NCERT Solutions for Class 12 Economics II Chapter 2 National Income Accounting

Ans : The four factors of productions are 
1. Land It is a free gift of nature and it is called as natural, original or primary factor of production. 
2. Labour It is a person engaged in some physical work it is the human factor of production. 
3. Capital It means wealth, money or income which is invested in business it helps in the production function. 
4. Entrepreneur It is the work of an entrepreneur to bring the required factors together and work harmoniously. 
The remuneration to them are as follows 
1. Land Rent is a reward for the use of land. 
2. labour Wages are the reward for a labour. 
3. Capital Interest is the reward for capital. 
4. Entrepreneur Profit is the reward for an entrepreneur. 

Ans : In a simplified economy, income is either spent on the purchase of final goods and services or saved. Expenditure of income on the final goods either causes final consumption expenditure or investment expenditure. To the extent income is saved, final goods remain unsold. But it treated as inventory investment. So it is said that aggregate final expenditure of an economy is equal to aggregate factor payments. I.e.,
Y=C+S 

Ans : Difference between Stock and Flow

Difference between Net Investment and Capital

Flow of water in a tank is a flow concept because it is measured in per unit of time period. Where as, stock of water in a tank is stock because it is measured at a point of time. Capital is like a stock of water in the tank at a point of time. 

Ans : Planned Inventory In case of an expected fall in sales, the firm will have unsold stock of goods which had not anticipated Hence, there will be planned accumulation of inventories. Whereas. 
Unplanned inventory accumulation. In case of an unexpected fall in sales, the firm have unsold goods which it had not anticipated Hence, there will be unplanned accumulation of inventories. 
Relation between Change in Inventories and Value Added  Change in inventories of a firm during a year = value added + intermediate goods used by the firm — sale of the firm during a year and value added In net contribution made by a firm in the process of production It IS value added = value of production — value of intermediate goods used. 

Ans : Three identities of calculating GOP are as follows l. Product Method or Value Added Method It is that method which measures national income In terms of value addition by each producing enterprise In the economy It is calculated as Gross Value Added in the primary sector at Market Price + Gross Value Added in the secondary sector at Market Price + Gross Value Added in the Tertiary Sector at Market Price \(=\mathrm{GDP}_{\mathrm{MP}}\)
\(=\mathrm{GDP}_{\mathrm{MP}}\) — Depreciation = Net Domestic Product at Market Price 
\(\mathrm{NDP}_{\mathrm{MP}}\) — Net Indirect Tax = Net Domestic Product at Factor Cost 
\(\mathrm{NDP}_{\mathrm{MP}}\) + NFIA = National Income


II. Income Method Under this method national Income is measured in terms of factor payments to the owners of factors of production. It is calculated as 
Compensation of Employees + Operating Surplus + Mixed Income of the self employed = Net Dornestlc Income 
Net Domestic Income + NAA = National Income


Ill Expenditure Method Under this method national income is measured in terms of expenditure on the purchase of final goods and services produced in the economy. it is calculated as. 
Private Final Consumption Expenditure + Government Final Consumption Expenditure + Gross 
Domestic Fixed Capital Formation + Change in Stock + Net Exports \(=\mathrm{GDP}_{\mathrm{MP}}\)
\(=\mathrm{GDP}_{\mathrm{MP}}\) — Depreciation = Net Domestic \(\mathrm{Product}_{\mathrm{MP}}\)
\(=\mathrm{GDP}_{\mathrm{MP}}\) - Net Indirect Tax -z \(=\mathrm{NDP}_{\mathrm{FC}}\)
\(\mathrm{NDP}_{\mathrm{FC}}\) + NFIA = National Income