NFIA = FACTOR INCOME FROM ABROAD - FACTOR INCOME TO ABROAD

GROSS VALUE
Depreciation is also known as DOMESTIC
• Current replacement cost
DEPRICIATION
• Replacement cost of fixed capital NFIA
• Capital consumption allowance
NET VALUE • Consumption of fixed capital.
NATIONAL
NATIONAL INCOME
NIT = Indirect tax – Subsidies DOMESTIC NATIONAL
FACTOR MARKET
FACTOR COST
P COST PRICE
NIT
MARKET PRICE GROSS NET
BASIC
AGGREGATE
1. From the following data find (a) Net indirect tax and (b) Net domestic product at Factor cost

ITEMS  Rupees 

Net national product at Market price  1400

Net factor income from abroad  (-)20

Gross national product at factor cost  1300

Consumption of fixed capital  100

National debt interest  18

1,220 crore
Ans. (a) Net Indirect Taxes
= Net national product at market price - Net national product at
factor cost (Gross national product at factor cost - Consumption of
fixed capital)
=1,400 crore - (1,300 crore - 100 crore)
=1,400 crore-1,300 crore + 100 crore
= 200 crore
(b) Net Domestic Product at Factor Cost
= Gross national product at factor cost-Consumption of fixed capital
- Net factor income from abroad
=1,300 crore-100 crore - (- 20 crore)
= 1,300 crore - 100 crore + 20 crore
=1,220 crore
Suppose the GDP at a market price of a country in a particular year was 1,100 crores .
Net factor income from abroad was 100 crore.
The value of indirect taxes- subsidies was 150 crore and
the national income was 850 crore
Calculate the aggregate value of depreciation.

200 crore
Ans. NNPfc + NIT = NNPmp
= 850 crore + 150 crore
= 1,000 crore
GDPmp + NFIA = GNPmp
= 1,100 crore + 100 crore
= 1,200 crore
Depreciation = GNPmp - NNPmp
= 1,200 crore - 1000 crore
= 200 crore
DOMESTIC SALES + EXPORTS
DOMESTIC CONSUMPTION + IMPORTS
SALES (PRICE X QUANTITY) + CHANGE IN STOCK

VALUE ADDED = VALUE OF OUPUT - INTERMEDIATE CONSUMPTION

GROSS VALUE ADDED = GROSS DOMESTIC PRODUCT AT MARKET PRICE

NATIONAL
DEPRECIATION NFIA NIT

NNP AT FC = NATIONAL INCOME

VALUE
ADDED METHOD
Calculate Net Value added at factor cost :
(i) Consumption of Fixed capital - 600
(ii) Import duty - 400
(iii) Output sold (units) - 2000
(iv) Price per unit of output (Rs.) - 10
(v) Net change in stock - (–) 50
(vi) Intermediate cost - 10000
(vi) Subsidy (Rs.) - 500

Rs. 9450
Ans. NVAFC = (iii x iv) + v – vi – ii + vii – i
= (2000×10) + (–50) – 10000 – 400 + 500 – 600 = Rs. 9450
On the basis of the following data about an economy that consists of only two
firms, find out:
(a) Value Added by firms A and B, and
(b) Gross Value Added or Gross Domestic Product at Factor Cost.

Items Rupees
(i) Sales by firm A 100
(ii) Purchases from firm B by firm A 40
(iii) Purchases from firm A by firm B 60
(iv) Sales by firm B 200
(v) Closing stock of firm A 20
(vi) Closing stock of firm B 35
(vii) Opening stock of firm A 25
(viii) Opening stock of firm B 45
(ix) Indirect taxes paid by both firms 30
(A) Value Added by firm A =55
Value Added by firm B =130
(B) 155
Solution:
(a) Value Added by firm A
= Sales by firm A- Purchases from firm B + Change in stock (Closing stock
- Opening stock)
= 100 - 40 +( 20 - ₹ 25)
= 100 -40 -5
= 55
Value Added by firm B
= Sales by firm B-Purchases from firm A + Change in stock (Closing stock()
- Opening stock)
= 200 -60 +(35 - 45)
= 200 -60 - 10
=130
Ans. Value Added by firm A =55
Value Added by firm B =130
(b) Gross Value Added or Gross Domestic Product at Factor Cost
= Value added by firm A + Value added by firm B-Indirect taxes
=55 +130 - 30
=185 - 30
= 155
An economy has only two firms A and B. On the basis of the
following information
about these firms, find out:
(a) Value Added by firms A and B, and
(b) Gross Domestic Product at Market Price.
Items Rupees
(i) Exports by firm A 20
(ii) Imports by firm A 50
(iii) Sales to households by firm A 90
(iv) Sales to firm B by firm A 40
(v) Sales to firm A by firm B 30
(vi) Sales to households by firm B 60

