On the basis of the given data, estimate the value of Gross Domestic Product at Factor Cost (GDP_FC) : Explain any two precautions to be kept in mind while estimating National Income by the Income method.

Question

Accepted Answer

Using Expenditure Method:
GDP_MP = PFCE + GFCE + GDCF + Net Exports
GDCF = Gross business fixed investment + Gross residential construction + Gross public investment + Inventory investment = 130 + 300 + 100 + 50 = 580
Net Exports = -Net imports = -200
GDP_MP = 800 + 700 + 580 + (-200) = 1,880
GDP_FC = GDP_MP - NIT = 1,880 - 70 = Rs. 1,810 crore

Precautions for Income Method:
1. Do not include transfer incomes as they are not earned through productive activity.
2. Do not include capital gains from second-hand goods or financial assets.