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Question 30 of 75
Q.

Estimate the missing values (?), if the value of Gross Domestic Product at factor cost (GDP_fc) by Expenditure Method and Income Method is ₹ 370 crore :

S. No.ItemsAmount (in ₹ crore)
(i)Compensation of Employees175
(ii)Private Final Consumption Expenditure210
(iii)Employers' Contribution to Social Security Schemes50
(iv)Net Indirect Taxes20
(v)Net Exports(−) 20
(vi)Government Final Consumption Expenditure?
(vii)Operating Surplus?
(viii)Gross Domestic Fixed Capital Formation70
(ix)Mixed Income of Self-employed40
(x)Change in Stock60
(xi)Consumption of Fixed Capital70
Sikkim CbseCBSE Class XII Board 2022Subjective· 5mImportance★★★★★
40% · 30/75 Questions
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This problem requires calculating missing components of national income using both the Expenditure Method and the Income Method, given the Gross Domestic Product at factor cost (GDP_fc). We find that Government Final Consumption Expenditure is ₹ 70 crore and Operating Surplus is ₹ 35 crore.

National income accounting provides two primary methods to estimate the value of goods and services produced in an economy: the Expenditure Method and the Income Method. Both methods, when correctly applied, should yield the same result for GDP (or NDP, depending on the specific aggregates calculated). The Expenditure Method sums up all final expenditures in the economy, reflecting the demand side, while the Income Method sums up all factor incomes generated, reflecting the supply side. The consistency between these methods allows us to solve for missing components when the final aggregate (like GDP_fc) is known.

We are given that Gross Domestic Product at factor cost (GDP_fc) is ₹ 370 crore. We will use this value, along with the provided components, to find the missing values.

1. Estimating Government Final Consumption Expenditure (GFCE) using the Expenditure Method

The Expenditure Method calculates GDP at market price (GDP_mp) by summing up the final expenditures on goods and services in an economy. These expenditures include private consumption, government consumption, investment (gross capital formation), and net exports.

GDPmp=Private Final Consumption Expenditure (PFCE)+Government Final Consumption Expenditure (GFCE)+Gross Domestic Capital Formation (GDCF)+Net Exports (NX)\text{GDP}_{\text{mp}} = \text{Private Final Consumption Expenditure (PFCE)} + \text{Government Final Consumption Expenditure (GFCE)} + \text{Gross Domestic Capital Formation (GDCF)} + \text{Net Exports (NX)}

Gross Domestic Capital Formation (GDCF) itself is the sum of Gross Domestic Fixed Capital Formation (GDFCF) and Change in Stock (CIS).

GDCF=Gross Domestic Fixed Capital Formation (GDFCF)+Change in Stock (CIS)\text{GDCF} = \text{Gross Domestic Fixed Capital Formation (GDFCF)} + \text{Change in Stock (CIS)}

We are given GDP_fc, but the Expenditure Method directly yields GDP_mp. To convert GDP_mp to GDP_fc, we subtract Net Indirect Taxes. Therefore, to work backward, we add Net Indirect Taxes to GDP_fc to get GDP_mp.

GDPmp=GDPfc+Net Indirect Taxes (NIT)\text{GDP}_{\text{mp}} = \text{GDP}_{\text{fc}} + \text{Net Indirect Taxes (NIT)}

Let's calculate the required values step-by-step:

  1. Calculate GDP_mp: Given GDP_fc = ₹ 370 crore and Net Indirect Taxes (iv) = ₹ 20 crore.

GDPmp=₹ 370 crore+₹ 20 crore=₹ 390 crore\text{GDP}_{\text{mp}} = \text{₹ } 370 \text{ crore} + \text{₹ } 20 \text{ crore} = \text{₹ } 390 \text{ crore}

  1. Calculate Gross Domestic Capital Formation (GDCF): Given Gross Domestic Fixed Capital Formation (viii) = ₹ 70 crore and Change in Stock (x) = ₹ 60 crore.

GDCF=₹ 70 crore+₹ 60 crore=₹ 130 crore\text{GDCF} = \text{₹ } 70 \text{ crore} + \text{₹ } 60 \text{ crore} = \text{₹ } 130 \text{ crore}

  1. Solve for Government Final Consumption Expenditure (GFCE): Using the Expenditure Method formula for GDP_mp:

GDPmp=PFCE+GFCE+GDCF+NX\text{GDP}_{\text{mp}} = \text{PFCE} + \text{GFCE} + \text{GDCF} + \text{NX}

Given Private Final Consumption Expenditure (ii) = ₹ 210 crore, Net Exports (v) = (−) ₹ 20 crore, and our calculated GDCF = ₹ 130 crore and GDP_mp = ₹ 390 crore.

₹ 390 crore=₹ 210 crore+GFCE+₹ 130 crore+(-₹ 20 crore)\text{₹ } 390 \text{ crore} = \text{₹ } 210 \text{ crore} + \text{GFCE} + \text{₹ } 130 \text{ crore} + (\text{-₹ } 20 \text{ crore})

₹ 390 crore=₹ 210 crore+GFCE+₹ 110 crore\text{₹ } 390 \text{ crore} = \text{₹ } 210 \text{ crore} + \text{GFCE} + \text{₹ } 110 \text{ crore}

₹ 390 crore=₹ 320 crore+GFCE\text{₹ } 390 \text{ crore} = \text{₹ } 320 \text{ crore} + \text{GFCE}

GFCE=₹ 390 crore−₹ 320 crore\text{GFCE} = \text{₹ } 390 \text{ crore} - \text{₹ } 320 \text{ crore}

GFCE=₹ 70 crore\text{GFCE} = \text{₹ } 70 \text{ crore}

2. Estimating Operating Surplus (OS) using the Income Method

The Income Method calculates Net Domestic Product at factor cost (NDP_fc) by summing up all factor incomes generated within the domestic territory of a country. These factor incomes include Compensation of Employees, Operating Surplus, and Mixed Income of Self-employed.

NDPfc=Compensation of Employees (COE)+Operating Surplus (OS)+Mixed Income of Self-employed (MIS)\text{NDP}_{\text{fc}} = \text{Compensation of Employees (COE)} + \text{Operating Surplus (OS)} + \text{Mixed Income of Self-employed (MIS)}

Compensation of Employees (COE) includes wages and salaries, and employers' contributions to social security schemes. Since both are listed separately in the question, we sum them to get the total COE. …

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