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National Income Accounting

NCERT Class 12 · Economics Based on NCERT Class 12 Economics textbook · Free CBSE study kit

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Chapter Notes

Overview
This chapter introduces the fundamental functioning of a simple economy, focusing on how aggregate income and output are measured. It explains the circular flow of income between firms and households, and details the three methods of calculating national income: product method, expenditure method, and income method. The one big idea a student must walk away with is that the total value of goods and services produced in an economy can be measured equivalently from the production, expenditure, or income side, and that these three approaches yield the same aggregate figure.
Key Concepts (25)
Final good
An item that is meant for final use and will not pass through any more stages of production or transformations.
e.g. A shirt purchased by a consumer for personal use is a final good; the cloth used to make it is an intermediate good.
Intermediate good
Goods used as raw material or inputs for production of other commodities; they are not final goods.
e.g. Steel sheets used for making automobiles, copper used for making utensils.
Consumption goods
Goods like food and clothing, and services like recreation that are consumed when purchased by their ultimate consumers.
e.g. Bread, television sets, a haircut.
Capital goods
Durable goods used in the production process that themselves do not get transformed; they form part of capital and enable production.
e.g. Machines, tools, buildings, infrastructure like roads and bridges.
Consumer durables
Goods that are for ultimate consumption but have a relatively long life and undergo wear and tear, like capital goods.
e.g. Television sets, automobiles, home computers.
Stock
A variable defined at a particular point of time.
e.g. The amount of water in a tank at a given moment; the capital stock of a factory.
Flow
A variable defined over a period of time.
e.g. Income per year, output per month, water flowing from a tap per minute.
Gross investment
That part of final output that comprises capital goods produced in a year.
e.g. New machines, factory buildings, infrastructure added during the year.
Net investment
Gross investment minus depreciation; the new addition to capital stock.
e.g. If gross investment is Rs 100 crore and depreciation is Rs 20 crore, net investment is Rs 80 crore.
Depreciation
An annual allowance for wear and tear of a capital good; the cost of the good divided by number of years of its useful life.
e.g. A machine costing Rs 1,00,000 with a life of 10 years has annual depreciation of Rs 10,000.
Value added
The net contribution made by a firm; value of production of the firm minus value of intermediate goods used by the firm.
e.g. A baker produces Rs 200 worth of bread using Rs 50 worth of wheat; value added is Rs 150.
Gross Value Added (GVA)
Value added including depreciation; value of production minus intermediate goods used.
e.g. If a firm produces Rs 100 worth of goods, uses Rs 20 of intermediate goods, GVA = Rs 80.
Net Value Added (NVA)
Gross value added minus depreciation.
e.g. If GVA is Rs 80 and depreciation is Rs 10, NVA = Rs 70.
Inventory
The stock of unsold finished goods, semi-finished goods, or raw materials which a firm carries from one year to the next.
e.g. A shirt manufacturer starts the year with 100 shirts in stock.
Change in inventories
Production of the firm during the year minus sale of the firm during the year; a flow variable.
e.g. If a firm produces 1,000 shirts and sells 800, change in inventories is +200 shirts.
Gross Domestic Product (GDP)
Sum total of gross value added of all the firms in the economy in a year.
e.g. GDP = GVA1 + GVA2 + ... + GVAN.
Final expenditure
That part of expenditure which is undertaken not for intermediate purposes.
e.g. Household spending on bread, government spending on roads, firm spending on machinery.
Factor payments
Remunerations paid to factors of production: wages (labour), interest (capital), profit (entrepreneurship), rent (land).
e.g. A worker's salary, a landlord's rent, a shareholder's dividend.
Circular flow of income
The flow of income between firms and households: firms pay factor incomes to households, households spend on goods and services produced by firms.
e.g. In a simple economy without savings, government, or trade, income flows in a circular manner between the two sectors.
Double counting
Counting the value of intermediate goods more than once when aggregating output; avoided by using value added method.
e.g. Counting wheat (Rs 50) both as farmer's output and as part of baker's bread (Rs 200) would give Rs 300 instead of Rs 250.
Planned accumulation of inventories
A deliberate increase in inventory stock by a firm, e.g., raising from 100 to 200 shirts by producing 1,100 shirts expecting sales of 1,000.
e.g. Firm produces 1,100 shirts expecting sales of 1,000, resulting in planned inventory rise of 100.
Unplanned accumulation of inventories
An unexpected increase in inventory due to lower than expected sales.
e.g. Firm produces 1,000 shirts but sells only 600, leading to unplanned accumulation of 400 shirts.
Unplanned decumulation of inventories
An unexpected decrease in inventory due to higher than expected sales.
e.g. Firm produces 1,000 shirts but sells 1,050, drawing 50 from inventory.
Fixed business investment
Addition to machinery, factory buildings, and equipment employed by firms.
e.g. Installing a new assembly line in a car factory.
Residential investment
Addition of housing facilities.
e.g. Construction of new apartment buildings.
Formulas & Equations (9)
Net Investment = Gross investment – Depreciation
Reads as: Net investment equals gross investment minus depreciation
Variables: Net Investment: new addition to capital stock (Rs); Gross investment: total capital goods produced (Rs); Depreciation: annual wear and tear allowance (Rs)
