NCERT Solutions for Class 12 Macro Economics Chapter 2 – National Income Accounting

Chapter 2 – National Income Accounting

1.

Ans: These are the four factors of production:

1. Land: This term refers to natural resources like air, water, soil, and so on. Rent is the money that businesses pay to get these services.

2. Labor: This is the mental and physical work that goes into doing a job. For instance, an engineer, a manager, a worker, and so on. Wage is the money given to a worker in exchange for their services.

3. Capital: This term refers to money that is invested, as well as physical and tangible things like machinery, structures, technology, tools, and so on that help with the production process. The sum received in return of these services is termed interest.

4. Entrepreneur: This term refers to the person who takes the risk to set up the production process. Entrepreneurs take risks and come up with new ways to do things. They are paid for being entrepreneurs.

The remunerations made to the factors of productions are called factor payments or factor incomes. Rent, salary, interest, and profit all add up to these.

2.

Ans: The aggregate final spending of an economy is the total amount of money spent in the economy. In economics, factor payment is the wage, interest, rent, and other payments made to pay for the factors of production. People either save or spend the money they make. But you can regard all of your savings as money you can spend in the future. So, the total amount of money an economy spends should be the same as the total amount of money it pays for factors.

3.

Ans:

The volume or level of water in a tank might be considered an example of stock. It is possible to measure how much water is in a tank at any given time. In the same way, since capital may be measured at any time, it is likewise a stock variable. Now, if water is dripping from a tank via a tap, the water level will fluctuate over time. An illustration of a flow variable would be the variation in water level over time. Likewise, net investment provides the variation in the amount of investment across time.

4.

Ans: Planned inventory accumulation refers to the strategic approach to building up inventories and stocks. Companies frequently encounter an increase in their inventories due to anticipated declines in sales or projected decreases in consumer demand. Unplanned inventory accumulation occurs when inventories and stocks build up as a result of an unforeseen decline in sales and demand.

5.

Ans: One can find a country’s GDP using one of three ways:

Imports, which are represented by C_M, make up a percentage of consumer expenditure since households spend a portion of their income on them. In a similar vein, a portion of government consumption and investment expenditures go toward imports and foreign investment goods. The symbols I_M and G_M stand for government consumption spending and investment, respectively. As a result, C stands for consumption, I for investment, and G for government spending on domestic businesses.

Substituting these values in the above equation

The three methodologies yield identical outcomes for GDP measurement, as all production in the economy is either consumed or invested. The three strategies illustrate the same economic scenario from three distinct perspectives. The product approach illustrates total production or value added, the income method reflects the income generated by all factors, and the expenditure method details the expenditures made by all factors. In the economy, the producer utilizes four components of production to generate final items and derives money from sales, corresponding to the total value added by the firm. The companies compensate the factors, which serve as the income for all the elements. These compensations correspond to the contributions of the elements to value addition. The factor incomes are subsequently allocated to products and services, so confirming the equivalence between factor income and expenditure. Consequently, the three approaches will consistently yield identical GDP values.

6.

Ans:

Budget Deficit

A budget deficit is referred to a situation when the expenditure by the government exceeds its income.

Budget Deficit is mathematically represented as G − T

Where,

G is the expenditure by the government

T is the income earned by the government

Trade Deficit

When a country spends more on imports than on earning revenue through exports, such a situation is referred to as a trade deficit

Trade Deficit is represented as M − X

Where,

M expenditure on imports

X revenue earned from exports

As per the question

I − S = Rs.2000 crores.

Budget Deficit

G – T = (−) Rs.1500 crores.

Therefore, the trade deficit can be calculated as

Trade deficit = [I − S] + [G − T]

= 2000 + [−1500]

= Rs.500 crores.

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12.

Ans: There are some problems with using GDP as a way to judge how well a country is doing. GARP, or Gross Domestic Product, is the sum of all the values of all the things and services made in a country or economy. A country’s GDP can give you a good idea of its size, growth, and value. To put it simply, it’s a measure of all the economic actions going on in the economy. There is disagreement and no clear evidence about the link between happiness and GDP. This is why GDP is not a good way to figure out how well a country is doing.

i) GDP only tells us how much money a country makes overall. We are not given any information about how the made income is split up among the people. People who are already rich get more benefits from GDP growth than the average person in countries with a high rate of inequality.

ii) GDP doesn’t look at how much industry and growth hurt the environment. A plant that pollutes and damages the environment might add to the GDP, but the long-term costs and effects of these things are not taken into account when the GDP is calculated. So, an economy’s GDP value doesn’t show how well it takes care of the environment.

iii) Spending and buying things don’t always mean that people are “well-being.” People in a country could spend more and make more money, but other things, like having access to healthcare and education, are more important for their health. GDP doesn’t tell us anything about the standard of living or quality of life of the average person.

the well-being of society as a whole is affected by many social and economic issues, such as gender equality, literacy, freedom, and freedom of choice. These aspects of social growth and human development are not taken into account by GDP.

Related Study Resources of Class 12 Macro Economics Chapter 2

Students can use the links below to get extra study materials for Class 12 Economics Chapter 2: National Income Accounting

Sl No.	Related Links
1	Class 12 Economics Chapter 2 National Income Accounting – Important Questions
2	Class 12 Economics Chapter 2 NCERT Textbook

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