Numerical Problems of National Income Accounting

Q1) Consider the following data for a hypothetical economy.

GDP = Rs.7000;
Gross Investment = Rs.800;
Net Investment = Rs.550;
Consumption = Rs.4500,
Govt. purchases of goods and services = Rs.1100,
Budget Surplus = Rs.30.
Find a) NDP b) Net Export or Balance of Trade c) Govt. Taxes minus Transfer d) Disposable
Income & e) Personal Savings.

Ans. a) NDP = GDP Depreciation

= Rs. 7000 (Gross Investment Net Investment)
= Rs.7000 (Rs.800 Rs.550)
= Rs. 7000 Rs. 250 = Rs. 6750
b) Net Exports = GDP (C + Igross + G)
= Rs.7000 (Rs.4500 +Rs.800 + Rs.1100)
= Rs.600
c) Govt. Taxes Transfer Govt. Expenditure = Budget Surplus
or, Govt. Taxes Transfer = Govt. Expenditure + Budget Surplus = Rs.1100 + Rs. 30 = RS.1130
d) Disposable Income = National Income (taxes minus Transfer)
National Income = NNP|FC
But we do not have information on the value of NNP|FC. In the absence of information on Net
Factor Income from abroad and Net Indirect taxes, we consider NDP as the value of NNP|FC.
Disposable Income = National Income (taxes minus Transfer)
= NDP (Taxes minus transfer)
= Rs. 6750 Rs.1130 = Rs. 5620
e) Personal Savings + Consumption = Disposable Income
Hence, Personal Savings = Disposable Income Consumption = Rs.5620 Rs.4500 = Rs. 1120
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Q 2. In an economy, the household buys bread worth Rs. 150 from the baker and flour worth
Rs.20 from the miller. The baker spends Rs.40 to buy flour from the miller to use it in production
of breads. The miller does not purchase any intermediate input. Compute GDP by Value Added
Method.

Ans. Value added by Miller = Sales cost of intermediate goods = (Rs.40 + Rs.20) Rs.0 =Rs.60
Value Added by Baker = Sales cost of intermediate goods = Rs.150 Rs.40 =Rs.110
GDP = Value added by Miller + Value Added by Baker = Rs.60 + Rs.110 =Rs.170

Q3. Suppose in an economy, GDP =RS.6000, Disposable Income =Rs.5100, Govt. Budget
Deficit = Rs.200, Consumption = Rs.3800, Trade Deficit = Rs.1000.
a) How large is the savings? b) What is level of net investment? c) What is level of govt.
expenditure?

Ans. a) Savings = disposable Income consumption = Rs. 5100 Rs.3800 = Rs. 1300
b) Net Investment = S + (T G) +(M X) = Rs.1300 +( Rs. 200) + Rs.1000
= Rs. (1300 200 + 1000) = Rs.2100
c) Yd or Disposable Income = NI Td = NNP|FC Td = (NNP|MP Ti) Td = NNP|MP T
or, Rs.5100 = Rs.6000 T
or, T = 900
Budget Deficit = G T = Rs. 200
or, Rs.200 = G Rs.900
or, G = Rs.1100
d) According to the question, C+I+G>Y
or, C+I+G Y >0
Y=C+I+G+X M
Or, M X = C+I+G Y
Now we already have the R.H.S. >0 L.H.S. has to be >0
Hence, M X >0 M>X there is trade deficit or external deficit
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Q4. Consider a simple economy in which there are only three items in CPI. (i)Housing, (ii)Food
and (iii) Entertainment. Assume that in the base year, say 1982 the household consumed the
following quantities at the prevailing prices.
Items Quantities Price Expenditure
Food 5 14 70
Housing 3 10 30
Entertainment 4 5 20
a) Calculate CPI for 1982
b) Calculate CPI for 1990 if the prevailing prices are as follows:
Food Rs. 30, Housing Rs. 20 and Entertainment Rs. 6
c) Calculate the inflation rate.
Solution:

a) CPI1982 =

b) CPI1990 =

c) Inflation Rate = = = 0.95 = 95%

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Q 5. The following data is given for a hypothetical economy.
Year Price per football Quantity of Price per Quantity of
(in Rs.) Football basketball (in Rs.) basketball
2005 10 200 8 75
2006 14 200 10 75
2007 14 350 10 125
a) Compute Nominal GDP, Real GDP, & GDP deflator for each year using 2005 as base
year.
b) Calculate the percentage change in nominal GDP, Real GDP and GDP deflator in 2006
and 2007 from the preceding year. Explain.
Ans. a) Nominal GDP of 2005 = (10×200) + (8×75) = 2000+600 = 2600 (in Rs.)
Nominal GDP of 2006= (14×200) + (10×75) = 2800+750 = 3550 (in Rs.)
Nominal GDP of 2006= (14×350) + (10×125) = 4900+1250 = 6150 (in Rs.)
Real GDP of 2005 = Nominal GDP of 2005 = Rs. 2600
Real GDP of 2006 = (10×200) + (8×75) = Rs. 2600
Real GDP of 2007 = (10×350) + (8×125) = Rs. 4500
GDP deflators (in %)

