(i) Suppose, there are only three firms in a hypothetical economy, viz. A, B and C. During a given period of time, the following transactions were under, taken by them : (I) Firm A sold goods worth Rs. 2,000 to firm B and Rs. 1,200 to Firm C. (II) Firm B sold goods worth Rs. 1,100 to Firm A and Rs. 3,500 to Firm C. (III) Firm C sold to households for final consumption, goods worth Rs. 5,700. Estimate the value of Net Domestic Product at Market Price (NDP_MP) assuming depreciation to be Rs. 120. (ii) Explain the likely impact of construction of 2000 new schools providing high-quality education in a nation on Gross Domestic Product and welfare in an economy. (i) Distinguish between Real Gross Domestic Product (GDP) and Nominal Gross Domestic Product. (ii) As per a news dated April 11, 2023 : "Electric Vehicle sales crossed one million mark in FY 2023." Analyse its impact on Gross Domestic Product (GDP) and economic welfare.

Question

Accepted Answer

(i) Three-firm calculation:
Firm A: Value Added = Sales to B + Sales to C = 2,000 + 1,200 = 3,200
Firm B: Value Added = Sales to A + Sales to C - Purchases from A = 1,100 + 3,500 - 2,000 = 2,600
Firm C: Value Added = Sales to households - Purchases from A - Purchases from B = 5,700 - 1,200 - 3,500 = 1,000

GDP_MP = 3,200 + 2,600 + 1,000 = Rs. 6,800
NDP_MP = GDP_MP - Depreciation = 6,800 - 120 = Rs. 6,680

(ii) Impact of 2000 schools: Increases GDCF (construction) and GFCE (operating). Positive externality: education creates more productive workforce, improving welfare beyond GDP.

(iii) Real GDP = GDP at base year prices (quantity only). Nominal GDP = GDP at current year prices (price + quantity). Real GDP is the true measure of growth.

(iv) EV impact: Increases GDP (manufacturing), improves welfare (reduced pollution - positive externality).