National Income Accounting MCQ Quiz - Objective Question with Answer for National Income Accounting - Download Free PDF

The correct answer is Central Statistical Organization.

• In India, the estimate of National Income is prepared by Central Statistical Organization (CSO).
• Every year it issues a white paper on national income estimates.

Key Points

•  Central Statistical Organization:
  • The Central Statistical Organisation (CSO) is responsible for the coordination of statistical activities in the country, and evolving and maintaining statistical standards.
  • Its activities include National Income accounting, the conduct of annual survey of Industries, Economic Census and its follow up surveys.
  • The Central Statistical Organisation also publishes Consumer Price Indices for urban non-manual employees, Human Development Statistics, etc.
  • The Central Statistical Organisation is located in Delhi. Some portion of industrial statistics work pertaining to an annual survey of industries is carried out in Calcutta.
  • It was set up in May 1951 in the Cabinet Secretariat with the primary objective of providing technical leadership in building up the statistical system in the country.
• National Income:
  • In a layman's language, national income means the total value of goods and services produced annually in a Country.
  • According to National Income Committee, "A national income estimate measures the volume of commodities and services turned out during a given period, counting it without duplication".

Additional Information

• Planning Commission:
  • The Planning Commission of India was constituted by the Government of India on the resolution of the Cabinet on 15th March 1950. It is neither mentioned in the Constitution nor it has been established by an act passed by the parliament.
  • On 1^st January 2015, a Cabinet resolution was passed to replace the Planning Commission with the newly formed NITI Aayog (National Institution for Transforming India).
• Reserve Bank of India:
  • The Reserve Bank of India was established on April 1, 1935, in accordance with the provisions of the Reserve Bank of India Act, 1934.
  • The central office of the Reserve Bank of India was initially established in Kolkata but was permanently moved to Mumbai in 1937.
  • Reserve Bank of India (RBI) is the Central Bank and supreme monetary authority of India.

The correct answer is Privatization.

Key Points

• Disinvestment in India is a policy of the Government of India, wherein the Government liquidates its assets in the Public sector Enterprises partially or fully.
• The decision to disinvest is mainly to reduce the fiscal burden and bridge the government's revenue shortfall. 

Important Points

1. Privatization is considered to bring more efficiency and objectivity to the company, something that a government company is not concerned about.
2. India went for privatization in the historic reforms budget of 1991, also known as the 'New Economic Policy or LPG policy'.
3. The transfer of ownership, property, or business from the government to the private sector is termed privatization. The government ceases to be the owner of the entity or business.
4. The process in which a few people take over a publicly-traded company is also called privatization. The company's stock is no longer traded in the stock market and the general public is barred from holding a stake in such a company. 

Additional Information

1. Globalization, or globalization, is the process of interaction and integration among people, companies, and governments worldwide. 
2. liberalization, the loosening of government controls. Although sometimes associated with the relaxation of laws relating to social matters such as abortion and divorce, liberalization is most often used as an economic term.
3. Industrialization is the transformation of a society from agrarian to a manufacturing or industrial economy. 

Hence, In India disinvestment in the public sector units is called Privatization.

The correct answer is Gross Domestic Product.

Key Points

• Gross Domestic Product (GDP) refers to the total monetary value of all finished goods and services produced within a country's borders in a specific time period.
• It is a crucial indicator used to gauge the economic health and size of a country’s economy.
• GDP is calculated based on three main approaches: the production approach, the income approach, and the expenditure approach.
• GDP can be expressed in nominal terms (current prices) or real terms (adjusted for inflation).
• It serves as a key metric for policymakers, economists, and investors to analyze economic performance and make informed decisions.

Additional Information

• Types of GDP:
  • Nominal GDP: Measures the monetary value of goods and services at current market prices without adjusting for inflation.
  • Real GDP: Adjusts for inflation to reflect the true economic growth by valuing goods and services at constant prices.
  • GDP Per Capita: Represents GDP divided by the population, indicating the average economic output per person.
• GDP Calculation Approaches:
  • Production Approach: Calculates GDP based on the value of output produced by industries minus the value of intermediate goods.
  • Income Approach: Sums up all incomes earned (wages, profits, rents) within an economy.
  • Expenditure Approach: Measures GDP based on total spending on goods and services (consumption, investment, government spending, net exports).
• GDP Limitations:
  • Does not account for informal or unreported economic activities.
  • Fails to measure income inequality or environmental sustainability.
  • Does not reflect the overall well-being or quality of life of citizens.
• Global Context:
  • Countries like the United States, China, and India are among the largest contributors to global GDP.
  • GDP growth rates are often used to compare economic performance between nations.

