On the basis of the data given below, estimate the value of Gross National Product at Factor Cost (GNP_FC): | S.No. | Items | Amount (in ₹ crore) | | --- | --- | --- | | (i) | Wages and Salaries | 2,000 | | (ii) | Rent and Interest | 700 | | (iii) | Corporate Tax | 500 | | (iv) | Undistributed Profit | 300 | | (v) | Consumption of Fixed Capital | 200 | | (vi) | Dividend | 150 | | (vii) | Net factor income from abroad | (–) 50 |

On the basis of the data given below, estimate the – Class 12 Economics

Question 50 of 75

On the basis of the data given below, estimate the value of Gross National Product at Factor Cost (GNP_FC):

S.No.	Items	Amount (in ₹ crore)
(i)	Wages and Salaries	2,000
(ii)	Rent and Interest	700
(iii)	Corporate Tax	500
(iv)	Undistributed Profit	300
(v)	Consumption of Fixed Capital	200
(vi)	Dividend	150
(vii)	Net factor income from abroad	(–) 50

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Concept understanding — National Income Identity

The National Income Identity: Where Does a Country's Money Come From?

Imagine you're running a lemonade stand. Every rupee you earn comes from someone buying your lemonade. Now imagine the whole country as one giant lemonade stand — every rupee earned by anyone must come from someone else spending money. That simple idea is the heart of the National Income Identity.

The Everyday Intuition

Think of the economy as a circular flow. Households earn income by working for firms. Firms produce goods and services that households buy. What households spend becomes the income of firms, which then becomes wages, rent, and profit for households again. So:

Total spending in the economy = Total income earned in the economy

This isn't a theory — it's an accounting identity. It must be true because every rupee spent by one person is a rupee earned by someone else.

The Precise Meaning (NCERT Class 12, Macroeconomics, Chapter 2)

The National Income Identity breaks down total spending into four components. NCERT gives it as:

Y = C + I + G + (X - M)

Where:

$Y$ = National Income (GDP at market prices)
$C$ = Private Final Consumption Expenditure (what households spend on goods and services)
$I$ = Gross Investment Expenditure (spending on capital goods like machinery, buildings, and inventory changes)
$G$ = Government Final Consumption Expenditure (government spending on goods and services, not transfers)
$X$ = Exports of goods and services
$M$ = Imports of goods and services
$(X - M)$ = Net Exports (exports minus imports)

Why This Matters

This identity is the foundation of all macroeconomic analysis. Here's what it tells you:

1. It's a checklist for growth. If you want GDP ( $Y$ ) to rise, at least one of $C$ , $I$ , $G$ , or $(X-M)$ must increase. No other way exists.

2. It reveals trade-offs. If government spending ( $G$ ) rises but taxes don't, either consumption ( $C$ ) or investment ( $I$ ) must fall — unless net exports improve. This is the "crowding out" debate.

3. It explains recessions. During a downturn, consumption ( $C$ ) and investment ( $I$ ) typically fall. The identity shows why governments try to boost $G$ or encourage exports.

A Simple Diagram (Describe in Words) …

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GNP at Factor Cost is the sum of all factor incomes earned by residents, plus depreciation, adjusted for net factor income from abroad. Using the income method, the answer is ₹3,800 crore.

The income method of measuring national income adds up all factor payments — wages, rent, interest, and profit — that accrue to factors of production within a country's domestic territory, then adjusts for net factor income from abroad to get the national (GNP) figure. Factor Cost means we value output at the cost of factors, so indirect taxes are not added and subsidies are not subtracted; here, no such taxes or subsidies are given, so the data is already at factor cost.

Let's identify the components from the table. Wages and Salaries (₹2,000 crore) are compensation of employees. Rent and Interest (₹700 crore) are the returns to land and capital. The profit portion of a firm is split into three parts: Corporate Tax (₹500 crore), Dividend (₹150 crore), and Undistributed Profit (₹300 crore). These three together make up total corporate profit. So:

\text{Corporate Profit} = \text{Corporate Tax} + \text{Dividend} + \text{Undistributed Profit} = 500 + 150 + 300 = 950 \text{ crore}

Now, sum all domestic factor incomes (this gives Net Domestic Product at Factor Cost, or NDP_FC):

\text{NDP}_{\text{FC}} = \text{Wages and Salaries} + \text{Rent and Interest} + \text{Corporate Profit}

\text{NDP}_{\text{FC}} = 2000 + 700 + 950 = 3,650 \text{ crore}

Watch out

Do not include Consumption of Fixed Capital (depreciation) in NDP — it is not a factor income. Depreciation is added later to go from NDP to GDP.

To move from NDP to GDP, we add Consumption of Fixed Capital (depreciation):

$\text{GDP}_{\text{FC}} = \text{NDP}_{\text{FC}} + \text{Depreciation} = 3,650 + 200 = 3,850 \text{ crore}$ …

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Same / Similar Concept — real previous-year questions on the same or a closely similar concept, not this exact question.

