Stocks Definition
Variable whose magnitude is measured at a particular point of time are called stock variables. For example in business accounts, magnitude of capital employed by a firm is measured on the last day of the financial year, say, capital as on 31st March, 2010. This is the position of all the variables entering into the balance sheet, i.e. all assets and liabilities. By this criterion, capital, wealth, inventory, etc. are all stock variables.
Flows
Variables whose magnitude is measured over a period of time are called flow variables.
Fore example, when we talk of income, we say income during the month, or during the year. Similarly, we descbribe the magnitude of the variables like output, expenditure, investment, intermediate costs, net charge in stocks, etc.
Economic Territory
The United Nations System of National Accounts, briefly called SNA, defines economic (for domestic) territory as that geographic territory administered by a government within which persons, goods and capital circulate freely.
Accordingly, the scope of economic territory of a country is defined to include and exclude the following:
(A) Political frontiers including territorial waters and airspace.
(B) Embassies, consulates, military bases, etc. located abroad (but excluding the foreign ones located within its own political frontiers).
(C) Ships, aircraft, etc. operated by the residents between two or more countries.
(D) Fishing vessels, oil and natural gas rigs etc. operated by residents in the international waters or other areas over which country enjoys exclusive rights or jurisdiction.
But i not include
a. Embassy, consulates and military establishment of other country in our country.
b. International org such UNO, WHO, UNESCO are not part of any country they are part of international area.
Economic territory of a country is different from its political frontiers, i.e. geographic territory. As we have seen, it excludes some areas of political frontiers of the country in question and includes certain areas outside its own political frontier. The scope of economic territory is based on economic criterion.
Resident
Definition : National income measures the value of economic activities carried out by the residents of a country. It is, therefore, first necessary to understand the meaning of the term ‘resident’ of a country. A resident is defined as follows: A resident, whether a person or an institution, is one whose centre of economic interest lies in the economic territory of the country in which he lives or is located.
Examples of non-residents: The following categories of institutions and persons are not treated as residents of the country in which they are situated or living. It is because they do not fulfill the criterion of ‘centre of economic interest’.
- International organizations like the World ank, World Health Organisation, I.M.F., I.L.O. etc., are not treated residents of any country but of “international area”. For the country in which these are situated, are non-resident organizations.
- Employees of international organizations are considered residents of the countries to which they belong are not of the ‘international area’.
- Workers from across the border who cross borders regularly to work in the given country are trated as residents of the country where they live and not the resident of the country where they work.
- Foreign visitors or travelers visiting the given country for studies, medical treatment, recreation, to take part in sports, culture events, etc. are non-residents for the country they are visiting.
- Foreign staff of embassies and members of foreign armed forces located in the given country are treated as non-residents.
- The crews of foreign ships, aircrafts etc. are treated as non-residents.
Meaning of Circular Flow of Income
Circular flow of income refers to the cycle of generation of income in the production process, is distribution among the factor of production and finally, its circulation from households to the production units in the form of consumption expenditure on goods and services produced by these units.
Phases of Circular Flow of Income
There are 3 phases (generation, distribution and distribution and disposition) in circular flow of income.
(i) Generation Phase : In this phase, firms produce goods and services with the help of factor services.
(ii) Distribution phase : This phase involves the flow of factor income (rent, wages, interest and profit) from firm to the households.
(iii) Disposition Phase : In this phase, the income received by factors of production, is spent on the goods and services produced y firms.
Circular Flow in a Simple Economy (Two-Sector Economy)
A Simple economy assumes the existence of only two sectors i.e. household sector and firm sector. A household represents the owner of all factors of production and the consumers of goods and services. On the other hand, firms producer and sell goods and services to the households. It is the simplest form of closed economy, in which there is no government sector and foreign trade.
Assumptions :
- There are only 2 sectors in the economy : Household and firms. It means, there is no government and foreign sector.
- There are no savings in the economy, i.e. neither the households save from their incomes, nor the firms save from their profits.
- There is no government.
- It is a closed economy.
