Chapter MCQ Test 2: National Income and Related Aggregates | Class 12 Economics

Question 1 of 10

An Indian company's factory in Dubai earns profit. This profit is part of India's GNP but NOT its GDP because GDP counts output:

Within the domestic territory only

By residents anywhere

Only abroad

Of the government only

Explanation: GDP is territory-based, so foreign output is excluded; GNP adds NFIA earned by residents abroad.

Question 2 of 10

Given GDP_MP = 800, net indirect taxes = 60, depreciation = 50, NFIA = −10, the National Income (NNP_FC) is:

680

700

720

620

Explanation: GDP_FC = 800 − 60 = 740; NDP_FC = 740 − 50 = 690; NNP_FC = 690 + (−10) = 680.

Question 3 of 10

A baker buys flour (₹50) and sells bread (₹120). Counting both ₹50 and ₹120 fully would overstate output by ₹50 — this error is avoided by counting:

Only the value added (₹70) or only the final bread (₹120)

Both fully

Only the flour

Neither

Explanation: Value added (120 − 50 = 70) plus the flour's own value added (50) equals the final ₹120 — no double counting.

Question 4 of 10

Why might nominal GDP rise 10% while real GDP rises only 4% in the same year?

About 6% of the rise was just higher prices (inflation)

Output fell

Population doubled

Exports vanished

Explanation: The gap between nominal and real growth reflects the rise in prices, captured by the GDP deflator.

Question 5 of 10

Old-age pension paid by the government is excluded from national income (income method) because it is a:

Transfer payment, not a factor income

Profit

Rent

Net export

Explanation: Pensions are transfers received without producing anything, so they are not earned factor incomes.

Question 6 of 10

If output is unchanged but all prices rise 25%, the GDP deflator becomes:

125

75

100

25

Explanation: Nominal rises 25% while real is unchanged, so deflator = (125/100) × 100 = 125.

Question 7 of 10

Real GDP is preferred over nominal GDP for measuring growth because it:

Removes the effect of price changes, showing true output

Uses current prices

Includes transfers

Ignores output

Explanation: Holding prices constant isolates the change in actual output — genuine growth.

Question 8 of 10

All three measurement methods give the same national income because every act of production simultaneously creates:

Income that is then spent (output = income = expenditure)

Only taxes

Only imports

No income

Explanation: Production generates factor income which is spent, so the three approaches must coincide.

Question 9 of 10

Disposable income is obtained from personal income by subtracting:

Direct taxes

Indirect taxes

Depreciation

Net exports

Explanation: Disposable income = personal income − direct taxes.

Question 10 of 10

Investment (gross capital formation) in the expenditure method is the spending on:

Capital goods (machines, buildings) and inventories

Food for households

Old-age pensions

Imports only

Explanation: Investment is final expenditure by firms on capital goods and additions to stocks.

Chapter MCQ Test 2 — National Income and Related Aggregates