Use when: Calculating the actual addition to capital stock in an economy
⚠ Students often forget that depreciation is subtracted from gross investment, not added.
Value added of a firm = Value of production of the firm – Value of intermediate goods used by the firm
Reads as: Value added equals value of production minus value of intermediate goods
Variables: Value added: net contribution (Rs); Value of production: total output value (Rs); Intermediate goods: raw materials used (Rs)
Use when: Calculating the contribution of a firm to GDP using product method
⚠ Including the value of intermediate goods in the final output, leading to double counting.
Gross Value Added (GVA) = Value of production – Value of intermediate goods
Reads as: Gross value added equals value of production minus value of intermediate goods
Variables: GVA: gross contribution including depreciation (Rs); Value of production: total output (Rs); Intermediate goods: inputs used (Rs)
Use when: Calculating GDP via product method before accounting for depreciation
⚠ Confusing GVA with net value added; forgetting that GVA includes depreciation.
Net Value Added (NVA) = GVA – Depreciation
Reads as: Net value added equals gross value added minus depreciation
Variables: NVA: net contribution (Rs); GVA: gross value added (Rs); Depreciation: capital consumption (Rs)
Use when: Finding the net contribution of a firm after accounting for wear and tear
⚠ Subtracting depreciation from value of production directly instead of from GVA.
Change in inventories of a firm during a year ≡ Production of the firm during the year – Sale of the firm during the year
Reads as: Change in inventories is identical to production minus sales
Variables: Change in inventories: flow of unsold stock (units or Rs); Production: total output (units or Rs); Sale: quantity sold (units or Rs)
Use when: Calculating inventory change for a firm over a period
⚠ Forgetting that this is an identity (always true), not an equation that can be solved for a variable.
GVAi ≡ Vi + Ai – Zi
Reads as: Gross value added of firm i equals value of sales plus change in inventories minus intermediate goods used
Variables: GVAi: gross value added of firm i (Rs); Vi: value of sales by firm i (Rs); Ai: value of change in inventories (Rs); Zi: value of intermediate goods used (Rs)
Use when: Calculating GVA when sales and inventory data are available
⚠ Omitting change in inventories from the calculation, leading to underestimation of GVA.
GDP ≡ Sum total of gross value added of all firms = Σ GVAi (i=1 to N)
Reads as: GDP is the sum of gross value added of all firms from 1 to N
Variables: GDP: Gross Domestic Product (Rs); GVAi: gross value added of firm i (Rs); N: number of firms
Use when: Calculating GDP using product method
⚠ Adding values of intermediate goods or double counting across firms.
RVi ≡ Ci + Ii + Gi + Xi
Reads as: Revenue of firm i equals consumption expenditure plus investment expenditure plus government expenditure plus exports
Variables: RVi: total revenue of firm i (Rs); Ci: final consumption expenditure on firm i's goods (Rs); Ii: final investment expenditure on firm i's goods (Rs); Gi: government expenditure on firm i's goods (Rs); Xi: export revenue of firm i (Rs)
Use when: Calculating total revenue from final expenditures on a firm's output
⚠ Including intermediate expenditure in final expenditure calculation.
GDP = C + I + G + (X – M)
Reads as: GDP equals consumption plus investment plus government expenditure plus net exports
Variables: C: aggregate final consumption expenditure (Rs); I: aggregate final investment expenditure (Rs); G: aggregate government expenditure (Rs); X: exports (Rs); M: imports (Rs)
Use when: Calculating GDP using expenditure method
⚠ Forgetting to subtract imports (M) from exports (X) to get net exports.
How It Works
Circular Flow of Income in a Simple Economy
  1. Step 1: Firms produce goods and services and pay factor incomes (wages, interest, profit, rent) to households.
  2. Step 2: Households receive these factor payments as income.
  3. Step 3: Households spend their entire income on goods and services produced by firms (no savings, no government, no trade).
  4. Step 4: Firms receive this spending as sales revenue, which equals the factor payments they made.
  5. Step 5: The cycle repeats in the next period, with income flowing circularly between firms and households.
💡 In this simple model, aggregate expenditure equals aggregate income because there are no leakages (savings, taxes, imports).
Product Method (Value Added Method) of Calculating GDP
  1. Step 1: Identify all firms in the economy and their production during the year.
  2. Step 2: For each firm, calculate Gross Value Added (GVA) = Value of production – Value of intermediate goods used.
  3. Step 3: Sum the GVA of all firms to get GDP.
  4. Step 4: Optionally, subtract depreciation from GVA to get Net Domestic Product (NDP).
💡 Avoid double counting by not including intermediate goods in the final sum; only value added is counted.
Expenditure Method of Calculating GDP
  1. Step 1: Identify all final expenditures in the economy: consumption (C), investment (I), government expenditure (G), and exports (X).
  2. Step 2: Subtract imports (M) because expenditure on imports is not part of domestic production.
  3. Step 3: GDP = C + I + G + (X – M).
💡 Only final expenditures are included; intermediate expenditures are excluded to avoid double counting.
Income Method of Calculating GDP
  1. Step 1: Sum all factor payments made in the economy: wages, interest, profit, and rent.
  2. Step 2: This sum equals the net value added (NDP) at factor cost.
  3. Step 3: Add depreciation and indirect taxes (minus subsidies) to arrive at GDP at market price.
💡 Factor payments must equal the net value added of all firms; this method is equivalent to the product and expenditure methods.
