Aggregates related to national income - GDP

Correct answer: B. ₹180 crore

Explanation: Net indirect tax is not the total of taxes and subsidies. It is calculated as indirect taxes minus subsidies: NIT = ₹300 crore − ₹120 crore = ₹180 crore. Subsidies reduce the effective indirect-tax burden included in market prices. Therefore, ₹420 crore, which is obtained by addition, is not the correct measure of NIT.

Correct answer: A. Because it is payment for a current service

Explanation: The old car was produced in an earlier year, so its entire resale value is not counted again in current GDP. However, the dealer performs a current-period selling or brokerage service. The commission paid for that service is current production income and is therefore included in GDP. This prevents double counting while recording the value of the new service.

Correct answer: A. Unemployment allowance

Explanation: Unemployment allowance is a transfer payment. The recipient receives it without providing a current productive good or service in exchange. GDP measures the market value of final goods and services produced during a period, so such transfers are excluded. Wages, rent and interest are factor payments associated with production and are included in national income accounting.

Correct answer: A. Rent of land

Explanation: Rent of land is the reward paid to the factor of production called land. The other factors receive wages for labour, interest for capital and profit for entrepreneurship. A scholarship, family gift and lottery prize are transfer receipts rather than payments for current productive factor services, so they are not factor incomes generated by production.

Correct answer: A. Because its reliable market valuation is difficult

Explanation: Unpaid household activities, such as cooking or cleaning for one’s own family, produce useful services but normally have no observable market transaction or recorded price. Assigning a reliable comparable market value is difficult, and including them could make measurement inconsistent. Therefore, standard GDP accounts generally exclude these personal non-market services, although paid domestic services are included.

Correct answer: A. The imputed value of a crop kept by a farmer for self-consumption

Explanation: A crop produced by a farmer and retained for self-consumption is part of current production. Since it may not be sold in a market, national accounts estimate its value using the price of a comparable market product; this is called imputed valuation. Unpaid household services and gifts are not current market production, while the full resale value of an old bicycle would double-count earlier production.

Correct answer: A. Private final consumption expenditure

Explanation: In the expenditure formula GDP = C + I + G + (X − M), C represents private final consumption expenditure by households. It covers spending on final goods and services for current consumption, such as food, clothing, transport and personal services. It does not mean depreciation, taxes or transfer payments, because those are not the household consumption component of GDP expenditure.

Correct answer: A. Investment

Explanation: In GDP = C + I + G + (X − M), I represents investment expenditure. It includes spending on newly produced capital goods, such as machinery, equipment and buildings, as well as changes in inventories. Investment here does not mean buying shares or merely transferring ownership of an existing asset; it refers to expenditure that adds to the economy’s productive capital or stock of goods.

Correct answer: A. Because it is a transfer payment

Explanation: A government pension is a transfer payment because the recipient receives income without supplying a current productive good or service in exchange. GDP measures the market value of current production, not the redistribution of previously collected income. Therefore, pension payments themselves are excluded, although goods and services purchased by pensioners are counted when produced during the current period.

Correct answer: A. It will be included as current final output

Explanation: A newly constructed house is included in GDP because it is a final good produced during the current period. It is also a capital good because it provides housing services over several years. The value of current construction is counted, whether the house is purchased by a household or built for another owner. An old house resale is generally excluded, except for newly produced brokerage services.

Correct answer: A. GDP per capita = GDP ÷ Population

Explanation: GDP per capita is an average measure obtained by dividing the total GDP of an economy by its population. The formula is GDP per capita = GDP ÷ Population. It indicates average output or income per person, although it does not show how income is distributed among individuals. Therefore, option A is correct.

Correct answer: A. ₹200

Explanation: Per capita GDP is calculated as total GDP divided by population. Thus, ₹8000 crore ÷ 40 crore = ₹200 per person. The word ‘crore’ appears in both the numerator and denominator, so the units cancel during division. Therefore, option A is correct. This figure is an average and does not imply that every person actually receives ₹200.

Correct answer: A. It is the gross value of final goods and services in domestic territory

Explanation: Gross Domestic Product is the gross market value of all final goods and services produced within a country's domestic territory during a specified period, usually one year. The word gross means depreciation is not deducted, domestic refers to the location of production, and final prevents double counting of intermediate goods. Therefore, option A is correct.

