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Dr.

JP IAS ACADEMY

Dr. JP IAS ACADEMY

5. Which of the following could be categorized as capital


goods?

Ram Nagar, Coimbatore - 09


( www.drjpiasacademy.com)

1. Steel sheet used in an automobile manufacturing


plant

(Ph: 0422 - 4391758; Mob: + 91 - 78452 02153)

Indian Economy National Income


Accounting

2. Packing machine in a wafer (chips and wafer)


manufacturing plant

1. Which of the following activities is/are excluded from


calculation Gross Domestic Product?

3. Warehouse in a bottling plant


4. Oil rig owned by an oil company
5. Television set in an office cafeteria

2. Purchase of tyre by a car manufacturer

6. Battleship owned by defence force

1. Sale of a new car


3. Buying share of a car company

Which of the above statement(s) is/are correct?

4. Profits earned by a foreign-owned car company

A. 1, 2 and 4 only
B. 2, 3, 4 and 6 only
and 2 only D. 1, 2, 3 and 4 only

A. 1 and 4 only B. 2 and 3 only


D. 1, 2 and 4 only

C. 1 and 2 only

6. Consider the following statements:

2. With an increase in remittance money from abroad to


India :

AC
A

1. Indirect taxes should be deducted and subsidies


should be added to net national product at market prices to reach national income

1. Indias Gross Domestic Product will increase

2. Indirect taxes should be added and subsidies


should be deducted to net national product at
market prices to reach national income

2. Indias Gross National Product will increase


3. Indias National Income will increase
Which of the above statement(s) is/are correct?
B. 2 and 3

3. Indirect taxes and depreciation should be deducted and subsidies should be added to gross
national product at market prices to reach national income

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A. 1 and 3
3

C. 1

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Which of the above statement(s) is/are correct?

C. 1 and 2

D. 1, 2 and

3. Why are transactions in shares excluded from GDP


calculations?

4. Indirect taxes should be added and subsidies and


depreciation should be deducted from gross national product at market prices to reach national
income

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A. Because share market is speculative in nature


B. Because share market involves investment from
foreign investors called FIIs
C. Because buying
a share is not buying the product of a company
D. Because shares are virtual in nature and not real
goods

Dr

With reference to national income accounting in India, which of the above statement(s) is/are correct?
A. 1 and 4 only
D. 1, 2, 3 and 4

4. Which of the following conceal the real level of Gross


Domestic Product?

B. 2 and 4 only

C. 1 and 2 only

7. Quaternary sector implies


1. Black money in the economy

A. Activities related to mining and quarrying


B. Activities related to manufacturing
C. Fishing
activities
D. Research and developmental activities

2. Household services by women


3. Voluntary and charitable work
4. Pollution of a water body

8. Economic growth is usually coupled with

Which of the above statement(s) is/are correct?


A. 1 and 4 only
D. 1, 2, 3 and 4

B. 2 and 3 only

A. Deflation
B. Inflation
D. Hyperinflation

C. 1 and 2 only

C. Stagflation

Dr. JP IAS ACADEMY

14. In India, New GDP calculations will be based on

9. Match factors of production with remuneration


Factors of Production Remuneration

1. Market prices

(1) Human labour (i) Profit

2. Factor costs

(2) Capital (ii) Rent

A. 1 only B. 2 only
ther 1 nor 2

(3) Entrepreneurship (iii) Interest


(4) Natural resource (iv) Wage
A. iv, i, iii, ii
D. ii, i, iv, iii

B. iv, iii, i, ii

C. Both 1 and 2

D. Nei-

15. GDP can be determined in three ways, match the correct approach with the calculations

C. ii, iv, i, iii

Approaches Calculation A) Production approach


1. Rents + Interests + Profits + Statistical adjustments+Wages.

10. Gross domestic product (GDP) can also measure the


relative contribution of an industry sector. This is
possible because GDP is

B) Income approach 2. Consumption + Investment


+ Government spending + Net exports

A. A measure of value added rather than sales


B. To indicate the success or failure of economic policy C. A measure of sales added rather than value
D. To determine whether an economy is in recession

DE

C) Expenditure approach 3. Factor cost + Indirect


taxes - Subsidies on products
A. 3, 2, 1

B. 1, 3, 2

C. 2, 3, 1

D. 3, 1, 2

AC
A

11. For measuring output of domestic product, which 16. Value added means net contribution made by the firm
method is used
1. If we deduct depreciation in value added then we
obtain Gross Value Added
1. By multiplying the output of each sector by
their respective market price and adding them
2. If we include the value of depreciation from Gross
together
Value Added we obtain Net Value Added
2. By collecting data on gross sales and inventories
from the records of companies and adding them
together

A. 1 only B. 2 only
ther 1 nor 2

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A. 1 only B. 2 only
ther 1 nor 2

Which of the above statement(s) is/are correct?

