GDP & National Income — Set 4

Correct Answer: C. C. National Income

National Income is a flow variable because it measures income generated over a specific time period (usually a year). Flow variables have a time dimension. In contrast, stock variables like national wealth, money supply, or capital stock are measured at a specific point in time without reference to a time period.

Correct Answer: A. A. 1948-49

India's first base year for National Income calculation was 1948-49. The base year has been revised multiple times: 1960-61, 1970-71, 1980-81, 1993-94, 2004-05, and most recently 2011-12 (in January 2015). Base year revisions are done to reflect structural changes in the economy.

Correct Answer: B. B. Corporate sector financial data for private investment estimation

MCA21 is the corporate database of the Ministry of Corporate Affairs that provides financial statements of registered companies. NSO uses MCA21 data to estimate the private corporate sector's contribution to GDP, replacing the earlier Annual Survey of Industries data. This was a key change in the 2011-12 base year revision.

Correct Answer: B. B. Excludes indirect taxes, includes subsidies

GDP (or GVA) at factor cost is measured without adding indirect taxes but including subsidies. It reflects the actual cost to factors of production. The relationship is: Market Price = Factor Cost + Net Indirect Taxes (indirect taxes - subsidies). Factor cost is closer to the actual earnings of production factors.

Correct Answer: D. D. Household savings deposits

Household savings deposits are NOT a direct component of GDP in the expenditure method. The components are: Private (Household) Consumption (C), Gross Capital Formation/Investment (I), Government Final Consumption Expenditure (G), and Net Exports (X-M). Savings are part of income disposal, not spending on current production.

Correct Answer: C. C. Market prices

India's official GDP estimates are measured at market prices (constant and current). GDP at market prices equals GVA at basic prices plus product taxes minus product subsidies. The current price GDP is the nominal GDP, while the constant price GDP (at 2011-12 prices) is the real GDP used for growth rate calculation.

Correct Answer: B. B. Compare GDP across countries by accounting for price level differences

Purchasing Power Parity (PPP) adjusts GDP comparisons across countries by accounting for differences in price levels. Under PPP, a country with lower prices appears relatively richer than its nominal GDP suggests. At PPP, India ranks as the 3rd largest economy, after the USA and China, reflecting its large population and lower price levels.

Correct Answer: A. A. P.C. Mahalanobis

The National Income Committee, chaired by Professor P.C. Mahalanobis along with D.R. Gadgil and V.K.R.V. Rao, provided India's first systematic estimate of National Income in 1951. This committee laid the foundation for systematic national income accounting in India. V.K.R.V. Rao had made earlier estimates of Indian national income.

Correct Answer: B. B. Excluded from official GDP estimates

Black economy transactions—including illegal activities, tax evasion, and unreported income—are excluded from official GDP estimates because they are not reported or captured in official statistics. This means official GDP understates the true size of economies with large informal or shadow economies. India's shadow economy is estimated at 20-25% of GDP.

Correct Answer: C. C. $480 billion

GNP = GDP + NFIA = $500 billion + (-$20 billion) = $480 billion. Negative NFIA means foreigners earn more within the country than nationals earn abroad. This is common in countries with large foreign investment and fewer citizens working overseas. GNP < GDP in such cases.