Mid-Term Macro-Economics Questions

and Answers

Que-1 What is GDP at market price?

Ans: Refers to the sum total of value added by all producing units within the
domestic territory of a country during the period of an accounting year, inclusive
of depreciation and estimated at market prices.

Que-2 What is depreciation?

Ans: Depreciation is the loss of value of fixed assets in use on account of
(i)Normal wear and tear
(ii)Normal rate of accidental damages
(iii)Expected obsolescence
Depreciation is also called consumption of fixed capital.
Replacement of fixed assets requires a provision for fund. This profession is
estimated on annual basis, that found is known as depreciation cost.

Que-3 What do you mean by Net Indirect Tax?

Ans: Net Indirect Tax (NIT) refers to the difference between indirect taxes and
subsidies. Indirect Taxes are the taxes imposed on the production and sale of
goods and services by the Government of a country, for example, GST (Goods
and Services Tax).

Que-4 What are the differences between GDP and GNP?

Ans: Gross domestic product (GDP) is the value of the finished domestic goods
and services produced within a nation's borders. On the other hand, gross
national product (GNP) is the value of all finished goods and services produced
by a country's citizens, both domestically and abroad.

Que-5 What is NNP at Factor Cost?

Ans: The Net National Product at Factor Cost (NNP at Factor Cost) is the net
money value of all goods and services produced by normal citizens of a country.
It includes income earned by Indian citizens, whether they live in India or
abroad. National income is also known as Net National Product at Factor Cost.
• National income is the same as the net national product at factor cost. We get
the net national product at factor cost by subtracting depreciation allowances
from the gross national product at factor cost.
• NNP at Factor cost = GNP at Factor Cost-Depreciation allowance
• "The net national product at factor cost is the sum total of net values
contributed by all producers in the country's local territory plus net factor income
from outside," says Peterson.
• NNP of Factor Cost = NDP at Factor Cost + Net Factor Income from abroad

Que-6 What is GDP deflator?

Ans: GDP deflator = (Nominal GDP/Real GDP)*100.
Que-7 What do you mean by Nominal GDP?
Ans: GDP at current prices is market value of the final goods and services
produced within the domestic territory of a country during an accounting year,
as estimated at current year prices. On the other hand, GDP at constant prices
is market value of the final goods and services produced within the domestic
territory of a country during an accounting year, as estimated at the base year
prices.
GDP at current prices can increase even when there is no increase in the flow
of goods and services in the economy, but in the price level happens to rise. In
contrast, GDP at constant prices will increase only when there is an increase in
the flow of goods and services in the economy.

Que-8 What do you mean by Real GDP?

Ans: Real gross domestic product (GDP) is an inflation-adjusted measure that
reflects the value of all goods and services produced by an economy in a given
year. Real GDP is expressed in base-year prices. It is often referred to as
constant-price GDP, inflation-corrected GDP, or constant dollar GDP. Put
simply, real GDP measures the total economic output of a country and is
adjusted for changes in price.

Que-9 What are the different methods used in calculating the National
Income?
Ans: Method of National Income Accounting.
i) Production Method
ii) Income method
iii) Expenditure method

Que-10 Mention two Income which is not taken into calculation of

National Income?
Ans: Services of housewives, Capital gains.

Que-11 What are the 2 different methods used in National Income by

using production method?
Ans: i) Value added method (GST).
ii) Final use method.

Que-12 What is Circular Flow Income?

Ans: The circular flow means the unending flow of production of goods and services,
income, and expenditure in an economy. It shows the redistribution of income in a
circular manner between the production unit and households.
The circular flow model demonstrates how money moves through society. Money flows
from producers to workers as wages and flows back to producers as payment for
products. In short, an economy is an endless circular flow of money.

Que-13 What are the different factors observed as the leakages in Circular
Flow Income?
Ans: Saving and Import.

Que-14 What are Injections in Circular Flow of Income?

Ans: Investment and Export.