The correct answer is Per capita income.

Key Points

• Per capita income or average income measures the average income earned per person in the given area in a specified year.
• It is calculated by dividing the area's total income by its total population.
• In World Development Reports, brought out by the World Bank, this criterion is used in classifying countries.
• Countries with a per capita income of US$ 12,056 per annum and above in 2017, are called rich countries.
• Countries with a per capita income of US$ 955 or less are called low-income countries.
• India comes in the category of low-middle-income countries because its per capita income in 2017 was just US$ 1820 per annum.
• The rich countries, excluding countries of the Middle East and certain other small countries, are generally called developed countries.

Additional Information

• Annual income is the total value of income earned during a fiscal year.
• Fiscal Year (FY) A fiscal year (FY) is a 12-month or 52-week period of time used by governments.
• GDP stands for "Gross Domestic Product".
  • It is the total monetary or market value of all the finished goods and services produced within a country’s borders in a specific time period.

The Correct Answer is V Five-Year Plan.

Key Points

• India recorded the highest growth rate of National Income during V Five Year Plan. (111.2% growth)
• The Fifth(5th) Five-Year Plan focused on poverty eradication (Garibi Hatao), employment, and justice.
• Fifth Five Year Plan duration was 1974 to 1979.
• In this plan, the priority was given to the agriculture sector, and then to the industry and mines.
• Overall this plan was a success which gained a growth of 4.8% against the target of 4.4%.
• The draft of this plan was created and released by the D.P. Dhar. This plan was put to an end in 1978.
• Rolling Plan: This plan was introduced with an annual plan for 1978-79 and as an extension of the terminated fifth-five year plan.

Important Points

•  Five Year Plan in India
  • Five-year plans were started in India during the time of Jawaharlal Nehru.
  • India's first five-year plan was started in 1951.
  • The 12th Five Year Plan i.e. from 2012-2017 was the last Five Year Plan of India.

The correct answer is Corporate tax.

Key Points

• Direct taxes are paid in entirety by a taxpayer directly to the government.
• The tax where the liability, as well as the burden to pay it, resides on the same individual.
• Direct taxes include tax varieties such as income tax, corporate tax, wealth tax, gift tax, expenditure tax etc.​
• Types of direct tax include :
  • Income Tax: Levied on and paid by the same person according to tax brackets as defined by the income tax department.
  • Corporate Tax: Paid by companies and corporations on their profits.
  • Wealth Tax: Levied on the value of the property that a person holds.
  • Estate Duty: Paid by an individual in case of inheritance.
  • Gift Tax: An individual receiving the taxable gift pays tax to the government.
  • Fringe Benefits Tax: Paid by an employer that provides fringe benefits to employees, and is collected by the state government.

Additional Information

• Indirect tax
  • Taxes, where the liability to pay the tax, lies on a person who then shifts the tax burden to another individual.

The correct answer is Banking method.

Key Points

• National income is the total value of a country’s final output of all new goods and services produced in one year.
• Methods of measuring national income are:

1. Expenditure Method - Under this method, we estimate the disposal of income on the purchase of final goods and services.
2. Income Method - The Income Method measures national income from the side of payments made to the primary factors of production in the form of rent, wages, interest, and profit for their productive services in an accounting year. 
3. Production method - In this method, national income is measured as a flow of goods and services. This method is also called an output method.

