign bank in India will be included in National Income or
not?
ii)Profits of a branch of State bank of India in England will be included in Domestic Income
or not?
iii)Rent received by a Indian from his building in London will be included in Domestic
Income or not?
iv)Purchase of goods by a foreign tourist will be included in Domestic Income or not?
Answers
Q1. a.
Q2.i) It will not be included in National Income as it is a part of the factor income payed abroad.
Foreign bank is not a resident of India.
ii) It will not be included in Domestic Income as SBI branch in England is not a part of the
domestic territory of India.
iii) No, it will not be in included in Domestic Income as the rent is earned outside the domestic
territory of India.
CASE STUDY
A government budget is announced and government has allocated over ₹ 15,000 crores for
the construction of hospitals and related infrastructure and announced different initiative to
make health sector better. Government has also announced to open some community yoga
centres for which ₹ 500 crore allotted separately and planning to hire some qualified yoga
instructors on a salary of approx. ₹ 30,000 pm. For the same purpose, government allotted
50 crores for awareness campaigning programmes through various media channels to make
yoga more popular among public. In the same budget, government also announces to give
scholarship to the students who would like to pursue yoga as their profession in future.
Q: 1 Is government expenditure of ₹ 15000 crores part of the national income. If yes, then mention
the category under which it will be recorded.
Q:2 Define Real flow and Money flow. Hiring yoga instructors @ ₹ 30,000 represents which
flow?
Q:3 Is scholarship given to the students included in national income? Give reason in support of
your answer.
Ans1 Yes. Government expenditure of ₹15000 crores for construction of hospitals will be
included in national income. It will be recorded under Gross Domestic Capital formation as Gross
public investment.
Ans.2 In a simple economy, the flow of factor services from households to firms and
corresponding flow of goods and services from firms to households is known as real flow.
Money flow of income represents a monetary payment from firms to households for their factor
services and in return monetary payments from households to firms against their goods and
services.
Hiring yoga instructor represents real flow while salary represents money flow
Ans.3 Expenditure on scholarship is a transfer payment for the government as it has no

contribution in the current flow of goods and service. Therefore it will not include in the national
income
Q1. Assertion and Reason
Assertion(A): Double counting means counting the value of the same product more than once.
Reason(R): Value of intermediate goods get included because every producer treat the
commodity he/ she sells as final.
a. Both Assertion (A) and Reason(R) are true,and Reason ® is the correct explaination of
Assertion.
b. Both Assertion (A) and Reason(R) are true,and Reason ® is not the correct
explaination of Assertion.
c. Assertion (A) is true but Reason ® is false.
d. Assertion (A) is false but Reason is true.
Q 2. Case study
" The turnaound in India's manufacturing sector,which rebounded from a 39.3% contraction in
GVA in the April- June quarter,has left economists scrambling to reconcile conflicting data from
the government as they try to come to term with the latest GDP estimate that suggests the
economy fared better than expected"..The Hindu 28th November 2020
a. Identify the method used in calculating the GDP in the above case study. (1)
b. How we reconcile three methods of calculating National Income.(1)
c. State four precautions to take while calculating GDP with the above method (method
used in the case study) .(4)
Q1. Read the following statements - Assertion (A) and Reason (R). Choose one of the correct
Assertion (A): Real GDP is a True indicator economic growth as compared to Nominal GDP.
Reason (R): Real GDP is based on base year prices whereas Nominal on current year prices.
Alternatives:
Assertion (A)
Assertion (A)
A1. a. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
Read the following Case Study and answer the question number 2 – 5 on the basis of the same.
GDP and Welfare Can the GDP of a country be taken as an index of the welfare of the people of
that country? If a person has more income, he or she can buy more goods and services and his or
her material well-being improves. So it may seem reasonable to treat his or her income level as his
or her level of well-being GDP is the sum total of value of goods and services created within the
geographical boundary of a country in a particular year. It gets distributed among the people as
incomes(except for retained earnings). So we may tempted to treat higher level of GDP of a
country as an index of greater well-being of the people of that country(to account for price
changes, we may take the value of real GDP instead of nominal GDP).
Q.7 Do you think that GDP is a true indicator of welfare? Yes or No?
Q.8 _____ is an example of “externality” which reduces welfare of the people.
Q.9 GDP Deflator
(a) Evaluates inflation by utilizing present production basket
(b) Shows real GDP growth on the basis of current production
(c) The GDP deflator is in real terms
(d) None of the above
Q.10 The formula for calculating GDP deflator is ______.
CASE STUDY
India GDP Q2 Data: India’s Gross Domestic Product (GDP) for the July-September quarter (Q2)
contracted by 7.5 per cent following an unprecedented decline of 23.9 per cent in the April-June
quarter, as per provisional estimates released by the Ministry of Statistics and Programme
Implementation (MoSPI) on Friday. The GDP had expanded by 5.2 per cent in the corresponding
quarter of 2019-20.
With this latest development, the Indian economy has entered into a technical recession for the
first time in history. In economics, when the GDP growth rate is negative for two consecutive
quarters or more, it is termed a recession.
The GDP during the April-June quarter (Q1) had contracted by 23.9 per cent, the worst
contraction in the history of the Indian economy, owing to a strict nationwide lockdown due to
the novel coronavirus (COVID-19) during the bulk of the quarter. However, the nation has
gradually moved out of the lockdown phase and the government has gradually eased several
restrictions, with the boiler rooms of the economy sputtering back to life.
On Thursday, Reserve Bank of India (RBI) Governor Shaktikanta Das said the economy had
exhibited a stronger-than-expected pick-up in momentum of recovery but cautioned about the
“sustainability of demand”. Interestingly, the RBI had ‘nowcast’ that GDP for the July-
September quarter was set for a contraction of 8.6 per cent. The RBI, however, said the economy
would break out of contraction of the six months gone by and return to positive growth in the
October-December quarter of 2020-21.
Q1. When is an economy said to be in recession?(1)
Ans . When the gdp growth rate is negative for two consecutive quarters
Q2. When is the economy expected to have positive growth rate?(1)
Ans. Oct - Dec quarter of 2020-21
Q3. Why is 'sustainability of demand' a concern?(2)
Ans. Demand has increased after lockdown and the govt is concerned that the demand might go
down after sometime as the income levels have reduced (as we can see through gdp contraction
due to covid 19)
A/R
Assertion: India is one of the worst affected countries in terms of GDP due to Covid 19
Reason: GDP does not take into account non-monetary transactions
Ans. Both A and R are correct but R is not the correct explanation for A
below
Assertion (A) : There is decline National Income of India in past few years.
Reason (R) : India’s economy is suffering from high rate of unemployment , resulting in poverty.
Alternatives: ● ○ 1. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
2. Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation of
Assertion (A)
3. Assertion (A) is true but Reason (R) is false.
4. Assertion (A) is false but Reason (R) is true.
Ans. Option (1)
2.Case Study
Covid 19 has adversely affected the Indian economy. Initially there was drastic downfall in the
demand of non vegetarian food items. Restaurants, hotels , transportation , theatres , cab
companies etc were suffering a lot due to extreme decrease in their demand. Many people lost
their jobs leading to shortage of cash in hand. To control the situation during such pandemic our
Government distributed food among the poor people. However there was high demand of
sanitizer, mask etc and e-commerce has been doing great during this time.
a. Due the covid 19, the GDP of india has ____ (decreased/increased)
b. There was _______ in Net Exports of India during this pandemic. (Fall/Rise)
c. Explain the changing trend in contribution of various sectors in national income during
Covid 19.
d. How did it affect the Government final consumption expenditure?
Ans.
a. Decreased
b. Fall
c. In order to maintain social distancing and lockdown there was fall in demand for services
like cab, restaurants, hotels, theatres , hence their contribution to National Income reduced
where as e- commerce was doing great as most of people were doing shopping sitting at
home hence its contribution increased. Also,masks , sanitizers , thermometers etc has
contributed much more than usual.
d. Government final consumption expenditure increased as government had to distribute food
as well as cash amongst the poor people for their survival.
Assertions/Reason
A: NNPfc = NDPfc + Factor income earned by normal residents from abroad –factor
payments made to aabroad
R: Domestic income incorporates all the activities which are produced within domestic
territory irrespective of the fact whether it's been produced by normal residents or non
residents.
Ans: Both A and R are true but R is not the correct explanation of A.
Case study
In 2015, in the wake of a comprehensive review of its approach to GDP measurement, India
opted to make major changes to its compilation of national accounts and bring the whole process
into conformity with the United Nations System of National Accounts (SNA) of 2008. As per the
SNA, gross value added, is defined as the value of output minus the value of intermediate
consumption and is a measure of the contribution to GDP made by an individual producer,
industry or sector. At its simplest it gives the rupee value of goods and services produced in the
economy after deducting the cost of inputs and raw materials used. GVA can be described as the
main entry on the income side of the nation’s accounting balance sheet, and from an economics
perspective represents the supply side. While India had been measuring GVA earlier, it had done
so using ‘factor cost’ and GDP at ‘factor cost’ was the main parameter for measuring the
country’s overall economic output till the new methodology was adopted. In the new series, in
which the base year was shifted to 2011-12 from the earlier 2004-05, GVA at basic prices
became the primary measure of output across the economy’s various sectors and when added to
net taxes on products amounts to the GDP.
7 June 2020: The Hindu.