There are two types of circular flows : (i) Real flow (ii) Money flow
(i) Real flow : Real flow refers to the flow of factor services from households to firms and the corresponding flow of goods and services from firm to households. The household sector provides factor services to the firms which in turn provide goods services to them as a reward for their productive services.
(ii) Money Flow : Money flow refers to the flow of factor payments from firms to household for their factor services and the corresponding flow of money, from households to firms in the form of consumption expenditure on the purchase of goods and services produced by the firms.
The entire amount of money, which is paid by firms to the factor owner (households), is paid back by factor owners to the firms. So, there is a circular and continuous flow of money income. In the circular flow of income, production generates factor income which is converted into expenditure.
Value added Method
Concept of value Added : Value added is the addition of value to the raw material (intermediate goods) by a firm, by virtue of its productive activities. It is the contribution of an enterprise to the current flow of goods and services.
Value added is equal to the difference between value of output and value of intermediate inputs.
Value added= Value of output – Intermediate Consumption
Value added by each producing enterprise is also known as the Gross Value Added at Market price (GVAMP).
Value of Output : The market value of the goods and services produced during a period of one year is known as he value of output. Value of output includes the value of depreciation as it is calculated at the market price.
Value of output can be calculated by multiplying output with its price, i.e., Value of Output = Quantity * Price. For example, if a firm manufactures 2000 pairs of shoes annually and sells them @ Rs. 500 per pair, then : Value of Output = Rs. 10,00,000 (2000*500)
If a part of the output remains unsold, then such unsold stock is added to the value of sales. Unsold stock refers to the excess of closing stock over opening stock and is termed as change in stock. In such a case, the value of output is calculated as: Value of output = Sales+ Change in Stock
Where, Change in Stock = Closing stock – Opening stock
Intermediate Consumption
It refers to the value of non-factor inputs ( raw material, fuel, power, spare parts etc.), which is used in the production process. The value of factor inputs is not to be included in the intermediate consumption.
Final expenditure and intermediate expenditure
Final expenditure is the expenditure made on purchase of goods and services for final consumption and investment. On the other hand intermediate expenditure is the expenditure made by a firm on purchase of goods and services from other firms to be used as raw material or for resale in the same year.
Steps of Value Added Method
- Identity and classify the production units
An economy can be broadly divided into the following three sectors:
(i) Primary Sector
(ii) Secondary Sector
(iii) Tertiary Sector
All production units producing goods by exploiting natural are grouped in to primary sector. These include agriculture forestry, finishing, mining, quarrying etc.
All production units engaged in transforming one good (i.e. raw material etc.) into another good are classified into secondary sector. This includes production units engaged in manufacturing, construction, electricity generation, water supply.
All production units engaged in production services ae grouped into tertiary sector. These includes production units engaged in producing transport, communications trade, finance, real estate, community and personal services.
2. Estimate Gross Domestic Product at Market Price:
To estimate the gross domestic product at market price (GDPMP), we find out the gross value added at market price (GVAMP)) for each sector and, then take their sum to arrive at GDPMP i.e. sum total of GVAAMP (i.e. GDPMP=Σ GVAMP.
Calculate Domestic Income (NDPfc)
By Subtracting the amount of depreciation and net indirect taxes from GDPfc to arrive at the measure of national income.
NDPfc+NFIfa = NNPfc = National Income
Precautions of Value Added Method
(a) Intermediate Goods are not to be included: The value of intermediate goods is not included in the national income since it is already included in the value of final goods. If intermediate goods are included again, it will lead to double counting.
(b) Sale and Purchase of second-goods is not included: The value of sale and purchase of second-hand goods will not be included in the national income of current year since they were produced and sold as new to the final users. If used and old goods are sold again this does not represent any yet addition to the output of the current year.
(c) Domestic services are not included: Domestic services like the services of a housewife, kitchen gardening etc. are not included in the national income since it is difficult to measure their market value. Such services are also known as non-market transactions.
(d) Value of own account production in total output is to be included:
(i) Value of the goods, that are retained for consumption by the producer himself will be included in the national income as they contribute to the current output. For e.g. Output produced by farmers for self consumption must be included.
