National Income & Gross Domestic Product

1. Which one of the following relations is correct for net domestic

Which one of the following relations is correct for net domestic product?

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Net Domestic Product = Gross Domestic Product + Depreciation
Net Domestic Product = Gross Domestic Product – Depreciation
Net Domestic Product = Gross Domestic Product/Depreciation
Net Domestic Product = Gross Domestic Product × Depreciation
This question was previously asked in
UPSC SO-Steno – 2018
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The correct answer is B. Net Domestic Product (NDP) is calculated by subtracting Depreciation from Gross Domestic Product (GDP).
– Gross Domestic Product (GDP) is the total market value of all final goods and services produced within a country’s borders in a specific time period.
– Depreciation is the consumption of fixed capital, representing the decrease in the value of physical capital goods (like machinery, buildings) due to wear and tear or obsolescence over time.
– Net Domestic Product (NDP) measures the value of goods and services produced within a country’s borders minus the cost of capital consumed during the production process. It is a measure of net output.
The relationship is NDP = GDP – Depreciation. Similarly, Net National Product (NNP) is Gross National Product (GNP) minus Depreciation. NDP at market prices is GDP at market prices minus depreciation. NDP at factor cost is GDP at factor cost minus depreciation. NDP is a more accurate measure of the nation’s annual output available for consumption and investment after accounting for the capital used up in production.

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2. According to OECD report, what is the expected growth rate of India’s

According to OECD report, what is the expected growth rate of India’s economy in 2024-25 ?

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5.5%
6.6%
7.2%
7.8%
This question was previously asked in
UPSC Combined Section Officer – 2024
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According to the OECD report published in May 2024, the expected growth rate of India’s economy in 2024-25 is 6.6%.
In its Economic Outlook report released in May 2024, the Organisation for Economic Co-operation and Development (OECD) projected India’s GDP growth for the fiscal year 2024-25 (FY25) at 6.6%. This forecast was maintained from previous reports, reflecting strong domestic demand and investment.
Economic forecasts from international organizations like OECD, IMF, and World Bank are frequently updated based on evolving global and domestic economic conditions. These projections provide insights into the expected performance of an economy and are closely watched by policymakers and investors. The 2024-25 fiscal year in India runs from April 1, 2024, to March 31, 2025.

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3. Which term refers to the total value of all the goods and services pro

Which term refers to the total value of all the goods and services produced within the country during a specific period?

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GDP
GNP
GNI
GVA
This question was previously asked in
UPSC Combined Section Officer – 2019-20
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Gross Domestic Product (GDP) is the total monetary value of all the finished goods and services produced *within the geographical boundaries* of a country during a specific period, usually one year. It is the most common measure of a country’s economic output.
– GDP measures production based on location (within the country’s borders).
– It includes production by both citizens and foreigners residing in the country.
– It is calculated for a specific time period (quarterly or annually).
GNP (Gross National Product) measures the total value of goods and services produced by the residents of a country, regardless of their location. GNI (Gross National Income) is conceptually similar to GNP. GVA (Gross Value Added) measures the contribution of individual producers, industries, or sectors to the GDP.

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4. With reference to the expenditure made by an organisation or a company

With reference to the expenditure made by an organisation or a company, which of the following statements is/are correct?

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  • 1. Acquiring new technology is capital expenditure.
  • 2. Debt financing is considered capital expenditure, while equity financing is considered revenue expenditure.

Select the correct answer using the code given below:

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1 only
2 only
Both 1 and 2
Neither 1 nor 2
This question was previously asked in
UPSC IAS – 2022
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Option A is correct.
Capital expenditure (Capex) is an investment in assets that will provide long-term benefits to an organization, typically for more than one accounting period. Revenue expenditure provides benefits only in the current period.
Statement 1 is correct. Acquiring new technology, such as purchasing machinery, software, or investing in R&D that leads to patents or processes, is considered capital expenditure because it creates a long-term asset or enhances future productivity and efficiency for the organization beyond the current financial year.
Statement 2 is incorrect. Debt financing (taking loans) and equity financing (issuing shares) are methods of raising funds for a company. They are balance sheet transactions (affecting liabilities and equity). The funds raised might be used for either capital expenditure (buying assets) or revenue expenditure (paying salaries, rent, etc.). The financing method itself (debt or equity) is not classified as capital or revenue *expenditure*.