C. Both 1 and 2

C. Both 1 and 2

D. Nei-

D. Nei17. Net National Product (NNP) at factor cost will be


identical to

12. In a global context, which of the following relation(s)


is/are correct?

1. National income (NI)


2. NNP at market prices - Indirect taxes + Subsidies

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A. World GDP > World GNI


B. World GDP
< World GNI
C. World GDP = World GNI
D. None of the above

3. NNP at market prices - Net indirect taxes

Dr

13. Considering the following statements:

Which of the above statement(s) is/are correct?


A. 1 only
3

1. The raw GDP figure of the upcoming financial


year is called the nominal GDP.

B. 2 and 3

C. 1 and 2

D. 1,2 and

2. The GDP adjusted for changes in money value 18. Gross domestic product (GDP) is called gross because its consumption does not exclude
in this way is called the real, or constant, GDP.
A. Depreciation of capital
B. Subsidies on con3. The factor used to convert GDP from current to
sumption
of
goods
C.
Earning
of foreign factors in
constant values in this way is called the GDP
host country D. Impact of price rise
deflator.
19. Which of the following is/are example(s) of intermediate goods?

Which of the above statement(s) is/are correct?


A. 3 only
3

B. 2 and 3

C. 1 and 2

D. 1, 2 and
1. Printing machine used by a publisher
2

Dr. JP IAS ACADEMY

A. Purchasing a new house B. Purchasing shares of


a company C. Purchasing debentures of a company
D. Purchase of a second hand car

2. Copper used by a firm for manufacturing utensils


Which of the above statement is/are correct
A. 1 only B. 2 only
ther 1 nor 2

C. Both 1 and 2

D. Nei-

25. Consider the following statements:


1. Gross Value Added (GVA) measures the contribution to the economy of each individual producer, industry or sector in the country.

20. Which of the following statement is correct?


A. National Income is always more than Gross Domestic Product B. National Income is always equal
than Gross Domestic Product C. National Income
is always less than Gross Domestic Product D. National Income may be less or more than Gross Domestic Product

2. It is used in the estimation of gross domestic


product (GDP).

3. GDP = GVA + taxes on products - subsidies on


products

21. Consider the following statements :

A. 2 only
B. 1 and 2 only
D. All of the above

DE

1. Gross Domestic Product contributed by any sector of an economy is proportional to the number
of people involved in that sector

Which of the above statement is/are correct


A. 1 only B. 2 only
ther 1 nor 2

C. Both 1 and 2

AC
A

2. Gross National Product contributed by any sector of an economy is proportional to the number
of people involved in that sector

D. Nei-

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22. Select the statement which correctly defines the difference between Factor Cost and Market Price

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A. Factor cost is the manufacturing price of any


product, while the Market Price includes the burden of indirect taxes on the product, too
B. While Market Price of a product includes the current rate of inflation, the Factor Cost does not
C. When the weight of the state taxes are added to
the Factor Cost it becomes Market Price
D. None of the above

Dr

23. Select the statement which correctly defines the difference between Factor Cost and Basic Price
A. Factor cost is the manufacturing price of any
product, while the Basic Price includes the subsidies on the product and excludes indirect taxes such
as VAT
B. While Basic Price of a product includes the current rate of inflation, the Factor Cost does not
C. When the state taxes are added to the Factor
Cost it becomes Basic Price
D. None of the above
24. For the calculation of GDP, which among the following activity(s) is/are considered
3

C. 2 and 3 only

Dr. JP IAS ACADEMY

Answers With Explanations

6. Answer: (B)
7. Answer: (D)

1. Answer: (B)
Explanation: Sale of a new car is calculated in GDP
because it is a final good. Purchase of tyre by a car
manufacturer is an intermediate good for a car and
hence not included in GDP. Buying share of a car
company is a transaction in financial products without
any real capital or product formation. Hence, it is also
excluded from GDP calculation. Profits earned by a
foreign-owned car company is included in GDP as it is
within the domestic territory of an economy. Hence,
only 2 and 3 are excluded from GDP calculations.