(ii) Similarly, the imputed value of the free services produced by genral government and private non-profit institution’s serving households must also be taken into account.
(e) Imputed value of owner occupied houses should be included: People who live in their own houses, do not pay any rent. But, they enjoy housing services similar to those people who stay in rented houses. Therefore, value of such housing services is estimated according to the market rent of similar accommodation and included in the national income. Such an estimated rent is called as imputed rent.
Income Method
Income method is also known as Distribution Share Method or Factor Payment Method. Under this method, incomes received by all the residents of a country for their productive services during a year are added up to obtain the national income. So, under Income Method all the incomes that accrue to the factors of production by way of wages, profits, rent, interest, etc.
Components of Domestic income
Components of Operation Surplus
(i) Rent: Rent is defined as amount receivable by a landlord from tenant for the use of his land. Rent includes both actual rent as well as imputed rent of self-occupied properties.
(ii) Royalty: Royalty refers to the income received to leasing the right of mining to others and for granting the rights of using patents, copyrights and trademarks.
(iii)
Interest: Interest refers to the amount received for lending funds to a production unit. It refers to the amount, which the borrower has to pay for borrowed funds. Borrowing is for two purposes: for making investment in business and for meeting consumtion expenditure. In national income accounting, interest, as a factor payment, is restricted to payment by production units obly. Interest paid by consumers is not a factor payment. Interest, as a factor income, includes both actual interest and imputed interest (interest on funds provided by the entrpreneur).
Steps of Income Method
Step 1. Identity and classify the production units
All the producing enterprises employing various factors of production are identified and classified into primary, secondary and tertiary sectors.
Step 2. Estimated the factor income paid by each sector
The income of the factors employed by each sector are classified under the following heads:
(i)Compensation
(ii) Operating Surplus
(iii) Mixed Income
Step 3. Calculate Domestic income (NDPFC)
When the factor incomes of all the sectors are summed u0p, we get domestic income or the net domestic product at factor cost NVAFC = NDPFC = Compensation of Employees+Operating Surplus + Mixed Income
Step 4. Estimate the net factor income from abroad (NFIFA) to arrive at National Income.
In the final step, the net factor income from abroad is added to domestic income to arrive at the National Income.
National Income = NNPFCHDPFC + Net factor income from abroad
Precautions of Income Method
(i) Transfer Incomes will bot be included:
a. Transfer earnings like scholarship, donations, charity, old age pensions etc are not included in the National Income because such receipt are not concerned with any productive activity and there is no value addition.
(b) Windfall gains will not be included: Windfall gains (like income from lotteries) are not included while calculating the national income as there is no productive activity connected with windfall gains.
(c) All taxes paid by production units like excise duty, sales tax, octroi, license fee, etc.
(ii) Income from sales of the second-hand goods will not be included: Any income or money received by selling second-hand goods will bot be included in the national income as their original sale has already been counted. Thus any capital gain associated with sale of second hand goods is not to be included. If the sale of second-hand goods is included again, it would mean counting of the same income twice.
(iii) Income from the sale of financial assets i.e. shares and bonds in not included: Income from the sale of financial assets like shares, debentures, bonds etc. will not be included in the national income as such transactions are not related to flow of goods and services. Such financial assets are mere paper claims, which reflect change in the ownership of assets.
(iv) Imputed value of factor services rendered by the owners of production units is included: For example, take the case of owner occupied houses. House owners are producers of housing services. The production unit, ig it has hiered these services, must pay rent. When these services are provided by the owner to themselves no such payments is made. As such, the imputed rental value of the services of house must be taken into account as payment of factor income to house owners.
Expenditure Method
Final expenditure means the expenenditure on final goods and services. Aggregate final expenditure is the sum total of the final expenditure is the sum total of the final expenditure incurred by households, business firms, government and foreigners. This total final expenditure is equal to the gross domestic product at market price.