GDP Deflator of 2005 = = = 100

GDP Deflator of 2006 = = = 136.5

GDP Deflator of 2007 = = = 136.7

b) Percentage change in Nominal GDP in 2006 = = 36.5%

Percentage change in Nominal GDP in 2007 = = 73.2%

Percentage change in Real GDP in 2006 = = 0%

Percentage change in Real GDP in 2007 = = 73.1%

Percentage change in GDP Deflator in 2006 = = 36.5%

Percentage change in GDP Deflator in 2007 = = 0.15% (close to zero)

Economic well being increased more in 2007 because of greater change in real GDP and
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approximately 0% change in GDP deflator.

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Q 6. The following data is given in crore of Rupees.
Compensation of Employees 1866.3
Business Interest Payments 264.9
Rental Income of Persons 34.1
Corporate profits 164.8
120.3
Corporate Dividends 66.4
Social Security Contributions 253.0
Personal Taxes 402.1
Interest Paid by Consumers 64.4
Interest paid by Govt. 105.1
Govt. and Business Transfers 374.5
Personal Consumption Expenditures 1991.9
Find out the following:
a) National Income, b) Personal Income, c) Personal Disposable Income & d) Personal Savings
Ans. a) National Income = Compensation of Employees +Business Interest Payments

+ Rental Income of Persons + Corporate profits

= 1866.3 + 264.9 + 34.1 + 164.8 + 120.3

= 2450.4 (in Rs. Crore)

b) Personal Income = National Income Corporate profits + Corporate Dividends

Social Security Contributions + Govt. and Business Transfers

Interests paid by consumers + Interests paid by Govt.

= 2450.4 164.8 + 66.4 253.0 + 374.5 64.4 +105.1

= 2514.2 (in Rs. Crore)

c) Personal Disposable Income = Personal Income Personal Taxes

= 2514.2 1991.9

= 120.2 (in Rs. Crore)

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Q 7. The following data is given in crores of rupees:

Govt. and Business Transfers 15

Indirect Business Taxes 30
GNP 630
Social Security Contribution 20
Personal Taxes 25
Capital Consumption 80
Residential Construction 70
Retained Earnings 60
Interests earned by firms from abroad 25
Personal Consumption Expenditure 390
Direct Business Taxes 40
Calculate the value of a) NNP|MP, b) NI, c) Personal Income and d) Personal Disposable Income
Ans. a) Net National Product at Market Price (NNP|MP)
= GNP Depreciation (Capital Consumption)
= 630 80
= 550 (in Rs. Crore)
b) National Income = NNP|FC = NNP|MP Net Indirect Taxes
= NNP|MP (Indirect Business Taxes Subsidies)
= 550 (30 0)
= 520 (in Rs. Crore)
c) Personal Income = Personal Consumption Expenditure
+ Personal Taxes + Govt and Business Transfers
= 390 + 25 + 15
= 430 (in Rs. Crore)
Alternatively,
Personal Income = National Income Social Security Contribution
+ Govt and Business Transfers
Retained Earning Interests earned by firms from abroad
= 520 20 + 15 60 25
= 430 (in Rs. Crore)
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d) Personal Disposable Income = Personal Income Personal Taxes

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= 430 25 = 405 (in Rs. Crore)

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Q8. Consider the following data:

Closing Stock of Firm A 30

Closing Stock of Firm B 20
Opening Stock of Firm A 5
Opening Stock of Firm B 10
Domestic Sales of Firm A 250
Purchase of A from Firm B 100
Purchase of B from Firm A 80
Domestic Sales of Firm B 250
Import of Raw Materials by Firm A 65
Export by Firm B 30
Find the Value Added by two Firms.

Ans. Value of Output of Firm A = Sales + Change in Stocks

= (Domestic + Export) + (Closing Opening)
= (250+80+0) + (30 5) = 355
Value Added by A
= Value of Output Cost of intermediate inputs
= 355 (Cost of Domestic intermediate input + Cost of imported intermediate inputs)
= 355 (100+65) = 190

Value of Output of Firm B = Sales + Change in Stocks

= (Domestic + Export) + (Closing Opening)
= (250+100+30) + (20 10) = 390

Value Added by B
= Value of Output Cost of intermediate inputs
= 390 (Cost of Domestic intermediate input + Cost of imported intermediate inputs)
= 390 (80+0) = 310

Value Added by (A+B) = 190 + 310 = 500

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