1) The difference between value of output and value added
is________(depreciation/intermediate cost/
2) Product method of calculating national income is also known as________(value added
method/expenditure method)
3) Net value added at factor cost= Net value of output at market price-_________(
NFIA/NIT)
4) National income is represented by_______(NNPfc/GDPfc)
Read the following statements-Assertion(A) and Reason(R). Choose one of the correct
alternatives given below
1. Assertion (A) Government purchases Rafale fighter for defence purpose. It is included
in the estimation of national income.
Reason (R) It is part of intermediate consumption of the government
Alternatives:
a. Both Assertion (A) and Reason (R) are true and Reason (R) is the true correct
of Assertion (A)
d. Assertion (A) is false but Reason(R) is correct.
2. Assertion (A) Pension to retired government employee is not included in the estimation
of national income
Reason (R) It is deferred payment which employees get later. It is already included in
estimation of national income when it is deducted
Alternatives:
a. Both Assertion (A) and Reason (R) are true and Reason (R) is the true correct
of Assertion (A)
d. Assertion (A) is false but Reason(R) is correct.
Case studies:
India’s economy contracted by 7.5% (It was 23.9% decline of April-June) for the second
successive quarter but the pace of decline narrowed sharply in three month period ending. India’s
economy still remains in the league of large economies which have contracted the most in the
second quarter. China is only large economy that posted growth in September quarter.
“Expectedly, the worst for the economy is over. That said, the economy is still not out of the
woods and the improvement in activity from here onward would likely be laboured,” said Kunal
Kundu, India economist at French Investment Bank Societe Generale.
In the second quarter the farm sector held strong while manufacturing returned to the positive
zone. However, the crucial services segment (hotels, restaurants cinemas etc.) fell low. The
services sector which accounts nearly 60% of GDP by 11.4% narrower than the 20.6% in the
previous quarter This sector has borne the brunt of the pandemic as hotels, restaurants, cinemas
has been shuttered for the longest time and people stayed away due to the fear of infections.
Private consumption, a key driver of the economy, contracted 11.3% from an expansion of 6.4%
in the year ago period while government consumption showed sharp decline in growth 22.2% in
the June quarter. Investment growth continued to contract with grows capital formation.
Some economists said they expect growth to improve in the remaining two quarters of 2020-21
as economic activity improves across sectors.
1. Define the following terms
(a) Gross Domestic Product
(b) Capital formation
(c) Services
(d) Consumption
(e) Economic activity
(f) Final goods
2. Explain the circular flow of income of income in two sector economy with emphasis on
leakages and injections.
3. What is economic growth rate? How is it affected by shrinking of economy?
4. What do you mean by private final consumption expenditure? How can it play important
role in reviving economy?
National income is the total market value of production in a country’s economy during a year. It
can be measured alternatively and equivalently in three ways:
The value of expenditures
The value of inputs used in production
The sum of value added at each level of production
That the first two measures are identical can be seen by considering that any good—say, a loaf of
bread—can be equivalently valued as either the price that is paid for it in the market by the final
consumer or as the distributed factor payments—to labour (wages) and to capital (rent, interest,
and profit)—used in its production. Since national output is the sum of all production, the total
value will be the same whether added up by final expenditure or by the value of inputs (including
profit) used in their production. The equivalence of the last measure can be seen by noting that the
value of every final good is simply the sum of the value added at each stage of production. Again,
consider a loaf of bread: Its value is the sum of the value of labour at each successive stage of
production and other ingredients added by the farmer (wheat production), the miller (grinding to
flour), the baker (flour plus other ingredients), and the grocer (distribution services).
Q 1. ‘A final consumer is always a household.’ True/ false. Give reason.
Q2. Factor payments are made by ________ sector to ________ sector.
Q3. Wheat used by miller is _______ good.
Q4. Value added method solves the problem of ________ of wants.

Answers
1. False. A producer is also a final consumer consuming capital goods
2. Producer, household
3. Intermediate
4. Double coincidence
Question 1.
Assertion (A) : Exports of goods and services included in in Gross Domestic Product.
Reason (R) : Yes, it will be included in national income as sum total of expenditure of the
domestically produced goods and services during an accounting year is called GDP.
Assertion (A).
Assertion(A).
Answer: (a)
Question 2. Case study
It is sometimes advocated that only the production of those goods should be included in the
estimation of national income which flow from producers to the consumers through the market.
Consider an economy where farming is the only production activity. Also, assume that all the
farmers in the economy produce only for self consumption: they do not sell their produce in the
market, because production is barely enough for consumption by the farming families
themselves. Thus final goods (rice or wheat) are being consumed without any market transaction.
If only such goods which are routed through the market are to be recorded, such an economy
(where production is only for self consumption) would be a zero production economy. It sounds
ridiculous. Can an economy survive without production?
Let it be clearly understood that the imputed value of production for self consumption is always
included in the estimation of national income.
1.Corresponding to production for self consumption, there should be generation of................