Components of Final Expenditure
- Private Final Consumption Expenditure (PFCE) : It refers to the expenditure on the purchase of goods and services by households and private non-profit institutions serving households. It is divided into, three major sub-categories:
- Expenditure on non-durable goods such as food, beverages, etc. which are used immediately or within a short span of time;
- Expenditure on durable goods like TV, computer, car, etc. which are generally used for a longer period of time;
- Expenditure on services like transport services, medical services, etc.
- Government Final Consumption Expenditure (GFCE) : It refers to the expenditure incurred by general government on various administrative services with the aim of social welfare without any ingension of earning profits.
- Gross Domestic Capital Formation (GDCF) or Gross Investment : It refers to the addition to capital stock of the economy. It represents the expenditure incurred on acquiring good for investment by the production units located within the domestic territory. There are two components of GDCF: (i) Gross Fixed Capital Formation (ii) Inventory Investment.
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- Gross Fixed Capital Formation: It refers to the expenditure on purchase of fixed assets. This expenditure is generally divided into three sub-categories:
- Expenditure on business fixed investment, i.e. expenditure on the purchase of new plants, machinery, equipments, etc.
- Expenditure on residential investment, i.e. expenditure on purchase or construction of flyovers, roads, bridges etc. by government.
- Inventory Investments : It refers to the physical change in the stock of raw material, semi-finished goods and finished goods lying with the producers. Inventory investments item because it represents the goods produced but not used for current consumption. It is calculated as the difference between the closing stock and the opening stock of the years.
- Gross Fixed Capital Formation: It refers to the expenditure on purchase of fixed assets. This expenditure is generally divided into three sub-categories:
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Net Export (X-M)
It refers to the difference between exports and imports of a country during a period of one year. Expots (X) refer to the expenditure by foreigners on the purchase of domestic products whereas imports (M) refer to the expenditure by residents on foreign products.
Steps for Expenditure Method
- Classify production units into industrial sectors : Classify them into primary, secondary and tertiary sectors. Further, classify each sector into sub-sectors like agriculture, construction, trade, etc.
- Estimate final expenditure on goods and services produced by these industrial sectors : These final expenditure are categorized as follows:
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- Private final consumption expenditure (PFCE) : This is the sum of final consumption expenditure by househoolds and private non-profit institutions serving households.
- Government’s final consumption expenditure (GFCCE) : This equals the imputed value of services produced and provided by general government free to the people.
- Gross domestic capital formation (GDCF) : This equals the expenditure incurred on acquiring goods for investment by production units located within the domestic territory. There are three components of GDCF.
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- Purchased and own account produced durable goods.
- Net addition to the stocks of raw materials, semi-finished goods and finished goods.
The first component is called gross domestic fixed capital formation (GDFCF). The second component is called ‘net change in stocks’.
GDCF = GDFC + Net change in stocks -
- Net exports ( =Exports – Impots) : Exports represent goods and services sold to non-residents, i.e. to foreign countries, during a year.
Imports represent goods and services purchased from production units located outside the domestic territory. Imports are deducted to neutralize the import element in PFCE, GFCE and GDCF.
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- Take the sum of these final expenditure to obtain the measure of GDPmp
PFCE + GFCE + GDCF + net exports = GDPmp - Estimate the consumption of fixed capital and net indirect taxes and deduct these from GDPmp to get NDPfc.
GDPmp – Consumption of fixed capital – Net indirect tax = NDPfc. - Add net factor income from abroad (NFIfa) to NDPfc to get NNPfc.
