(i) On the basis of the data given below, estimate the value of Domestic Income (NDP_FC) (ii) Differentiate between factor income and transfer income. (i) "In a two sector economy, National Income is always less than Domestic Income." Defend or refute the given statement with valid reasons. (ii) Gauhar, has recently completed her fashion designing studies and started a boutique. To produce dresses for sale, she purchased various materials, including a sewing machine, fabric, buttons and thread. These items are essential for producing the dresses. Classify the material purchased by Gauhar as Final or Intermediate goods, giving valid reasons in support of the classifications.

Question

Accepted Answer

(i) Using Income Method:
NDP_FC = COE + Operating Surplus + Mixed Income
From table, sum the factor incomes to get NDP_FC.

(ii) Factor Income = Income earned through productive services (wages, rent, interest, profit). Included in national income.
Transfer Income = Income received without productive service (scholarships, pensions, gifts). Not included.

(iii) In a two sector economy, NFIA = 0, so National Income = Domestic Income. The statement 'National Income is always less than Domestic Income' is INCORRECT. They are equal.

(iv) Sewing machine = Final good (capital good)
Fabric, buttons, thread = Intermediate goods (consumed in production)