A =70
B =120
Solution
(a) Value Added by firm A
= Sales to households + Sales to firm B + Exports - Imports - Purchases from
firm B
= 90 +40 + 20 -50 - 30
=70 lakh
Value Added by firm B
= Sales to firm A + Sales to households - Purchases from firm A
=30 + 60 - 40
= 50
Ans. Value Added by firm A =70.
Value Added by firm B = 50.
(b) Gross Domestic Product at Market Price
= Value added by firm A + Value added by firm B
= 70 + 50
=120
Ans., Gross domestic product at market price = 120
 ASH ND
YIN C
IN KI
IBUTION
SALAR
LARY R CONTR
ND SA YE
ME WAG
ES A
ES AND
E M PL O
CO WA G
D IN
IXE
M
COMPENSATION TO EMPLOYEES

NET DOMESTIC PRODUCT AT FACTOR COST = NNP AT FC

PROFIT RENT
NFIA
ROYALTY INTEREST
NNP AT FC = NATIONAL INCOME
D
DIVIDEN

CORPORATE
OPERATING SURPLUS
TAX RETAINED
EARNING
INCOME METHOD
Given the following data and using the income method calculate:
(a) Net Domestic Income,
(b) Gross Domestic Income,
(c) Net National Income, and
(d) Net National Product at Market Price.
Items
(i) Indirect taxes 9000
(ii) Subsidies 1800
(iii) Depreciation 1700
(iv) Mixed income of self-employed 28000
(v) Operating surplus 10000
(A) Net domestic income = 62,000
(vi) Net factor income from abroad (-)300 (B) = 63,700
(vii) Compensation of employees 24000 (C) = 61,700
(D) Net national product at
market price = 68,900
Ans.(a) Net Domestic Income
= Mixed income of self-employed + Operating surplus + Compensation of
employees
= 28,000 + 10,000 +24,000
= 62,000
Ans. Net domestic income = 62,000
(b) Gross Domestic Income
= Net domestic income + Depreciation
= 62,000 +1,700
= 63,700
Ans. Gross domestic income = 63,700
(c) Net National Income
= Net domestic income + Net factor income from abroad
= 62,000 +(-)300
= 61,700
Ans. Net national income = 61,700
(d) Net National Product at Market Price
= Net national income + Indirect taxes-Subsidies
= 61,700 +9,000 -1,800
= 68,900
Ans. Net national product at market price = 68,900
The following information is available for an economy. On the basis of this
information using the income method,
calculate (a) Domestic Income, and (b) National Income.
Items
(i) Wages 10000
(ii) Rent 5000
(iii) Interest 400
(iv) Dividend 3000
(v) Mixed income 400
(vi) Undistributed profit 200
(vii) Social security contribution 400
(viii) Corporate profit tax 400
(ix) Net factor income from abroad 1000
Ans. National income = 20,800
Solution:
(a) Domestic Income
= Wages + Rent + Interest + Dividend + Mixed income + Undistributed
profit
+Social security contribution + Corporate profit tax
= 10,000 +5,000 +400 +3,000 + 400 +200 + 400 + 400
= 19,800
Ans. Domestic income = 19,800
(b) National Income
= Domestic income + Net factor income from abroad
= 19,800 +1,000
=20,800
Ans. National income = 20,800
 E
PRIVAT DCAPITAL
STOCK )
FINAL ION S FIXE
GROS RMATION
E IN
CHANGG - OPENING
UM PT FO N
CON S
IT URE ENT ( CLOSI
EXPEN D R N
GOVE AL
M
FIN ION OM E STIC
SUM PT
CON DITURE GROSS DPITAL
CA MPORT
EXPEN FOR M ATIO N
EXPORTS EXPORT- I
NET

