2. Subsidies received
3. Capital consumption
4. Indirect tax paid minus subsidies received
Solution: 4
Explanation: Basically, ‘factor cost’ is the ‘input cost’ the producer has to incur in the process of producing something (such as cost of capital i.e. interest on loans, raw materials, labour, rent, power, etc.). This is also termed as ‘factory price’ or ‘production cost/price’. This is nothing but ‘price’ of the commodity from the producer’s side. While the ‘market prices’ is derived after adding the indirect taxes to the factor cost of the product, it means the cost at which the goods reach the market i.e. showrooms (these are the Cenvat/central excise and the CST which are paid by the producers to the Central government in India).
3. Recently union government made some changes to the GDP calculation method. Which of the following is/are correct with regards to these changes?
1. The base year for the calculation of GDP was changed to 2011-12 from 2004-05.
2. GDP will be measured by using gross value added (GVA) at market price, rather than
factor cost.
3. The change in method of calculation has brought Indian GDP calculations more in line
with global practice.
Select the correct code-
1. 1 and 3 only
2. 1 and 2 only
3. 2 and 3 only
4. All of the above
Solution: 4
Explanation: Earlier, in India, income is calculated at factor cost, and so is the case with most of the developing countries. The reasons are – lack of uniformity in taxes, goods are not printed with their prices, etc.
4. Which one of the following statement is true?
1. GDP is always greater then GNP
2. GDP is always lower than GNP
3. GDP is equal to GNP when “income from Abroad” is zero
4. GDP is equal to GNP when “depreciation” is zero
Solution: 3
Explanation: Gross National Product (GNP) is the GDP of a country added with its ‘income from abroad’. The items which are counted in the segment ‘Income from Abroad’ are:
1. Trade Balance: the net outcome at the year end of the total exports and imports of a
country may be positive or negative accordingly added with the GDP.
2. Interest of External Loans: the net outcome on the front of the interest payments i.e.
balance of the inflow (on the money lend out by the economy) and the outflow (on the
money borrowed by the economy) of the external interests.
3. Private Remittances: the net outcome of the money which inflows and outflows on
account of the ‘private transfers’.
The balance of all the three components of the ‘Income from Abroad’ segment may turn out to be positive or negative. Thus relationship between GDP and GNP depends on the net value of income from abroad. When the income from abroad is zero GDP is equal to GNP.
GDP
Gross Domestic Product (GDP) is the value of the all final goods and services produced within the boundary of a nation during one year. For India, this calendar year is from 1st April to 31st March. It will be better to understand the terms used in the concept, ‘gross’ means same thing to Economics and Commerce as ‘total’ means to Mathematics; ‘domestic’ means all the economic activities done inside the boundary of the nation/country and by its own capital; ‘product’ is word to define ‘goods and services’ together; and ‘final’ means the stage of a product after which there is no known chance of value addition in it.
The different uses of the concept GDP are as given below:
(i) Per annum percentage change in it is the ‘growth rate’ of an economy. For example, if a
country has a GDP of Rs. 107 which is 7 rupees higher than the last year, it has a growth rate of 7 per cent. When we use the term ‘a growing’ economy, it means that the economy is adding up its income i.e. in quantitative terms.
(ii) It is a ‘quantitative’ concept and its volume/size indicates the ‘internal’ strength of the
economy. But it does not say anything about the ‘qualitative’ aspects of the produced goods
and services by the economy.
(iii) It is used by the IMF/WB in the comaparative analyses of its member nations.
Method of Calculating GDP = C+I+G+(X-M)
NDP
NDP = GDP - Depreciation
The different uses of the concept of NDP are as given below:
(a) For domestic use only – to understand the historical situation of the loss due to depreciation to the economy. Also used to understand and analyse the sectoral situation of depreciation in industry and trade in comparative periods.
(b) To show the achievements of the economy in the area of research and development which have tried cutting the levels of depreciation in a historical time period.
However, NDP is not used in comparative economics, i.e., to compare the economies of the world. Why this is so? This is due to different rates of depreciation which is set by the different economies of the world.
GNP
Ultimately, the balance of all the three components of the ‘Income from Abroad’ segment may turn out to be positive or negative. In India’s case it has been always negative (due to heavy outflows on account of trade deficits and interest payments of the foreign loans). It means, the ‘Income from Abroad’ is subtracted from India’s GDP to calculate its GNP.
The normal formula is GNP = GDP + Income from Abroad. But it becomes GNP = GDP + (– Income from Abroad) = GDP – Income from Abroad, in the case of India. This means that India’s GNP is always lower than its GDP.
