Part A: National Income and Related Aggregates
1. Conceptual Understanding (Written Work – 4 pages)
1.1. Definitions with Examples
1. Gross Domestic Product (GDP):
GDP is the total monetary value of all final goods and services produced
within the domestic territory of a country during an accounting year.
Example: If India produces cars, textiles, and software within its borders,
the value of all these goods and services adds to its GDP.
2. Net Domestic Product (NDP):
NDP = GDP – Depreciation
It measures the net output by subtracting depreciation (wear and tear of
capital goods) from GDP.
Example: If India’s GDP is ₹200 lakh crore and depreciation is ₹20 lakh
crore, then NDP = ₹180 lakh crore.
3. Gross National Product (GNP):
GNP = GDP + Net Factor Income from Abroad
It includes income earned by citizens abroad and excludes income earned
by foreigners in the domestic economy.
Example: If Indians earn ₹5 lakh crore abroad and foreigners earn ₹3 lakh
crore in India, GNP = GDP + ₹2 lakh crore.
4. Net National Product (NNP):
NNP = GNP – Depreciation
It reflects the net income of a country's residents from all sources.
Example: If GNP is ₹210 lakh crore and depreciation is ₹20 lakh crore,
NNP = ₹190 lakh crore.
5. National Income at Factor Cost:
It is the total income earned by the factors of production within the
country, measured at factor cost (excluding indirect taxes and including
subsidies).
Formula:
National Income (NI) = NNP at Market Price – Indirect Taxes + Subsidies
6. Personal Income vs. Disposable Income:
Personal Income (PI): Total income received by individuals,
including transfer payments (like pensions, subsidies).
Disposable Income (DI): PI – Personal Taxes. It is the income
available for spending and saving.
1.2. Differentiation
Concep
Factor Income Transfer Income
t
Earned in exchange for providing Received without rendering any
Meaning
factors of production service
Example Scholarships, Pensions,
Wages, Rent, Interest, Profits
s Unemployment allowance
Concep
Market Price Factor Cost
t
Price at which goods/services are Cost of production paid to
Meaning
sold (includes taxes) factors of production
Includes Indirect taxes Subsidies
Market Price = Factor Cost +
Formula
Indirect Taxes – Subsidies
2. Numerical Practice (Worksheet)
Question 1 (Expenditure Method):
Calculate GDP at Market Price:
Private Final Consumption Expenditure: ₹5000 crore
Government Final Consumption Expenditure: ₹2000 crore
Gross Domestic Capital Formation: ₹3000 crore
Net Exports: ₹(-500) crore (i.e., Imports > Exports)
Solution:
GDP (MP) = C + G + I + (X – M) = 5000 + 2000 + 3000 – 500 = ₹11,500
crore
Question 2 (Income Method):
Calculate National Income at Factor Cost:
Compensation of employees: ₹4000 crore
Rent: ₹1000 crore
Interest: ₹500 crore
Profit: ₹1500 crore
Net Factor Income from Abroad: ₹200 crore
Indirect taxes: ₹600 crore
Subsidies: ₹100 crore
Depreciation: ₹300 crore
Solution:
NNP at FC = Sum of factor incomes + NFIA
= 4000 + 1000 + 500 + 1500 + 200 = ₹7200 crore
Question 3 (Value Added Method):
Calculate GDP at Market Price:
Value of Output: ₹12,000 crore
Intermediate Consumption: ₹7000 crore
Indirect Taxes: ₹800 crore
Subsidies: ₹200 crore
Solution:
Gross Value Added (GVA at FC) = Output – Intermediate Consumption =
12,000 – 7000 = ₹5000 crore
GDP at MP = GVA at FC + Indirect Taxes – Subsidies = 5000 + 800 – 200 =
₹5600 crore
Question 4:
If GNP at MP is ₹15,000 crore and depreciation is ₹1,000 crore, calculate
NNP at MP.
Solution:
NNP at MP = GNP – Depreciation = ₹15,000 – ₹1,000 = ₹14,000 crore
Question 5:
If NNP at MP is ₹14,000 crore, indirect taxes are ₹1,000 crore and
subsidies are ₹200 crore, calculate National Income (NNP at FC).
Solution:
NNP at FC = NNP at MP – Indirect Taxes + Subsidies = 14,000 – 1,000 +
200 = ₹13,200 crore
3. Real-Life Application Activity
India’s GDP Growth (Past 5 Years)
GDP Growth
Year
Rate (%)
2020-
-6.6
21
2021-
8.7
22
2022-
7.2
23
2023-
6.5 (estimated)
24
2024-
6.8 (projected)
25
Bar Graph (Use in Word or Excel)
You can create a simple bar graph using this table in MS Word or Excel.
Commentary on Trends:
2020-21: India saw a sharp contraction (-6.6%) due to the COVID-
19 pandemic and lockdowns that disrupted economic activities.
2021-22: A strong recovery (8.7%) was observed due to increased
vaccination, policy stimulus, and reopening of the economy.
2022-23: Moderate growth (7.2%) continued, driven by
manufacturing and services.
2023-24 to 2024-25: Growth stabilized around 6.5%–6.8%, with
global slowdown and inflation being key concerns, but domestic
demand remained resilient.
