[Mission 2022] QUIZ – 2022: INSIGHTS STATIC QUIZ, 2 March 2022 – Economy

Solution: d)

Personal income refers to all income collectively received by all individuals or households in a country.

Personal income includes compensation from a number of sources, including salaries, wages, and bonuses received from employment or self-employment, dividends and distributions received from investments, rental receipts from real estate investments, and profit sharing from businesses.

Personal Income (PI) = National Income – Undistributed profits – Net interest payments made by households – Corporate tax + Transfer payments to the households from the government and firms.

Solution: b)

GDP is the sum total of value of goods and services created within the geographical boundary of a country in a particular year. We may be tempted to treat higher level of GDP of a country as an index of greater well-being of the people of that country. But there are reasons why this may not be correct.

• If the GDP of the country is rising, the welfare may not rise as a consequence. This is because the rise in GDP may be concentrated in the hands of very few individuals or firms.
• Many activities in an economy are not evaluated in monetary terms. For example, the domestic services women perform at home are not paid for. The exchanges which take place in the informal sector without the help of money are called barter exchanges. But since money is not being used here, these exchanges are not registered as part of economic activity.

Solution: c)

Factor Price is total cost of all factors of production (such as labour, capital, land etc) used in producing goods or services. It is the price of the commodity from the producer’s side.

When a commodity is produced, it is sold in the market.

Market Price – It is the price at which a product is sold in the market. It includes the cost of production in the form of wages, rent, interest, input prices, profit etc. It also includes the taxes imposed by the government. It excludes Government subsidy.

Thus, relationship between Factor price and Market price is

Market Price = Factor Price + Indirect Taxes – Subsidies

Solution: b)

The International Monetary Fund states “GDP measures the monetary value of final goods and services—that is, those that are bought by the final user—produced in a country in a given period of time (say a quarter or a year)”.

It is important to note that GDP maps the “final” goods and services, not the intermediate ones.

India’s gross domestic product (GDP) shrank 7.3% to ₹135.13 trillion in 2020-21 (in real terms adjusted for inflation). It was at ₹145.69 trillion in 2019-20. GDP is a measure of the economic size of a country, and inflation is the rate of price rise.

This is the worst performance of the Indian economy in any year since Independence. The last time the Indian economy contracted was in 1979-80. The GDP had contracted by 5.2% that year, when global oil prices had gone through the roof.

One way of measuring GDP is by adding private consumption expenditure, with government expenditure, investments made in the economy and net exports (or the difference between exports and imports).

Solution: a)

What is gross value added?
Put simply, it is a measure of total output and income in the economy. It provides the rupee value for the amount of goods and services produced in an economy after deducting the cost of inputs and raw materials that have gone into the production of those goods and services. It also gives sector-specific picture like what is the growth in an area, industry or sector of an economy.
GVA is sector specific while GDP is calculated by summation of GVA of all sectors of economy with taxes

added and subsidies are deducted.

While GVA gives a picture of the state of economic activity from the producers’ side or supply side, the GDP gives the picture from the consumers’ side or demand perspective. Both measures need not match because of the difference in treatment of net taxes.
A sector-wise breakdown provided by the GVA measure can better help the policymakers to decide which sectors need incentives/stimulus or vice versa.