How Change in Inventories Affects GDP Calculation
  1. Step 1: A firm's production may not equal its sales; the difference is change in inventories.
  2. Step 2: Change in inventories is treated as investment (part of capital formation).
  3. Step 3: In product method, GVA includes change in inventories (since GVA = sales + change in inventories – intermediate goods).
  4. Step 4: In expenditure method, change in inventories is part of investment expenditure (I).
💡 Change in inventories is a flow variable and must be included in GDP; ignoring it leads to underestimation.
Exam Traps — Don't Make These Mistakes
⚠ Confusing final goods with intermediate goods
✗ A good is final if it is consumed by the household; a good is intermediate if it is used by a firm.
→ The classification depends on the economic use, not the user. For example, tea leaves bought by a household for home consumption are final goods, but tea leaves bought by a restaurant are intermediate goods because they are used to produce a service (cooked tea) sold to customers.
✓ A final good is one that is not used for further production or resale; it passes out of the active economic flow. An intermediate good is used as an input in the production of other goods.
⚠ Double counting in product method
✗ Add the total value of output of all firms to get GDP.
→ This leads to double counting because the value of intermediate goods is counted multiple times (once in the producing firm and again in the buying firm's output).
✓ Add only the value added of each firm (value of output minus value of intermediate goods) to avoid double counting.
⚠ Including intermediate expenditure in expenditure method
✗ GDP = sum of all expenditures by households, firms, and government.
→ Expenditure on intermediate goods is not included because it is already embedded in the value of final goods. Only final expenditure (consumption, investment, government, net exports) is counted.
✓ GDP = C + I + G + (X – M), where C, I, G are final expenditures only.
⚠ Confusing gross investment with net investment
✗ Net investment is the total capital goods produced in a year.
→ That is gross investment. Net investment = gross investment – depreciation. Depreciation accounts for wear and tear of existing capital.
✓ Net investment = Gross investment – Depreciation. It represents the addition to the capital stock.
⚠ Treating change in inventories as not part of GDP
✗ Only goods sold are counted in GDP; unsold stock is not included.
→ Change in inventories (unsold stock) is treated as investment and is part of GDP. It is included in both product method (as part of GVA) and expenditure method (as part of I).
✓ Change in inventories is part of investment and must be included in GDP calculation.
⚠ Misidentifying stock vs flow
✗ Income is a stock because it is a fixed amount.
→ Income is earned over a period of time (e.g., per month or per year), so it is a flow. A stock is measured at a point in time (e.g., wealth on a specific date).
✓ Income is a flow variable because it is measured over a period of time. Wealth is a stock variable because it is measured at a point in time.
Compare & Contrast
Economic use in production
Final goods
Intermediate goods
Final goods are used for final consumption or investment and do not undergo further transformation; intermediate goods are used as inputs in the production of other goods.
Inclusion of depreciation
Gross investment
Net investment
Gross investment is the total value of capital goods produced; net investment is gross investment minus depreciation, representing the actual addition to capital stock.
Time dimension
Stock
Flow
Stock is measured at a particular point of time (e.g., capital stock on 31 March); flow is measured over a period of time (e.g., income per year).
Purpose of use
Consumption goods
Capital goods
Consumption goods are used by households for final consumption; capital goods are used by firms to produce other goods and services.
Exam Focus
Marks pattern: 2 MCQs (1 mark each), 1 SA (3 marks), 1 LA (5 marks) — total 10 marks typically
Most asked: Difference between final goods and intermediate goods · Value added method and avoidance of double counting · Circular flow of income · GDP calculation using expenditure method (C + I + G + X – M) · Depreciation and net vs gross investment · Stock vs flow concepts
Don't skip: Numerical on GDP calculation using value added method; Explain the circular flow of income with a diagram; Distinguish between final goods and intermediate goods with examples; Explain the expenditure method of calculating GDP
One-Line Revision (read aloud before the exam)
  1. Final goods are those that are used for final consumption or investment and do not undergo further transformation.
  2. Intermediate goods are used as inputs in the production of other goods and are not counted in GDP to avoid double counting.
  3. Value added of a firm = value of production – value of intermediate goods used.
  4. GDP is the sum total of gross value added of all firms in the economy.
  5. Expenditure method: GDP = C + I + G + (X – M).
  6. Income method: GDP = sum of factor payments (wages, interest, profit, rent) + depreciation + net indirect taxes.
  7. Net investment = Gross investment – Depreciation.
  8. Depreciation is the annual allowance for wear and tear of capital goods.
  9. Stock is measured at a point of time; flow is measured over a period of time.
  10. Change in inventories is a flow variable and is treated as investment.
  11. Circular flow of income shows that aggregate expenditure equals aggregate income in a simple economy.
  12. Double counting is avoided by using the value added method.
  13. Capital goods are durable and used in production; consumption goods are for final use by households.
  14. Consumer durables are consumption goods with a long life, like televisions and cars.
  15. Gross investment includes all capital goods produced; net investment excludes depreciation.

