Q: Which one is not a major cause of income inequality in India?

Countries especially like India faces a great deal of unequal distribution of wealth. The main reasons for this include the people leaving behind an immense properties to their inherits, private property possession is another reason, difference in natural quality can be considered as one of the reasons. Gap between rich and poor and increased population are other causes for unequal distribution of wealth. Among the given options lack of fertile land cannot be considered as the reason for income inequalities.

Question 1

From the following data, calculate National Income by Income method and Expenditure method:ItemRs. in crores(i)Compensation of employees700(ii)Government final consumption expenditure750(iii)Net factor income from abroad(-) 10(iv)Net exports(-) 15(v)Profits600(vi)Net indirect taxes60(vii)Mixed income of self-employed350(viii)Rent200(ix)Interest310(x)Private final consumption expenditure1100(xi)Net domestic capital formation385(xii)Consumption of fixed capital65

Accepted Answer

National  income  (income  method)  =  Compensation  of  employees  +  Profits  +  Rent  +  Interest  +  Mixed  income  of  self  employed - Net factor income to abroad = 700 + 600 + 200 + 310 + 350 - 10 = 2150 crores National  income  (expenditure  method)  =  Govt.  final  consumption  expenditure+Net  domestic  capital  formation+Net  exports+Private final consumption expenditure-Net indirect taxes-Net factor income to abroad=750 + 385 - 15 + 1100 - 60 - 10 = 2150 crores.

Question 2

Explain the precautions that should be taken while estimating national income by expenditure method.

Accepted Answer

Precautions Regarding Calculation of National Income by Expenditure Method 1. Expenditure on only final goods and services should be included in the national income estimation while intermediate consumption expenditure should not be included. 2. Similarly, expenditure on the purchase of second hand goods should not be included in the national income estimation of the current accounting year. This is because they have already been included in the national income of the accounting year in which they were originally purchased. 3. Expenditure on shares and bonds is not included. This is because these are mere financial assets and do not reflect any production activity of the goods or services. 4. Imputed value of the goods and services produced for self consumption are included. 5. Expenditure on transfer payments by the government should not be included. This because such payments are not related to any production activity in an economy.

Question 3

Calculate Indirect Taxes from the following data:ParticularsRs. in crores(i) NDP at FC(ii) Subsidies(iii) Factor income from abroad(iv) Consumption of Fixed Capital(v) Factor income to abroad(vi) GNP at MP55,9151,5406351,62586558,350

Accepted Answer

Formula: Indirect tax =    NDP at FC - GNP at MP + Consumption of Fixed capital  + Factor income from abroad -  Factor income to abroad                                        = 55915 - 58350 + 1625 + 635 - 865                                        =( - ) 1040.

Question 4

Classify the following as Stock and Flow:(i) Amount of bank deposits as on 31.03.2017(ii) Losses(iii) Production of cement in the year 2017(iv) Profit(v) Population of India as on 31st March, 2017(vi) Number of literate people as on 31.03,2017(vii) Savings(viii) National income of a country(ix) Capital(x) Number of persons employed during December(xi) Balance in a bank account(xii) Raw material in a godown as on 31st Jan, 2018(xiii) Production(xiv) Wealth(xv) Gross domestic product

Accepted Answer

(i) Stock as they are related to a point of time(ii) Flow as losses are measured over a period of time(iii) Flow as production is measured over a period of time(iv) Flow as profit is measured over a period of time(v) Stock as population is related to a point of time(vi) Stock as it is related to a point of time(vii) Flow as savings are related to a period of time(viii) Flow as national income is related to a period of time(ix) Stock as capital is related to a point of time(x) Flow as ti is related to a period of time.(xi) stock as it is related to a point of time(xii) Stock as it is related to a point of time(xiii) Flow as production is measured over a point of time(xv) Flow as gross domestic product is measured over a period of time

Question 5

'Machine purchased is always a final good.' Do you agree with the statement? Give reasons for your answer.

Accepted Answer

'Machine purchased is always a final good'- this statement is not true. For example: A machine purchase by a manufacturing company is a capital good which is to be used in the process of production. In this case, machine is the fixed asset of the producer. While, the same machine is purchased by a consumer, it is considered as a final good(durable-use consumer good).

Question 6

Distinguish between stock and flow. Between net investment and capital which is a stock and which is a flow?

Accepted Answer

Stock Flow  Stock relates to a point of time  Flow relates to a period of time.  Stock is not time dimensional. Flow is time dimensional as per hour, per month, per year. Stock influences the flow. Greater the glow of capital, greater is the flow of goods and services. Flow influences the stock. For example: monthly increase in the supply of money leads to an increase in the quantity of money.  Example: Wealth, capital, etc.  Example: Income, capital formation.Between net investment and capital, capital is a stock since it is measured over a point of time and net investment is a flow since it is measured over a specified period of time.

Question 7

Describe the four major sectors in an economy according to the macroeconomic point of view.

Accepted Answer

Four major sectors in an economy according to the macroeconomic point of view are:a) Household sector: It includes consumers of goods and services. Households are also the owners of the factors of production.b) Producer sector: It includes all producing units in the economy. For the production of goods and services, the firms purchase factors of production.c) Government sector: It includes government as a welfare agency and government as producer.d) The external sector: It includes all such activities which are related to export and import of goods, and the flow of capital between the domestic economy and rest of the world.

Question 8

Which one is not a major cause of income inequality in India?

Accepted Answer

Countries&#10;especially like India faces a great deal of unequal distribution of wealth. The&#10;main reasons for this include the people leaving behind an immense properties&#10;to their inherits, private property possession is another reason, difference in&#10;natural quality can be considered as one of the reasons. Gap between rich and&#10;poor and increased population are other causes for unequal distribution of&#10;wealth. &#10;&#10;Among&#10;the given options lack of fertile land cannot be considered as the reason for&#10;income inequalities.

Question 9

Classify the following as factor income or transfer income: (i) Unemployment allowances. (ii) Salary received by Rakesh from a company. (iii) Financial help to earthquake victims. (iv) Compensation received from the employer.(v) Claim received from Insurance company by an injured worker. (vi) Birthday gift received from a friend. (vii) Bonus received on Diwali.

Accepted Answer

The following are classified as:Factor Income: (ii), (iv), (vii)Transfer Income: (i), (v), (vi), (iii)

Question 10

Which of the following is not an example of flow variable?

Accepted Answer

National wealth is not an example of flow variable. It is a stock since it is measured at a point of time. National wealth is &#10;not time dimensional. It is not measured over a specified period of time&#10; like flow. Therefore, national wealth is a stock concept.