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Maharashtra State Board · HSC Commerce · Class 12 (Std XII)

Class 12 Economics Chapter 7: National Income

Short notes, key concepts, quick revision and practice MCQs with answers

National income is the money value of the flow of final goods and services produced in a country in a year. The chapter covers its meaning, features, circular flow, concepts, methods of measurement, difficulties and importance.

Key concepts: National Income

National income
The total income of a nation, or in real terms the flow of goods and services produced in the economy during a year, counted without duplication and expressed in money.
Circular flow of income
Money and products flow continuously between sectors. Two sector: Y = C + I. Three sector adds G. Four sector adds net exports, Y = C + I + G + (X-M).
GDP and NDP
GDP is the market value of final goods and services produced within the domestic territory in a year: C + I + G + (X-M). NDP = GDP - depreciation.
GNP and NNP
GNP adds net receipts from abroad to GDP: C + I + G + (X-M) + (R-P). NNP = GNP - depreciation.
Green GNP
An indicator of sustainable use of the environment and fair sharing of benefits. Green GNP = GNP - (net fall in stock of natural capital + pollution load).
Output method
Also called product or inventory method. It adds the value of final goods, or the value added at each stage, to avoid double counting.
Income method
Also called factor cost method. It adds rent, wages, interest, profit and mixed income, and ignores transfer payments.
Expenditure method
Also called outlay method. It adds consumption, investment, government spending and net exports. It is rarely used because of practical difficulties.

Quick revision: important points

Practice MCQs with answers

  1. Who was the chairman of the National Income Committee set up by the Government of India in 1949?

    1. D. R. Gadgil
    2. V. K. R. V. Rao
    3. P. C. Mahalanobis
    4. A. C. Pigou
    Show answer

    Answer: C. P. C. Mahalanobis
    The committee was appointed in August 1949 with Prof. P. C. Mahalanobis as chairman and Gadgil and Rao as members.

  2. In real terms, national income is

    1. The flow of goods and services produced in an economy during a year
    2. The total stock of capital assets in a country
    3. The total money supply with the public
    4. The income of the government from taxes
    Show answer

    Answer: A. The flow of goods and services produced in an economy during a year
    In real terms national income is the yearly flow of goods and services. In money terms it is the value of that flow.

  3. While estimating shirt production, the value of cotton is not added separately. This is because

    1. Cotton is an imported item
    2. Cotton is already included in the price of the shirts
    3. Cotton is a capital good
    4. Cotton has no market price
    Show answer

    Answer: B. Cotton is already included in the price of the shirts
    Only final goods are counted. The value of intermediate goods like cotton is already part of the final price, so adding it would be double counting.

  4. National income is called a net aggregate value because it

    1. Includes the value of imports only
    2. Is measured for a single individual
    3. Is measured in physical units
    4. Does not include depreciation
    Show answer

    Answer: D. Does not include depreciation
    National income counts the net value of output, so the wear and tear of capital assets is left out.

  5. In India the financial year used for measuring national income runs from

    1. 1st April to 31st March
    2. 1st January to 31st December
    3. 1st July to 30th June
    4. 1st October to 30th September
    Show answer

    Answer: A. 1st April to 31st March
    National income is stated for a time period, and in India this is 1st April to 31st March.

All Class 12 Economics chapters

Class 12 Economics notes: all chapters