False: National income can be less than domestic income when net factor! income from abroad (NFIA) is negative. National income can also be equal to domestic income if NFIA is zero.

It refers to market value of final goods and services produced within the domestic territory of the country within one year inclusive of depreciation. GNP is an economic concept because it includes productive efforts of only residents of a country within and outside the country GDP is based on domestic territory but GNP is based on normal residents.

The end-use of the machine determines whether it is a capital good or not. Capital goods are those fixed assets of the producers which are used in the process of production for several years and which are of high value. Therefore, only those machines which are used in the process of production are considered to be capital goods. Those machines which are used by the households are not capital goods. For example, Computer used at home is a durable-use consumer good, but a computer used in the computer coaching class is a capital good.

Following are three main features of the economy that India inherited from her colonial past:

1. Stagnant Economy- A stagnant economy is an economy which is characterized by a prolonged period of slow economic growth. The Indian economy was stagnant in the sense that the rate of growth of per capita income was just 0.5% per annum.
2. Agricultural Economy- Indian economy was primarily an agricultural economy. Agriculture contributed about 60% to the GDP.
3. Backward Industries- At the time of independence, Indian industries were in a backward state. The industrial base of the economy was very small. Industries were facing the problems of shortage of raw materials, lack of credit facilities, bad industrial relations, and low level of technology.

India is a leading exporter of handicrafts because :

1. Handicraft is a traditional industry of India.
2. Easy availability of Skilled workers.

The gross investment includes net investment and replacement investment. Replace investment is funded through a depreciation reserve fund. Because this investment is exactly to depreciation losses. Thus, replacement investment just restores the value of fixed assets (which is lost on account of their depreciation). It does not lead to an increase in capital stock (or production capacity) of the producers. Net investment, on the other hand, is an investment that leads to an increase in the capital stock of the producers. It causes an increase in production capacity. Since net investment is related to the increase in the production capacity of the producers, we can say that it is a net investment (not replacement investment) that is needed to accelerate the pace of growth and development. Briefly, replacement investment helps maintain the existing level of GDP. Net investment leads to a shift in the GDP level, indicating growth and prosperity. Only net investment leads to add to the stock of capital. Depreciation only replaces the worn out fixed assets. It helps to maintain the existing stock of capital.

The process of money creation by the commercial banks starts as soon as people deposit money in their respective bank accounts.  The remaining portion left after maintaining cash reserves of the total deposits is then lend by the commercial bank to the general public in form of credit, loans and advances.

Government budget is of immense help in fighting the inflationary and deflationary tendencies. Inflationary tendencies emerge in the economy when aggregate demand exceeds aggregate supply. Thus government tries to decrease aggregate demand to remove inflationary pressures in the economy. To curb the inflationary tendency, the government can prepare a surplus budget. A surplus budget is one in which estimated receipts exceed the estimated expenses. Such a budget reduces the money supply in the economy. With a fall in the money supply, the purchasing power of people also falls, leading to a fall in the level of aggregate demand. As aggregate demand falls, the price level or the rate of inflation also falls.

Deflationary pressures emerge in the economy when aggregate demand falls short of aggregate supply. So, the government through its budgetary policies tries to increase AD. To curb the deflationary tendency, the government can prepare a deficit budget. A deficit budget is one in which estimated expenses exceed the estimated receipts. Such a budget increases the money supply in the economy. With the increase in money supply, the purchasing power of people also rises, leading to an increase in the level of aggregate demand. As aggregate demand rises, the price level also rises and the rate of deflation begins to fall.

Factor income is the income received by owners of the factors of production in the form of rent,wages, interest and profit for the services rendered in the production process. Transfer payments are those unilateral payments corresponding to which there is no value addition in the economy e.g gifts and donations.

Per capita income is income per citizen. When the national income is divided with the total population of the country, we get per capita income or the average income.

1. Microeconomics studies the particular market segment of the economy, whereas Macroeconomics studies the whole economy, which covers several market segments.
2. Microeconomics assumes all the macro variables to be constant as national Income, consumption, saving, etc, whereas Macroeconomics assumes that all tile micro variables to be constant as households, firms, prices of Individual products, etc.
3. Microeconomics deals with an individual product, firm, household, industry, wages, prices, etc., while Macroeconomics deals with aggregates like national income, national output, price level, etc.

Economic Development: The main objective of Indian planning is to achieve the goal of economic development economic development is necessary for under developed countries because they can solve the problems of general poverty, unemployment and backwardness through it.

Following are the components of the Expenditure Method that are used to calculate national income:

1. Private Final Consumption Expenditure- Private final consumption expenditure includes the money value of consumer goods and services purchased by households and non-profit institutions for current use.
2. Government Final Consumption Expenditure- It refers to expenditure on final goods and services by the government, like expenditure on the purchase of goods for consumption by the defence personnel.
3. Investment Expenditure- Investment means an addition to the stock of capital goods and inventory. Investment may be of the following four types:
   1. Business fixed investment
   2. Inventory investment
   3. Public investment
   4. Residential construction investment.
4. Net Exports- Net exports means the difference between exports and imports.

Deferred payments refer to those payments which are made sometimes in the future. Money has made deferred payments much easier than before.  Credit has become the life and blood of a modern capitalist economy.  In millions of transactions, instant payments are not made. The debtors make a promise that they will make payment on some future date. In those situations money acts as a standard of deferred payments. It has become possible because money has general acceptability, its value is stable, it is durable and homogeneous. This function of money has led to the emergence of financial market which deals in borrowing and lending of money.

Legal Reserve Ratio is the requirement of cash reserves which a commercial bank is obligated to maintain.

Explanation:

In the present case, the Reserve requirement is 0.2 and deposits are Rs.1000.

Thus mathematically, Cash Reserve = Reserve requirement x Bank deposits

Hence, the quantum of money to be maintained by the commercial bank is Rs.200 (0.2x1000).

The Legal Reserve Ratio is composed of two components such as Cash Reserve Ratio(CRR) and Statutory Liquidity Ratio(SLR). These ratios are fixed by the Reserve Bank of India(RBI).

These are those goods which have crossed the boundary line of production and are ready for use by their final users.  These goods are not resold by the firms for profit during the accounting year.
Example: Shoes used by the households or tractor used  by the farmers.

Factor cost is the total amount which the manufacturer had to invest in production of a good or commodity. It doesn’t include any taxes imposed on the final product. But, the market price is the final cost at which the manufacturer sells the goods to customers. And these are inclusive of all the applicable taxes. Further, the final Price is decided by also keeping the subsidies offered by the government into account.

The three methods of measuring National income are as follows:

1. Income Method .
2. Product method or Value Added Method.
3. Expenditure Method.

The main objective of Indian planning is to achieve the goal of economic development economic development is necessary for under developed countries because they can solve the problems of general poverty, unemployment and backwardness through it.

The best predictor of current investment at the firm level is lagged investment. This lagged-investment effect is empirically more important than the cash-flow and Q effects combined.

Ex-ante refers to future events, such as the potential returns of a particular security, or the returns of a company. Transcribed from Latin, it means “before the event.” Much of the analysis conducted in the markets is ex-ante, focusing on the impacts of long-term cash flows, earnings and revenue.

It analyses the forces which determine economic growth of a country and explains how to reach the highest state of economic growth and sustain it. It helps to bring stability in price level and analyses fluctuations in business activities. It suggests policy measures to control inflation and deflation.