The different uses of the concept GNP are as given below:
(a) This is the ‘national income’ according to which the IMF ranks the nations of the world in terms of the volumes – at the Purchasing Power Parity (at PPP). India is ranked as the 3rd largest economy of the world (after the USA and China; Japan - 4th. India overcome Japan in 2014 according to World Bank's report)- while as per the nominal/ prevailing exchange rate of rupee India is the 13th largest economy.
(b) It is the more exhaustive concept of national income than the GDP as it indicates about the ‘quantitative’ as well as the ‘qualitative’ aspect of the economy, i.e., the ‘internal’ as well as the ‘external’ strength of the economy.
(c) It enables us to learn several facts about the production behaviour and pattern of an economy, such as, how much the outside world is dependent on its product and how much it depends on the world for the same (numerically shown by the size and net flow of its ‘trade balance’); what is the standard of its human resource in international parlance (shown by the size and the net flow of its ‘private remittances’); what position it holds regarding financial support from and to the world economies (shown by the net flow of ‘interests’ on external lending/borrowing).
NNP
NNP = GNP – Depreciation
or,
NNP = GDP + Income from Abroad – Depreciation
The different uses of the concept NNP are as given below:
(a) This is the ‘National Income’ (NI) of an economy. Though, the GDP, NDP and GNP, all are ‘national income’ they are not written with capitalised ‘N’ and ‘I’.
(b) This is the purest form of the income of a nation.
(c) When we divide NNP by the total population of nation we get the ‘per capita income’ (PCI) of that nation i.e. ‘income per head per year’. A very basic point should be noted here that this is the point where the rates of dipreciation followed by the different nations make a
difference. Higher the rates of depreciation lower the PCI of the nation (whatever be the
reason for it- logical or artificial as in the case of depreciation being used as a tool of policymaking).
Though, economies are free to fix any rate of depreciation for the different assets the
rates fixed by them make difference when the NI of the nations are compared by the
international financial institutions like the IMF, WB, ADB, etc.
Note: National Income is the NNP at factor cost.
5. Consider the following statements regarding the “GDP deflator”.
1. GDP deflator is a comprehensive measure of inflation.
2. The GDP deflator is based on a fixed basket of goods and services.
Which of the above statement is/are correct?
1. 1 only
2. 2 only
3. Both 1 and 2
4. Neither 1 nor 2
Solution: 1
Explanation: Unlike other price indexes, the GDP deflator is not based on a fixed basket of goods and services. It covers the whole economy. In economics, the GDP deflator (implicit price deflator) is a measure of the level of prices of all new, domestically produced, final goods and services in an economy.
Like the consumer price index (CPI), the GDP deflator is a measure of price inflation/deflation with respect to a specific base year; the GDP deflator of the base year itself is equal to 100.
6. Which of the following is not a feature of “capitalist economy”?
1. Ownership of means of production is with the private
2. A great part of the production is used for private consumption
3. Labour services are purchased and sold at a price
4. Production takes place for selling the output in the market
Solution: 2
Explanation: A capitalist economy can be defined as an economy in which most of the
economic activities have the following characteristics (a) there is private ownership of means of production (b) production takes place for selling the output in the market (c) there is sale and purchase of labour services at a price which is called the wage rate (the labour which is sold and purchased against wages is referred to as wage labour).
7. Consider the following statements regarding Gross Domestic Production.
1. It is a ‘quantitative’ concept which indicates the internal strength of the economy.
2. It is used by IMF/WB in the comparative analyses of its member nations.
3. GDP is widely criticized for not considering ‘qualitative’ aspect of the economy.
Which of the following is/are correct?
1. 1 and 3 only
2. 1 and 2 only
3. 1 only
4. All of the above
Solution: 4
Explanatio: It is a ‘quantitative’ concept and its volume/size indicates the ‘internal’ strength of the economy. But it does not say anything about the ‘qualitative’ aspects of the produced
goods and services by the economy. It is used by the IMF/WB in the comparative analyses of its member nations.
8. Consider the following statements regarding purchasing power parity.
1. It is a technique used to determine the relative value of different currencies.
2. This concept works on the assumption that markets work on the law of one price.
3. This is a popular method used by the IMF and WB in studying the living standards of
people in different economies.
Which of the following is/are correct?
1. 1 and 2 only
2. 1 and 3 only
3. 1 only
4. All of the above
Solution: 4
Explanatio: Law of one price, i.e., identical goods and services (in quantity as well as quality) must have the same price in different markets when measured in a common currency.
9. Consider the following statements with respect to state economy.
1. Socialist & Communist economies are the forms of state economy
2. Planning is the central theme of state economy.
3. India at present is pursuing state economy.
Which of the following is/are correct?