(factor income / transfer income) in the economy. (Choose the correct alternative)
2. Imputed value of production for self consumption is taken into account for estimation of
national income because it's a .............. .
a. Transfer Income
b. Earned Income
c. Unearned income
d. Non marketable transaction
3. Is any economy in the world a Zero production economy? (True /False)
4. It is difficult to estimate market value of ............... for self consumption.
a. Production of consumer goods
b. Production of services
c. Production of capital goods
d. Production of green vegetables
Answers:
1. (Factor Income)
2.( Earned Income)
3.(False)
4. ( Production of services)
Case study -NATIONAL INCOME AND BASIC CONCEPTS
The government of India, as well as the state governments, initiate several schemes that assist to
diminish the plight of the farmers. Thus, it focuses on every segment of the agricultural scheme.
Such as, each subdivision from raw material procurement to the transport and marketing of the
produce, subsidies are available. Further, Haryana, the highest agricultural producer in the
country is adopting modernized machinery to encourage agricultural advancements. Thus, few
schemes like RKVY, crop diversification, State plan, NFSM, are ISOPOM aiding the cause.
Central Govt and the State Govt are trying to make farmers more self-reliant and empowered,
with the aim of which the government launched the PM Kisan Tractor Yojana 2020. Under the
PM Kisan Tractor Yojana 2020, the government provides subsidy on the purchase of new
tractors from 20 to 50 percent in a state and 50 percent elsewhere. This subsidy is up to 50
percent of central and state government inclusive.
Q 1 purchase of a tractor by a farmer will be considered as
a)final good
b) capital good
c)intermediate good
d)both (a) and (b)
Q2 which one of the following will be referred to as intermediate goods :
a) fertilizers used by farmers

b) wheat used by flour mill
c) wheat with the retailer
d) all the above
Q3Which of the following will not be included while calculating national income
a) wheat grown by farmer but used entirely for families consumption

b) wheat grown by farmers to sell in market
c) growing vegetables in the kitchen garden of the house
d) family members working free on farm owned by family.
Q4. If factor cost is greater than market price , then it means that:
a) indirect taxes>subsidies
b) Indirect taxes=subsidies
c) Indirect taxes <subsidies
d) Indirect taxes >=subsides
ANSWERS
Q1 d) both(a) and (b)
Q2 d) all the above
Q3c) growing vegetables in the kitchen garden
Q4c) indirect taxes<subsidies
ASSERTION AND REASONING QUESTION
Read the following statement and choose the correct alternative:
Assertion (A) : Public debt is treated as a transfer income.
Reason ( R) : public depth taken by the government from general public is generally used
to meet its consumption or administration.
Alternatives
1.Both Assertion (A)and Reason (R )are true and Reason(R) is the correct explanation of
assertion(A).
2. Both Assertion (A)and Reason ( R) are true but reason ( R )is not the correct explanation of
Assertion (A).
3. Assertion (A) is true but reason( R )is false.
4.Assertion (A) is false but reason ( R) is true.
ANSWER 1.Both Assertion (A)and Reason (R )are true and Reason(R) is the correct
explanation of assertion (A).
National Income and Related Aggregates

Assertion (A):- Payment of bonus to school teachers is included while estimating national
income.
Reason (R) :- It is compensation of employees and is paid to the teachers for the services
rendered to the school.
Alternatives:
Assertion (A) b. Both Assertion (A) and Reason (R) are true and Reason (R) is not the correct
Ans:
Assertion (A)
Read the following hypothetical case study carefully and answer the following questions on
the base of the same:
GDP Is Not a Measure of Human Well-Being
Economic growth has raised living standards around the world. However, modern economies
have lost sight of the fact that the standard metric of economic growth, gross domestic product
(GDP), merely measures the size of a nation’s economy and doesn’t reflect a nation’s welfare.
Yet policymakers and economists often treat GDP, or GDP per capita in some cases, as an all-
encompassing unit to signify a nation’s development, combining its economic prosperity and
societal well-being.
Environmental degradation is a significant externality that the measure of GDP has failed to
reflect. The production of more goods adds to an economy’s GDP irrespective of the
environmental damage suffered because of it. So, according to GDP, a country like India is
considered to be on the growth path, even though Delhi’s winters are increasingly filled with
smog.
Q.1 Is GDP a true indicator of economic welfare? State one reason with regard to the example
cited above.
(1)
Ans. No, GDP is not always a true indicator of economic welfare and one of the reasons for this
is that GDP does not account externalities, positive or negative.
Q.2 What do you mean by externality?

(1)
Ans. Externality refers to the benefits or harms which a firm or an individual cause to other or to
the nature but for which they are not paid or penalized.
Q.3 In the example of Delhi cited above which externality is talked about?
(1)
Ans. In the example of Delhi cited the concept of negative externality is being discussed.
Q.4 How does this affect the welfare of the people of Delhi and GDP of an economy?
(1)
Ans. Delhi has been contributing largely to the national GDP by producing a lot of goods and
services but this has also lead to increased pollution in the city and with the smog lot of people
face health issues and hence welfare of the people is adversely affected.
1.Read the following statements (A) & (R). choose the correct alternative:
(A) In national income subsidies are added indirect taxes are substracted.
(R) Indirect taxes are not received by factors of production but subsidies are received by factors
of production for contributing towards production.
Alternatives
(a) Both (A) and (R) are true and (R) is the correct explanation of (A)
(b) Both (A) and (R) are true but (R) is not the correct explanation of (R)
(c) ( A) is true but( R ) is false
(d) (A) is false but (R) is true.
Answer (a)
CASE BASED QUESTIONS
2.Read the following case study paragraph carefully and answer the questions on the basis of the
same.
GDP is the most closely monitored aggregate of the economy. Covid-19 Pendemic causes
economic crisis rather than a health crisis. India’s GDP showing alarming downturn of 23.9 %
which is all time high in past 40 years( As per report of 30th. Sept, 2020). India is a country
which has to incur huge maintenance expenditure being second largest populative country of the
world. Covid 19 has added to it further. After reform india’s service sector developed a lot.
Service sector accounts 54.40% of GVA. Lockdown and restrictions have reduced the movement
across the country and to other countries as well. Hence causes loss of income and fall in
production to . Due to fall in production in domestic economy there is increase in imports by
domestic economy.
1. Name the sector of economy that still has shown the minimum sign of revival after pendemic.
(a)Agriculture (b) Travel and tourism (c) Banking (d) Industries
Answer (b) Travel and Tourism
2. High maintenance expenditure cause reduction in ________(Infrastructural

investment/defence ) expenditure of a country which further reduces development
procedure.
Answer Infrastructural investment expenditure.
3. Economic crisis here refers to