Correct answer: C. ₹2,250 crore

Explanation: The relationship is GDPFC = GDPMP − NIT. Here, NIT is negative, so GDPFC = ₹2,200 − (−₹50) = ₹2,200 + ₹50 = ₹2,250 crore. Subtracting a negative value increases the result. Therefore, the correct answer is option C. This conversion removes net indirect taxes from market-price GDP and gives the value measured at factor cost.

Correct answer: A. Depreciation has not been deducted

Explanation: In GDP, the term ‘gross’ means that depreciation, also called consumption of fixed capital, has not been deducted from the value of domestic production. When depreciation is deducted from GDP, the result is NDP. The word ‘gross’ does not refer to population, imports, or net factor income from abroad; those concepts concern different national-income adjustments.

Correct answer: A. ₹50

Explanation: Per capita GDP is calculated using the formula: per capita GDP = total GDP ÷ total population. Thus, ₹30,000 crore ÷ 600 crore = ₹50 per person. The unit crore appears in both the numerator and denominator, so it cancels during division. The answer is therefore ₹50, not ₹500 or ₹30,000. This calculation gives an average GDP amount associated with each person.

Correct answer: A. Depreciation has not been deducted

Explanation: In Gross Domestic Product, the word gross means that depreciation, or the loss in value of fixed capital due to wear, tear, and obsolescence, has not yet been deducted. Therefore, GDP measures domestic production before allowing for capital consumption. After subtracting depreciation from GDP, we obtain NDP.

Correct answer: A. It is included in the country's GDP

Explanation: GDP is based on the location of production, not on the nationality of the buyer. A hotel operating within the country's domestic territory produces accommodation and related services there. The payment made by foreign tourists is therefore part of domestic production and is included in the country's GDP, usually as an export of services in expenditure accounting. It is not a transfer payment.

Correct answer: A. Because it is factor income paid for a productive service

Explanation: Government employees provide current services such as administration, teaching, policing, or public health. Their salaries are payments for those productive services, so compensation of employees is included in the value of government output and hence in GDP. Government salaries are not transfer payments because they are exchanged for work performed. The relevant service is produced domestically by the public sector.

Correct answer: B. Because it involves no new production in the current year

Explanation: GDP measures the market value of final goods and services newly produced within an economy during a specific period. When an old house is resold, ownership changes, but the house itself was produced in an earlier year. Therefore, its resale price is not counted again as current production. Only current services connected with the sale, such as brokerage or legal services, may be included.

Correct answer: B. Construction of a newly built school building

Explanation: The construction of a new school building represents the production of a new final asset during the current year. Its value is therefore included in current GDP, provided it is produced within the domestic territory. The sale of an old machine is only a transfer of an existing asset, share repurchase is a financial transaction, and a pension payment is a transfer payment rather than payment for current output.

Correct answer: A. The market value of final goods and services produced within a country's domestic territory during one year

Explanation: Gross Domestic Product is the market value of all final goods and services produced within the domestic territory of an economy during a given period, commonly one year. “Domestic” refers to the location of production, while “final” prevents double counting of intermediate goods. Foreign income of residents belongs to national rather than domestic product, and taxes or old assets are not GDP output.

Correct answer: B. A doctor treating a patient in a clinic for a fee

Explanation: GDP generally includes market production for which a monetary transaction or an observable market value exists. A doctor treating a patient in a clinic for a fee provides a paid medical service, so its value is recorded in GDP. Unpaid household work, voluntary assistance, and cooking for oneself are useful activities, but they normally do not enter measured GDP because they are not sold in the market.

Correct answer: B. Gross measure

Explanation: GDP is called a gross measure because it measures domestic production before deducting depreciation, or the consumption of fixed capital. When depreciation is subtracted from GDP, the resulting measure is NDP, or Net Domestic Product. Thus, the distinction between gross and net depends on whether capital consumption has been deducted, not on population or foreign trade.

Correct answer: A. Because it is factor income paid for a productive service

Explanation: A government school teacher supplies an education service during the current period. The salary paid for that productive service is compensation of employees and forms part of factor income generated through current production. Government employment does not make the payment a subsidy or transfer payment. The service is valued as government final consumption or public output in national accounts, so option A correctly explains its inclusion.