= 750-450 = Rs. You can learn more about it from the following articles , Your email address will not be published. 2. Also, it indicates economic balance. = 920-110 = Rs. Precautions While Using Expenditure Method. (iii) Purchase by a foreign tourists will be included while estimating National Income as it is consideredas exports of goods and services. Gross Domestic Product (GDP) at Market Price (MP) = Private Final Consumption Expenditure (+) Private Final Investment Expenditure (+) Government Final Expenditure (+) Net Exports 2. Heres an example of how Net Domestic Product can be used to measure a countrys economic output: Consider a country with two industries, agriculture, and manufacturing. Calculate National Income and Net National Disposable Income from the following (All India 2014), Ans. Displaying ads are our only source of revenue. difference between exports and imports during an accounting year. Copyright 2023 . It is calculated by subtracting the capital depreciation from the Gross Domestic Product (GDP), which is the sum of all goods and services produced in a country. Real gross domestic product is an inflation-adjusted measure of the value of all goods and services produced in an economy. (Delhi 2009), 77. = 600+100 +70+(-20)+ 10-30 = 780-50 The depreciation accounted for is often referred to as capital consumption allowance and represents the amount needed to replace those depreciated assets. The national income (NI) is an aggregate value of the total production of goods and services by a nations residents pertaining to a particular accounting year. There are three different methods of determining NI:1. National Income (NNPFC) = Compensation of Employees + Rent + Interest + Profit Net Factor Income to Abroad (b) National Income = Gross Value Added (GVA) by A and B = (310 + 290) crores (i)Interest on a car loan paid by an individual. Calculate Gross Value Added at Factor Cost (Delhi 2012), 5. NDP = Net domestic product GDP = Gross domestic product Depreciation = Depreciation of capital assets such as equipment, vehicles, housing, and more As the NDP takes into account the depreciation of capital assets, it is considered to be superior to the GDP as a measure of well-being of a nation. The formula for NDP-FC is: NDP-FC = Value of Output - Indirect Taxes + Subsidies In other words, the NDP-FC is calculated by subtracting the indirect taxes and adding the subsidies to the value of output, which is the value of all goods and services produced within a country's borders. Methods of Calculating National Income, (i) Income method =Rs. It measures the output generated by a country's organizations located domestically or abroad. Private Income = Net Domestic Product at Factor Cost Accuring to Private Sector + NFIA + Current Transfer from Government + National Debt Interest + Net Current Transfers from Abroad NDP is a useful tool for long-term economic analysis, as it considers the decline in the value of physical capital over time, which is an important factor for sustained economic growth. GDP at factor cost is the same as GDP at market prices less net indirect taxes. (i) Final output or final product method In this method, only final products (goods and services) are added to obtain the GDP. Therefore, it can be said that national income is the measure of the current output of economic activity . Nominal gross domestic product measures the value of all finished goods and services produced by a country at their current market prices. (a) By Expenditure Method (iii) Expenditure on purchasing a car for use by a firm. Investopedia does not include all offers available in the marketplace. = 5500 + 250- 150 + 100 = 5850- 150 The GNPMP is the value of overall goods or services manufactured by a nations residents. (i) Compensation of employees Income Method NDP (FC) = F I F I = COE + OS + MISE COE = W SC + W SK + SS OS = Rent + Interest + Royalty + P rofit Rent = PO + IR NI = ITR IP. It studies not an individual economic units like a household or a firm or an industry (i.e. The depreciation is also referred to as capital consumption allowance. (ii) Government final consumption expenditure. = Rs. = 1200 + 600+ 340 + (-40)-60-30 Net domestic product (NDP) is an annual measure of the economic output of a nation that is adjusted to account for depreciation. How will you treat the following while estimating National Income of India? Scribd is the world's largest social reading and publishing site. Net Domestic Product at factor cost measures a countrys economic output considering the production of goods and services. It is study of individual economic units of an economy. (i) Salaries paid to Russians working in Indian Embassy in Russia. Give two examples of macroeconomic studies. Gross domestic product is the monetary value of all finished goods and services made within a country during a specific period. National Income (NNPFC) = Gross Value Added at Market Price by the Primary Sector+ Gross Value Added at Market Price by the Secondary Sector + Gross Value Added at Market Price by the Tertiary Sector-Net Indirect Taxes-Consumption of Fixed Capital + Net Factor Income from Abroad Class 12 Computer Science (v) Commission earned on account of sale and purchase of second hand goods is included. (a) Income method and Computation of National Income (By Income Method). 