(a)Shortage of funds with migrant labourers to go to their native towns.
(b) Less capability to work
(c) Education sector fails to develop skills
(d) Fall in productivity, Production and standard of living.
Answer (d)
4. What will be the impact of rise in imports from domestic country on the national income?
(a) Rise (b) Fall (c) Remain same (d)May rise or Fall
National Income
A resident is said to be a person or an institution who ordinarily resides in a country and whose
center of economic interest lies in that country. He is called a normal resident since he normally
lives in the country of his economic interest. During this COVID-19, Many people returned to
their home country, which has been shown by the following article:
Migrants – particularly in lower-paid jobs – may be both more affected by and vulnerable to the
spread of COVID-19 in countries already impacted and those countries where the pandemic is
spreading, but migrants also play an important role in the response to COVID-19 by working in
critical sectors. As of 3 November 2020, emigrants from the 20 countries with the highest
number of COVID-19 cases accounted for nearly 28 percent of the total international migrant
stock and they had sent an estimated 37 percent of all remittances globally to their countries of
origin in 2019 (GMDAC analysis based on UN DESA, 2019; World Bank 2020a; WHO, 2020)
Immigrants accounted for at least 4.5 percent of the population in 12 of the 20 countries with the
highest number of COVID-19 cases, and this share is more than 10 percent in 8 of these
countries (GMDAC analysis based on UN DESA, 2019; WHO, 2020).
Compared to the global share of international migrants making up 3.5 percent of the total
population, international migrants are overrepresented in these countries. Increasing border
restrictions also have an impact on the mobility of migrants and the role of humanitarian
organizations.
Between 11 March 2020, when the WHO declared COVID-19 a pandemic, and 26 October
2020, the total number of movement restrictions implemented around the world has increased to
more than 96,000. At the same time, 167 countries, territories, or areas have issued 681
exceptions to these restrictions, thus enabling mobility.
Another issue may be returning migrant workers, who have been working overseas, over half of
whom work in the Gulf. It is unclear if, or when, migrants will be able to return to work, with the
World Bank estimating that remittances from this group could fall by about 23%.
However, what is striking has been India’s support for this group - the Vande Bharat Mission has
deployed flights and naval ships to help return migrant workers, especially vulnerable groups - in
marked contrast to the lack of preparation and care for internal migrants.
One factor for this may be the volume of remittances these migrant workers bring to the Indian
economy, but it overlooks the contribution of internal remittances, on which there is far less
robust data.
On the above concept, answer the following cases should be included or not included in
estimation of National Income with appropriate reason:
1. Profits earned by a resident of India from his company in Denmark.
2. Profits earned by a resident of Canada from his company in India .
3. Salaries to Indian residents working in the Australian embassy in India.
4. Profits earned by A branch of State Bank of India in New Zealand.
Answer:
1. No, it will not be included as the company is located outside the domestic territory of India.
2. Yes, it will be included as profits are earned within the domestic territory of India.
3. No, it will not be included as Australian embassy is not part of India's domestic territory.
4. No, it will not be included as State Bank of India is located outside the domestic territory of
India.
alternatives
given below:
Assertion (A): Indians working in the office of the United Nations Organization in India are
normal
residents of India
Reason (R): Normal resident is one whose center of economic interest lies in the domestic
territory of
the country in which he lives.
Alternatives:
Assertion (A).
Assertion
(A).
Answer- a. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation
of
Assertion (A).
Assertion (A): With every increase in the level of GDP, social welfare increases in an economy.
Reason (R): If increase in the level of GDP is associated with higher level of income
inequalities, social welfare may not increase.
Alternatives:
Assertion (A)
(b) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation
of Assertion (A)
Answer (d)
Assertion (A): India’s GDP shrank 7.5% yoy in Q3 2020, less than expectations of an 8.8% drop,
amid easing of lockdown restrictions from June.
Reason (R): Higher demand during festival season and a rebound in manufacturing and utilities.
Alternatives:
(b) Both Assertion (A) and Reason (R) are true but Reason (R) is not the correct explanation
of Assertion (A)
Answer (a)
CASE STUDY
Since in a monetary economy, all payments are made in money the real flow turns itself into
money flow of income. When firms get factor services from households, they make monetary
payments against these services to the households. These payments are made in the form of
wages to workers, rent to landowners, interest to capitalists, and profit to entrepreneurs. These
monetary payments are factor incomes for households. Households spend this income on the
purchase of goods and services from the firms for their consumption. As the households spend
all their income on consumption of goods and services, total money receipt of the firm is the
same as the total income of the households. In other words, the money delivered to households
by firms as factor payments come back to them when households spend their income on
consumptions.
Q1. National income is a _______ concept. (Stock / Flow)
Q2. Choose the other name of real flow.
A) Nominal flow
B) Money flow
C) Cash flow
D) Physical flow
Q3. Which two sectors of the economy are being talked in the above paragraphs?
Ans. Households and Firms
Q4. Choose the odd one out.
A) Entrepreneur
B) Capital
C) Profit
D) Labour
Double counting in accounting is an error whereby a transaction is counted more than once for
whatever reason. But in social accounting it also refers to a conceptual problem in social
accounting practice, when the attempt is made to estimate the new value added by Gross Output,
or the value of total investments.
Read the following paragraph and answer the following questions

a) Explain the method of Double counting with an example. ( 2)
b) How can the problem of double counting be avoided and explain it briefly ? ( 2)
Ans a) Double counting method explanation with example table

b). To avoid the problem if double counting, we can use the two methods
1. Value added method - According to this method, sum total of the value added by each
producing unit should be taken in the national income.
2. Final Output method - According to this method, value of only final goods should be added to
determine the national income.
Assertion( A): Houses are self occupied so they are treated income generating assets and are
counted in calculation of national income
Reason( R): Rental income is assessed on the basis of rent prevailing in the market.
Choose the correct alternative from the following.
(b) Both A and R are true but R is not the correct explanation of A
(c)A is true but R is false

(e) If both A and R are false
Answer: The rental income assessed on the basis of rent prevailing in the market is known as
imputed rent on owner occupied houses and is treated as a part of factor income generated during
the year and is included in calculation of national income. So both the statements are true and
reason is correct explanation of assertion Therefore the correct option is A).
India’s quarterly GDP was estimated to a decline of over nine percent between April and June
2020. This was a decrease from a five percent growth in the beginning of 2020. The country
went into lockdown on March 25, 2020, the largest in the world, restricting 1.3 billion people.
This was extended until May 3, 2020. India’s government estimated its financial, real estate and
professional services sector (Health and Hospital, Pharmaceutical, Biotechnology, Financial
sector, Insurance Sector, IT sector – Online / Digital Education, Digital Marketing, AI, Robotics
etc.) to be hardest hit during the period of the lockdown.
Q-1 Once lockdown is lifted, how will productivity rise?
Q-2 Which sectors of the Indian Economy will grow faster?
Q-3 Do you think this pandemic is affecting our circular flow of income. Give reason.
Q-4 The impact of covid-19 will give rise to more of ..........(unemployment / employment)
and........ (inflation / deflation).
Ans 1: Once lockdown is lifted, firms may not be able to operate immediately or atleast till the
beginning 2021, at the earlier full capacity due to a variety of reason. This will cause elimination
or retrenchment of a number of employees. Thus, the operation will operate at a lower capacity
with less no of employees resulting in a productivity increase.
Ans 2: Financial, real estate and professional services sector (Health and Hospital,
Pharmaceutical, Biotechnology, Financial sector, Insurance Sector, IT sector – Online / Digital
Education, Digital Marketing, AI, Robotics etc.)
Ans 3:3Yes, reason is upto the person
And 4: unemployment & inflation
Assertion and Reason
Assertion: indirect taxes accrue to the government, and not to the production units.
Reason: indirect taxes are paid directly to the government as no good and service is provided in
return.
Alternatives:
• (a) Both, A and R, are true and R is the correct explanation of A
• (b) Both, A and R, are true but R is not the correct explanation of A
• (c) If A is true but R is false
• (d) If A is false but R is true

Ans: (2) both statement and reason are true however reason is not the correct explanation of A
1. Assertion(A) . All producer goods are not capital goods. Reason(R) . All capital goods are
producer goods.
(a) Both Assertion(A) and Reason(R )are true and Reason(R)is the correct explanation of the
assertion. (b) Both Assertion(A) and Reason (R)are too but Reason(R) is not the correct
explanation of Assertion(A) (c) Assertion (A)is true but Reason(R )is false.
(d) Assertion(A) is false but Reason(R)is true.
2. Payment of interest by Bank to its depositors or payment of interest by a Farm to the

households or a bank is included in the national income. The borrowed money is used for
carrying out the production of goods and services. However, the payment of interest on loan
taken by a consumer or payment of interest on a loan taken by an employee from its employer is
not to be included in the national income as such loan is taken out to meet the consumption
expenditure. There is no contribution to production of goods and services.
(I) Which type of interest payment is included in national income?
(II) Payment of interest on car loan taken by an individual is included in national income (true or
false) (III) Payment of interest on loan taken for the construction of a new house is to be included
in national income. Why?
(IV) Payment of interest on loan by bank to household will be included because it

is____________(factor income/ transfer income)
Subject: ECONOMICS (030)

Topic - National Income
Class – XII
Submitted by – WAQAR AHMAD
A/R Based Question

