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Concept : Transfer payment. 

Explanation : Pension is a part of money income earned by an employee during his service period with the entrepreneur. Such income is paid by Government to an employee after his retirement so as to make employee survive during his retirement period. 

Thus, 

Transfer income is not included in National Income. It is just an government expenditure.

Concept: Valuation of government services. 

Explanation : The government provides various services lower than market price. So it is difficult to get real value of these while estimating NI.

Concept: Unemployment Allowances.

Explanation : It is considered as a transfer payment which is not included in NI.

Concept: Valuation of government services.

Explanation : The government provides various services lower than market price. It is difficult to get real value of such services while estimating NI.

Concept: Illegal income (Black Marketing) 

Explanation: Illegal income is not included in NI. There will be underestimation of NI as income from illegal activities are not included.

Concept: Unpaid services.

Explanation : The services provided out of love, affection, mercy, sympathy and charity are not included in NI as they are not paid for. The value of unpaid services is not counted in NI.

Correct option is (D) All of these

Yes,I agree with this statement.

• The value added approach is the difference between the value of final output and input at each stage of production.
• In this approach, the value added at each stage of production is considered.

E.g.

• In the above example, value of groundnut with shell is ₹ 50, after removing shells value of groundnut is ₹ 80, after crushing groundnut value oil ₹ 120 and when oil is packed its value ₹ 150.
• So, the value added raw groundnut (₹ 50), groundnut (₹ 30), oil (₹ 40), packed oil (₹ 30), total value ₹ 150 is included in national income. 

• Double counting means counting the value of the same product (or expenditure) twice i.e. more than once.
• According to production method while calculating national income, the value of only final products and services should be considered.
• For example, for an iron manufacturer, iron is a final product and for a machine manufacturer the machine which consists of iron is a final product. In this sense, the value of iron gets double counted.
• This is incorrect and so double counting should be removed from national income accounting.
• When the value of a commodity is calculated for more than one time in national income it gives an over-valued national income and hence a false picture.

In production process, when the production of goods goes from one stage to another stage, its monetary value increases. If this increase in value can be measured out and added in national product, the problem of double counting can be resolved.

Indirect taxs are deducted and subsidy is added.

1. Finished goods and services and
2. Imputed rent

The division of gross national income with total population of that nation is called the per capita income.
Per Capita Incoime =  \(\frac{Gross National Income} {Total Population }\)

Payments made or income received in which no goods or services are being paid for such as subsidy, taxes, etc. are called transfer payments.

Per capita income is obtained by a simple division of gross national income with total population. These results in average income a person earns. Thus, some person must be earning high and low. Hence, ……….

During the process of production within a given year, when the depreciation of domestic or foreign factor of production is . deducted from gross domestic product, we get net domestic product i.e. NDP.
∴ NDP = GDP – Depreciation

At current prices

Answer is (a) Main concepts of national income Gross

National Product: Gross National Product is an important concept of national income. It is calculated on the basis of the final goods and services produced in a country. The products that are available for consumption are called the final product. For example, we manufacture shirts using raw materials such as cloth, thread, and buttons. Here, the shirt is the final product for consumption. The money value of final products is taken into account for calculating the Gross National Product. While calculating the money value of the shirt, the value of raw materials such as buttons and clothes are included.

Gross Domestic Product – GDP Gross Domestic Product is the most suitable concept of national income to analyze the contribution of sectors in an economy. The GDP of a country is the total money value of the final goods and services produced within the domestic territory during a financial year. The income of people working abroad and the profit of institutions and firms operating abroad will not be included while calculating the Gross Domestic Product. For example, suppose an Indian firm operates in America. The profit of that institution will be included in the Gross Domestic Product of America but in the Gross National Product of India. That is to say while calculating the GDP of India, such income will be excluded.

Net National Product – NNP If you purchase a computer and sell it the next year, will you get the same amount that you spent while purchasing it? Why? Similarly, with time, machinery and other things suffer from wear and tear. The cost incurred to remedy this wear and tear is termed as depreciation charges. The depreciation charges are taken into consideration while calculating the national income. When we deduct depreciation charges from the Gross National Product we get the Net National Product. Technically, the Net National Product is considered as national income.

Net National Product = Gross National Product – Depreciation charges

Per Capita Income:

When we divide the national income by population, we get per capita income. It helps to know the economic position of a country and to compare it with other countries.