PSEB Punjab Class 12 (Commerce) 2026Set ANNUAL1 markMCQ
$Q. National income is the sum total of the factor incomes received by __________ of a nation.$
(a) citizens
(b) normal residents
(c) non-residents
(d) residents and non-residents
›Reveal solutionSolution

The correct option is (b) normal residents.

National income is the total of factor incomes (rent, wages, interest, profit, mixed income) earned by the normal residents of a country during a year — including their net factor income from abroad. 'Normal resident …

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PSEB Punjab Class 12 (Commerce) 2025Set ANNUAL1 markMCQ
$Q. National Income = __________.$
(a) Gross National Income at Market Price
(b) Net National Income at Factor Cost
(c) Net Domestic Income at Factor Cost
(d) National Disposable Income
›Reveal solutionSolution

The correct option is (b) Net National Income at Factor Cost.

National Income is defined as Net National Product at Factor Cost (NNPfc) — the total of factor incomes (rent, wages, interest, profit, mixed income) earned by the normal residents of a country in a year, n …

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PSEB Punjab Class 12 (Commerce) 2025Set ANNUAL1 markMCQ
$Q. Choose True/False : Net Indirect Taxes = (Indirect Taxes - Subsidy)$
(a) True
(b) False
›Reveal solutionSolution

The statement is True.

Net Indirect Taxes (NIT) = Indirect Taxes − Subsidies. Indirect taxes (GST, excise) raise market price above factor cost, while subsidies lower it; the net of the two is the difference used to convert market-price aggregates into factor-c …

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PSEB Punjab Class 12 (Commerce) 2025Set ANNUAL1 markMCQ
$Q. Match the correct statement : Economic Concept: (A) Real Flow (B) Monetary Flow (C) Injections (D) Leakages Explanation:$
(i) Flow of goods and services
(ii) Weaken the Circular Flow of Income
(iii) Money Flow
(iv) Strengthen the Circular Flow of Income
(a)
(a) A-(i), B-(iii), C-(iv), D-(ii)
(b)
(b) A-(i), B-(iii), C-(ii), D-(iv)
(c)
(c) A-(i), B-(ii), C-(iii), D-(iv)
(d)
(d) A-(ii), B-(i), C-(iii), D-(iv)
›Reveal solutionSolution
Correct matching: A-(i), B-(iii), C-(iv), D-(ii) → option (a).

(A) Real Flow → (i) Flow of goods and services.

(B) Monetary Flow → (iii) Money Flow.

(C) Injections → (iv) Strengthen the circular flow of income (investment, exports, government spending add to it). …
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PSEB Punjab Class 12 (Commerce) 2025Set ANNUAL1 mark
$854.7 billion. On the same basis, the U.K. was$
›Reveal solutionSolution

India's economy was estimated at 854.7 billion US dollars (nominal).

The paragraph states that the size of the Indian economy in 'nominal' cash terms was estimated to be 854.7 billion US dollars, making India the fifth-largest economy in the world ( …

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PSEB Punjab Class 12 (Commerce) 2025Set ANNUAL1 mark
$854.7 billion. On the same basis, the U.K. was$
›Reveal solutionSolution

India's GDP grew 13.5% in the April–June quarter.

The paragraph states that India's GDP expanded 13.5% in the April–June quarter, making it the world' …

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PSEB Punjab Class 12 (Commerce) 2025Set ANNUAL1 mark
$854.7 billion. On the same basis, the U.K. was$
›Reveal solutionSolution

The two largest economies are the US and China.

The paragraph states that India is behind only the US, China, Japan and Germany. Hence the two largest economies of the world …

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PSEB Punjab Class 12 (Commerce) 2025Set ANNUAL1 mark
$854.7 billion. On the same basis, the U.K. was$
›Reveal solutionSolution

Growth could slow due to rising interest costs and the threat of global recession.

The paragraph lists several risks. Any two: rising interest costs, the looming threat of recession in major world economies, slowing growth of the manufacturing sector, imports being higher than exports, and an uneven monsoon weighing on agriculture and rural demand. …

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PSEB Punjab Class 12 (Commerce) 2023Set ANNUAL1 markMCQ
$Q. The flow of goods and services is called __________.$
(a) Real flow
(b) Monetary flow
(c) Economic flow
(d) None of these
›Reveal solutionSolution

The correct option is (a) Real flow.

In the circular flow of income, two flows run in opposite directions. The real flow is the flow of factor services (land, labour, capital, enterprise) from households to firms and the flow of goods and services from firms to households. The money flow is the opposite flow of fact …

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PSEB Punjab Class 12 (Commerce) 2023Set ANNUAL1 mark
$Q. Name any one method of calculating national income.$
›Reveal solutionSolution

The Income method is one way to measure national income.

National income can be measured by three methods. Naming any one: the Income (distribution) method, which adds up all factor incomes — rent, wages, interest and profit (plus mixed income) — earned by the normal residents of a country in a year, and then adds …

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