1. 1 and 2 only
2. 2 and 3 only
3. 1 and 3 only
4. All of the above
Slution 1
Explanation: India presently follows mixed economy.
10. Company ‘X’ is headquartered at Delhi, India and it has a production facility at Beijing,
China. The output of production facility is part of China’s ____. The profits of the company
which are repatriated to the India are part of India’s ____.
1. GDP; GNP
2. GDP; GDP
3. GNP; GDP
4. GNP; GNP
Solution: 1
11. Human Development Index comprises literacy rates, life expectancy at birth and
- Gross Domestic Product per head in US dollars
- Gross Domestic Product per head
- Gross National Product in US dollars
- National Income(NNP) per head in US dollars.
Solution: 4
Explanation: Norway - 0.944 at the top of HDI report.
Australia - 0.933 at 2nd rank.
India - 0.586; rank at 135; in the category of Medium Human Development
Current Affairs
12. Suppose you hold license in Mining sector in India. Consider the following statement/s
1. Mining leases can be granted to you up to 50 years except for atomic minerals.
2. Seeing your productive performance, Central government may permit you to acquire
one or more licences or leases covering additional area.
Select the correct code-
1. Only 1
2. Only 2
3. Both
4. None
Solution: 4
Explanation: Recently, Mines and Minerals (Development and Regulation) Act, 2015 was passed. So a tricky questions to check your concepts
Read this- Maximum area for mining: Under the Act, a person could acquire one mining lease for a maximum area of 10 sq km. However, for the development of any mineral, the central government could permit the person to acquire one or more licenses or leases covering additional area. The Bill amends this provision to allow the central government to increase the area limits for mining, instead of providing additional leases.
Lease period: Under the Act, a mining lease was granted for a maximum of 30 years and a
minimum of 20 years and could be renewed for a period not exceeding 20 years. Under the Bill, the lease period for coal and lignite remains unchanged. For all minerals other than coal, lignite and atomic minerals, mining leases shall be granted for a period of 50 years. All mining leases granted for such minerals before the Bill, shall be valid for 50 years. On expiry of the lease, instead of being renewed, the leases shall be put up for auction, as specified in the Act.
13. Which among the following are called ‘Notified Minerals’?
1. Bauxite
2. Iron ore
3. Coal
4. Uranium
5. Limestone
6. Manganese ore
Select the correct ones
1. 2, 3, 4, 5 and 6
2. 1, 2, 5 and 6
3. 2, 3, 4 and 5
4. 3, 4, 5 and 6
Solution: 2
Explanation: Mines and Minerals (Development and Regulation) Bill adds a new Fourth
Schedule to the Act. It includes bauxite, iron ore, limestone and manganese ore and are
defined as notified minerals. The central government may, by notification, amend this
Schedule.
14. Consider the following statements w.r.t Enforcement Directorate
1. It looks after investigation cases related to Foreign Exchange Management Act, 1999
and Prevention of Money Laundering Act, PMLA
2. It falls under Ministry of Finance, Department of Expenditure
3. ED can arrest the offenders in relation to PMLA offence
Select the correct code
1. 1 and 2
2. 2 and 3
3. 1 and 3
4. All
Solution: 3
Explanation: ED is in news for quite a long time. Prepare about it. It is part of Department of Revenue not Expenditure.
15. Which of the following treaties are related to Nuclear Weapons?
1. Antarctica Treaty
2. Seabed Treaty
3. START
4. NPT
5. SORT
Select the correct code
1. 1, 4, 5
2. 3, 4 and 5
3. 1, 2,3,4 and 5
4. 2, 3 and 4
Solution: 3
Explanation:
The Strategic Arms Reduction Treaty (START) was signed between the US and Soviet Union in July 1991. In summary, START I limited the number of heavy bombers (the large aircraft able to carry heavier bombs including nuclear ones), intercontinental ballistic missiles (ICBMs), and submarine launched ballistic missiles (SLBMs), to 1,600 in total. These delivery systems were then limited to deploying no more than 6,000 nuclear warheads in all.
The Strategic Offensive Reductions Treaty (SORT) or Moscow Treaty entered into force in June 2003 to limit the numbers of operationally deployed nuclear warheads by the US and Russia to 1,700-2,200 apiece.
Antarctica Treaty: In June 1961 the Antarctica Treaty established the use of this continent as only for peaceful purposes and it must be free from nuclear weapons deployment and testing.
Seabed Treaty : The Seabed Treaty entered into force in May 1972 with the purpose of forbidding the sitting of nuclear weapons and other weapons of mass destruction on the seabed or ocean floor over 12 miles away from any coastal zone.