NDPfc + NFIFA = NNPfc = National Income
Factor Income VS Transfer Income
| Basis | Factor Income | Transfer Income |
| Meaning | It refers to income received by factors of production for rendering factor services in the production process. | It refers to income received without rendering any productive service in return |
| Nature | It is included in both national income and in domestic income | It is neither included in national income nor in domestic income |
| Concept | It is a earning concept | It is a receipt concept |
| Recipient | It is receive by factors of production (land, labour, capital and enterprise ) | It is generally received by household and government |
| Example | Rent, Wages, Interest and Profit | Scholarship, old age pension, unemployment allowance etc |
Final Good VS Intermediate Goods
| Basis | Final Good | Intermediate Good |
| Meaning | Final Good are those good which are used for consumption or for investment | Intermediate Good refers to those goods which are used for either for resale or for further production in the same year |
| Nature | They are included in both national income and domestic Income | They are neither included in national income nor domestic Income |
| Demand | They have direct demand as they satisfy the wants | They have derived demand as their demand for final goods |
| Value Addition | They are ready for use by their final users i.e. no value has to be added to the final goods | They are not ready for use i.e. some value has to be added to the intermediate goods |
| Production Boundary | They crossed the production boundary | They are still within the production boundary |
| Example | Milk produced by household for consumption, car purchased as an investment | Milk used in dairy for resale, coal used in factory for further production |
Consumption Goods VS Capital Goods
| Basis | Consumption Goods | Capital Good |
| Satisfaction of Human Wants | These goods satisfy human wants directly. So, such goods have direct demand. | Such Goods satisfy human wants indirectly. So , such goods have derived demand |
| Production Capacity | They do not Promote production capacity | They help in raising production capacity |
| Expected Life | Most of the consumption goods( expected durable goods ) have limited expected life | Capital goods generally have an expected life of more than one year |
Components of NFIA
There are three components of NFIA
- Net compensation of employees: It refers to difference between income from work received by residents workers living or employed abroad for less than one year and similar payments made to non-resident workers staying or employed within the domestic territory of the country for less than one year.
- Net income from property and entrepreneurship : It refers to difference between income from property an entrepreneurship (in the form of rent, interest and dividend) received by residents of the country and similar payments made to the non-residents.
- Net retained earnings: It refers to difference between retained earnings of resident companies located abroad and retained earnings of non-resident companies located within the domestic territory of the country.
Domestic Income (NDPfc) Vs National Income (NNPfc)
Gross Domestic Product at Market Price Vs National Income
Comparison between Net Exports and Net Factor Income from Abroad
National Income at Current Price Vs National Income at Constant Price
GDP and Welfare
- Distribution of GDP : GDP shows the total goods and services produced in the country. However, it does not exhibit the structure of the product. If the increase in GDP is mainly due to increased production of war equipments and ammunitions (instead of machinery and cpaital equipments), then such an increase cannot be associated with any improvement in economic welfare.
- Change in prices : If increase in GDP is due to rise in prices and not due to increase in physical output, then it will not be a relicable index of economic welfare.
- Non-monetary exchanges : Many activities in an economy are not evaluated in monetary terms. For example, non-market transactions like services of housewife, kitchen gardening, leisure time activities, etc. are not included in GDP, due to non availability of data. However, such activities influence the economic welfare.
- Externalities : Externalities refer to benefits or harms of an activity caused by a firm or an individual, for which they are not paid or penalized. For example, envorinmental pollution caused by industrial plants. As such external effects do not form part of market transactions, GDP does not consider such negative externalities.
- Rate of population growth : GDP does not consider the changes in the population of a country. If rate of population growth is higher than the rate of growth of GDP, then it will decrease the per capital availability of goods and services, which will adversely affect the economic welfare.
Finally, it can be concluded that GDP may not be taken as a satisfactory measure of economic welfare due to above mentioned limitations, yet it does reflect some index of economic welfare.