(b) The Central Statistical Office (CSO) is the official agency that estimates the national income of India. The estimation is done mainly for the purpose of planning and development activities of the government. It also helps to understand the nature of the employment sectors and the types of employment the people are engaged in. In India, we make use of the product, income, and expenditure methods to estimate the national income.

(c) Knowledge economy and India: The knowledge sector is the sector which efficiency uses knowledge and technology to attain economic growth. Today, modern technology and information & communication possibilities have grown and developed into knowledge economy. Education, innovation, and Information & Communication Technology (ICT) form the basis of knowledge economy. In knowledge economy, production and consumption of intellectual capital take place.

(b) Population of a country

Net Domestic Product (NDP):

• When factors of production such as machines, building, equipment, etc. are used for producing goods and services, they undergo wear and tear and their value decreases. This is called capital depreciation.
• After sometimes, these factors of production become useless and they need to be replaced. Capital is needed to repair these factors of production or replace them in case they become obsolete with the arrival of new technology.
• Thus, during the process of production within a given year, when the depreciation of domestic or foreign factor of production is deducted from gross domestic product, we get net domestic product i.e. NDP.
• After deducting depreciation of factor of production from the domestic (or foreign factors used in the country) during a year is called net domestic product (NDP).
  ∴ NDP = GDP – Depreciation

• The Central Statistical Organization (CSO) calculates the national income of India since 1954.
• The CSO takes 1999-2000 as base year and then calculates national income .at constant prices.

Problems faced by CSO during measurement are:

• Problems of double accounting
• Problems of self-consumption
• Problems of depreciation
• Tax avoidance and tax evasions
• Illegal income
• Problems of net foreign income
• Problems in accounting

Following problems arise in accounting:
(A) Illiteracy
(B) Small scale production-sale
(C) Barter system
(D) People involved in more than one occupation

The CSO tackles all these problems well and tries to obtain national income by counting the income carefully.

Monetary national income is the money value of final goods and services produced by residents of a country in a year, measured at the prices of the current year.

Gross National Product (GNP):

• The market value of the total goods and services produced, by citizens of a country, within the country or in foreign country is called Gross National Product (GNP).
• The major difference between GDP and GNP is that in GDP production done within the boundary of the country is considered irrespective whether it is done by Indians or foreigners in India. However, in GNP production done by citizens done in a country or in a foreign country is considered.

Important points:

• GNP considers the value of production done only in current year and not that of previous year.
• GNP = GDP + Net income obtained from foreign countries -Total payment to foreign countries.
• Since GNP gives a true picture of the national income over GDP, it is used widely in practice.

Per capita income (PCI):

• The way national income is an indicator of economic growth, the per capita income is an indicator of national economic development.
• The division of gross national income with total population of that nation is called the per capita income.
  Per captia income =  \(\frac{Gross\, National\, Income}  {Total\, Population}\)

Example:

• Suppose the national income of a country in a given year is ₹ 60,000 crores. The population of that country in that year is 2 crores.
• Then, Per Capita Income (PCI) = \(\frac{60,000\, crore} {2,000\, crore}\)  = ₹ 30,000
• The per capita income of the given country is ₹ 30,000. It means that on an average every citizen of this country earns an income of ₹ 30,000 during a year.
• Thus, per capita income is the average income per individual. Since, PCI is an average income of entire nation, some individuals might be earning less and some more. Hence, PCI is just an indicative figure and not a true figure of individual income.
• If the per capita income is high, the citizens will able to afford more goods and services and their standard of living will improve.

(A) Monetary national income:
Monetary national income is the money value of final goods and services produced by residents of a country in a year, measured at the prices of the current year.

Explanation:
When we multiply the production of all goods with the market price of respective goods what we get is called monetary national income. However, this monetary national income is not true income.

Reason:

• Suppose in the previous year, the production was ‘a’ and prices were ‘b’. National income of previous year = (production ‘a’) × (price ‘b’) = ab
• Now, suppose that the production in current year is equal to the production in the previous year but the prices have doubled in the current year. So, the prices in the current year become ‘2b’.
  National income of current year = (production ‘a’) × (price ‘2b’) = 2ab
• In this case the national income of current year will be double than that of the previous year which is actually not true because there is no change in production in the current year.

Drawback:

• Although the national income has increased, it has increased because the prices have increased and not because production has increased.
• This means that people have been consuming same amount of quantity current year as they used to in the previous year. So, we can say that consumption of product has not increased among people and so the overall standard of living has not improved.
• Hence, a country should focus not just focus on monetary national income.

(B) Real national income:
The calculation of national income at base-year price or fixed price is called real national income.

