[Mission 2023] STATIC QUIZ, 06 March 2023 – Economy

Solution: c)

National income is not the sum of all incomes earned by all citizens, but only those incomes which accrue due to participation in the production process.

Gross Value Added (GVA):

GVA is the sum of a country’s GDP and net of subsidies and taxes in the economy.

It calculates the national income from the supply side by looking at the value added in each sector of the economy.

GVA is defined as the value of output minus the value of intermediate consumption and is a measure of the contribution to growth made by an individual producer, industry or sector.

It provides the rupee value for the number 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.

Gross Value Added = GDP + subsidies on products – taxes on products.

Solution: d)

What does new GDP data shows:

• The money spent by people in their private capacity. It typically accounts for 56 percent of all GDP and is called “private final consumption expenditure” (PFCE).
• Money spent by companies and government towards making investments such as building a new office, building a new road etc. It accounts for 32 percent of total GDP and is called Gross Fixed Capital Formation (GFCF).
• Money spent by the government in its day to day expenses such as paying salaries. It accounts for 11 percent and is called Government Final Consumption Expenditure (GFCE).
• Money spent by Indians on foreign goods(imports) subtracted from the money spent by foreigners on Indian goods(exports). As India imports more than it exports, Net Export (NX) is small and negative.

Solution: b)

While there is an argument in literature that inequalities are a manifestation of the average level of income, as explained by the Kuznets’ theory.

Kuznets believed that inequality would follow an inverted “U” shape as it rises and then falls again with the increase of income per-capita.

Solution: b)

Gross National Product (GNP)

GNP measures the total monetary value of the output produced by a country’s residents. Therefore, any output produced by foreign residents within the country’s borders must be excluded in calculations of GNP, while any output produced by the country’s residents outside of its borders must be counted.

GNP does not include intermediate goods and services to avoid double-counting since they are already incorporated in the value of final goods and services.

Solution: c)

The current account records exports and imports in goods and services and transfer payments.

• Transfer payments are receipts which the residents of a country receive ‘for free’, without having to make any present or future payments in return.
• They consist of remittances, gifts and grants. They could be official or private.