Items included / excluded in National Income
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- Construction of new house:
Yes it will be included in the national income as it is a part of capital and leads to production of goods and services in the economy. - Winning of a lottery prize :
No, it will be included in the national income as it does not add to the flow of goods and services in the economy. - Increases in the prices of stocks lying with a trader :
No, it will not be included in the national income as it does not amount to any flow of goods. - National debt interest:
Or
Interest on public debt:
No, it is not included in the national income as it is the interest paid on loans takenby government to meet its consumption purposes. - Rent-free ouse given to an employee by an employer:
Yes, it is included in the national income by income method since it is a part of ‘wages in kind’ paid to employees. - Profit earned by foreign tourists:
No, it is not included in the national income as it is a part of the factor income paid abroad. It is subtracted from domestic income to get national income. - Purchase by foreign tourists
Or
Food purchased by a foreign tourist at a hotel in New Delhi:
Yes, purchase by foreign tourists are ‘exports’ and therefore, they are included in the national income through the expenditure method. - Rent received by Indian residents on their buildings rented out to foreigners in India:
Yes, it will be included in the national income as it is a part of the factor income from abroad. - Payements of fees to a lawyer engaged by a firm:
It is an intermediate expenditure for the firm because it involves purchase of services byt one production unit (firm) from another production unit (lawyer). So, it is deducted from the value of output of the firm to arrive at the value added. So, it is not included in national income. - Free medical facilities by the employer:
Or
Free boarding and lodging provided to a domestic servant:
Yes, it will be included in national income as these free services are part of compensation to employees. - Gifts received from abroad:
Or
Gift received from employer:
No it will be not be included in national income as gifts received are transfer incomes. - Profits of reliance industries from its chemicals business in Australia:
Yes, it will be included in the national income as it is a part of the factor income from abroad. - Salaries received by Indian residents working in Russian exbassy in India:
Yes, it will be included in the national income as it is a part of factor income from abroad. - Subsidized lunch served to workers in a factory:
Or
Firm incurred expenditure on medical treatment of employee’s famiuly:
Yes, it is apart of the compensation of employees and therefore, it will be included in the national income. - Old age pension:
No, it will not be included in the national income as it is a transfer payment made by the government and a transfer income for the receiver.
Old age pension must not be confused with retirement pension. Old age pension is not included in national income as it is transfer payment. On the other hand, retirement pension in included in national inbcome as it is a part of COE. - Durable goods purchased by a household:
Or
Purchase of car by a household:
Yes, it will be included in the national income as it is a part of the private final consumption expenditure. - Profits earned by an Indian bank from its branches abroad:
Yes, they will be included in the national income as it is a financial claim and does not contribute to any productive activity. - Earnings of shareholders from the sale of shares:
No, it will not be included in the national income as it is financial claim and does not contribute to any productive activity. - Expenditure on advertisement by a firm:
Or Commodities used in scientific research:
No, it will not be included in the national as it is part of intermediate consumption expenditure. - Petrol used in police vehicles:
No, it will not be included in national income as petrol is an intermediate good in this case. It is used for the provision of the final product (maintenance of low and order by the police). - Financial help received by flood victims:
No, it will not be ibncluded in the national income as it is a transfer income. - Purchase of a machine by a factory:
Or Purchase of a new taxi by a taxi-driver:
Yes, it will be included in the national income as it is a part of the gross domestic capital formation. - Royalty:
Yes, it will be included in the national income as royaty is a productive income. - commission on sale of second-hand goods:
Or Brokerage payment on sale of shares:
Yes, it will be included in the national income as it the income of a middleman for his productive services to various parties. - Dividend received by an Indian from his investment in shares of a foreign company:
Yes, it will be included in the national income as it is factor income from abroad. - Purchase of raw materials by a production unit:
Or Milk purchased by a sweet shop to make mild-cake:
No, it will be included in the national income as it is a mixed income. - Earnings of a self-employed doctor having a clinic at his own residence:
Yes, it will be included in the national income as it is a mixed income. - Money received from sale of second-hand goods:
Or Money received by government from sale of a public sector firm to a private owner:
No, it will not be included in the national income because receipts from the sale of second-hand goods are by virtue of transfer of an already existing object. - Imputed rent of self occupied houses:
Yes, it will be included in the national income as people living in such houses enjoy housing services similar to those in rented houses. - Contribution to provident fund by employer: Yes, it will be included in the national income as it is a part of the compensation to employees
- Value of interest foregone on loans provided by employer to employee: Yes, it will be included in the national income as it is a part of the compensation to employees
- Wheat grown by a farmer but used entirely for family’s consumption: Yes, it will be included in the national income because it adds to the current flow of goods and services. Therefor, its imputed value should be included
- Expenditure on the construction of a flyover by the government: Yes, it will be included in the national income as it is the income of the dealer for his productive service.
