Q.1 Which of the following is included in the calculation of Gross Domestic Product (GDP)?
Income from illegal activities
Sale of second-hand goods
Newly produced goods and services within a country
Transfer payments like pensions
Explanation - GDP measures the market value of all final goods and services newly produced within a country during a given period. Second-hand sales and transfer payments are not included.
Correct answer is: Newly produced goods and services within a country
Q.2 Gross National Product (GNP) differs from GDP because it:
Excludes government spending
Includes income earned by citizens abroad
Includes only domestic production
Excludes investment spending
Explanation - GNP accounts for the total income earned by a country's residents, including income from abroad, while GDP measures production within domestic borders.
Correct answer is: Includes income earned by citizens abroad
Q.3 Net National Product (NNP) at market prices is obtained by:
Adding depreciation to GNP
Subtracting depreciation from GNP
Adding indirect taxes to GDP
Subtracting government expenditure from GNP
Explanation - NNP = GNP - Depreciation. Depreciation represents the wear and tear of capital goods over time.
Correct answer is: Subtracting depreciation from GNP
Q.4 Which of the following is a transfer payment?
Salary of a government employee
Purchase of new machinery by a factory
Social security pension
Export of manufactured goods
Explanation - Transfer payments are payments made without any goods or services being received in return, such as pensions, scholarships, or unemployment benefits.
Correct answer is: Social security pension
Q.5 Which approach calculates GDP by summing up all incomes?
Expenditure approach
Income approach
Production approach
Value-added approach
Explanation - The income approach sums up all incomes earned by factors of production, including wages, rent, interest, and profits, to calculate GDP.
Correct answer is: Income approach
Q.6 The expenditure approach to GDP includes which of the following components?
Consumption, Investment, Government Spending, Net Exports
Wages, Rent, Interest, Profits
Depreciation, Taxes, Subsidies, Imports
Stock market gains, Bond interest, Transfer payments, Savings
Explanation - GDP = C + I + G + (X - M), where C = consumption, I = investment, G = government spending, and X-M = net exports.
Correct answer is: Consumption, Investment, Government Spending, Net Exports
Q.7 If nominal GDP rises but real GDP remains constant, this indicates:
Increase in production
Decrease in production
Inflation
Deflation
Explanation - Nominal GDP measures value at current prices, while real GDP is adjusted for price changes. If only nominal GDP rises, it reflects price increases (inflation), not additional production.
Correct answer is: Inflation
Q.8 Which of the following best defines 'per capita income'?
Total national income divided by total population
Total GDP of a country
Total exports divided by imports
Average income of top 10% of population
Explanation - Per capita income measures average income per person and is calculated by dividing national income by total population.
Correct answer is: Total national income divided by total population
Q.9 Depreciation in national income accounting is:
Money paid as taxes
Wear and tear of capital goods
Interest earned on bonds
Profit from sale of goods
Explanation - Depreciation represents the reduction in value of physical capital due to use and obsolescence and is subtracted from GNP to get NNP.
Correct answer is: Wear and tear of capital goods
Q.10 Which of the following is NOT included in national income calculations?
Salaries of government employees
Rental income from land
Stock market capital gains
Profit of private companies
Explanation - Capital gains from stock markets are not payments for current production, so they are excluded from national income.
Correct answer is: Stock market capital gains
Q.11 Which is the most comprehensive measure of economic activity?
GDP at factor cost
GNP at market price
NNP at market price
GDP at market price
Explanation - GNP at market price includes income earned by nationals abroad and accounts for indirect taxes and subsidies, making it comprehensive.
Correct answer is: GNP at market price
Q.12 Income earned by residents from abroad is included in:
GDP
GNP
NNP at factor cost
Government expenditure
Explanation - GNP includes the income of residents from abroad, unlike GDP which is restricted to domestic production.
Correct answer is: GNP
Q.13 Which of the following is considered a final good?
Wheat purchased by a bakery to make bread
Bread sold to consumers
Sugar sold to the bakery
Flour purchased by a factory
Explanation - Final goods are ready for consumption and not used to produce other goods. Intermediate goods like wheat or sugar are excluded to avoid double counting.
Correct answer is: Bread sold to consumers
Q.14 Which method of calculating national income is based on production?
Expenditure approach
Income approach
Value-added or production approach
Transfer payment approach
Explanation - The value-added approach sums the value added at each stage of production to avoid double counting and arrive at national income.
Correct answer is: Value-added or production approach
Q.15 Indirect taxes minus subsidies are added to:
NNP at factor cost to get NNP at market price
GNP at factor cost to get GDP at market price
GDP at factor cost to get GNP at factor cost
Net exports to get GDP
Explanation - Adding net indirect taxes (taxes minus subsidies) to NNP at factor cost converts it to NNP at market prices.
Correct answer is: NNP at factor cost to get NNP at market price
Q.16 Which of the following is a limitation of using GDP as a measure of economic welfare?
Excludes production of illegal goods
Does not consider income distribution
Excludes household labor
All of the above
Explanation - GDP has limitations as a welfare measure because it ignores informal economy, inequality, environmental degradation, and unpaid household work.
Correct answer is: All of the above
Q.17 Which of the following represents net domestic product (NDP)?
GDP - Depreciation
GNP - Net Exports
GDP + Net Exports
GNP - Depreciation
Explanation - NDP is obtained by subtracting depreciation from GDP. It represents the net value of domestic production after accounting for wear and tear.
Correct answer is: GDP - Depreciation
Q.18 National income is best defined as:
Sum of GDP and GNP
Total money value of goods and services produced within a country
Total factor incomes earned by residents of a country
Government expenditure plus exports
Explanation - National income sums up all incomes earned by factors of production owned by residents, including wages, rent, interest, and profits.
Correct answer is: Total factor incomes earned by residents of a country
Q.19 Which component is included in both GDP and GNP?
Income earned by residents abroad
Net exports
Depreciation
Transfer payments
Explanation - Net exports (exports minus imports) are included in both GDP and GNP calculations, as they reflect domestic production sold abroad.
Correct answer is: Net exports
Q.20 Which of the following is NOT a factor income?
Wages
Interest
Rent
Government subsidies
Explanation - Factor incomes are payments to factors of production. Subsidies are transfer payments, not payments for production services.
Correct answer is: Government subsidies
Q.21 Market prices are used to calculate GDP to:
Include government subsidies
Reflect the value consumers are willing to pay
Exclude profits
Exclude depreciation
Explanation - Market prices represent the value of goods and services as determined by supply and demand, reflecting their worth to consumers.
Correct answer is: Reflect the value consumers are willing to pay
Q.22 Which of the following is a key objective of national income accounting?
To measure total production
To assess economic growth
To compare living standards across countries
All of the above
Explanation - National income accounting helps measure total production, monitor economic growth, and compare living standards over time or between countries.
Correct answer is: All of the above
Q.23 Which of these is included in calculating NNP at factor cost?
Depreciation
Net indirect taxes
Wages and salaries
Exports minus imports
Explanation - NNP at factor cost sums up incomes earned by factors of production (wages, rent, interest, profit), excluding taxes and including depreciation.
Correct answer is: Wages and salaries
Q.24 Which of the following is true about Real GDP?
Measured at current market prices
Adjusted for price changes
Includes transfer payments
Excludes exports
Explanation - Real GDP removes the effect of inflation or deflation to measure the actual quantity of goods and services produced.
Correct answer is: Adjusted for price changes