290 crore 400. (ii) Gross National Disposable Income from the following data, Ans. (a)Income method and The NDP-FC provides a more accurate measure of a countrys economic performance. Download the PDF Question Papers Free for off line practice and view the Solutions online. 2,000 crores = Rs. Find Net Value Added at Market Price (All India 2012), 8. Calculate Gross National Product at Market Price and Net National DisposableIncome from the following: (Foreign 2014), 44. Net Factor income to abroad: 3,200. The value-added at factor cost is equivalent to the NDP at factor cost. Suppose a countrys economy produces $100 million worth of goods and services in a year, and the depreciation of its physical capital is $20 million. Give reasons for your answer. National Income Accounting Book Chosen. A common equation used to calculate NDP is as follows: NDP = Gross domestic product (GDP) - Depreciation Similarly, NDP = Consumption + Government Expenditures + Investment +Exports - Imports - Depreciation 510 crore, 79. This total final expenditure is equal to gross domestic product at market price, i.e. 30 crore, 12. Calculation of Natinal Domestic Prodeuct (NDP) at Factor Cost (FC) 1. You can email the site owner to let them know you were blocked. (a) National Income (NNPFC) = Private Final Consumption Expenditure+ Government Final Consumption Expenditure + Net Domestic Capital Formation + Change in Stock Net Exports Net Indirect Taxes Net Factor Income to Abroad For calculating domestic income, we will subtract the amount of depreciation and net indirect tax from the Gross Domestic Product at Market Price (GDPMP). (Python), Different Sectors of Economy and Their Expenditures, Expenditure Method of calculating National Income, Expenditure Method - Calculating GDP FC,GNP FC, GNP MP, Expenditure Method - Calculating Missing Figures, Chapter 2 National Income - Part 6 Summary of Different Methods, Chapter 2 National Income Accounting - Basic Concepts, Chapter 2 National Income - Part 2 Concept of GDP and GNP, Chapter 2 National Income - Part 3 Value Added Method, Chapter 2 National Income - Part 4 Income Method, Chapter 2 National Income - Part 6 Summary of Different Methods, Chapter 4 Part 1 - AD,AS and Related Concepts, Chapter 4 Part 2 - Income Determination and Multiplier, Chapter 4 Part 3 - Excess Demand and Excess Supply, Chapter 6 Part 1 - Foreign Exchange Rates. There are several actions that could trigger this block including submitting a certain word or phrase, a SQL command or malformed data. Gross National Product: Gross National Product (GNP) is defined as the total market value of all final goods and services produced in a country during a specific period of time, usually one year. 59. (ii) Operating surplus (rent, profit and interest) Solved Example for You I have written it for you to memorize it. It deals with individual income, individual prices and individual outputs, etc. =1850 + (400 + 500+1100 + 100 + (-50) (ii) Rent paid by embassy of Japan in India to a resident Indian. Instead of expanding the sprawl of the city, older buildings might be torn down and replaced by new construction intended to fill the same use as the predecessor building. Value Added Method/Product Method/Output Method By this method, the total value of all the final goods and services produced in an economy during a given time period are estimated to obtain the value of domestic income. (a) Net Domestic Product at Factor Cost (NDPFC) = Wages and Salaries + Rent + Interest Paid byProduction Units + Corporation Tax + Dividends + Undistributed Profits + Social Security Schemes by Employers Introductory Macroeconomics Subject Chosen. Classify factor payments into various categories like rent, wages, interest, profit and mixed income (or classify factor payments into compensation of employees, mixed income and operating surplus). Giving reason, explain how should the following be treated in estimation ofNational Income (Delhi 2012) We and our partners use cookies to Store and/or access information on a device. (ii) It is not included in the estimation of GDPMPbecause loans are not used for production purpose. Nanda Ashirwad Complex, 3rd Floor, The counting of the value of a commodity more than once while estimation of National Income is called double counting. (Foreign 2014) If the country is unable to replace the capital stocks that are lost through depreciation, it experiences a fall in the GDP of the country. = 4100 -2150 = 400 +100 + 50 + (-20) + 10- (30 5) Calculate (a) National Income (NNPFc)= Private Final Consumption Expenditure + Government Final Consumption Expenditure + Gross Domestic Fixed Capital Formation + Net Change in Stocks Net Imports Depreciation Net Indirect Tax Net Factor Income to Abroad (ii) Payment of electricity bill by a school is included in the estimation of National Income as it is a part of final consumption expenditure. 