MCQs — 10 Questions with Answers

Q1. Which of the following is a final good?

  • A. Steel sheets purchased by an automobile manufacturer
  • B. Flour purchased by a bakery for making bread
  • C. A refrigerator purchased by a household for home use ✓
  • D. Cotton purchased by a spinning mill for making yarn

Answer: C — A refrigerator purchased by a household is a final good because it is ready for final consumption and will not undergo further economic transformation.

Q2. Why is cooking at home NOT included in national income accounting?

  • A. Because it does not create any value
  • B. Because it is not a market transaction and no payment is recorded ✓
  • C. Because it is illegal in some countries
  • D. Because only agricultural products are counted

Answer: B — National income accounting includes only market transactions where goods or services are bought and sold; unpaid home activities are excluded.

Q3. Capital goods differ from consumption goods because capital goods:

  • A. Are more expensive than consumption goods
  • B. Are durable and used repeatedly in production without being transformed ✓
  • C. Can only be imported from foreign countries
  • D. Do not depreciate over time

Answer: B — Capital goods are final goods used repeatedly in the production process and undergo wear and tear, unlike consumption goods which are exhausted upon use.

Q4. If the value of total output in an economy is Rs 50,000 crore and intermediate consumption is Rs 20,000 crore, what is the GDP by the value added method?

  • A. Rs 50,000 crore
  • B. Rs 20,000 crore
  • C. Rs 30,000 crore ✓
  • D. Rs 70,000 crore

Answer: C — By value added method, GDP = Total output − Intermediate consumption = 50,000 − 20,000 = Rs 30,000 crore.

Q5. Consumer durables are classified as final goods because:

  • A. They are the most expensive items purchased by households
  • B. They are ready for consumption and will not undergo further economic transformation in production ✓
  • C. They are produced only by large corporations
  • D. They have a very long lifespan compared to other goods

Answer: B — Consumer durables are final goods because, like all final goods, they are ready for end use and do not pass through further stages of economic production.