- Commission received by a dealer from the buyer and seller of the house: Yes, it will be included in the national income as it is the income of the dealer for his productive services.
- Growing vegetable in a kitchen garden of the house: No, it will not be included in the national income as it is difficult to estimate the value production( It is a non market transaction)
- Services rendered by family members to each other : No, it will not be included in the national income as it is difficult to estimate the value services provided by family members to each other.
- Expenditure by government in providing free education: Yes, it is included in the national income as it is a part of the private final consumption expenditure.
- Expenditure on free services provided by government: Yes, it is included in the national income as it is a part of the private final consumption expenditure.
- Free treatment of the poor in hospitals: Yes, it is included in the national income as it is a part of the private final consumption expenditure.
- Mineral wealth of a nation: It is a part of national wealth and is not included in national income. However, that part of mineral wealth which has been extracted during the current year will be included in national income under the product method.
- Value of wood purchased for manufacturing a table: No, it will be included in the national income as it is a part of intermediate consumption expenditure.
- Expenditure on the purchase of cold drinks by a school canteen from manufacture* No, it will be included in the national income as it is a part of intermediate consumption expenditure.
- Transport expenses by a firm: No, it will be included in the national income as it is a part of intermediate consumption expenditure.
- Purchase of equipments for installation in a factory: Yes, it will be included in the national income as it is a part of capital formation.
- Payment of wealth tax: No, it will not be included in the national income as it is a compulsory transfer payment to the government.
- Payment of Death duty: No, it will not be included in the national income as it is a compulsory transfer payment to the government.
- Entertainment tax received by the government: No, it will not be included in the national income as it is an indirect tax and a compulsory transfer payment received by the government.
- Salaries paid to Russians working in Indian embassy in Russian: No, it will not include in the national income as it is a part of the factor income paid abroad. It is subtracted from domestic income to get national income.
- Capital gains to Indian residents from sale of shares of a foreign company: No, capital gains will not be included in the national income as they do not add to th current flow of goods and services in the economy.
- Harish works in USA and sends money to his family in India: No it will not be included in the national income as it is a transfer payment.
- Destruction of building due to an earthquake:
No, it will not be included in the national income as it will not affect national income product directly. - HP uses its own new laptops in its office for self-consumption: Yes, it is included in the national income as it adds to current flow of goods and services. Therefore, imputed value of laptops should be included.
- Purchase of a truck to carry goods by a production unit: Yes, it will be included in the national income as it is a part of the gross domestic capital formation.
- Direct purchase made abroad by government: Yes, it will be included in the national income as it is a part of the government final consumption expenditure.
- Earning form a part time job in McDonalds by a student: Yes, it is included in the national income as it is a income as it is a income received for productive services.
- Receipt from sale of poverty, inherited from a relative: No, it will not be included in the national income as receipt from sale of such property is by virtue of transfer of an already existing object.
- Entertainment allowance to an employee for entertaining business guests: No, it will not be included in the national income as it is a intermediate consumption expenditure of the business.
- Expenditure on the purchase of shares of new company No. It will not be included in the national as it is a financial claim and does not contribute to Productive activity.
- Sale of bonds by a company: No. It will not be included in the national as it is a financial claim and does not contribute to Productive activity.
- Goods lying within the production boundary No Such goods will nOt beincluded in national income as goods 1,04 within the Production boundary are intermediate goods.
- Money received by a family in india from relatives working abroad: No it will not be included in the national income as it is a transfer receipt.
- Dividend received by a foreign from investment in shares of an Indian Company No, it is not included in the national income as it is a part of factor income paid abroad. It is subtracted front domestic income to get national income.
- Expenditure by father on marriage of his daughter No, it will not be included in the national income as it does not add to current flow of ,goods and services
- . Expenditure on the purchase of an old house: No, it will not be included in the national income because payment for purchase of second-hand goods is due to transfer of an already existing object.
- Purchase of house by a tenant: No, it will not be included in the national income because payment for purchase of second-hand goods is due to transfer of an already existing object.
- Purchase of rented factory building by the factor owner: No, it will not be included in the national income because payment for purchase of second-hand goods is due to transfer of an already existing object.
