CBSE Class 12 Commerce: Macro Economics — National Income — Important Questions with Answers 2026

Key Concepts & Short Answer Questions

• Q: Define GDP. Differentiate between GDP at market price and GDP at factor cost.
  Ans: GDP (Gross Domestic Product) is the total monetary value of all final goods and services produced within the domestic territory of a country in a year. GDP at Market Price (GDP_MP): Includes indirect taxes and subsidies. GDP at Factor Cost (GDP_FC): Income earned by factors of production. GDP_FC = GDP_MP - Net Indirect Taxes (Indirect taxes - Subsidies). GDP_FC represents actual cost of production.
• Q: Explain the three methods of calculating National Income.
  Ans: (1) Product/Value Added Method: Sum of value added by all producing sectors. NI = Σ(Value of output - Intermediate consumption) - Depreciation + NFIA. (2) Income Method: Sum of all factor incomes. NI = Compensation of employees + Operating surplus (rent, interest, profit) + Mixed income of self-employed - Depreciation + NFIA. (3) Expenditure Method: Sum of all final expenditures. NI = C + I + G + (X-M) - Depreciation + NFIA. All three methods give the same answer.

Long Answer / Application Questions

• Q: What is the difference between GDP and GNP? What is NNP at factor cost (National Income)?
  Ans: GDP = Value of goods/services produced within domestic territory (by residents and non-residents). GNP = GDP + Net Factor Income from Abroad (NFIA). NFIA = Income earned by residents abroad - Income earned by non-residents in domestic territory. NNP at Factor Cost (National Income) = GNP at Market Price - Depreciation - Net Indirect Taxes. NNP_FC = GDP_MP + NFIA - Depreciation - (Indirect taxes - Subsidies). This is the truest measure of a country's economic welfare.

Exam Tips

• Write structured answers with headings and points for Macro Economics — National Income
• Use real-world examples wherever possible — examiners reward application
• For numerical problems, show all steps and calculations clearly