(I) “While estimating Gross Domestic Product (GDP) by expenditure method, entire focus is on expenditures incurred by the residents of the country.” Do you agree with the given statement ? Give valid reason in support of your answer. (II) Calculate the value of National Income from the following data : (I) How should the following be treated in estimating National Income of a Country ? Give valid reasons. (i) Profits earned by Foreign Banks in India. (ii) Expenditure on upgradation of fixed asset by a firm. (II) Suppose in a financial year, the Gross Domestic Product (GDP) at market price of a country was Rs. 1,100 crore. Net factor income from Abroad was Rs. 100 crore, the net indirect taxes was Rs. 150 crore and National income was Rs. 850 crore. Calculate the value of depreciation, on the basis of above information.

Question

Accepted Answer

(i) I do not agree. While expenditure method focuses on final expenditures, it includes expenditure by ALL sectors, not just residents. Net Exports captures foreign sector expenditure. Government expenditure (GFCE) is also included.

(ii) Higher GDP does not always mean higher per capita availability because:
1. Population growth: If GDP grows at 5% but population grows at 7%, per capita availability actually falls.
2. Distribution: GDP may rise while inequality increases.
3. Composition: GDP may increase due to production of non-consumer goods.
4. Price changes: Nominal GDP rise may be due to inflation, not actual output increase.