Q6. Which statement about intermediate goods is NOT correct?

  • A. They are used as inputs in production of other commodities
  • B. They should be counted separately in GDP to measure total economic activity ✓
  • C. They undergo transformation during the production process
  • D. Examples include steel sheets and raw cotton purchased by producers

Answer: B — Intermediate goods are NOT counted separately in GDP because they are already included in the value of final goods; separate counting causes double counting.

Q7. The circular flow of income in an economy shows that:

  • A. Money flows only from households to firms
  • B. Production generates income which is then spent, creating demand and further production ✓
  • C. Firms never need to purchase from each other
  • D. Income and production are independent of each other

Answer: B — The circular flow demonstrates that production → income → expenditure → demand → further production, showing the interdependence of all economic sectors.

Q8. Nominal GDP differs from real GDP because: (I) Nominal GDP uses current year prices, (II) Real GDP eliminates the effect of inflation by using base year prices.

  • A. Both (I) and (II) are correct ✓
  • B. Both (I) and (II) are incorrect
  • C. (I) is correct but (II) is incorrect
  • D. (I) is incorrect but (II) is correct

Answer: A — Both statements are correct: nominal GDP reflects current prices while real GDP uses constant base year prices to show actual production changes net of inflation.

Q9. In an economy, total consumption is Rs 8,000 crore, investment is Rs 2,000 crore, government spending is Rs 1,500 crore, and net exports are Rs 500 crore. Calculate GDP using the expenditure method.

  • A. Rs 11,000 crore
  • B. Rs 12,000 crore ✓
  • C. Rs 11,500 crore
  • D. Rs 12,500 crore

Answer: B — GDP = C + I + G + NX = 8,000 + 2,000 + 1,500 + 500 = Rs 12,000 crore.

Q10. Which of the following scenarios best illustrates why economic wealth depends on how resources are used rather than mere possession? (HOTS)

  • A. Africa possesses abundant natural resources but some of the poorest countries are located there, while resource-poor nations like Japan are highly prosperous ✓
  • B. All countries with minerals become rich automatically
  • C. Poor countries have fewer natural resources than rich countries
  • D. Natural resources increase in value every year

Answer: A — This scenario demonstrates that natural resource possession alone is insufficient; productive efficiency, technology, institutions, and proper resource utilization determine a nation's economic wealth.

Flashcards

What is a final good?

A good or service ready for final consumption or capital investment that will not undergo further economic transformation.

Define intermediate goods with an example.

Goods used as inputs in producing other commodities and sold for further processing; for example, steel sheets used to make automobiles.

Distinguish between consumption goods and capital goods.

Consumption goods are consumed immediately upon purchase (food, clothing), while capital goods are durable tools used repeatedly in production without being transformed.

What are consumer durables? Give one example.

Final consumption goods that are long-lasting and undergo gradual wear and tear, like television sets, automobiles, or home computers.

Why is home cooking not counted in national income?

Because home-cooked food is not sold in the market; only economic activities involving market transactions are included in national income calculations.

What is the difference between stocks and flows?

Stocks are quantities at a point in time (like capital or wealth), while flows are measured over a period (like income or investment per year).

Name the three methods of calculating national income.

Product method (sum value of final goods), Income method (sum all factor payments), and Expenditure method (C + I + G + NX).

What does GDP measure?

The total monetary value of all final goods and services produced within a country's borders in one year.

How is real GDP different from nominal GDP?

Nominal GDP uses current year prices while real GDP uses constant base year prices to measure actual production changes without inflation effects.

Why is natural resource possession alone not enough for national wealth?

Resources must be combined with labour, technology, and efficient production processes to generate income flows; mere possession creates no wealth.

Important Board Questions

Define final goods and intermediate goods. Give one example of each. [2 marks]

Final goods are ready for consumption/investment with no further economic transformation (e.g., bread). Intermediate goods are inputs used in production (e.g., flour used by bakery) and are NOT counted separately in GDP to avoid double counting.

Explain the difference between capital goods and consumer durables. Why are both classified as final goods? Support your answer with examples. [5 marks]

Capital goods (machines, factories) are used repeatedly in production and undergo wear and tear; consumer durables (cars, TVs) are consumed gradually and also undergo wear and tear. Both are final goods because they are ready for end use and will not undergo further economic transformation. Show that the distinction is based on PURPOSE of use, not the nature of the good itself.