1. (1)
Answer:
Assertion (A): GDP is the market value of all final goods and services produced within a domestic
territory of a country measured in a year.
Reason (R): All production done by the national residents or the non-residents in a country gets
included, regardless of whether that production is owned by a local company or a foreign entity.
Alternatives:
Assertion (A)
Assertion (A)
a
Subject: ECONOMICS (030)

Topic - National Income
Class – XII
Submitted by – WAQAR AHMAD
CASE STUDY
Nominal and real GDP for each
Money (or nominal) GDP is GDP measured in terms of the prices operating in question.
the year in which output is produced. It is sometimes referred to as GDP at
current prices and is a measure that has not been adjusted for inflation. Money
GDP may give a misleading impression of how well a country is performing.
This is because the value of money GDP may rise not because more goods and
services are being produced but merely because prices have risen. For example if
100 billion products are produced at an average price of ₹5, GDP will be ₹500
billion. If in the next year the same output of 100 billion products is produced but
the average price rise to ₹6, money GDP will rise to ₹600 billion. So to get a
truer picture of what is happening to output, economists convert money into real
GDP. They do this by measuring GDP at constant prices, meaning the prices
operating in a selected year. By doing this they remove the distorting effect of
inflation. For example, in 2016 a country's GDP is ₹800 billion and the price
index is 100. Then in 2017, money GDP is ₹900 billion and the price index is
120.
Nominal GDP X price index in base year
Real GDP =
price index in current year
900 X 100
Real GDP = = ₹ 750 Billion
120
The price index used to convert money into real GDP is called the GDP deflator,
which measures the prices of products produced rather than consumed in a
country. So it includes the prices of capital goods as well as consumer products
and includes the price of exports but excludes the price of imports.
Q1: Define Real GDP.

Q2: Why does GDP deflator excludes imports?
Q3: In 2019 a country’s GDP is ₹1000. In 2020 nominal GDP rises to ₹1092
and the price index increase by 4%. Calculate real GDP.
Q4: In 2019 a country’s GDP is ₹1000. In 2020 nominal GDP rises to ₹1092
and the price index increase by 4%. Calculate the percentage increase in real
GDP.
Answer1: Real GDP is GDP measured in terms of the prices operating in a
selected year (base year).
Answer2: GDP deflator measures the prices of products produced rather than
consumed in a country. So it includes the price of exports but excludes the price
of imports.
Answer3:
1092 X 100
Real GDP =
104
𝐑𝐞𝐚𝐥 𝐆𝐃𝐏 = ₹ 𝟏𝟓𝟎
Answer4: Real GDP in 2019 = 1000

Real GDP in 2020 = 1050
50 X 100
% Increase in real GDP =
100
% 𝐈𝐧𝐜𝐫𝐞𝐚𝐬𝐞 𝐢𝐧 𝐫𝐞𝐚𝐥 𝐆𝐃𝐏 = 𝟓𝟎%
Assertion and Reasoning Based Questions:
Read the following statements-Assertion(A)and Reason(R).Choose one of the correct

1. Assertion: In India National Income is rising, but not the per capita income
Reason: In India the rate of population growth is higher than the growth of national income.
a. Assertion is true, but reason is false
b. Reason is true, but assertion is false
c. Both reason and assertion are true and reason is the correct explanation of the
assertion
d. Both reason and assertion are true and reason is not the correct explanation of the
assertion
Ans: (c )
2. Assertion: Unilateral transfers are not treated in the calculation of national income.
Reason: Unilateral transfers come in the form of gifts, donations etc.

assertion
assertion
Ans: (d)
3. Assertion: National income at current prices can increase even when quantum of goods
and services produced during the year remains constant.
Reason: Increase in price level can cause an increase in national income at current prices without
increase in quantum of goods and services produced.

assertion
assertion
Ans: (c )
4. Assertion: Services of a housewife are included in estimating national income.

Reason: Services of a housewife increase the social welfare and there are no appropriate data for
the same.

c. Both reason and assertion are true and reason is the correct explanation of the assertion
assertion
Ans: (b)
5 Assertion: Externalities may be positive or negative.

Reason: Externalities are not at all related with social welfare.

c. Both reason and assertion are true and reason is the correct explanation of the assertion
d. Both reason and assertion are true and reason is not the correct explanation of
1. Assertion (A): Transfer earning are not to be included in the national income estimation.
Reason (R): Transfer earning are not payments for factor services.
A. Both A and R are not true but R is the correct explanation of A.
B. Both A and R are true but R is not a correct explanation of A.
C. A is true but R is false.
D. A is false but R is true.
2. Assertion (A): Continuous increase in Real National Income is an indication of
economics growth.
Reason (R): Increase in National Income does not necessarily reflect increase in per
capita income.
A. Both A and R are not true and R is correct explanation of A.
B. Both A and R are true but R is not correct explanation of A.
3. Assertion (A): The GNP is the value of goods and services produced annually in the
nation.
Reason (R): The most comprehensive measure of national output is the GNP.
A. Both A and R are individually true and R is the correct explanation of A.
B. Both A and R are individually true but R is not the correct explanation of A.
4. Assertion (A): banking sector’s contribution to national income is zero.
Reason (R): By the usual methods of calculation, the net factor payment in the banking
sector amount to zero.
A. Both A and R are individually true and R is the correct explanation of A.
B. Both A and R are individually true but R is the not the correct explanation of A.
Case Study Base Question
The outbreak of COVID-19 brought social and economic life to a standstill. In this study the
focus is on assessing the impact on affected sectors, such as aviation, tourism, retail, capital
markets, MSMEs, and oil. International and internal mobility is restricted, and the revenues
generated by travel and tourism, which contributes 9.2% of the GDP, will take a major toll on the
GDP growth rate. Aviation revenues will come down by USD 1.56 billion. Oil has plummeted to
18-year low of $ 22 per barrel in March, and Foreign Portfolio Investors (FPIs) have withdrawn
huge amounts from India, about USD 571.4 million. While lower oil prices will shrink the
current account deficit, reverse capital flows will expand it. Rupee is continuously depreciating.
MSMEs will undergo a severe cash crunch. The crisis witnessed a horrifying mass exodus of
such floating population of migrants on foot, amidst countrywide lockdown. Their worries
primarily were loss of job, daily ration, and absence of a social security net. India must rethink
on her development paradigm and make it more inclusive. COVID 19 has also provided some
unique opportunities to India. There is an opportunity to participate in global supply chains,
multinationals are losing trust in China. To ‘Make in India’, some reforms are needed, labour
reforms being one of them.
Q1. Explain the impact of COVID -19 pandemic on GDP and Migrants Labour.
Answer: India had also been witnessing a pre-pandemic slowdown. Even before the pandemic,
since FY 2018–19, India's growth was falling, 8% in Q4 FY18 to 4.5% in Q2 FY20. In January
2020 itself, well before India's lockdown or reactions to the pandemic, the IMF reduced India's
GDP estimates for 2019 and also reduced the 2020 GDP forecast. The 2016 Bank note
demonetization and GST enactment in 2017 led to severe back to back disruptions in the
economy.
Due to the lockdown, daily-wage workers (the urban poor and migrant laborers) were left with
no work. At the same time, the lockdown restrictions put a stop on the movement of buses and
trains. Large numbers of migrant workers ended up walking back to their villages.
On 20 June 2020 the government launched the Garib Kalyan Rojgar Abhiyaan for the welfare of
migrants. In July, Mint (The Financial Newspaper Reported) that companies were having
difficulties in bringing back the workforce. Even after incentives, many laborers are reluctant to
travel back to urban areas.
Q2. Explain implication on capital Market, Global oil Market and its impact on India.
Answer: Weak or reduced oil prices have a major positive impact on the Indian economy. India
being an importer of crude oil, so higher oil prices imply, more payment needs to be made in
foreign currency. And oil prices have a major say in the financial markets of our country. A
weak oil price usually signals strength in the performance of the stock market. And a strong oil
price has a negative impact on the performance of the stock market.
And similarly, if we were to take the example of oil-exporting nations, strong oil prices have a
very positive effect on their incomes, balance of payments, and their financial markets.
Assertion and Reason based questions

