National Income Accounting (Class 12 Economics)

Practise chapter-wise MCQs for Class 12 Economics — National Income Accounting. Every question comes with the correct answer and an explanation.

National Income Accounting (Class 12 Economics)

Practise chapter-wise MCQs for Class 12 Economics — National Income Accounting. Every question comes with the correct answer and an explanation.

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TL;DR: Practise chapter-wise MCQs for Class 12 Economics — National Income Accounting. Every question comes with the correct answer and an explanation.

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Practise chapter-wise MCQs for Class 12 Economics — National Income Accounting. Every question comes with the correct answer and an explanation.

National Income Accounting MCQs with Answers & Explanations

Q1. Net Indirect Taxes (NIT) is calculated as:

  1. Direct Taxes + Subsidies
  2. Direct Taxes - Subsidies
  3. Indirect Taxes - Subsidies ✓ (correct)
  4. Indirect Taxes + Subsidies

Explanation: Net Indirect Taxes (NIT) represent the difference between indirect taxes levied by the government and subsidies provided by the government. NIT = Indirect Taxes - Subsidies.

Q2. Which method of calculating National Income involves summing up the value added at each stage of production?

  1. Income Method
  2. Expenditure Method
  3. Product Method
  4. Value Added Method ✓ (correct)

Explanation: The Value Added Method (also known as the Product Method) calculates National Income by summing the net value added by all the producing units in the economy. Value added is the difference between the value of output and the value of intermediate consumption.

Q3. Which of the following is an intermediate good?

  1. Flour purchased by a bakery for making bread. ✓ (correct)
  2. A refrigerator bought by a household.
  3. A tractor used by a farmer for cultivation.
  4. A car sold by a manufacturer to a consumer.

Explanation: Intermediate goods are those goods that are used up in the production process of other goods or services. Flour purchased by a bakery is used to produce bread, hence it is an intermediate good.

Q4. Which of the following is the broadest measure of economic activity in an economy?

  1. Gross National Product (GNP)
  2. Gross Domestic Product (GDP) ✓ (correct)
  3. National Income (NI)
  4. Personal Disposable Income (PDI)

Explanation: GDP measures the total value of all final goods and services produced within the domestic territory of a country in a given period. While GNP, NI, and PDI are important, GDP represents the broadest measure of domestic production.

Q5. The sum of compensation of employees, operating surplus, and mixed income of self-employed is known as:

  1. Gross Domestic Product at Market Price
  2. National Income
  3. Net Domestic Product at Factor Cost ✓ (correct)
  4. Gross National Product at Factor Cost

Explanation: This sum represents the Net Domestic Product at Factor Cost (NDPFC). Operating surplus includes profits, interest, and rent. Compensation of employees is wages and salaries. Mixed income accounts for income of self-employed. These are the primary components of factor incomes earned domestically.

Q6. If a country's GDP is growing rapidly, but its Per Capita Income is stagnant, this implies:

  1. The country is experiencing significant economic growth and improving living standards.
  2. The country is facing a recession.
  3. The population growth rate is negative.
  4. The benefits of economic growth are not being evenly distributed. ✓ (correct)

Explanation: Per Capita Income is calculated by dividing National Income (or GDP) by the total population. If GDP is growing but Per Capita Income is stagnant, it means the population is growing at the same or a faster rate than GDP, indicating that the per person share of the economic output is not increasing, suggesting unequal distribution or very high population growth diluting the benefits of GDP growth.

Q7. Transfer payments are excluded from the calculation of National Income because:

  1. They do not involve the production of new goods or services. ✓ (correct)
  2. They are only received by specific groups of people.
  3. They are often paid in cash.
  4. They are difficult to measure accurately.

Explanation: Transfer payments, such as pensions and subsidies, are one-way receipts without any corresponding production of goods or services. Therefore, they do not contribute to the value of current output and are excluded from National Income calculations.

Q8. Which component is NOT included in the expenditure method of calculating GDP?

  1. Net Exports
  2. Interest Payments on National Debt ✓ (correct)
  3. Private Final Consumption Expenditure
  4. Government Final Consumption Expenditure

Explanation: The expenditure method sums up consumption, investment, government spending, and net exports. Interest payments on national debt are transfer payments and are not considered as expenditure on new goods and services, hence excluded.

Q9. Which of the following best defines Gross National Disposable Income (GNDI)?

  1. GDP + Net current transfers from abroad
  2. GDP + Net factor income from abroad
  3. GNP + Net current transfers from abroad ✓ (correct)
  4. GNP + Net factor income from abroad

Explanation: Gross National Disposable Income (GNDI) is calculated by adding net current transfers from abroad to Gross National Product (GNP). GNDI = GNP + Net current transfers from abroad.

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