5. Consider the following statements: 1. Purchasing Power Parity (PPP)

Consider the following statements:

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  • 1. Purchasing Power Parity (PPP) exchange rates are calculated by comparing the prices of the same basket of goods and services in different countries.
  • 2. In terms of PPP dollars, India is the sixth largest economy in the world.

Which of the statements given above is/are correct?

1 only
2 only
Both 1 and 2
Neither 1 nor 2
This question was previously asked in
UPSC IAS – 2019
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The correct answer is A, as statement 1 is correct while statement 2 is incorrect.
Statement 1 is correct. Purchasing Power Parity (PPP) exchange rates are calculated by comparing the prices of a common basket of goods and services in different countries. The idea is to determine how much currency ‘A’ is needed in country ‘A’ to buy the same basket of goods that currency ‘B’ buys in country ‘B’. The PPP exchange rate is the rate at which the currency of one country would have to be converted into that of another country to buy the same amount of goods and services in each country.
Statement 2 is incorrect. In terms of PPP dollars, India is the third largest economy in the world, after China and the United States. This ranking has been consistent in data provided by international bodies like the International Monetary Fund (IMF) and the World Bank in recent years.
PPP is considered a more accurate measure of comparing living standards and the size of economies across countries than using nominal GDP converted at market exchange rates, because it accounts for differences in the cost of living. Market exchange rates can be volatile and influenced by financial flows, whereas PPP rates reflect the actual purchasing power of a currency within its domestic economy.

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6. With reference to Indian economy, consider the following statements:

With reference to Indian economy, consider the following statements:

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  • 1. The rate of growth of Real Gross Domestic Product has steadily increased in the last decade.
  • 2. The Gross Domestic Product at market prices (in rupees) has steadily increased in the last decade.

Which of the statements given above is/are correct?

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1 only
2 only
Both 1 and 2
Neither 1 nor 2
This question was previously asked in
UPSC IAS – 2015
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Statement 1 is incorrect. The rate of growth of Real Gross Domestic Product (GDP) is subject to economic cycles and various domestic and global factors. It rarely increases steadily over a decade; there are typically fluctuations, periods of faster growth, and periods of slowdown. Statement 2 is correct. The Gross Domestic Product at market prices (Nominal GDP in rupees) reflects both the increase in the volume of goods and services produced (real growth) and the increase in prices (inflation). Over a decade, even with fluctuations in real growth, the combined effect of positive real growth (on average) and inflation almost guarantees a steady increase in nominal GDP in absolute rupee terms, year after year.
Nominal GDP (at market prices) in a growing economy like India typically increases every year due to real growth and inflation, while the rate of Real GDP growth is volatile and does not increase steadily over long periods.
Real GDP growth is a measure of the increase in the volume of production, adjusted for inflation. It indicates the actual expansion of the economy’s output capacity. Nominal GDP is the value of goods and services at current market prices. It reflects both volume changes and price changes. Over any typical decade in a developing economy with positive inflation and average positive real growth, nominal GDP tends to show a consistent upward trend, unlike the growth *rate* of real GDP.

7. The national income of a country for a given period is equal to the

The national income of a country for a given period is equal to the

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total value of goods and services produced by the nationals
sum of total consumption and investment expenditure
sum of personal income of all individuals
money value of final goods and services produced
This question was previously asked in
UPSC IAS – 2013
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National income, strictly defined (like NNP at Factor Cost), represents the total income earned by the residents (nationals) of a country. Among the given options, the total value of goods and services produced by the nationals corresponds to the Gross National Product (GNP), which is a measure of the total economic output attributable to the residents of a nation, regardless of the physical location of the output.
While Gross Domestic Product (GDP) (defined in option D) measures the total value of goods and services produced within a country’s borders, National Income (NI) conceptually aligns more closely with the income accruing to the residents of the nation. GNP is the aggregate most directly linked to “production by nationals”. National Income (NNP at Factor Cost) is derived from GNP (NNP at Market Price minus Net Indirect Taxes).
Option B describes the expenditure side of GDP calculation. Option C describes personal income, which is a part of national income but not the total. Option D describes GDP. While GDP is a crucial measure, the term “national income” often implies a focus on the income or production attributable to the nation’s residents (GNP) or the net income available to factors of production (NNP at Factor Cost). Given the options, A is the most appropriate choice representing the productive output linked to the “nationals”.