3. Assertion(A): Domestic income of a country can be more than its National income.
Reason(R): It is possible when factor income paid abroad is more than factor income
received from abroad
e) Both (A) and (R) are true and (R)is the correct explanation of (A)
f) Both (A) and (R) are true and (R) is not the correct explanation of (A)
g) Both (A) and (R) are false
h) (A) is wrong (R) is true
Ans: Option A is correct
4. Assertion(A): Growing vegetables in a kitchen garden of the house is included in
national income
Reason (R): It is difficult to estimate value of production as it is non market
transaction
e) Both (A) and (R) are true and (R)is the correct explanation of (A)
f) Both (A) and (R) are true and (R) is not the correct explanation of (A)
g) (A) is false and (R) is correct explanation of (A)
h) (A) is true (R) is not correct explanation of (A)
1. (A) The sum of final expenditures in the economy must be equal to the incomes
received by all the factors of production taken together
(R) The revenues earned by all the firms put together must be distributed among the factors
of production as salaries, wages, profits, interest earnings and rents
2. (A ) Final expenditure is that part of expenditure which is undertaken not for

intermediate purposes.
( R ) Intermediate goods do not fall under the category of final expenditure.
3. ( A )Change in inventories may be planned or unplanned.

( R ) In case of an unexpected fall in sales, the firm will have unsold stock of goods which it had
not anticipated.
4. ( A ) If we include depreciation in value added, then the measure of value added that
we obtain is called Gross Value Added.
(R ) Depriciation or Consumption of fixed Capital is inclusive in Net Value Added
Case Study:
Let us suppose that there are only two kinds of producers in the economy. They are the wheat
producers (or the farmers) and the bread makers (the bakers). The wheat producers grow wheat
and they do not need any input other than human labour. They sell a part of the wheat to the
bakers. The bakers do not need any other raw materials besides wheat to produce bread. Let us
suppose that in a year the total value of wheat that the farmers have produced is Rs 100. Out of
this they have sold Rs 50 worth of wheat to the bakers. The bakers have used this amount of
wheat completely during the year and have produced Rs 200 worth of bread. If we follow the
simple way of aggregating the values of production of the sectors, we would add Rs 200 (value
of production of the bakers) to Rs 100 (value of production of farmers).
1. What is the value of total production in the economy?( Rs 100/Rs 200/Rs 300)
2. Intermediate goods are used (in /outside) the production process
3. The problem of double counting can be avoided by atking the value of ---------
(intermediate consumption/final goods)
Answers:
1. Rs 300
2. Outside
3. Final goods
Gross Domestic Product measures the aggregate production of final goods and services taking
place within the domestic economy during a year. But the whole of it may not accrue to the
citizens of the country. For example, a citizen of India working in Saudi Arabia may be earning
her wage and it will be included in the Saudi Arabian GDP. But legally speaking, she is an
Indian. Is there a way to take into account the earnings made by Indians abroad or by the factors
of production owned by Indians? When we try to do this, in order to maintain symmetry, we
must deduct the earnings of the foreigners who are working within our domestic economy, or the
payments to the factors of production owned by the foreigners. For example, the profits earned
by the Korean-owned Hyundai car factory will have to be subtracted from the GDP of India. The
macroeconomic variable which takes into account such additions and subtractions is known as
Gross National Product (GNP).
Q 1. What is the difference between domestic product and national product?
Q 2. When is GNP < GDP?
Q 3. Will the income earned by an American Company in India included in National Income of
America?
Answer:
1. NFIA
2. When NFIA value is negative
3. Yes. As it is the resident company of America
Ans: Option C is correct
Read the following statements –

Assertion (A) and Reason (R). Choose one of the correct alternatives given below:
Alternatives:
Assertion (A)
Assertion (A)
Assertion (A): An item that is meant for final use and will not pass through any more stages of
production or transformations is called a final good.
Reason (R): It will not undergo any further transformation at the hands of any producer,but many
such final goods are transformed during their consumption
Ans: (a)
Case study
Read the following statement and answer Questions 7-10 on the basis of the same:
One’s ability to buy commodities comes from the income one earns as labourer (earning wages),
or as entrepreneur (earning profits), or as landlord (earning rents), or as owner of capital (earning
interests). In short, the incomes that people earn as owners of factors of production are used by
them to meet their demand for goods and services.
Q7. The statement above is based on the notion” one’s expenditure is other man’s income. (true
/false)
Q8. This exchange is depicted as ----------(real flow/money flow)
Q9. Using up of incomes earned in consumption of goods is called …….( income

distribution/income disposal)
Q10. All the factors of production are owned by ------ household/firms)
Ans: 7. True
8. money flow
9. income disposal
10. households
Q1Read the following statement:
ASSERTION: Non-monetary exchanges are not considered for the estimation of domestic
income.
REASON: This transaction such as domestic services rendered by a housewife and a parent
teaching her child.it is difficult to ascertain their market value and not rendered for the purpose
of earning income.
Alternatives:
Assertion (A)
Assertion (A)
Ans : a. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct explanation of
Assertion (A)
Read the following case study and answer the following questions
Markets will distribute resources efficiently when both consumers and producers consider all the
effects of their actions when exchanging goods. In some instances the benefit or cost of
production or consumption of goods to society differs from the individual private benefit or cost.
However, self-interested consumers and producers often only consider costs and benefits to
themselves and not others.
An externality is a cost or a benefit associated with one person’s activity (i.e. the production or
use of a good or service) that impacts others or society who did not choose to incur that cost or
benefit. For example, the influenza vaccine provides private, individual benefit to the patient
receiving it by protecting that patient from acquiring the infection, but also carries external
benefits with reduced transmission to other susceptible people. The externality, or the difference
between the individual benefit (cost) and the social benefit (cost), are not accounted for in market
transactions.
Externalities cause inefficient allocation of resources by markets because people in the market
exchange goods based on their individual costs and benefits and not on the broader social
benefits and costs. If a commodity or good produces positive effects to society beyond the
individual supplier or consumer, the commodity or good will be under produced or utilized. To
continue with the influenza example above, the external benefit of the influenza vaccine to
society is usually not considered by individuals choosing whether to get vaccinated, and this may
result in a socially less optimal level of influenza vaccine use and an overall welfare loss to
society.
Alternatively, if producers or consumers of commodities that result in negative effects beyond

the individual to society do not bear the full costs of such effects, too much of the commodity
will be produced. Antimicrobial use results in both positive and negative spillover effects. The
positive effect to others and society associated with antimicrobial use is related to the decreased
morbidity from sub-clinical infections that are treated accidently and decreased transmission of
microbes to other susceptible patients. Antimicrobial resistance is a negative externality from the
consumption of antimicrobials to produce health. Antimicrobial resistance has effects that are
unlikely to be felt directly by either the patient using or physician providing the antimicrobial,
but has adverse effects on future patients who may require antimicrobials and on health care
systems more broadly thus impacting the overall welfare of society. Resistance imposes large
costs on society in the form of increased hospitalizations, higher mortality rates, decreased
effectiveness of antimicrobials for current and future generations, and the use of resources into
the development of new more powerful antimicrobials which could be used for other medical
needs.
1. Define externality.
2. Give example of negative externality of the influenza vaccine.
3. Complete the following statement:
If a commodity or good produces positive effects to society beyond the individual
supplier or consumer, the commodity or good will be ________ or _____________.
4. State whether the following statement is true or false:
Externalities cause inefficient allocation of resources by markets because people in the
market exchange goods based on their individual costs and benefits and not on the
broader social benefits and costs.
Ans 1. An externality is a cost or a benefit associated with one person’s activity (i.e. the
production or use of a good or service) that impacts others or society who did not choose to incur
that cost or benefit.
Ans 2. Antimicrobial resistance is a negative externality from the consumption of antimicrobials