GROSS DOMESTIC PRODUCT AT MARKET PRICE = GDP AT MP

DEPRECIATION NFIA NIT

NNP AT FC = NATIONAL INCOME

EXPENDITURE
METHOD
 Find NDPFC from the following data.
Items
(i) Gross domestic fixed investment 10000
(ii) Inventory investment 5000
(iii) Depreciation 2000
(iv) Indirect taxes 1000
(v) Subsidies 2000
(vi) Consumption expenditure 20000
(vii) Residential construction investment 6000

Ans. NDPFC = 34,000.

Solution: – Income method
NI= (ix) + (xii) + (viii) + (xiii) – (iii)
= 50 +10 + 20 + 40 -10
=Rs 110 Crores.
Expenditure method
NI = (ii) + (vi) + (vii) + (xi) + (x) – (iv) + (i) + (iii)
=100 + 20 + 30 + (-) 5 + (-) 5 – 25 + 5 +10
=Rs 110 Crores.
Calculate NATIONAL INCOME by income and expenditure method: (Rs. in Crores)
(i) Subsidies - 5
(ii) Private final consumption expenditure - 100
(iii) NFIA - (-) 10
(iv) Indirect Tax - 25
(v) Rent - 5
(vi) Government final consumption expenditure - 20
(vii) Net domestic fixed capital formation - 30
(viii) Operating surplus - 20
(ix) Wages - 50
(x) Net export - (-) 5
(xi) Addition to stock - (-) 5
(xii) Social security contribution by employers - 10
(xiii) Mixed income - 40
Income Method - Rs 110 Crores.
Expenditure Method - Rs 110 Crores.
Solution: – Income method
NI= (ix) + (xii) + (viii) + (xiii) – (iii)
= 50 +10 + 20 + 40 -10
=Rs 110 Crores.
Expenditure method
NI = (ii) + (vi) + (vii) + (xi) + (x) – (iv) + (i) + (iii)
=100 + 20 + 30 + (-) 5 + (-) 5 – 25 + 5 +10
=Rs 110 Crores.
 APS = 1
C/Y S/Y + MPS =
APC = MPC
APC + APS = 1 MPC = CHANGE IN CONSUMPTION
MPS = CHANGE IN SAVING
CHANGE IN INCOME
CHANGE IN INCOME

CHANGE IN INCOME
MULTIPLIER=K
CHANGE IN INVESTMENT LINEAR SAVING FUNCTION

1/MPS C + MPS(Y)

1/1-MPC C + MPC(Y)

LINEAR CONSUMPTION FUNCTION

AGGREGATE
DEMAND
An economy is in equilibrium. Calculate the marginal propensity to save from the following:
National income = 500.
Autonomous consumption = 30.
Investment = 70.
Ans = 0.2
In an economy C = 300 + 0.5 Y and I = Rs. 600
(where, C = Consumption, Y = Income, I = Investment). Calculate the following
(i) Equilibrium level of income
(i) 1,800.
(ii) Consumption expenditure at the equilibrium level of income (ii) 1,200.
In an economy, C = 200 + 0.9 Y is the consumption function (where, C = Consump­tion expenditure and Y =
National Income) and investment expenditure is Rs. 3000. Calculate (All India 2009)
(i) Equilibrium level of National Income
(ii) Consumption expenditure at equilibrium level of National Income (i) 32,000.
(ii) 29,000.
Ans. (i) Here, l = Rs. 600 and C = 300 + 0.5 Y
Now, we know that, Y=C+l
or Y=300+0.5 Y
or Y – 0.5Y = 900
or 0.5 Y = 900
or Y= 900/0.5
or Income (Y) = Rs. 1800
(ii) Again, Y = C+l
or 1800= C+600
or C = 1800-600
or Consumption expenditure (C) = Rs. 1200