An economy produces total output worth Rs 10,000 crore. Of this, intermediate goods worth Rs 4,000 crore are used in further production, and final goods worth Rs 6,000 crore are consumed or invested. (a) Calculate GDP using the value added method and explain why intermediate goods are excluded. (b) Explain the circular flow showing how this production generates income and expenditure. (c) Why does mere possession of natural resources not guarantee national wealth? [6 marks]

Part (a): GDP = Total output − Intermediate goods = 10,000 − 4,000 = Rs 6,000 crore; exclude intermediates to prevent double counting. Part (b): Production generates factor incomes (wages, rent, interest, profit) earned by households; households spend this income on goods, creating demand and further production cycles. Part (c): Resources must be combined with labour, technology, and efficient production processes (How they are used matters); mere possession creates no income flow or wealth generation — cite Africa vs Japan example.

Assertion-Reason Questions for National Income Accounting

Q1. Assertion (A):

Final goods do not undergo any further transformation in the economic process after they are sold.

Reason (R):

Once a final good is sold, it passes out of the active economic flow and any transformation it undergoes (like tea leaves being brewed by a consumer) is not an economic activity.

Answer: A — Both A and R are true, and R is the correct explanation of A — Both the assertion and reason are true, and the reason correctly explains why final goods do not undergo further economic transformation. The reason provides the mechanism (passing out of economic flow) that supports the assertion about no further transformation.

Q2. Assertion (A):

A steel sheet used in automobile manufacturing is an intermediate good, while the same steel sheet sold to a collector as an antique is a final good.

Reason (R):

Intermediate goods and final goods are distinguished by the physical nature of the commodity itself.

Answer: C — A is true but R is false — The assertion is true based on the chapter's principle that economic use determines classification. However, the reason is false because the chapter explicitly states that 'it is not in the nature of the good but in the economic nature of its use that a good becomes a final good.' The distinction is about use, not physical nature.

Q3. Assertion (A):

Capital goods are a type of final good intended to aid and enable production of other commodities.

Reason (R):

Capital goods are final goods because, unlike intermediate goods, they do not get transformed during the production process but rather facilitate the transformation of other goods.

Answer: B — Both A and R are true, but R is NOT the correct explanation of A — Both statements are true. Capital goods are indeed final goods (not intermediate), and they do facilitate production without being transformed. However, the reason does not fully explain the assertion because the reason focuses on what capital goods do, not why they are classified as final goods. The classification as 'final' depends on being ready for their intended economic use, not on their function.

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Case-Based Questions (CBQ) for National Income Accounting

Case Study:

In 2024, India's textile industry shows an interesting production chain. A farmer grows cotton and sells it for Rs. 50 per kg to a spinning mill. The spinning mill converts cotton to yarn and sells it to a textile mill for Rs. 120 per kg. The textile mill weaves yarn into fabric and sells it to a clothing manufacturer for Rs. 200 per meter. Finally, the clothing manufacturer produces shirts and sells them to retailers for Rs. 500 per shirt, from which retailers sell to consumers for Rs. 800 per shirt.

Q1. What is the value added by the spinning mill in this production chain?

  • A. Rs. 50 per kg
  • B. Rs. 70 per kg ✓
  • C. Rs. 120 per kg
  • D. Rs. 170 per kg

Answer: B

Q2. Which of the following is an intermediate good in this chain when held by the spinning mill?

  • A. Cotton ✓
  • B. Yarn
  • C. Fabric
  • D. Shirts

Answer: A

Q3. At which stage does cotton become a final good?

  • A. When processed by the spinning mill
  • B. When woven into fabric by the textile mill
  • C. When sewn into shirts by the clothing manufacturer
  • D. When purchased by the consumer from the retailer ✓

Answer: D

Q4. To avoid double counting in national income calculations, which items should be excluded?

  • A. Cotton, yarn, and fabric only
  • B. Cotton, yarn, fabric, and shirts sold to retailers ✓
  • C. Only the shirts purchased by consumers
  • D. Nothing should be excluded from the calculation

Answer: B

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Previous Year Questions (PYQ) for National Income Accounting

Real CBSE board exam questions from past papers — free to attempt.

CBSE 2026 · Set 58/1/1 · 1 mark

In a two sector economy, the flow of factor payments moves from __________ to __________.