Additional Information

• Measurement of National Income
  • There are three methods to measure national income:
    1. Income Method
    2. Production (Value-Added) Method
    3. Expenditure Method
  • Measurement of National Income – Income Method
    • Estimated by adding all the factors of production (rent, wages, interest, profit) and the mixed-income of self-employed.
    • In India, one-third of people are self-employed
    • This is the ‘domestic’ income, related to the production within the borders of the country
  • Measurement of National Income – Production Method
    • Estimated by adding the value added by all the firms.
    • Value-added = Value of Output – Value of (non-factor) inputs
    1. This gives GDP at Market Price (MP) – because it includes depreciation (therefore ‘gross’) and taxes (thus ‘market price’)
    2. To reach National Income (that is, NNP at FC)
    • Add Net Factor Income from Abroad: GNP at MP = GDP at MP + NFIA
    • Subtract Depreciation: NNP at MP = GNP at MP – Dep
    • Subtract Net Indirect Taxes: NNP at FC = NNP at MP – NIT
  • Measurement of National Income – Expenditure Method
    • The expenditure method to measure national income can be understood by the equation given below: 
      • Y = C + I + G + (X-M),
      • where Y = GDP at MP, C = Private Sector’s Expenditure on final consumer goods, G = Govt’s expenditure on final consumer goods, I = Investment or Capital Formation, X = Exports, X- M = Net Exports (difference between exports (X) and imports (M))

Important Points

• GDP: Gross Domestic Product is the sum of the money of all the final goods and services produced solely within the boundaries of a country, at a specific time.
  • GDP includes the income of foreigners staying in the country.
  • It excludes the income of nationals of the country staying abroad and also excludes the remittances sent from abroad.
• GNP: Gross National Product is the sum of the money of all the final goods and services produced both within and outside of a country by nationals during a specific period of time.
  • GNP includes remittances.
  • It excludes income generated locally by non-nationals.

The correct answer is None of the above.

Key Points

• GDP:
  • GDP’s full form is Gross Domestic Product is evaluated regularly to account for changing production structure, relative prices, and better recording of economic activities.
  • Gross Domestic Product (GDP) is the total money value of final goods and services produced in the economic territories of a country in a given year. Hence, statement 1 is not correct.
  • Non-monetary goods and services (e.g. cooking by housewife) are not included in GDP calculation. Hence, statement 2 is not correct.
  • Economic transactions virtually include everything economic in the country. For e.g., if a stockbroker sells and purchases the same stock worth Rs. 1000 five times in a day, it does not increase the GDP of the country by Rs. 5000.
  • Economic transactions may also include buying and selling of bonds, FII inflows, and outflows, etc. Hence, statement 3 is not correct.
  • GDP includes the value of all goods and services produced within a country within a year.
• Source Link- https://ncert.nic.in/ncerts/l/leec102.pdf

The correct answer is the National Statistical Office.

Important Points

• The National Sample Survey Office became the National Statistical Office (NSO).
• The National Sample Survey Office (NSSO) is now merged with the Central Statistical Office to form the National Statistical Office (NSO).
• This merger was approved by the Government on 23rd May 2019.

Key Points

• Recently cabinet approved the merger of CSO and NSSO into the National Statistics Office.
• The Ministry of Statistics and Programme Implementation approved the merging of the Central Statistics Office (CSO) and National Sample Survey Office (NSSO) into a single statistics wing, which will be known as the National Statistical Office (NSO).
• The NSO would be headed by the Secretary, Ministry of Statistics and Programme Implementation. A committee will be constituted to recommend the operational steps required for the merger. Note that a proposal to create the NSO by merging the NSSO and CSO had been made earlier in July 2005.
• Currently, the CSO, an attached office of the Ministry, coordinates statistical activities in the country and evolves statistical standards.
• The NSSO, a subordinate office (field agency) under the Ministry, conducts large scale sample surveys across diverse fields on an all India basis and publishes the results.
• The Ministry of Statistics and Programme Implementation comprises of
  • The Statistics wing (National Statistical Organisation), and
  • The Programme Implementation wing.
  • The National Statistical Organisation consists of Central Statistics Office (CSO), and the National Sample Survey Office (NSSO). 

The correct answer is It is included only in intermediate goods.

Key Points:

• The following are the main characteristics of national income:
  • Macroeconomic concepts include national income.
  • Taking into account the monetary value of goods and services is national income.
  • An extended period of time is used to measure national income.
  • Considerations for national income include the net total values of products and services.
  • National income solely takes into account the value of final items to prevent double counting.
• When calculating national income, the value of intermediate items is not taken into account.
• Net factor income from abroad is included in national income (NFIA).

Additional Information:

• In the simplest terms, national income refers to a country's riches.
• The value of the commodities and services generated in an economy serves as a gauge of its prosperity.
• It represents the overall monetary worth of the commodities and services that a country produces in the course of a fiscal year.
• Rent, wages, profits, and interests are a few examples of payments that can be paid to different kinds of resources.
• The idea of national income is under the ambit of macroeconomics.