Ans. (i) We know that, Y=C+/

or Y = 200 + 0.9 Y+3000
(as l=Rs. 3000)
or Y -0.9 Y= 3200
or 0.1 Y= 3200
or Y= Rs. 3200/0.1
or National Income (Y)=Rs. 32000
(ii) Again, Y= C+ /
or 32000 = C + 3000
or C = 32000-3000
or Consumption expenditure (C) = Rs. 29000
In an economy, the consumption function is 250+0.5Y and the investment expenditure is 500. Is the
economy in equilibrium at an income level of 2,000? Justify your answer.
Ans = 1,500
In an economy, 75 percent of the increase in income is spent on consumption. Investment is
increased by 1,000 crores. Calculate
(i) the Total increase in income.
(i) 4,000.
(ii) Total increase in consumption expenditure.
(ii) 3,000.
Measure the level of ex-ante aggregate demand when autonomous investment and consumption
expenditure (A) is Rs 50 crores, and MPS is 0.2 and level of income (Y) is Rs 4000 crores. State whether the
economy is in equilibrium or not (cite reasons).

4000 =3250
Answer: As given in the examination problem, Equilibrium Income (Y) =
Rs 4000 crore Autonomous Investment + Autonomous Consumption (A¯)
= Rs 50 crore MPS = 0.2
So, MPC(b) = 1 – 0.2 = 0.8
(MPC = 1 – MPS)
AD = C + I
AD = C¯ + bY + I = A¯ + bY
= 50 + 0.8Y (A¯=C¯+I¯)
As we know, the equilibrium level of national income in two-sector
model is determined where,
AS = AD
Y = 50 + 0.8Y
4000 = 50 + 0.8(4000)
4000 = 50 + 3200
4000 =3250
Hence, the economy is not in equilibrium.
 TOTAL EXPENDITURE - TOTAL RECEIPTS

FISCAL DEFICIT
REVENUE DEFICIT
TOTAL EXPENDITURE - TOTAL RECEIPTS
(EXCLUDING BORROWINGS)
BUDGET DEFICIT
GDP DEFLECTOR
NOMINAL GDP
PRIMARY DEFICIT REAL GDP
X 100

FISCAL DEFICIT - INTEREST PAYMENT

BUDGET
AND REMAINING
If the real GDP is Rs 520 and the nominal GDP is Rs 650, calculate the price index (base=100). Ans = 125
Find the primary Deficit from the following data
Revenue in deficit - 8800
Fiscal deficit - 11600
Interest payment by the Government - 1600
Ans = 10,000
Calculate Revenue deficit, Fiscal deficit, and primary deficit From the following data
Revenue expenditure - 22250
Capital Expenditure - 28000
Revenue receipts - 17750
Capital receipts - 20000
Interest payment - 5000
Borrowing - 12500 Ans = 7500
Ans. Primary deficit = Fiscal deficit - Interest paid by the
government
= 11600 - 1600
= 10000

Ans. Revenue deficit = Revenue expenditure - Revenue receipt

= 22250 - 17750
= 4500
Fiscal deficit = Revenue expenditure + Capital expenditure -
Revenue receipt Capital receipt
Fiscal deficit = Borrowing
= 12500
Primary deficit = Fiscal deficit - Interest payment
= 12500 - 5000
= 7500
Find borrowing by the government if payment of interest is estimated to be Rs 15000 Crore which is 25%
of the primary Deficit.
Ans = 75000

The revenue deficit is estimated to be 20000 and borrowing is estimated to be 15000. if expenditure on
interest payment is estimated to be 50% of the revenue deficit, find the fiscal deficit and primary deficit.

A = 10,000
B = 5000
Interest payment = 25% of the primary deficit
Primary deficit = 100/25 x 15000 = 60000
We know
Primary deficit = Fiscal deficit - interest payment
Fiscal deficit = Primary deficit + Interest payment
= 60000 + 15000
= 75000

Ans. Fiscal deficit = Borrowing = 15000

Interest payment = 50% of revenue deficit ,
= 50 % of 20000 crore
= 10000 crore
Primary deficit = Fiscal deficit - interest payment
= 15000 - 10000
= 5000