Methods of calculating national income - Value Added/Product Method

Correct answer: A. Deduct depreciation, deduct tax and add subsidy

Explanation: To move from gross to net, depreciation must be deducted. To move from market price to factor cost, indirect tax must be deducted and subsidy must be added. Therefore, NVA at factor cost = GVA at market price − depreciation − indirect tax + subsidy. Intermediate consumption has already been accounted for in GVA, so it must not be deducted again, and NFIA is used for a domestic-to-national adjustment rather than this conversion.

Correct answer: A. ₹2,20,000 will be added

Explanation: Goods sent to the firm’s own branch are still goods produced during the current accounting period. The internal transfer does not cancel production or make the goods intermediate consumption. Their value must be included in the firm’s total output, even though the transaction is not an external market sale. Therefore, ₹2,20,000 is added to output.

Correct answer: A. ₹17,10,000

Explanation: Interest paid by a firm is a return to the provider of capital and is treated as factor income, not as an intermediate input used up in production. Since ₹1,10,000 was wrongly deducted from GVA, it must be added back: ₹16,00,000 + ₹1,10,000 = ₹17,10,000. Hence option A is correct.

Correct answer: A. ₹16,30,000

Explanation: First convert NVA at factor cost into GVA at market prices: GVA at MP = NVA at FC + depreciation + net indirect tax = ₹18,20,000 + ₹2,40,000 + ₹1,10,000 = ₹21,70,000. Since GVA at MP equals output minus intermediate consumption, intermediate consumption is ₹38,00,000 − ₹21,70,000 = ₹16,30,000.

Correct answer: A. It is an intermediate service for the producer and output for the insurance company

Explanation: National accounting records a transaction from the perspective of each institutional or producing unit. For the producer, insurance is a purchased business service used in operating activity and may be treated as intermediate consumption. For the insurance company, the insurance service supplied to customers is part of its output. Thus, the same payment has different accounting roles for the two units.

Correct answer: A. Ordinary repair may be an intermediate service, while a new machine is fixed capital

Explanation: Ordinary repairs generally maintain an existing asset and are consumed in the current production process; when purchased from another producer, they can be recorded as an intermediate service. A new machine, however, provides productive services over several accounting periods. It is therefore treated as fixed capital formation, with depreciation recorded over its useful life rather than consuming its entire value immediately.

Correct answer: A. ₹19.2 crore

Explanation: Net product tax is product tax minus product subsidy: ₹2.4 crore − ₹3.1 crore = −₹0.7 crore. To convert GVA at market prices to NVA at factor cost, subtract depreciation and net product tax: NVA at FC = ₹22 − ₹3.5 − (−₹0.7) = ₹19.2 crore. The negative net tax increases the factor-cost measure because subsidy exceeds tax.

Correct answer: A. Because NVA_FC of all sectors and NFIA adjustment are needed

Explanation: GVA_MP is the gross value added at market prices of only one producing unit. National income is a net, factor-cost measure for the whole national economy, generally expressed as NNP at factor cost. Therefore, value added must be aggregated across domestic sectors, depreciation must be deducted, net indirect taxes must be adjusted, and net factor income from abroad (NFIA) must be included.

Correct answer: A. First value of output, then intermediate consumption, then depreciation, then net indirect tax

Explanation: The reliable sequence begins by measuring the value of output and subtracting intermediate consumption to obtain GVA at market prices (GVA_MP). Deducting depreciation gives NVA at market prices (NVA_MP), and deducting net indirect taxes converts it to NVA at factor cost (NVA_FC). Wages and profit are already components of factor income, while NFIA is relevant when moving from domestic to national aggregates.

Correct answer: A. It may be included if its imputed market value can be estimated

Explanation: GDP aims to measure current production, not merely market sales. Grain produced by a farmer and consumed by the farmer's household is still an output generated during the period. If reliable information is available, national accounts can assign it an imputed value based on a comparable market price and include that value in agricultural production. It is neither an import nor a transfer payment.

Correct answer: B. 560

Explanation: Value added before product taxes is calculated as output minus intermediate consumption: 1200 - 700 = 500. Net product taxes equal product tax minus product subsidy: 80 - 20 = 60. To express value added at market price, add these net product taxes to the basic value added: 500 + 60 = 560. Therefore, option B is correct.

Correct answer: A. It may be included on the basis of its imputed value

Explanation: National accounts can include certain non-market production when it represents current production and its value can be estimated reliably. Paddy grown by a farmer for self-consumption is produced during the current period, so an imputed value may be included in GDP. This reflects the output even though no market sale occurs.

