Question

(a) State any two precautions that must be taken into consideration while estimating national income by value added method.
In an economy following transcations took place. Calculate value of output value added by Firm B:
(i) Firm A sold to firm B goods of 80 crore, to firm C 50 crore to household 30 crore and goods of value 10 crore remains unsold
(iii) Firm B sold firm C goods of 70 crore, to firm D 40crore, goods of value 30 crore were exported and goods of value 5 crore was gold to government
Or
Differentiate betweeen National Current Places and National Income at Constant Prices. Which of the two presents a better view of the economic growth of economy and why?

Answer 1

(a) Precautions of value added method are:
(i) Value of sale and purchase of second hand goods is not considered while estimating value added as the value of second hand goods is already accounted during the year they were produced.
(ii) Value of intermediate goods is not included in the estimation of value because value of intermediate goods is reflected in the value of final goods.
(b) Value of output of firm B=sales of firm B to firm C + Sales of firm B to firm D+ Exports + Sales firm B to Government=70+40+30+5=145 crores
Value Added by Firm B= Values of output by firm B - Purchase by Firm B from firm A =145-80=65 crore
Or
National Income at constant prices: When national product is estimated on the bases of prices prevailing in the base year. it is called national income at constant prices or real national income.
National income at current prices: When national product is estimated on the basis of prices or nominal national income.
`("National Income at Current Prices")/("Price Index of Current Index")xx"Prices Index of Bse year"`
National Income at constant prices reflects the real growth of an economy because it increases only when there is an increase in real national output over a period of time. National Income at current prices mauy increase due to increase in price and goods and serivices during the current year, it does not reflect hte true picture of economic growth.