to produce health. Antimicrobial resistance has effects that are unlikely to be felt directly by
either the patient using or physician providing the antimicrobial, but has adverse effects on future
patients who may require antimicrobials and on health care systems more broadly thus impacting
the overall welfare of society
Ans 3. Under produced or utilised.
Ans 4. True
Read the following case study paragraph carefully and answer the questions on the basis of the
same.
The overall objective of political activities in democratic societies is to ensure the highest
possible level of welfare for the country's citizens now and in the future. When politicians,
macroeconomists and others discuss welfare and economic development, they often focus on the
Gross Domestic Product (GDP). GDP is a measure of the economic prosperity of a country
compiled as output or income. However, GDP is regularly criticised for not presenting a fair
view of welfare. If GDP is a poor measure of welfare, focusing one-sidedly on increasing GDP
may lead to misguided political decisions. For example, Nobel laureate Joseph Stiglitz has
argued that the objective of the highest possible GDP growth will result in reduced welfare. The
criticism of GDP is not new, and over the last 30-40 years, efforts have been made to put
together alternative objectives. The debate has revived recently, partly as a result of the
publication of a recent report concerning the limitations of GDP as a measure of economic
performance and social progress. The report was written by the two Nobel laureates for
economy, Joseph Stiglitz and Amartya Sen, among others.
1______ (Real GDP/Nominal GDP) is considered as a better measure of economic growth of an

economy.
Ans Real GDP
2. GDP is not considered as a better measure of development. Which of the following reasons
could be accounted for the same?
(a) Externalities (b) Non-marketable services (c) Production of harmful goods (d) All of these
Ans (d)All
3. A course of action by one economic agent which has an adverse impact on other economic
agent without cost sharing, is known as _______(positive/negative) externality.
Ans Negative
4. Which of the following measures of GDP considers base year's price for calculation of gross
income?
(a) Green GDP (b) Nominal GDP (c) GDP deflator (d) Real GDP
Ans (d) Real GDP
Government to give cash vouchers to staff in lieu of LTC this year: Finance Minister
As part of a stimulus package to boost consumption in an economy hit hard by the Covid-19
pandemic, the government announced an LTC cash voucher scheme for its employees.
Central government employees will be able to opt for cash equivalents of their unused leave
travel concession (LTC) for the 2018-21 period, according to a special cash package
announced by the finance ministry on Monday.
Aimed at boosting consumption expenditure, the scheme requires employees to spend up to
three times the amount they are entitled to by March 31, 2021, in order to avail the tax
benefits accompanying LTC.
“With a view to compensate and incentivise consumption by central government employees
thereby giving a boost to consumption expenditure, it has been decided that cash equivalent of
LTC, comprising leave encashment and LTC fare of the entitled LTC may be paid by way of
reimbursement, if an employee opts for this in lieu of one LTC in the block of 2018-21,” said
a finance ministry office memorandum.
The package, which came into force on Monday, requires employees to opt for the cash
equivalent of both leave encashment and travel fare.
Employees will be entitled to reimbursement of the full leave encashment if the entire
amount is spent via digital mode on items that attract goods and services tax (GST) of 12%
or higher only from GST registered vendors.
Answer the following questions after reading the above information:
Q1. The cash package being announced is a _____________ (fiscal policy/monetary policy)
measure.
Q2. Leave Travel Concessions (LTC) is :
a. Compensation of employees is kind
b. Compensation of employees is cash
c. Employer’s contribution to social security scheme
d. Employee’s contribution to social security scheme
Q3. Which component of the expenditure method of calculating GDP has been emphasized
here as a measure to revive economy?
Q4. Name any two areas which are going to be benefited most from this measure?
Answer:
A1. Fiscal policy since it increases government expenditure.
A2. Option (b)
A3. Private Final Consumption Expenditure
A4. (i) Digitalisation
(ii) Contribution to GST
ASSERTION BASED QUESTION
Assertion (A): Purchase of a car by a consumer is included in calculation of National Income.

Reason (R): Gross Domestic Capital Formation is a part of National Income.
Alternatives:
Assertion (A)
Answer :
Option b is correct.
Assertion(A) and Reason(R), both are correct but Reason(R) is not a correct explanation since
purchase of a car by a consumer is part of Private Final Consumption Expenditure and not Gross
Domestic Capital Formation..
National income & related aggregates:

1.Assertion—Income from self consumed output is to be included in National income,
Reasoning –A house owner living in his own house is assumed to be paying rent to himself for
using up of the factor services.
a both the statements are wrong because it is difficult to estimate such a factor service .
b .both are absolutely correct as an owner always imputes some value for self rendered services.
c both are correct as self consumed output is definitely a part of the current year’s production.
d A is correct but R is not convincing.
Answer –c.
Case study
Finance Minister Ms Sitharaman said, ” as we move towards digital transactions we expect that
the temptations for dealing with cash will be brought down and if each of these transactions is
brought in to monitorable network, the GDP calculation can be much closer to the actual strength
of the Indian economy”. ---At the National conference of All India federation of Tax
practitioners –The Economic Times
1There are many transactions called non-monetary exchanges .Are these included in the
calculation of GDP? Clarify.
2.The digital payments have increased ------------- for goods & services and this will lead to a
situation of excess----------- in the economy
3 All payments which add to GDP contribute to welfare .-----defend or refute with a valid reason.
Answers: 1.No. Such transactions are difficult to measure.

2.aggregate demand & demand.
3.refute. Eg of purchases which do not lead to welfare may be taken to explain.
Q1- Read the following statements- Assertion(A) and Reasoning (R).
Assertion(A): Goods that are ultimately consumed rather than used in the production of another
good are known as final goods.
Reasoning(R): Components sold to car manufacturers are type of final goods.
Alternatives: (a) Both assertion (A) and Reasoning (R) are true and Reason (R) is the correct
(b) Both Assertion (A) and Reasoning (R) are true and Reason (R) is not the correct explanation
of Assertion
Q2 Read the following hypothetical Case study, carefully and answer the below question on the
basis of the same. In 2010 the Greek government had to inform the European Commission on
how it would control its budget deficit and improve the performance of its economy. The
government’s debt is so high that agencies assessing the creditworthiness of the government
downgraded it (which would mean more interest has to be paid to raise finance). Proposals were
likely to include a 10% cut in government spending.
Q1: If the Greek economy is in recession what would you expect to be the effect on: a) Inflation?
b) Unemployment? c) Imports?
Q2: Outline two possible economic objectives of the Greek government.
Q3: What actions can the government take to increase national income growth in Greece?
Q4: What would the effect on aggregate demand be if the government cut public spending by
10%
Q1- Option (C)
Q2- a) Inflation will be increased
b) Unemployment will also be increased
c) Imports will be decreased
Q2- 2 -> economic stability Steady and sustained economic growth
Q3- Devaluation of domestic currency Q4 – AD will be fall
Assertion (A): Domestic income of a country can be more than its national income
Reason (R) ; it is possible when factor income to abroad is more than factor income received
from abroad
Alternatives:
Assertion (A)
Assertion (A)
d. Assertion (A) is false but Reason (R) is true
.
Answer (a)
CASE STUDY
Mr Ramlal is running a factory. He wants to calculate'change in Inventory ’ and 'Closing stock’

to update the books of the firm as he has to plan the strategy for next year's output
So he called his manager and inquired about the stork. His manager informed him that He had
an Inventory of Rs. 80000 at the beginning of the Year. During the year he had produced goods
of worth rupees 500000 and sold goods of worth Rs. 400000.
Answer the following questions on the basis of above case study
1 Closing inventory for the year is. .........
(choose the correct alternative)
a.100000 c.80000
b.180000 d 280000
2 Change in inventory is a ……………(stock/ flow ) concept.
3 Inventory is a……………( stock / flow ) concept.
4 Value of change in stock is………………..

a.100000 c.80000
b.180000 d 280000
ANSWERS
1 180000
2 Flow
3 Stock
4 100000
Assertion (A) : GDP can be greater than GNP.