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8. Retail core inflation is calculated excluding which of the following ?

Retail core inflation is calculated excluding which of the following ?

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  • 1. Food and beverages
  • 2. Fuel and light
  • 3. Transport and communication
  • 4. Clothing and Education

Select the answer using the code given below :

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1 and 2 only
1, 2 and 3 only
1, 2, 3 and 4
3 and 4 only
This question was previously asked in
UPSC CAPF – 2024
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Retail core inflation in India, based on the Consumer Price Index (CPI), is generally calculated by excluding the volatile components of Food and Beverages (Statement 1) and Fuel and Light (Statement 2) from the headline CPI. This exclusion helps to reveal the underlying inflationary pressures in the economy that are less subject to seasonal or temporary supply shocks. Categories like Transport and communication (Statement 3) and Clothing and Education (Statement 4) are typically included in the calculation of core inflation, although price changes in transport can be indirectly affected by fuel costs. Therefore, only 1 and 2 are excluded.
Core inflation provides a measure of underlying inflation trends by removing highly volatile components like food and energy, which helps policymakers assess more persistent inflationary pressures.
In India, CPI-Combined is the main measure for tracking retail inflation. The CPI basket is divided into major groups: Food and Beverages, Pan, tobacco and intoxicants, Clothing and Footwear, Housing, Fuel and light, and Miscellaneous (which includes items like household goods, health, transport, communication, education, recreation, etc.).

9. In recent years, which one among the following is the source of demand

In recent years, which one among the following is the source of demand in the Indian economy in descending order ?

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Private Consumption, Government Consumption, Net Exports, Gross Fixed Capital Formation
Government Consumption, Private Consumption, Net Exports, Gross Fixed Capital Formation
Private Consumption, Gross Fixed Capital Formation, Government Consumption, Net Exports
Government Consumption, Private Consumption, Gross Fixed Capital Formation, Net Exports
This question was previously asked in
UPSC CAPF – 2024
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The components of GDP by expenditure in descending order of magnitude in the Indian economy are typically:
1. Private Final Consumption Expenditure (PFCE or Private Consumption)
2. Gross Fixed Capital Formation (GFCF or Investment)
3. Government Final Consumption Expenditure (GFCE or Government Consumption)
4. Net Exports (Exports minus Imports)
Private Consumption (Household spending) is the largest component, followed by Investment, then Government spending, and finally, Net Exports which are often negative or relatively small. Option C lists these components in the typical descending order: Private Consumption, Gross Fixed Capital Formation, Government Consumption, Net Exports.
Private Consumption is the dominant driver of demand in the Indian economy, followed by Investment (Gross Fixed Capital Formation) and Government Consumption. Net Exports generally play a smaller, often negative, role.
GDP = PFCE + GFCE + GFCF + Changes in Stocks + Valuables + Net Exports (Exports – Imports). The question focuses on the primary sources of demand corresponding to PFCE, GFCE, GFCF, and Net Exports.

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10. If all the people of the economy increase the proportion of income the

If all the people of the economy increase the proportion of income they save, the total value of savings in the economy will either decrease or remain unchanged. This phenomenon is known as :

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Crowding out
Crowding in
Paradox of thrift
Paradox of prosperity
This question was previously asked in
UPSC CAPF – 2023
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The phenomenon described is known as the Paradox of Thrift (or Paradox of Saving). It is a concept in Keynesian economics stating that if everyone in an economy attempts to increase their saving rate simultaneously, the aggregate demand will fall. This leads to a decrease in production and income. Since aggregate saving depends on income (Saving = propensity to save * income), the fall in income can lead to a decrease in total saving, or at best, no increase, despite individuals trying to save more. The collective outcome is opposite to the individual intention.
The Paradox of Thrift highlights how increased individual saving efforts can collectively lead to lower overall income and potentially reduced total saving due to decreased aggregate demand.
Crowding out occurs when increased government borrowing raises interest rates, reducing private investment. Crowding in occurs when government spending stimulates economic activity and encourages private investment. The paradox of thrift applies primarily to economies operating below full employment, where a fall in aggregate demand leads to reduced output.

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