• Real national income is obtained by multiplying the production of all goods with the fixed price of respective goods during the year.
• Since, the real national income considers the price of the base-year, any rise in national income means that some rise has occurred due to the rise in production and some due to market price (current price). Hence, real national income shows the true situation of a country.

Advantage:
If national income increases due to increase in production it means that people consume more products or more people consume the products. In either case, since the production has increased the consumption and standard of living of people have become higher. Hence, real national income is a better measure of national income as compared to monetary income.

Gross Domestic Product (GDP):
The market value of total goods and services produced within the boundary of a country by its citizens as well as foreigners is called gross domestic product (GDP).

Important points:

• In gross domestic product, the final products or goods produced within • the country’s limit/boundary by natives and foreign citizens or by nature such as (crude oil) are considered.
• The concept of gross domestic product is related to the boundary of a country. This means production done by citizens of a country residing in a foreign country or the incomes generated by citizens of a country from foreign countries is not considered.
• The figures of GDP are used to compare economies of different countries and hence study their progress.

Correct option is (B) Higher proportion of goods and services obtained by citizens

Correct option is (A) Average income of a person

Types of incomes and their role while calculating national income:

(I) Incomes that are considered:

1. Income earned from factors of production namely,
   (A) Income of rent,
   (B) Income of interest,
   (C) Income of wages and
   (D) Income of profit.
2. Net foreign income i.e. income through export-import.
3. Income generated as commission or brokerage on sale of consumable goods.
4. Incomes which show flow of production of goods or services in economy which increase the monetary value of goods of the economy.

(II) Incomes that are not considered:

• Income generated from gifts, rewards, prizes, tips, thefts, unemployment allowances, government assistance to elders, lotteries, etc.
• The income of the second hand goods.

(III) Incomes that are deducted:

Subsidy given by the government.

The summation of the income earned by the citizens of a country and the state is called the national income of that country obtained as per the income method.

Correct option is (D) None of these

National income is measured by the criterion of money. The question that arises here is that value of money keeps on fluctuating.

• The instability of money causes price to fluctuate i.e. increase or decrease. -> If we do not consider, calculate and compare national income with some stable prices, we don’t get a correct figure.
• For example, if the price increases, national income also increases in spite of no rise in production.
• Hence, increase in national income can be considered true only if there is increase in production too.
• These concepts are clarified by monetary income and real income. Hence, it is utmost important to study them for calculating national income.

Per capita income (PCI):
The division of gross national income with total population of that nation is called the per capita income.
Gross National Income Per capita income =  Gross National Income  Total Population 

Importance:

• If population grows faster compared to national income the per capita income decreases.
• The per capita income is an average measurement.
• Per capita income docs not change with change in the distribution of national income.
• Per capita income is not a true criterion of individual income.
• The true criterion of country’s progress is not the national income but per capita income.
• UNO also uses figures of per capita income along with the figures of national income while comparing the progress of two countries.
• The comparison of two countries can be done by comparing their per capita incomes.
• Per capita income helps to assume the standard of living of citizens of that country.

Income method:

• The summation of the income earned by the citizens of a country and the state is called the national income of that country obtained as per the income method. .
• To calculate the national income through this method, the rent, interest, wages and profits obtained from the four factors of production namely land, capital, labour, and entrepreneur are added together.
• Moreover, the income obtained from foreign countries is added and the payment done in the form of rent, interest, wages and profits for foreign factors used in the country is deducted.
• This method of measuring national income has been developed from the definition given by Prof. Pjgou.

Incomes or items that are deducted:

1. Depreciation:

During the process of production the depreciation related to capital factor is deducted from the national product.

2. Indirect tax and subsidy:

• While deriving the market value of a good, the indirect taxes of the government levied on the goods are added.
• Hence, while finding out national product, the indirect taxes are deducted whereas the subsidy given by government is added.

National income data is very useful for various purposes. It is as follow :

• For the Economy : National income data are very important for macro economic analysis and performance of the economy.
• National Policies : National income gives the industrial policy, agricultural policy, export promotion policy etc.
• Economic Planning : The data of national income is very important tools for long term and short term economic planning e.g. planning for aggregate saving, investment, output, etc.
• Economic Research : The data of national income is very useful to the research students to study in detail how income is produced, how it is distributed, how much is spent, saved or taxed.
• Comparison of Standard of Living : Because of national income, it is possible to do comparison between the standard of living of the people of different countries and home country.
• Distribution of Income : The data of national income is very important to understand the disparities in the income of different sections of the society and to make the policies to reduce the disparities in income.
• Speed of Economic Growth : Because of national income, it is possible to know the trends or speed of the economic growth of our country in relation to previous years. 