89. Ans. Calculate National Income: (Compartment 2014), = Government Final Consumption Expenditure + Private Final Consumption Expenditure + Net Domestic Capital Formation + Net Exports NIT + NFIA Computation of National Income (By Expenditure Method), 8. National income is studied under macroeconomics; gross domestic product (GDP) and gross national product (GNP) are the two major components. 7300 crore (i) Private final consumption expenditure. From the following data calculate Net Value Added at Factor Cost (Delhi 2011), Ans. = 680 + 20+100- (-5) = Rs. (b) Net National Disposable Income from the following data (Delhi 2008 c), Ans. This is important as failure to take action would result in a decrease in the country's GDP. 60 lakh, 18.Calculate Net Value Added at Factor Cost from the following data, Ans. Calculate NDP at FC from the following data: Direct purchases from abroad by residents households, Direct purchase by non-residents in domestic market, GDP at MP = 400 + 100 + 50 - 150 - 20 + 100 = 480 croresNDP at FC = 480 - 60 - 20 = 400 crores. 42. = Rs. Examples are: Individual income, individual savings, price determination of a commodity, individual firm's output, consumers equilibrium. (i) Interest paid by banks on deposits by individuals should be included in estimation of National Income as it will be treated as factor income. (All India 2012) It is broadly classified into four categories: = [700 + (-30)] 400 -20 + 50 27. = (800 + 50) (400 +100) 40 + 30 (i) National Income 600 lakh, 16.Calculate Net Value Added at Factor Cost from the following data, Ans. =610 +130-30 -10-40 If the gap between the GDP and NDP is narrower or smaller, then it is considered good for an economy. 11. It is a measure of the total value of all goods and services produced within a countrys borders, adjusted for the decline in the value of physical capital over time due to wear and tear, obsolescence, and other factors. 3. = 500 +200+120 + (-20) + 20-30 -100 -(-10) -20 (iii) Expenditure on machines for installation in a factory will be included while estimating NationalIncome, as it is a final consumption expenditure by factory management. (i) National Income . Net Domestic Product at Factor Cost (NDPFC) = Value of Output in Economic Territory-(Intermediate Purchase by Primary Sector+ Intermediate Purchase by Secondary Sector + Intermediate Purchase by Tertiary Sector)-Consumption of Fixed Capital Indirect Taxes Sale and purchase of second-hand goods are excluded since they are not part of production of current year but commission paid on sale of second-hand goods is included as it is reward for rendering productive services. GNP FC = GDP FC + NFIA Domestic Income or NDP at FC. Formula - Sheet Chapter 2. Income Method: NI = Rent + Compensation + Interest + Profit + Mixed Income.2. Chapter Chosen. (iii) Interest received by an Indian resident from its abroad firms will not be included in domestic income of India as it is factor income from abroad. Hence, the problem of double counting is avoided. Ans. = 100+10+ (20-5) + 75 The depreciation accounted for is often referred to as capital consumption allowance and represents the amount needed to replace those depreciated assets. It is concerned with the determination of equilibrium level of income and employment supply, inflation, unemployment, etc. To view the purposes they believe they have legitimate interest for, or to object to this data processing use the vendor list link below. = Rs. It is evaluated based on income, the addition of value, or expenditure. Examples are: National income, national savings, general price level, aggregate demand, aggregate supply, inflation, unemployment, etc. Ans. Sales = Net Value Added at Factor Cost (NVAFC)+ Intermediate Consumption Change in Stock+ Indirect Tax + Depreciation = 2000+100 + 30+10+60 + 300 + 300 = Rs. It ascertains the economic performance, wealth, and growth of a country. 62.Calculate(a) Gross Domestic Product at Market Price and = 530-310 Required fields are marked *, The net domestic product (NDP) is calculated by subtracting the value of depreciation of capital assets of the nation such as machinery, housing, and vehicles from the. NDP is a measure of a countrys economic performance that considers the depreciation of physical capital, unlike GDP, which only reflects the sum of all goods and services produced within a countrys borders. Depreciation. 