  • firms, households
  • firms, government
  • banks, households
  • households, firms

CBSE 2026 · Set 58/2/1 · 4 marks

Read the following text carefully: "A country's total National Income (NI) at the end of the year is ` 80,000 crore. During the same year, the Gross Domestic Product (GDP) increased by ` 10,000 crore. The depreciation on capital goods was ` 2,000 crore and National savings at the end of year is ` 15,000 crore. Additionally, country invested ` 8,000 crore in new capital goods industries." In the light of above text, categorise the items as 'stock' or 'flow' variables with valid arguments.

CBSE 2026 · Set 58/3/2 · 3 marks

(i) "If in a locality a new park is developed by the Municipal Corporation, it will have some external effects." State one example of each type of externality with valid explanation.

CBSE 2026 · Set 58/5/1 · 1 mark

Read the following statements carefully: Statement I: Positive externalities refer to the benefits a firm/an individual provides to another for which they are paid. Statement II: In case of positive externalities, Gross Domestic Product (GDP) of an economy might lead to an overestimation of the actual welfare. In the light of the given statements, choose the correct option from the following:

  • Statement I is true and Statement II is false.
  • Statement I is false and Statement II is true.
  • Both Statements I and II are true.
  • Both Statements I and II are false.

CBSE 2026 · Set 58/1/1 · 1 mark

In an economy, exclusion of ___________ may lead to under estimation of the value of Gross Domestic Product (GDP). (i) Barter Transactions (ii) Services provided by family members (iii) Illegal activities (iv) Depreciation of Assets

  • (i) and (ii)
  • (ii) and (iii)
  • (iii) and (iv)
  • (i), (ii) and (iii)

CBSE 2026 · Set 58/1/1 · 1 mark

Read the following statements carefully: Statement 1: Final goods are those goods which normally lose their identity in the production process. Statement 2: Final goods may get transformed during the consumption process by a consumer. Choose the correct option.

  • Statement 1 is true and statement 2 is false.
  • Statement 1 is false and statement 2 is true.
  • Both statements 1 and 2 are true.
  • Both statements 1 and 2 are false.

CBSE 2026 · Set 58/1/1 · 3 marks

Meera and Shahid are two classmates, who were comparing India's economic growth over the years. Meera referred to the increase in Gross Domestic Product (GDP) at current prices prevailing in market, while Sahid insisted on considering GDP after adjusting for inflation. Their debate on which of the two measures gives a true picture of people's well-being, remained inconclusive. Considering the above mentioned situation, elaborate with valid reason, which of the two variables is considered a better indicator of welfare and why?

CBSE 2026 · Set 58/1/1 · 4 marks

For a hypothetical economy, assuming there are only two firms (X and Y) with equal values of Gross Value Added (GVA). On the basis of the following data, estimate the value of Domestic Sales of both the firms (X and Y): (i) Value of Output of firm Y: 700 crore (ii) Purchases by firm X from firm Y: 200 crore (iii) Exports by firm X: 100 crore (iv) Purchases by firm Y from firm X: 150 crore (v) Additions to Stock of firm X: 50 crore

CBSE 2026 · Set 58/1/2 · 1 mark

In an economy, exclusion of __________ may lead to under estimation of the value of Gross Domestic Product (GDP).

  • (i) and (ii)
  • (ii) and (iii)
  • (iii) and (iv)
  • (i), (ii) and (iii)

CBSE 2026 · Set 58/1/2 · 1 mark

Read the following statements carefully: Statement 1: Final goods are those goods which normally lose their identity in the production process. Statement 2: Final goods may get transformed during the consumption process by a consumer.

  • Statement 1 is true and statement 2 is false.
  • Statement 1 is false and statement 2 is true.
  • Both statements 1 and 2 are true.
  • Both statements 1 and 2 are false.

CBSE 2026 · Set 58/1/2 · 3 marks

Two friends, Devanshi and Harshit, were discussing whether prize money from lottery winnings, should be included in India's National income. Harshit was of the view that it should be included, while Devanshi did not agree with him. As their Economics teacher, guide them with correct treatment of the same with valid argument.

CBSE 2026 · Set 58/1/2 · 4 marks

Ms. Reeta D'Costa, retired from the post of Income Tax Commissioner in the year 2023. Apart from her pension, she also receives the following from various sources: Rental income from a flat she owns. Interest income from her fixed deposits. Money sent by her children settled abroad. Identify and classify, her monthly incomes into 'factor income' and 'transfer income', with valid reasons.

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