Reason (R) : NFIA can never be negative.
Alternatives:
Ans: c. Assertion (A) is true but Reason (R) is false.
Assertion (A): India’s GDP is forecast to contract 5.9% in 2020 and recover to 3.9%
next year, the UNCTAD report said
Reason (R): India is experiencing impacts of world-wide deep recession amid a still-
unchecked pandemic.
Alternatives:
Ans: a. Both Assertion (A) and Reason (R) are true and Reason (R) is the correct
Case Studies
1. Read, the following case study from Trading Economics carefully and answer the 4
below question on the basis of the same.
India GDP Shrinks Less than Expected in Q3

The Indian economy shrank 7.5% yoy in Q3 2020, less than expectations of an 8.8%
drop, amid easing of lockdown restrictions from June, higher demand during festival
season and a rebound in manufacturing and utilities. It follows a record 23.9% plunge
in Q2, bringing the economy into recession for the first time on record. On the demand
side, smaller decreases were recorded for private spending (-11.3% vs -26.7%);
investment (-7.3% vs -47.1%), exports (-1.5% vs -19.8%) and imports (-17.2% vs -
40.4%). On the production side, manufacturing (0.6% vs -39.3%) and utilities (4.4% vs
-7%) rebounded and mining (-9.1% vs -23.3%); construction (-8.6% vs -50.3%); and
trade, hotels (-15.6% vs -47%) fell less while finance, real estate and professional
activities shrank faster (-8.1% vs -5.3%). The GDP is still seen contracting in Q4 as the
pandemic is far from controlled and the government announced a $10 billion stimulus
package in mid-October only.
a. The decline in India’s GDP from Q2 to Q3 amid the pandemic Covid 19 is

__________.
b. Why did the government announce a $10 billion stimulus package?
c. The demand for goods and services in the economy __________________ due to
eased lockdown restrictions and festival season.
d. _________________ plays a major role in placing the economy on the path of
recovery. (Private consumption/Government consumption)
Case study
National income of a country is taken as an indicator of economic growth and generally people
refer to domestic income (GDP) as an indicator of growth. But we need to understand the
difference between GDP at current prices (Market prices) and GDP at constant prices. If national
income of a country increases than this increase is due to two factors:
1. The real increase in production of goods and services, expansion of productive capacity of the
nation, and
2. Increase in the general price level of the economy.
If the increase in national income is due to the first factor then it will lead to real growth because
it indicates the growth in goods and services available to the people. If the increase is due to the
second factor then it means that it is merely showing unreal inflation. So as a result of this, to
measure the actual growth, national income figures are deflated at constant prices. So now, after
deflating national income it is used to compare with income of other countries. Later to eliminate
the effect of population, we calculate per capita income.
Questions:
1. While using the expenditure approach to GDP consumption:
(a) includes consumer durables, semi durables, nondurable goods but excludes services
(b) includes houses and services
(c) includes houses and all purchases by business firms
(d) includes consumer spending on durable goods and nondurable goods and services
Answer (d)
2. Real GDP is obtained by :
(a) nominal GDP x price level
(b) nominal GDP / GDP deflator
(c) nominal GDP - GDP deflator
(d) nominal GDP / price level
Answer (b)
3. One of the problems in calculating the national income in India correctly is
(a) under employment
(b) low savings
(c) non monetised consumption
(d) Inflation
Answer (c)
4. Real national income growth refers to
(a) National Income growth adjusted for inflation
(b) National Income growth adjusted for population growth
(c) National Income growth adjusted for depreciation rate
(d) National Income growth adjusted for savings growth
Answer (a)
AR question
(A) GDP per capita income shows the level of economic development in comparison to
other countries.
(R) GDP rate of growth shows the performance of economy.

Answer: (a) both A and R are true and R is the correct explanation of A.

National Income Case Study For Class 12 Economics

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National Income Case Study For Class 12 Economics

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NATIONAL INCOME AND RELATED AGGREGATES

1. How is National Income derived from Domestic Income?

2. What is meant by Factor income from abroad?

4. What is the value of NFIA in a closed economy?

1. Domestic Income + NFIA = National Income

ASSERTION and REASONING

REASONING ®: Intermediate Goods are included in National Income

a. Both A and R are true and R is the correct explanation of A

b. . Both A and R are true and R is not the correct explanation of A

c. A is true, but R is false

d. A is false, but R is True

Case study based (National income)

The RBI Bulletin; March 27th, 2020

1. The continuous fall of GDP leads to ……………………………(choose the correct alternative)

Read the following statements –

c. Assertion (A) is true but Reason (R) is false.

d. Assertion (A) is false but Reason (R) is true.

Q8. This exchange is depicted as ----------(real flow/money flow)

Q9. Using up of incomes earned in consumption of goods is called …….( income

Q10. All the factors of production are owned by ------ household/firms)

Source : 9 october 2020, The Economic Times

On the basis of above case let answer the following questions (4 M)

Assertion and Reason based questions

GDP and welfare

Source: Introductory Macoeconomics Textbook for class 12, p.no 27

Questions based on case study

(SOURCE: South China Post May 25,2011)

Q1 Define Gross Domestic Product at Market Price.

Q3 What is Green GNP?

A4 Yes because people’s well being is affected by these environmental damages.

(C)Assertion is true but reason is false.

(D)Assertion is false but reason is true.

Direction: Mark the option which is most suitable

Case Based Question

On November 12,2020,Finance Minister Smt. Nirmala Sitharaman announced the fourth

(i) What is Green GDP?

Q1.GDP Inflation is adjusted in Nominal GDP .( True/ False) 1

Assertion( A) & Reason ( R)

Case based questions

Source The Financial Express, 8th November 2020

Q1. Which of the following are economic activities?

iv) All of the above

Q2.What is the full form of CSO

i) Central service organisation

ii) Central Statistics office

iv) Country service organisation

Q3. What is the need for the study of national income?

i) To measure the size of the economy

ii) To measure the level of economic performance of the country

iii) To make international comparison of peoples living standard

d) All of the above

Q4. In a closed economy _________ is not included.

iv) Foreign sector

Q7. Which of the following is not included in factor income?

iii)Gifts from abroad

ii) Work done by housewives

iii) Income from lotteries

iv) Production of goods for self-consumption

c) i,ii and iii

Choose one of the correct alternative given below:

3. Assertion(A) is true but Reason(R) is false.

4. Assertion (A) is false but Reason (R) is true.

Read the following case study and answer the following:

c. Assertion (A) is true but Reason (R) is false.  

d. Assertion (A) is false but Reason (R) is true.  