The correct answer is Gross National Product.

Key Points

• Net National Product (NNP):
  • NNP is obtained by subtracting depreciation value (i.e. capital stock consumption) from GNP.
  • Net National Product (NNP) = Gross National Product − Depreciation.

Additional Information

• Gross Domestic Product (GDP):
  • It is the total money value of all final goods and services produced within the geographical boundaries of the country during a given period of time.
  • GDP = C + G + I
    • C = Consumption expenditure
    • G = Government expenditure
    • I = Investment expenditure
• Gross National Product (GNP):
  • It refers to the money value of the total output of production of final goods and services produced by the nationals of a country during a given period of time, generally a year.
• National Income (NI):
  • When NNP is calculated at factor cost (FC) it is called National Income.
  • The measure is calculated by deducting indirect taxes and adding subsidies in NNP at Market Price (MP).
  • In India, the Wholesale Price Index (WPI) is the weighted average price of 676 items with the base year 2011-12.

The correct answer is the Co-existence of the public and private sectors.

Key Points

• A mixed economy is an economy organized with some free-market elements and some socialistic elements, which lies on a continuum somewhere between pure capitalism and pure socialism.
  • It refers to a type of economy where the public and private sectors coexist.
  • Mixed economies typically maintain private ownership and control of most of the means of production, but often under government regulation.
  • Mixed economies socialize select industries that are deemed essential or that produce public goods.
  • The public sector works alongside the private sector but may compete for the same limited resources.
  • Mixed economic systems do not block the private sector from profit-seeking, but do regulate business and may nationalize industries that provide a public good.

Important Points

• India is a mixed economy.
• In fact, all known historical and modern economies fall somewhere on the continuum of mixed economies.

The correct answer is GDP - Depreciation.

Key Points

• Net domestic product (NDP) is an annual measure of the economic output of a nation that is adjusted as per the depreciation effect.
• The NDP is calculated by subtracting depreciation from the gross domestic product (GDP).
• An increased NDP indicates growth in economic health, while a decrease would indicate a slowdown of the economy of the country.
• Depreciation is the measure of the decreased monetary value of an asset over time due to use, wear and tear, or obsolescence.

Additional Information Gross National Income (GNI)

• Gross National Income (GNI) is the total amount of money earned by a nation's people and businesses.
• It is used to measure and track a nation's wealth from year to year.
• The number is calculated using the nation's gross domestic product (GDP) plus the income it receives from abroad.
• India GNI per capita for 2020 was $1,900.

Net National Product (NNP)

• Net national product (NNP) is the monetary value of finished goods and services produced by a country's citizens, overseas and domestically, in a given period.
• It is the equivalent of the Gross National Product (GNP), the total value of a nation's annual output, minus the depreciation.
• NNP is often examined on an annual basis as a way to measure a nation's success.

The correct answer is National Statistical Office (NSO).

Key Points

• The National Statistical Office (NSO), Ministry of Statistics and Programme Implementation is the nodal agency for Estimates of National Income.
   
• CSO was merged with National Sample Survey Office (NSSO) to form the National Statistical Office (NSO) in 2019.
   

Method of Calculating National Income:

• Product Method
• Income Method
• Consumption Method

Additional Information

History of National Income Estimation In India:

• The first attempt to calculate the National Income of India was made by Dadabhai Naoroji in 1867- 68.
• The first official attempt was made by the National Income Committee headed by Professor P.C. Mahalanobis in 1949.

RBI: The Reserve Bank of India is India's Central bank which controls the issue and supply of Indian rupees.

Ministry of Finance: It is the ministry within the government of India, concerned with the economy of India.

The correct answer is Decreases.

The value of money during inflation decreases.

Key Points

Inflation:

• Inflation is a persistent rise in the price levels of goods and services leading to a fall in the currency’s purchasing power.
• Causes of Inflation:
  • Printing too much money.
  • Increase in production cost.
  • Tax rises.
  • A decline in exchange rates.
  • War or other events causing instability.
  • Increase in money supply in the economy
• Measures to Control Inflation:
  • Increasing the bank interest rates.
  • Regulating fixed exchange rates of the domestic currency.
  • Controlling prices and wages.
  • Providing cost of living allowances to citizens.
  • Regulating black and speculative market.