- Insurance money received from oriental insurance due to destruction of factory due to fire: No, it is not included in the national incane because it is a transfer receipt.
- Interest paid by banks on deposits by individuals: Yes, it will be included in the national income as such interest is paid on loan taken for productive purpose. It is a factor payment by a producer.
- Payment of interest by a government firm: Yes, it will be included in the national income as such interest is paid on loan taken for productive purpose. It is a factor payment by a producer.
- Payment of interest by a firm:
Yes, it will be included in the national income as such interest is paid on loan taken for productive purpose. It is a factor payment by a producer. - Interest received on loans given to a friend for purchasing a car: No, it will not be included in the national income because it is a non-factor receipt as the loan is not used for production but for consumption.
- Interest payment on loan taken by an individual to buy a motor cycle: No, it will not be included in the national income because it is a non-factor receipt as the loan is not used for production but for consumption.
- Payment of interest on a loan taken by an employee from the employer: No, it will not be included in the national income because it is a non-factor receipt as the loan is not used for production but for consumption.
- 62. Interest received on loan given to a foreign company in India: Yes, it will be included in national income as it is a part of factor income from abroad.
- Interest received on debentures: Yes, it will be included in the national income as such interest received is a factor income because debenture is a sort of loan taken by a production unit.
- Expenditure on improvement of fixed capital assets: Yes, it will be included in national income as it is a part of capital formation.
It must be noted that any expenditure on repairs of fixed assets will not be included in national income. - Expenditure on construction of a house: Yes, it will be included in national income as it is a part of capital formation.
It must be noted that any expenditure on repairs of fixed assets will not be included in national income. - Expenditure on adding a floor to the building:
Yes, it will be included in national income as it is a part of capital formation.
It must be noted that any expenditure on repairs of fixed assets will not be included in national income. - Scholarship given to Indian students studying in india by a foreign company:
- Expenditure by the government on scholarship to students: No, it will not be included in the national income as it is a transfer payment.
- Value of bonus shares received by shareholders of a company: No, it will not be included in national income as such bonus shares are mere paper claims and do not contribute to the production of goods and services.
- Pension paid to the retired employees: Yes, it is a part of the compensation of employees and, therefore, it will be included in the national income.
- Pension paid after retirement:
Yes, it is a part of the compensation of employees and, therefore, it will be included in the national income. - Expenditure on maintenance of building: No, it will not be included in the national income as it is a part of intermediate consumption expenditure.
- Expenditure on maintenance by a firm:
No, it will not be included in the national income as it is a part of intermediate consumption expenditure. - Payment of interest on borrowings by general government:
No, it will not be included in national income because it is a non-factor payment as general government borrows only for consumption purpose. - Family members working free on farm owned by family: Yes, imputed salaries of these members will be included in national income.
- Payment of bonus by a firm: Yes, it will be included in the national income as it is a part of the compensation to employees.
- Purchase of tractor by a farmer: Yes, it will he included in the national income as it is a part of the capital formation or investment by the farmer.
- Expenditure on fertilizers by a farmer: No, it will not be included in the national income as it is intermediate cost for the farmer and deducted from value of output while arriving at national income.
- Purchase of furniture by a firm:
Yes, it will be included in the national income as it is a part of the capital formation or investment by the firm. - Expenditure on education of children by a family: Yes, it is included in the national income as it is a part of the private final consumption expenditure.
- Payment of electricity bill by a school: No, it will not be included in the national income as it is an intermediate cost and will be deducted from the value of output while arriving at national income.
- Electricity consumed by a firm:
No, it will not be included in the national income as it is an intermediate cost and will be deducted from the value of output while arriving at national income. - Payment of excise duty by a firm: No, it will not be included in the national income as it is an indirect tax paid by the firm.
- 78. Festival gift from an employer: No, it will not be included in the national income as it is merely a transfer payment.
- Contribution to provident fund by employees: No, it is not included in the national income because such contribution is made by the employees from compensation of employees only. So, it is not separately included in the estimation of national income.
- Construction of new house:
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