Consumption goods, capital goods, final goods, intermediate goods

Mixed income is the income of self-employed persons in which payment for their labour and return on their owned capital cannot be separated accurately. A small business owner, shopkeeper or independent professional may receive one combined income containing both labour and capital elements. It is therefore included as a component of domestic factor income. Intermediate consumption is deducted in the product approach, while capital losses and transfer payments are not ordinary factor-income components. Option B is correct.

Intermediate goods are purchased for further processing or resale and are used as inputs in producing final goods. Their value is normally embodied in the selling price of the final product. Counting both the intermediate input and the final product would count the same value more than once, causing double counting and overstating GNP. Therefore, only final goods, or value added at each stage, should be included.

Intermediate goods are purchased for further processing or resale during production. Their value is already incorporated into the selling price of the final good. If both the intermediate good and the final good were counted in full, the same production value would be recorded more than once, causing double counting and overstating NNP. National accounting therefore counts final output or uses value added at each stage. Hence option A is correct.

The value of intermediate goods is already embodied in the value of the final goods. Adding both amounts counts the intermediate goods a second time. Therefore the overestimation is equal to the value of the intermediate goods, ₹350. The incorrectly added total would be ₹1,250, but the excess over the correct final-goods value of ₹900 is ₹350.

Final consumption expenditure is spending on goods and services used for the direct satisfaction of wants rather than for further production. In national accounting, households make private final consumption expenditure, while the government makes government final consumption expenditure on public services. Both are components of expenditure on domestic product, so option A is correct.

Intermediate goods are purchased for use in producing other goods and services rather than for final use. Their value becomes part of the selling price of the final product. If both the intermediate good and the final good are counted independently, the same production value is counted twice, causing GDP to be overstated.

Investment expenditure in GDP refers to spending that adds to the economy’s productive capital or records changes in stocks. Purchases of new machines are capital formation, and an increase in inventories represents current output produced but not yet sold. Buying old shares is a financial transaction, while benefits and lottery prizes are transfers, not current production.

GDP records the value of currently produced final goods and services. When an old machine is resold, ownership changes, but the machine itself was produced in an earlier period, so counting its full value again would double-count past production. Only current services connected with the resale, such as a dealer's commission or repair service, may be included because those services represent current production.

A good is classified as final or intermediate according to its intended use in the accounting period, not according to its physical characteristics. A product purchased for final consumption or investment is a final good, whereas the same type of product used as an input in producing another good is intermediate. This distinction prevents double counting in GDP.

A newly produced machine is a final capital good when it is purchased for use in production rather than for immediate resale or processing. Its purchase represents investment, specifically gross fixed capital formation, and therefore contributes to current GDP if produced during the year. It is not a transfer payment and is not intermediate consumption by the factory. Thus option C is correct.

GDP measured by the final-goods approach includes the market value of final goods and services produced during the period. The value of intermediate goods is already embodied in the prices of final goods, so adding it separately would count the same production more than once. Given that the final-goods value is 900 crore, GDP is calculated on the basis of 900 crore, assuming the stated values cover the relevant domestic production. Therefore option A is correct.

Intermediate goods are used as inputs in producing final goods. If the full sale value of an intermediate good is added to GDP along with the value of the final good, the same economic value is counted more than once. This is called double counting and artificially inflates measured production. Therefore, option B is correct; only value added or final output should be counted.

A routine repair that merely keeps an existing machine operating does not create a new capital asset or increase productive capacity. It is therefore generally treated as a current production cost, or intermediate consumption, of the enterprise. This differs from substantial improvement or new investment that expands capacity and may be recorded as gross fixed capital formation. Hence, option B is the best answer.

Total GDP may increase while the population increases even faster. In that case, GDP per person, calculated as real GDP divided by population, may remain unchanged or even fall. Since average living standards are more closely related to real per capita GDP than to total GDP alone, rapid population growth weakens the interpretation of GDP growth as an improvement in living standards. Therefore, option A is correct.

Double counting occurs when the value of an intermediate good is added along with the value of the final good made from it. Adding the full value of wheat and the full value of bread made from that wheat counts the wheat component twice. GDP avoids this by counting only final goods or by summing value added.

A household’s purchase of a newly produced consumer good is final expenditure because the good is bought for direct consumption and is not intended to be used as an input for further production. Wages, rent, and interest are factor incomes received by labour, land, and capital respectively. Thus, option A represents expenditure rather than factor income.

The classification of a good as final or intermediate depends on its economic use, not merely on the physical nature of the good. Milk bought by a household for drinking is a final consumer good. Milk bought by a sweet shop to make sweets is an intermediate input because its value is embodied in another product. Hence, option A is correct.

A final service is purchased for consumption rather than for use as an input into another production process. Legal advice paid for directly by a household is consumed by that household and has a recorded market value, so it is included as a final service in GDP. Transport of raw materials is an intermediate service, while unpaid household or friendship activities generally have no market transaction.

Whether wheat is final or intermediate depends on its intended use, not on the physical product alone. Wheat purchased by a flour mill is used as an input to produce flour, so its value is intermediate consumption and should not be counted separately when the value of final flour is counted. Wheat bought for direct household use is a final good.

GDP is calculated using the value of final goods and services, or equivalently the sum of value added at each stage of production. If the value of final goods is 1,600, that is the relevant GDP value. Adding the 900 worth of intermediate goods would count inputs that are already embodied in final output and would cause double counting.

Construction of a new house is current production of a durable capital asset. It is included in GDP as gross fixed capital formation even when the household constructs it for its own use rather than selling it. National accounting may estimate the value of owner-occupied housing services as well, but the construction itself is recorded as investment.

The value of a final good includes the value of the intermediate goods used to produce it. Therefore, counting the final bread once avoids adding the value of wheat, flour, and other inputs repeatedly. Counting sales at every stage would count the same production more than once and would overstate GDP.

Private final consumption expenditure consists of spending by households on new goods and services for their direct satisfaction or use. A new bicycle bought by a household is therefore included. Company-purchased raw material is intermediate consumption, a pension is a transfer payment, and old-share purchases are financial transactions rather than current production.

The classification of a good depends on its economic use, not merely on its physical form. Flour purchased by a bakery is consumed as an input in making bread, cakes or other final products, so it is an intermediate good. Option B is correct. Counting the flour separately along with the bakery's final product would count the same production value twice; it is included through the value of the final output.

The income method adds factor incomes generated by current domestic production. Compensation of employees is a factor payment for labour services and therefore forms part of NDP at factor cost. Capital gains arise from changes in asset prices, a used-good sale reflects an earlier transaction, and gifts are transfers rather than production income. Hence, option B is the only appropriate component.