Solution
AT -1 (2025-26)
Class 12 - Economics
1. Read the text carefully and answer the questions:
Factor Income is the progression of income that is obtained from the general factors of products utilized in the creation of
merchandise or service so as to make a monetary benefit. Factor income on the utilization of land is called rent, income produced
from work is called wages, and income created from capital is called benefit. The factor income of every single typical occupant
of a nation is alluded to as the National income, while factor salary and current exchanges together are alluded to as private
income.
Factor income is used to analyze macroeconomic situations and to find out the difference between the gross domestic product and
gross domestic income which is also the difference between the total value of the goods and services produced in a country and
the net income of the citizens of the country. This helps the government understand the magnitude of income of the country's
citizens and the citizens living abroad.
Transfer payment (also called a government transfer or simply transfer) is a redistribution of wealth by means of the
government making a payment, without goods or services being received in return. These payments are considered to be non-
exhaustive because they do not directly absorb resources or create output.
(i) (d) transfer payments
Explanation:
transfer payments
(ii) (c) factor income
Explanation:
factor income
(iii) (d) factor income
Explanation:
factor income
(iv) (c) transfer payments
Explanation:
transfer payments
2.
(d) Flow of factor payment from firms to household
Explanation:
Flow of factor payment from firms to household
3. (a) Addition to the stock of capital
Explanation:
Investment is a flow concept.
4.
(c) Static concept
Explanation:
It is a static concept.
5. (a) Purchase of foodgrains by a hotel.
Explanation:
Purchase of foodgrains by a hotel because it is for resale.
6.
(b) Stock
Explanation:
Stock
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7.
(c) Indirect taxes-Subsidies
Explanation:
Indirect taxes-Subsidies is used to restore the parity between Domestic product at market price and Domestic product at factor
cost.
8.
(c) Net Domestic Product at factor cost
Explanation:
Net Domestic Product at factor cost
9.
(b) Wheat used by a flour mill
Explanation:
Wheat used by a flour mill
10.
(b) Payment of Corporation Tax
Explanation:
Payment of Corporation Tax
11.
(c) Both Increase in Domestic Income and Decrease in National Income
Explanation:
Both Increase in Domestic Income and Decrease in National Income
12. a. Consumption and saving are always equal to income because income is either consumed or saved. It implies that consumption
and saving curves representing consumption and saving functions are complementary curves.
b. Taxes are a compulsory payment made to government by the household. By lowering the tax burden, the government
increases disposable income of the households. Accordingly, AD is raised and deficient demand is managed.
Gross Domestic Product at Market Price (GDPMP) Basis National Income (NNPFC)
13.
It is a national concept as it includes the value
It is a territorial concept as it includes the value of final goods Nature of
of final goods and services produced in the
and services produced within the domestic territory of a country. Concept
entire world.
It considers all the producers within the domestic territory of the Category of It considers the producers who are normal
country. Producers residents of the country.
Net Indirect It is at factor cost i.e., it excludes net indirect
It is at market price, i.e. it includes net indirect taxes.
taxes taxes.
It is inclusive of depreciation. Depreciation It does not include depreciation.
14. a. Private Income = Income from domestic product accruing to private sector + Current transfers from government
administrative departments + Net factor income from abroad ( or - Net factor income to abroad) + Current transfers from rest
of the world ( or - Current transfer to rest of world)
= Rs. 4,500 crore + Rs. 200 crore + (-) Rs. 50 crore + Rs. 80 crore= Rs. 4,730 crore
Private income = Rs. 4,730 crore.
a. Personal Disposable Income =
Personal disposable Income = Personal Income (Private Income – Corporation Tax – Undistributed Profits )- Direct tax paid
by households – Miscellaneous receipts of Government administrative undertakings
=4150 ( Rs. 4,730 crore - Rs. 80 crore - Rs. 500 crore ) - Rs. 150 crore - Rs 0
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= Rs. 4 000 crore
Personal disposable income = 4,000 crore.
15. i. As the profits earned by a branch of the foreign bank is a factor income paid to abroad. It will 'not be included' while
estimating' National Income.
ii. As the loan is taken for consumption purpose, interest paid by an individual on loan taken to buy a car will 'not be included'
while estimating National Income.
iii. As the expenditure on machines for installation in a factory is a capital formation by factory management, it will be 'included'
while estimating National Income.
16. i. No, it will not be included in the national income as it is difficult to estimate the market value of production. It is a non-
monetary production or non-monetary exchange.
ii. Yes, Production of tobacco products, liquor, etc. is included in the national income since output is produced.
iii. No, national income does not include negative externalities though they reduce welfare of people.
17. a. Net value added at market prices
= (Domestic sales + Exports + Increase in stocks)
- (Purchase of raw materials and other inputs from the domestic market
+ Imports of raw materials) - Depreciation
= (1800 + 200 + 200) - (600 + 100) - 75 = ₹ 1425 lakh
Net value added at market price = Rs.1425 lakh
b. Net value added at factor cost
= Net value added at market prices - Indirect taxes
= 1425 - 50 = ₹ 1375 lakh
Factor Incomes
= Salaries and wages + Interest + Rent + Dividends + Undistributed profits + Corporate tax
= 600 + 450 + 75 + 150 + 80 + 20 = ₹ 1375 lakh
factor income = Rs.1375 lakh
Hence, net value added at factor cost is equal to the sum of factor incomes which is correct.
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