According to the expenditure method, national income is measured in terms of the total expenditure on final goods and services produced in an economy during an accounting year. The expenditure on the final goods and services can be broadly classified into the following four categories:

1. Private final consumption expenditure 

2. Government final consumption expenditure 

3. Investment expenditure 

4. Net exports

The aggregate of expenditure incurred on domestically produced goods and services during an accounting year gives an estimate of GDP_MP.

Correct option: (3) only c

(d) Prof. P.C. Mahalanobis, D. R. Gadgil and Dr. V.KR.V. Rao

Production (output) method:

• The sum of monetary value of finished goods and services produced in agriculture, industries and service sector in a country is called the national income of that country.
• Thus, National income – (Production in agriculture + Production in industries + Production in service sector) x Market value
• This method of calculating national income has been developed from the definition given by Prof. Marshall.

Classification of economy in different sectors:

To obtain the national income the economy is classified into various sectors like agriculture, industries, services, mines, construction, manufacturing, trade-commerce, transportation, communication, banking, education, etc.

Incomes that are considered:

1. Selection of goods or services:

Value of only finished goods and services produced in the economy is considered i.e. value of goods and services still in the process of production are not calculated.

2. Imputed rent:

• Those who live in their own house do not need to pay rent. This benefit of rent that they get is a part of their income and is called imputed rent.
• Here we assume that if the house is given to someone on rent it can earn rental income and so that value is considered in national income.

3. Export:

Value of total export is added.

Correct option is (D) Money

A.C. Pigou (Money based definition):

• The flow of those things (goods) and services whose payments have been done through money or which can be easily presented by money is called national income. In other words, the total income of society along with foreign income which can be easily measured with the help of money is called its national income.
• Pigou lays stress on money and so his definition is based on money.

Correct option is (A) Production

Four factors of monetary expenditure:

The various components of final expenditure considered in national income can be divided into four parts. They are:

(A) Consumption expenditure:

• The expenditure incurred by citizens, families and firms on consumable goods is called consumption expenditure.
• It includes expenditure done on durable goods like TV, scooter, car, etc., perishable goods like food grains, fruits, vegetables, services like education, medical treatment, transportation and communication, etc.

(B) Investment expenditure:

It is the expenditure incurred on building a factory, plant, machinery and necessary goods, equipment for running a business or profession, etc.

(C) Government expenditure:

• It refers to the expenditure incurred by government on various administrative services like defence, law and order, education, etc.
• Consumption expenditure, investment expenditure, administrative expenditure, etc. are different types of expenditures done by central government, state government and local bodies.

(D) Net export expenditure i.e. Export minus Import:

• It refers to the difference between exports and.imports of a country during a period of one year.
• The expenditure done on importing foreign goods by citizens of country is the expenditure of the country. Similarly, our export is expenditure incurred by foreign citizens on domestic goods.
• Therefore, the difference between these two is the net export which is included in the national income.

Difficulty in calculating national income through expenditure:

The official data of people’s expenditure cannot be obtained correctly and therefore it becomes difficult to calculate national income by this method.

Example:

• Suppose a business person named Arav gives ₹ 30,000 as salary to Milap, who works as his accountant and considers ₹ 30,000 as the expenditure incurred.
• Now Milap gives ₹ 3000 to Khushbu who is his domestic helper. This becomes Milap’s expenditure. Now, the question that arises is ‘What is the actual expenditure? ₹ 30,000 or ₹ 30,000 + ₹ 3000 = ₹ 33,000?
• So, even in this method the problem of double counting arises in calculating national income.

Assumptions:

• The closed economy is the one in which there is no role of foreign trade.
• Such economy does not undergo economic transactions with other countries.
• Neither any goods, services and factors of production are exported from such country nor any goods, services and factor of production are imported in such.country. Thus, closed economy is self-dependent or self-reliant.

Theoretically, there are two types of economy namely

1. Closed economy and
2. Open economy.

1. Closed economy:

• The closed economy is the one in which there is no role of foreign trade.
• Such economy does not undergo economic transactions with other countries.
• Neither any goods, services and factors of production are exported from such country nor any goods, services and factor of production are imported in such country.
• Thus, closed economy is self-dependent or self-reliant.

2. Open economy:

• In open economy, foreign trade plays an important role.
• Government also plays an important role in such economy.
• Such an economy has import-export relations with other countries.