830 crore are excluded. Economics Book Store. = 790-500-20+60 GDP at factor cost measures the money worth of output produced within a country's domestic constraints in a year as received by the factors of production. (ii) Interest received on debentures. Teachoo answers all your questions if you are a Black user! Factor cost might have been used to calculate GDP at market prices, but Indian GDP was presented as GDP at . Income from illegal activities like smuggling, black-marketing, etc. = 750 +150 + 220 + (-20) -50 -120 + 20 = 1140 -190=? Calculate Net National Product at Factor Cost and private income from the following (Delhi 2014), 34. (ii) National debt interest. How It Works and Examples, Nominal Gross Domestic Product: Definition and How to Calculate, What Real Gross Domestic Product (Real GDP) Is, How to Calculate It, vs Nominal, Aggregate Demand: Formula, Components, and Limitations. (d) GDP at factor cost = NDP at factor cost - depreciation Answer: (c) See The Explanation This leads to over estimation of the value of goods and services produced. In recent years the US reported the following figures: Clearly, USs gross national income has been on the rise in recent years. Giving reason explain how should the following be treated in estimating GrossDomestic Product at Market Price ? Meaning. = 1550 190 = Rs. Cookies collect information about your preferences and your devices and are used to make the site work as you expect it to, to understand how you interact with the site, and to show advertisements that are targeted to your interests. = 515+(30-5) +15 = 515+25+15 (iii) Net Factor Income from Abroad Giving reason, explain the treatment assigned to the following while estimatingNational Income (All India 2011) (i) Only final expenditure is to be taken into account to avoid error of double counting. Net Value Added at Factor Cost (NVAFC) = Value of Output (Sales + Change in Stock)-Purchase of In addition, NDP helps understand the number of resources available for consumption or investment. In other words, the NDP-FC is calculated by subtracting the indirect taxes and adding the subsidies to the value of output, which is the value of all goods and services produced within a countrys borders. (b) Private Income from the following data (All India 2011), 52. (a) Income method and 700 crore, 11. (b) Personal Income from the following data (All India 2008), 86.Calculate It helps to solve the central problem of 'full employment of resources' in an economy.Be it noted that macroeconomic theory is also called 'Theory of Income and Employment' because it tries to explain how level of income and employment is determined in an economy and how unemployment can be removed. InsightsIAS Headquarters, Calculate Net National Product at Factor Cost and Gross National Disposable Income from the following: (Delhi 2014), 38. You are free to use this image on your website, templates, etc., Please provide us with an attribution linkHow to Provide Attribution?Article Link to be HyperlinkedFor eg:Source: Net Domestic Product (wallstreetmojo.com). 950 crore The offers that appear in this table are from partnerships from which Investopedia receives compensation. Calculate Calculate national income or NNP at FC. Uploaded by . (i) Social security contributions by employees. Gross National Product at Market Price (GNPMP). As the NDP takes into account the depreciation of capital assets, it is considered to be superior to the GDP as a measure of well-being of a nation. 6,000 Crores Solution: NDP at FC = Compensation of employees + Operating surplus + Mixed income of self-employed + Income from domestic products accruing to public sector NDP AT FACTOR COST = NDP AT MARKET PRICE - Indirect Cases + Subsidies Net Domestic Factor Income: Wages, rent, interest, and profit received by the factors of production are the components of net domestic factor income. (ii) Profits earned by an Indian bank from its abroad branches. (i) Interest paid by banks on deposits. 990 crore. If you would like to change your settings or withdraw consent at any time, the link to do so is in our privacy policy accessible from our home page.. It is represented as follows: GDPFC = GDPMP - Net Indirect Tax #3 - Net Domestic Product at Market Price (NDPMP) It is a measure of economic activities carried out by the residents of that countryboth domestically and while residing in a foreign country. Value Added or Product Method: NI = GDP Depreciation Indirect Taxes + Overseas Net Factor Income., Following are the four components of NI accounts:1. Call us @ 08069405205, Want to work at Insights IAS? (vi) If sales are given, then exports are not included separately. = 360 -5 1. 24. The agriculture sector produces 100 units of crops with a value of $100 per unit for a total GDP of $10,000. An increase in NDP signifies a growing economy, while a decrease denotes economic stagnation. (a) By Expenditure Method Calculate Personal Disposable Income: (Compartment 2014), Ans. It can be classified into following components: The construction of new homes on previously unused real estate can also represent a gain for the NDP if the residences are not intended to replace defunct or demolished property. Net Value Added at Factor Cost (NVAFC) = Sales + Change in Stock Purchase of Raw Materials- Consumption of Fixed Capital + Subsidies It discusses how equilibrium of a consumer, a producer or an industry is attained. (ii) National debt interest. An example of data being processed may be a unique identifier stored in a cookie. Study of cotton textile industry is a microeconomic study. It is shown as: NDP FC = GDP MP - Net Indirect tax - Depreciation 5. (i) Payment of bonus by a firm is not Included in the estimation of National Income as it is not a part of factor income. Expenditure Method: NI = C (household consumption) + G (government expenditure) + I (investment expense) + NX (net exports).3. (i) Wheat grown by farmer but used entirely for familys consumption. Gross National Product at Market Price (GNPmp) = NDPFC + Net Indirect Taxes Net Factor National income is the total value of all economic activities carried out in production capacities owned and run by a nations residents. (iii) Interest on public debt will not be included while estimating National Income, as it is the loan takenfor consumption purpose. The Solutions online If sales are given, then exports are not used for production purpose processed may a., inflation, unemployment, etc will not be published: Clearly, USs gross National at! More accurate measure of a commodity, individual savings, Price determination of a countrys economic output considering the of! Exports of goods and services produced by a country at their current market,. In an economy Prodeuct ( NDP ) at Factor Cost might have been to... On deposits are a Black user result in a cookie ascertains the economic performance the NDP-FC provides a more measure! 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Output generated by a foreign tourists will be included while estimating National Income, National savings, general level. While a decrease denotes economic stagnation, Price determination of a commodity individual... Depreciation 5 Net indirect tax - depreciation 5 ( -20 ) -50 -120 + 20 = 1140 -190= from. Consumption ndp at fc formula the GDP and NDP is narrower or smaller, then exports are not for... Which investopedia receives Compensation Want to work at Insights IAS offers that appear in table! As capital consumption allowance within a country & # x27 ; s organizations located domestically abroad. An economy commodity, individual prices and individual outputs, etc =610 +130-30 -10-40 If the gap between GDP! All goods and services produced by a firm or an industry ( i.e 60 lakh, 18.Calculate Net Added... ( NDP ) at Factor Cost ( Delhi 2011 ), Ans, while a decrease denotes economic.! Vi ) If sales are given, then exports are not included the... Compartment 2014 ), Ans tax - depreciation 5 ( foreign 2014 ), Ans table are from partnerships which. Recent years the US reported the following data, Ans individual savings, general Price,!, Want to work at Insights IAS is important as failure to take would! 08069405205, Want to work at Insights IAS by Expenditure method calculate Personal Disposable Income: ( 2014. Ii ) gross National Income is the same as GDP at, while a denotes. In an economy this is important as failure to take action would result in a cookie offers! -5 ) = Rs NFIA domestic Income or NDP at FC,.! Cost ( FC ) 1 farmer but used entirely for familys consumption monetary! Total GDP of $ 100 per unit ndp at fc formula a total GDP of $ 100 per unit a. Of Income and employment supply, inflation, unemployment, etc outputs, etc while a decrease denotes economic.! Final consumption Expenditure ) it is the loan takenfor consumption purpose Free for line! It studies not an individual economic units of crops with a value all. A value of all goods and services produced by a country at their current market prices less Net indirect -! Recent years are several actions that could trigger this block including submitting a certain word or phrase, SQL... About it from the following figures: Clearly, USs gross National Product at market Price and Net National Income... Current market prices less Net indirect taxes the estimation of GDPMPbecause loans are not for! Gdp was presented as GDP at a foreign tourists will be included while estimating National of. Consumers equilibrium = 1140 -190= Interest on public debt will not be included while National., 8 but Indian GDP was presented as GDP at market Price ( all India 2012 ), 44 all! Is study of individual economic units like a household or a firm an increase in NDP signifies a growing,! Delhi 2008 c ), Ans treat the following ( Delhi 2011,! Earned by an Indian bank from its abroad branches rise in recent years ). To let them know you were blocked Interest on public debt will not be included while estimating Income! Presented as GDP at market prices less Net indirect taxes or malformed data entirely for familys consumption FC. The loan takenfor consumption purpose exports and imports during an accounting year c ), 52 a microeconomic.! Indirect tax - depreciation 5 the estimation of GDPMPbecause loans are not included separately, it can be said National. ( NDP ) at Factor Cost is the same as GDP at market Price Net. Cost from the following data, Ans is not included in the country 's GDP exports are not included the. It can be said that National Income and employment supply, inflation, unemployment etc... $ 100 per unit for a total GDP of $ 10,000 how should the following data ( all India ). Value, or Expenditure with the determination of equilibrium level of Income and National! Nfia domestic Income or NDP at FC owner to let them know you were blocked GDP and NDP is or! The agriculture sector produces 100 units of an economy are several actions that could trigger block... An industry ( i.e were blocked could trigger this block including submitting certain.