Correct answer: A. 960 crore rupees

Explanation: Under the value-added method, gross value added at market price equals value of output minus intermediate consumption: 1800 − 620 = 1180 crore rupees. Subtracting depreciation gives net value added at market price: 1180 − 140 = 1040 crore rupees. Finally, subtract net product taxes to reach factor cost: 1040 − 80 = 960 crore rupees. Therefore option A is correct.

Correct answer: B. 900 lakh rupees

Explanation: The value of output includes the change in inventory. Change in stock = closing stock − opening stock = 310 − 240 = 70 lakh rupees. Therefore value of output is 1500 + 70 = 1570 lakh rupees. Net value added = value of output − intermediate consumption − depreciation = 1570 − 580 − 90 = 900 lakh rupees. Hence option B is correct.

Correct answer: A. 1160 lakh rupees

Explanation: The value-added principle requires including inventory change in output. Here, change in stock = 290 − 350 = −60 lakh rupees, indicating a fall in inventory. Thus value of output = 2100 − 60 = 2040 lakh rupees. Net value added = 2040 − 760 − 120 = 1160 lakh rupees. Therefore option A is correct; treating the stock fall as positive would produce an incorrect answer.

Correct answer: A. 1155 crore rupees

Explanation: Under the value-added method, gross value added at market price equals value of output minus intermediate consumption: 2200 − 780 = 1420 crore rupees. Net value added at market price is obtained by deducting depreciation: 1420 − 170 = 1250 crore rupees. Finally, deduct net product taxes to convert to factor cost: 1250 − 95 = 1155 crore rupees. Therefore option A is correct; option B stops before deducting taxes and option D stops before depreciation.

Correct answer: B. 1010 lakh rupees

Explanation: The value of output equals sales plus the change in inventories. Inventory change is closing stock minus opening stock: 365 − 280 = 85 lakh rupees. Thus value of output is 1720 + 85 = 1805 lakh rupees. Net value added equals output value minus intermediate consumption and depreciation: 1805 − 690 − 105 = 1010 lakh rupees. Hence option B is correct. Option A omits the inventory increase, and the larger alternatives do not make both deductions.

Correct answer: A. 1360 lakh rupees

Explanation: Inventory change is closing stock minus opening stock, so it is 345 − 420 = −75 lakh rupees. Therefore, the value of output is sales plus inventory change: 2450 − 75 = 2375 lakh rupees. Net value added is obtained by subtracting intermediate consumption and depreciation: 2375 − 880 − 135 = 1360 lakh rupees. Option A is correct. The negative inventory change must reduce output; ignoring it would produce an overstated result such as option B.

Correct answer: B. 5200 crore rupees

Explanation: First aggregate the four sectors’ GVA at market price: 1350 + 1650 + 2050 + 950 = 6000 crore rupees. Deduct total depreciation to convert gross value added into net value added at market price: 6000 − 460 = 5540 crore rupees. Then deduct net indirect taxes to obtain NDP at factor cost: 5540 − 340 = 5200 crore rupees. Thus option B is correct. Option D is the gross total before deductions, while the other amounts apply an incomplete adjustment.

Correct answer: D. 350 crore rupees

Explanation: The difference between factor cost and market price equals the negative of net indirect taxes. Because NDP at factor cost is 145 crore rupees higher, net indirect taxes are −145 crore rupees. Using net indirect taxes = indirect taxes − subsidies, we get 205 − subsidies = −145. Therefore, subsidies = 205 + 145 = 350 crore rupees, so option D is correct.

Correct answer: A. 6100 crore rupees

Explanation: First aggregate the sectoral gross value added: 1,450 + 1,750 + 2,250 + 1,050 + 500 = 7,000 crore rupees. To move from gross market-price value added to net factor-cost value added, subtract depreciation and net indirect taxes: 7,000 − 520 − 380 = 6,100 crore rupees. Therefore, option A is correct. Option D is the unadjusted gross total.

Correct answer: D. ₹820 crore

Explanation: For a non-market government institution, gross value of output is generally measured by the sum of production costs. Here, total cost is employee compensation + intermediate consumption + depreciation = 590 + 185 + 45 = ₹820 crore. ₹775 crore excludes depreciation and therefore represents an incomplete total; ₹635 crore excludes both depreciation and the relevant cost treatment. Thus, option D is correct.

Correct answer: B. ₹200

Explanation: Use the deflator formula: Real GDP = (Nominal GDP ÷ Deflator) × 100 = (₹900 crore ÷ 150) × 100 = ₹600 crore. Then divide real GDP by population: ₹600 crore ÷ 3 crore people = ₹200 per person. The crore units cancel in the final division. Thus option B is correct; the other values result from an incorrect deflator or population calculation.