1. The GDP Deflator is a measure of price inflation calculated as:
(Nominal GDP - Real GDP) / 100
(Real GDP / Nominal GDP) × 100
(GNP / GDP) × 100
(Nominal GDP / Real GDP) × 100
Explanation:
The GDP Deflator measures the level of prices of all new, domestically produced, final goods and services in an economy. It compares Nominal GDP (current prices) with Real GDP (base year prices).
2. Which of the following must be added to GDP to arrive at Gross National Product (GNP)?
Indirect Taxes
Net Factor Income from Abroad (NFIA)
Subsidies
Depreciation
Explanation:
GDP measures production within borders. GNP measures production by nationals, regardless of location. Therefore, GNP = GDP + Net Factor Income from Abroad (Income earned by residents abroad minus income earned by foreigners domestically).
3. If Nominal GDP increases by 8% and the Inflation Rate is 5%, what is the approximate Real GDP growth?
Explanation:
Real GDP Growth ˜ Nominal GDP Growth - Inflation Rate. (8% - 5% = 3%). Real GDP represents purchasing power growth.
4. "Net Domestic Product at Factor Cost" is also known as:
Personal Income
National Income
Disposable Income
Domestic Income
Explanation:
NDP at Factor Cost represents the total income earned by factors of production within the domestic territory. NNP at Factor Cost is called "National Income".
5. To calculate "GDP at Factor Cost" from "GDP at Market Prices", which adjustment is necessary?
Add both Indirect Taxes and Subsidies.
Subtract Depreciation only.
Subtract Indirect Taxes and add Subsidies.
Add Indirect Taxes and subtract Subsidies.
Explanation:
Market prices include indirect taxes (which increase price) and exclude subsidies (which lower price). To get back to the actual cost of production (Factor Cost), one must remove the tax component (Subtract Indirect Taxes) and add back the government support (Add Subsidies).
6. Why are "Transfer Payments" (like scholarships, old-age pensions) excluded from the calculation of National Income?
Because they are difficult to track.
Because they are part of the black economy.
Because they are paid by the government.
Because they do not represent any value addition or current production of goods/services.
Explanation:
National Income accounts for production activity. Transfer payments are merely a redistribution of existing income from one group (taxpayers) to another (beneficiaries) without any corresponding economic output.
7. Green GDP adjusts the standard GDP figure by deducting:
Foreign income.
Depreciation of man-made capital.
Agriculture output.
Costs of environmental depletion and degradation.
Explanation:
Green GDP accounts for the environmental consequences of economic growth. It subtracts the value of natural capital loss (pollution, resource depletion) from traditional GDP.
8. Which of the following transactions is included in the calculation of National Income in India?
Sale of old shares in the stock market.
Transfer payments like scholarship.
Imputed rent of owner-occupied houses.
Services of a housewife.
Explanation:
National Income includes the value of goods and services produced. Imputed rent is the estimated rent a house owner would pay to live in their own house if they were renting it. It represents the value of housing services produced. Transfer payments, second-hand sales, and non-economic activities (housewife services) are excluded.
9. If Real GDP is ?1000 and Money Supply is ?500, and the Price Level is 2, what is the Velocity of Money (V) according to the equation MV = PY?
Explanation:
Equation: MV = PY. Here M=500, P=2, Y=1000 (Real GDP). So, 500 * V = 2 * 1000. 500V = 2000. V = 4. Velocity is 4.
10. Net National Product (NNP) at Market Price minus Net Indirect Taxes equals:
Personal Income
GDP at Factor Cost
NNP at Factor Cost (National Income)
GNP at Market Price
Explanation:
Market Price - Net Indirect Taxes = Factor Cost. Therefore, NNP(MP) - NIT = NNP(FC), which is technically defined as National Income.
11. Personal Disposable Income (PDI) is equal to:
Personal Income - Indirect Taxes.
National Income - Undistributed Profits.
Private Income - Corporate Tax.
Personal Income - Direct Taxes - Miscellaneous Receipts of Govt.
Explanation:
PDI is the income actually available to individuals for consumption or saving. It is obtained by subtracting personal direct taxes (like income tax) and fees/fines paid to the government from Personal Income.
12. The "Product Method" of calculating National Income is also known as:
Expenditure Method.
Income Method.
Distribution Method.
Value Added Method.
Explanation:
The Product Method sums up the Gross Value Added (GVA) by all sectors of the economy to avoid double counting of intermediate goods.
13. The concept of "Green GDP" aims to correct traditional GDP by:
Subtracting the monetary value of environmental damage and resource depletion.
Adding the value of unpaid volunteer work.
Adding the value of the underground economy.
Subtracting the income earned by foreign companies.
Explanation:
Standard GDP ignores the environmental costs of production. Green GDP deducts the cost of pollution, depletion of natural resources (like oil or forests), and degradation of ecosystems from the GDP figure. This provides a more sustainable measure of economic welfare.
14. Real Per Capita Income will definitely rise if:
Real GDP grows faster than the population.
Prices increase faster than production.
Population grows faster than Real GDP.
Nominal GDP grows faster than the population.
Explanation:
Per Capita Income = Total Income / Total Population. For the average person to be better off in real terms, the total economic pie (Real GDP) must expand at a rate higher than the number of people sharing it (Population growth).
15. GDP at "Purchasing Power Parity" (PPP) helps in comparing:
The standard of living between countries by adjusting for cost of living differences.
The military strength of nations.
The inflation rates only.
The nominal exchange rates of currencies.
Explanation:
Nominal GDP can be misleading due to exchange rates. PPP adjusts GDP to reflect what that money can actually buy in each country (e.g., a haircut costs less in India than in USA). It provides a better comparison of real living standards.