# Free Measures of National Income 03 Practice Test - 12th Grade - Commerce

A higher GDP per capita may not mean that the quality of life has really improved because

A. It measures the income
B. It measures Gross Domestic Product
C.

It does not measure the quality of the items produced

D. It is only measured every five years

#### SOLUTION

Solution : C

It measures the income generated but not the quality of the products; items may be better quality but cheaper to produce so GDP would fall.

Nominal GDPGDP deflatorPopulationYear 3$5,00012511Year 4$6,60015012

Refer to the table mentioned above. What is the real GDP in year 3?

A.

4000

B.

2000

C.

1000

D.

5000

#### SOLUTION

Solution : A

Real GDP = Nominal GDPGDP deflator

=5,000125×100=4,000

If GDP deflator for the period 1995-2000 is 140%, this means that we can only buy with 40 Rupees in 2000 what we can buy with 100 Rupees in 1995.

A.

True

B.

False

#### SOLUTION

Solution : B

False, because GDP deflator for the period 1995-2000 is 140% means that we can buy with 140 Rupees in 2000 what we can buy with 100 Rupees in 1995.

National income refers to:

A.

The sum total of domestic income and net factor income from abroad

B.

Factor incomes only

C.

Income of only normal residents of the country

D.

All of these

#### SOLUTION

Solution : A

National income refers to all the given options.

Which of the following statements is correct?

A.

Personal disposable income can be used at will by households

B.

Personal disposable income cannot be used at will by households

C.

Personal disposable income includes fees and fines yet to be paid

D.

Personal disposable income includes direct taxes

#### SOLUTION

Solution : A

Personal disposable income can be used at will by households.

Real national income means:

A.

national income at current prices

B.

national income at factor prices

C.

national income at constant prices

D.

national income at average prices of the past 10 years

#### SOLUTION

Solution : C

Real national income is measured at constant prices, adjusted for inflation.

National income at current prices can increase even when the quantum of goods and services produced during the year remains constant.

A.

True

B.

False

#### SOLUTION

Solution : A

Increase in the price level can cause an increase in national income at current prices without an increase in the quantum of goods and services.

Market price includes the impact of indirect taxes, but not of subsidies.

A.

True

B.

False

#### SOLUTION

Solution : B

Market price includes the impact of both indirect taxes and subsidies. Indirect taxes raise the market price while subsidies lower it.

Increase in national income implies increase in the flow of goods and services in the economy.

A.

True

B.

False

#### SOLUTION

Solution : A

True. Provided that, national income as the market value of final goods and services produced during the year is estimated at constant prices, not at current prices.

The difference between gross domestic product and net domestic product is due to ___

A.

B.

Depreciation

C.

Net indirect taxes

D.

Change in stock

#### SOLUTION

Solution : B

The difference between gross domestic product and net domestic product is due to depreciation.