How to Calculate Domestic and National Income - Simple Practical Questions

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Step 1 Calculate GDPMP GDPMP = Income Earned by Indian Citizens in India + Income earned by Foreign Citizens in India (Income earned within the domestic territory) Step 2 Calculate GDPFC GDPFC = GDP MP - Net Indirect Taxes GDPFC = GDPMP - (Indirect Taxes - Subsidy) Step 3 Calculate Domestic Income (NDPFC ) NDPFC = GDPFC - Depreciation Step 4 Calculate Net Factor Income from Abroad (NFIA) NFIA = Factor Income Earned from Abroad - Factor income Paid to Abroad Step 5 Calculate National Income ( NNPFC ) NNPFC = NDPFC + NFIA Example 1 Income earned by Indian Citizen in India 1000 Depreciation 300 Income earned by Foreign nationals in India 600 Income earned by Indian Nationals Outside India 800 Indirect Taxes 110 Subsidy 10 What Is Domestic Income and National Income? GDPMP = Income Earned by Indian Citizens in India + Income earned by Foreign Citizens in India GDPMP = 1000 + 600 GDPMP = 1600 Net Indirect Taxes = Indirect Taxes - Subsidy Net Indirect Taxes = 110 - 10 Net Indirect Taxes = 100 GDPFC = GDP MP - Net Indirect Taxes GDPFC = 1600 - 100 GDPFC = 1500 NDPFC = GDPFC - Depreciation NDPFC = 1500 - 300 NDPFC = 1200 NFIA = Factor Income Earned from Abroad - Factor income Paid to Abroad NFIA = 800 - 0 NFIA = 800 NNPFC = NDPFC + NFIA NNPFC = 1200 + 800 NNPFC = 2000 Note Depreciation is also called Consumption of Fixed Capital Question 1 Why is GDPFC more than NDPFC? -a- GDPFC includes depreciation, that is why it's more than NDPFC. -ea- Question 2 If NDPFC is Rs1,000 crores and NFIA is - Rs 5 crores, how much will be the national income? -a- National Income (NNPFC) = NDPFC + NFIA NNPFC = 1000 + (-5) NNPFC = 995 National Income (NNPFC )is Rs 995 crores -ea- Question 3 The net domestic product at market price of an economy is 4,500 crores. The capital stock is worth Rs 4,000 crores and it depreciates at the rate of 10% per annum. Indirect taxes amount to Rs 150 crores, subsidies amount to Rs 20 crores, factor income from the rest of the world is Rs 400 crores and to rest of the world is Rs 600 crores. Find out the gross national product at factor cost. -a- Amt in crores (Rs) NDPMP = 4500 Capital stock = 4000 Depreciation rate = 10% Indirect Tax = 150 Subsidy = 20 Factor income from rest of the world = 400 Factor income to rest of the world = 600 GNPFC = ? Depreciation = 4000*10/100 Net Indirect Tax = Indirect Tax - Subsidy Depreciation = 400 Net Indirect Tax = 150 - 20 Net Indirect Tax = 130 NFIA = Factor income from abroad - Factor income to abroad NFIA = 400 - 600 NFIA = -200 NFIA = Factor income from abroad - Factor income to abroad NFIA = 400 - 600 NFIA = -200 Gross National Product at Factor Cost is Rs 4570 crores. -ea- Question 4 Calculate National Income or NNPFC. (Rs in crores) GDPMP = 5500 Consumption of Fixed Capital =300 GST = 120 Factor income from abroad = 150 Subsidies = 70 Factor income to abroad = 250 -a- Net Indirect Taxes = GST - Subsidies (GST is an Indirect Tax) Net Indirect Taxes = 120 - 70 Net Indirect Taxes = 50 NFIA = Factor income from abroad - Factor income to abroad NFIA = 150 - 250 NFIA = -100 NNPFC = GDPMP - Consumption of Fixed capital - Net Indirect tax + NFIA NNPFC = 5500 - 300 - 50 -100 NNPFC = 5050 National Income or NNPFC is Rs 5050 crores.