6 Marks Question

Questions

Question 16 Marks

(i) Can there be a fiscal deficit in a government budget without a revenue deficit? Explain.
(ii) Give meanings of Capital receipts and revenue receipts with an example of each.

Answer

(i) Yes, there can be a fiscal deficit in a government budget without a revenue deficit. Revenue deficit is a position where the total revenue expenditure of the government exceeds its total revenue receipts. The fiscal deficit is a position where the total expenditure of the government exceeds sum total of its revenue receipts and non-debt capital receipts. Hence, there can be a fiscal deficit without revenue deficit in the following situations:
i. When the capital budget shows a deficit and revenue budget is balanced.
ii. When the deficit in the capital budget is greater than the surplus in the revenue budget.
(ii) Capital receipts refer to those receipts which either create a liability or cause a reduction in the assets of the government. They are non-recurring and non-routine in nature
Examples Borrowings, Disinvestment, etc.
Revenue receipts refer to those receipts which neither create any liability nor cause any reduction in the assets of the government. They are regular and recurring in nature and government receives them in its normal course of activities.
Examples Tax Revenue (like Income tax, Goods and Services Tax, etc.) and Non-tax revenue (like interest, fees, etc.)

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Question 26 Marks

i. Calculate Net National Product at Market Price.

	Contents	(Rs. in arab)
(i)	Consumption of Fixed Capital	40
(ii)	Change in Stocks	(-)10
(iii)	Net Imports	20
(iv)	Gross Domestic Fixed Capital Formation	100
(v)	Private Final Consumption Expenditure	800
(vi)	Net Current Transfer to Rest of the World	5
(vii)	Government Final Consumption Expenditure	250
(viii)	Net Factor Income to Abroad	40
(ix)	Net Indirect Tax	130

ii.Calculate Gross National Product at Factor Cost by
a. Income method and
b. Expenditure method.

Items	(Rs.in Crore)
Net domestic capital formation	500
Compensation of employees	1850
Consumption of fixed capital	100
Government final consumption expenditure	1100
Private final consumption expenditure	2600
Rent	400
Dividend	200
Interest	500
Net exports	(-)100
Profits	1100
Net factor income from abroad	(-)50
Net indirect tax	250

Answer

i. Calculation of Net National Product at Market Price:
$\left( NNP _{ mp }\right)=$ Private Final Consumption Expenditure + Government Final Consumption Expenditure + Gross Domestic Fixed Capital Formation + Change in Stock - Consumption of Fixed Capital + Net Factor Income to Abroad - Net Imports
$NNP _{ mp }=800+250+100+(-10)+40-40-20$
= 1,190 - 70
= Rs. 1120, arab
Using the expenditure method Net National Product at market price comes out to be Rs.1120 arab.
ii. a. Income Method:
GNP $_{\text {FC }}=$ Compensation of employees + Operating surplus (Rent + Interest + Profits) + Net factor income from abroad + Depreciation
= 1850 +(400 + 500 + 1100) + (-)50 + 100
= Rs.3900 crore.
b. Expenditure Method:
$GNP _{ FC }=$ Govemment final consumption expenditure + Private final consumption expenditure + Gross domestic capital formation + Net exports + Net factor income from abroad - Net indirect tax
= 1100 + 2600 + (500 +100) + (-) 100 + (-) 50 - 250
= Rs.3900 crore.

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Question 36 Marks

$i. $ From the following data, calculate Net Value Added at Factor Cost.

S.no.	Contents	$Rs. ($in Crores$)$
$ (i)$	Purchase of Intermediate Goods	$ 500$
$ (ii)$	Sales	$ 750$
$ (iii)$	Import of Raw Materials	$ 50$
$ (iv)$	Depreciation	$ 60$
$ (v)$	Net Indirect Taxes	$ 100$
$ (vi)$	Change in Stock	$ (-)30$
$ (vii)$	Exports	$ 20$

$ii. $ Calculate $(a)\ N N P_{F C}$ by expenditure method and $(b) N N P_{F C}$ by value added method :

		$(₹ $ Crore$)$
$ (i)$	Net Domestic capital formation	$ 250$
$ (ii)$	Net Export	$ 50$
$ (iii)$	Private final consumption expenditure	$ 900$
$ (iv)$	Value of output
	(a) Primary sector	$ 900$
	(b) Secondary sector	$ 800$
	(c) Territory sector	$ 400 $
$ (v)$	Value of inrermediate consumption
	(a) Primary sector	$ 400$
	(b) Secondary sector	$ 300$
	(c) Teritory sector	$ 100$
$ (vi)$	Consumption of fixed capital	$ 80$
$ (vii)$	Indirect Tax	$ 100$
$ (viii)$	Government final consumption expenditure	$ 100$
$ (ix)$	Subsidy	$ 10$
$ (x)$	Net factor income from abroad	$ (-)20$

Answer

$i$. Net Value Added at Factor Cost
Value of output $=$ Sales $+$ Change in stock.$ = 750+(-30) = 720.$
$\text { GVA }_{\text {mp }}=$ Value of output $-$ Intermediate cost.
$=720-500$
$=220 .$
$\text { NVA }_{m p}=\text { GVA }_{m p} -$ Depreciation.
$=220-60 .$
$=160$
$\text { NVA }_{ fc }= NVA _{ mp }-$ Net indirect taxes.
$=160-100$
$=60$
$ii.$ The formula for calculating national income using expenditure method is :
National Income $= C + I + G + (X−M)$
Where,
$C =$ Consumption by residents of the nation
$I =$ Investment
$G =$ Government spending
$X =$ Exports
$M =$ Imports
$a. \text{NNP} _{ FC } \ ($Expenditure Method$)$
$b. = (i) + (ii) + (iii) + (viii) - (vii) + (ix) - (vi) + (x)$
$= 250 + 50 + 900 + 100 - 100 + 10 - 80 + (-20)$
$= ₹ 1110 Cr.$
$c. \text{NNP} _{ FC } \ ($Value added method$)$
$= (iv) - (v) - (vi) - (vii) + (ix) + (x)$
$= (900 + 800 + 400) - (400 + 300 + 100) - 80 - 100 + 10 + (-20)$
$= ₹ 1110 Cr.$

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