CA Foundation · Business Economics · Determination of National Income
Under the value added method of measuring national income, which of the following is the correct way to calculate the value added by a firm?
Value added equals the value of a firm's output minus the value of intermediate consumption. Intermediate goods bought from other producers are already counted in those producers' output, so deducting them avoids double counting when summing production across the economy.
- AValue of output minus value of intermediate consumptionCorrect
- BValue of output plus value of intermediate consumption
- CValue of sales minus wages paid to workers
- DValue of output minus depreciation and indirect taxes only
Explanation
Value added by a firm equals the value of its output minus the value of intermediate goods it purchased from other firms. Adding intermediate consumption would count it twice. Subtracting only wages ignores raw material costs and gives a wrong figure.
Did you get it right without looking?
One question tells you little. A timed set on Determination of National Income shows your real accuracy, how long you take and where you lose marks.
More Determination of National Income questions
- Which of the following is an example of an injection into the circular flow of income in an open economy?
- In a three-sector economy with no foreign trade, C = 100 + 0.8Yd, I = ₹300 crore, G = ₹200 crore, and taxes are a lump sum T = ₹100 crore. W…
- A farmer sells wheat worth ₹40,000 to a flour mill. The mill produces flour and sells it for ₹55,000 to a bakery. The bakery makes bread and…
- Which of the following is correctly included while measuring national income by the expenditure method for the current year?
- An Indian economy has GDP at market prices of ₹900 crore, net factor income from abroad of ₹(-)20 crore (a net outflow), and depreciation of…
- Which of the following will make the investment multiplier in an economy smaller?