UPSC Prelims 2013 Q99: Indian Economy – National Income & Economic Growth
The national income of a country for a given period is equal to the
- (a) total value of goods and services produced by the nationals
- (b) sum of total consumption and investment expenditure
- (c) sum of personal income of all individuals
- (d) money value of final goods and services produced
Answer: (d) money value of final goods and services produced
Explanation
National income of a country
National income is the money value of all final goods and services produced by a country's residents in a given period, usually a year.
| Option | Verdict | Reason |
|---|---|---|
| (a) Total value of goods and services produced by the nationals | Close, but less exact | Does not say 'final', so it could double-count |
| (b) Sum of total consumption and investment expenditure | Incorrect | Leaves out government spending and net exports |
| (c) Sum of personal income of all individuals | Incorrect | Personal income includes transfers and leaves out undistributed profits |
| (d) Money value of final goods and services produced | Correct | The standard definition |
Ways to measure it:
| Method | Adds up |
|---|---|
| Product (value added) | Value added at each stage of production |
| Income | Wages, rent, interest and profit |
| Expenditure | Consumption + investment + government spending + net exports |
In strict terms: national income = Net National Product at factor cost.
Some sources report (a) as the key; (d) is the one most widely accepted.
Answer: (d) money value of final goods and services produced.
Why each option is right or wrong
- (a) Incorrect. It omits the word 'final', which avoids double counting.
- (b) Incorrect. Consumption and investment alone leave out government spending and net exports.
- (c) Incorrect. The sum of personal incomes is not the same as national income.
- (d) CORRECT. National income is the money value of final goods and services produced.
Key point
National income = money value of final goods and services produced in a year = NNP at factor cost; measured by product, income or expenditure method.
Remember
National income = money value of final goods and services.
Common mistakes
- Forgetting the word 'final'; counting intermediate goods double-counts.
- Confusing national income with personal income.
- Leaving out government spending and net exports in the expenditure method.
Exam tip
'Final goods' and 'money value' are the two key phrases.
Sources
- NCERT Class XII — Introductory Macroeconomics, Ch 2 (National Income Accounting)
- Ministry of Statistics and Programme Implementation — National Accounts Statistics: concepts and definitions