Explanation: The quaternary sector of the economy


is a way to describe a knowledge-based part of the
economy which typically includes services such as information generation and sharing, information technology, consultation, education, research and development, financial planning, and other knowledge-based
services

8. Answer: (B)
Explanation: When ever there is an Economic
growth inflation will be there and it should be in a
gradual manner.

2. Answer: (B)

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AC
A

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Explanation: Remittance money is Net factor Income from Abroad (NFIA). GDP doesnt include 9. Answer: (B)
NFIA. GNP is sum of GDP and NFIA. It is basically
sum of values of final goods and services produced by 10. Answer: (A)
nationals of an economy whether within or outside the
Explanation: GDP estimates are commonly used to
economic territory of the country. National income is
measure the economic performance of a whole country
Net National Product at factor cost and hence it also
or region, but can also measure the relative contribuincludes NFIA.
tion of an industry sector. This is possible because
GDP is a measure of value added rather than sales;
3. Answer: (C)
it adds each firms value added (the value of its output
Explanation: Shares are basically ownership of a
minus the value of goods that are used up in produccompany. By purchasing a share one just buys owning it)
ership of a company and not any actual goods or services. So it wont be contributing in the final goods 11. Answer: (C)
and services.
12. Answer: (C)
4. Answer: (D)
Explanation: World GDP is calculated by prod-

Dr

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uct produced around the world; World GNI or World


Explanation: Black money in the economy is unacGNP is calculated by product produced by enterprises
counted money. It is the money generated in illegal
owned around the world. The two would be the same
activities or legal activities for which tax has not been
if all of the productive enterprises in the world were
paid. This amounts to not reporting the production
owned by global citizens.
of goods and services in the economy and hence it
conceals the real level of GDP. Household services by
women and Voluntary and charitable work are forms 13. Answer: (B)
of care economy, hence it conceals the real level of
Explanation: The raw GDP figure of the current
GDP. Pollution of a water body is a form of Green
financial year is called the nominal GDP.
economy and it is not calculated in India while calcu14. Answer: (A)
lating GDP.
Explanation: The sum of the gross value added in
the various economic activities is known as GDP at
factor cost. GDP at factor cost plus indirect taxes
less subsidies on products = GDP at market price.
In India, still last year financial calculations were done
at factor cost and now its been changed to market
price.

5. Answer: (B)

Explanation: Any tangible asset that an organization uses to produce goods or services such as office
buildings, equipment and machinery as capital goods.
Steel sheets used in a manufacturing plant are example of intermediate goods. Capital goods are final
goods. A television set is an example of consumer
15. Answer : (D)
durable goods. All other are capital goods.
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Dr. JP IAS ACADEMY

16. Answer : (D)


Explanation: Value added means net contribution
made by the firm, if we include depreciation in value
added then we obtain Gross Value Added and if we
deduct the value of depreciation from Gross Value
Added we obtain Net Value Added.
17. Answer: (A)
18. Answer: (A)

Explanation: Gross means without tax or other contributions having been deducted
19. Answer: (B)

AC
A

DE

Explanation: Of the total production taking place


in the economy a large number of product do not end
up in final consumption and are not capital goods either. Such goods may be other producers as material
inputs. Examples are steel sheet used for making automobiles and copper used for making utensils. These
are intermediate goods, mostly used as raw material
or inputs for production of other commodities. These
are not final goods.
20. Answer : (D)

22. Answer: (D)

Dr

23. Answer: (A)

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21. Answer: (D)

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Explanation: National Income is Net National


Product at factor cost. To calculate GDP we have to
add Net Factor Income from abroad (NFIA) to arrive
at GDP. From GNP we have to deduce depreciation
and indirect taxes and subsidies to arrive at NNP at
factor cost National Income. So if sum of NFIA and
subsidies is greater than the sum of indirect taxes and
depreciation, National Income will be more than GDP
and vice versa.

24. Answer: (A)

25. Answer: (D)