Class 12 Macroeconomics Chapter 2 MCQ and Important Question answers. Download all exercises answers and solutions of 12th Economics lesson 2 National Income Accounting with multiple choice questions explanation updated for session 2022-2023.

Class 12 Macroeconomics Chapter 2 MCQ


Which one refers to Net Indirect Taxes?

[A]. Indirect taxes + subsidies
[B]. Indirect taxes – subsidies
[C]. Direct taxes – subsidies
[D]. None of the above

Which of the following is not include while estimating GNP of a country at market price?

[A]. Salaries and wages before taxes
[B]. Remittances by NRI’s
[C]. Subsidy
[D]. Indirect taxes

As a result of double counting, national income is

[A]. Overestimated
[B]. Underestimated
[C]. Correctly estimated
[D]. Not estimated for the entire year of accounting.

Domestic product is equal to

[A]. National product + net factor income from abroad
[B]. National product – net factor income from abroad
[C]. National product / net factor income from abroad
[D]. National product * net factor income from abroad

Gross Domestic Product (GDP)

It measure the aggregate production of final goods and services taking place within the domestic economy, during a year. Citizen of India working in Australia may be earning her wage and it will be included in the Australian GDP. But legally speaking, she is an Indian. Can there be a way to take into account the earnings made by Indians abroad or by the factors of production owned by Indians? While we try to do this, in order to maintain symmetry, we must subtract the earnings of the foreigners who are working within our domestic economy, or the payments to the factors of production owned by the foreigners. For example, the profits earned by the Japanese-owned Honda car factory will have to be subtracted from the GDP Of India.

The macroeconomic variables which take such addition and subtraction into accounts is known as Gross National Product (GNP). As we know that the part of the capital gets consumed during the year due to wear and tear. This is called depreciation. Depreciation is definitely not a part of anybody’s income. If we deduct depreciation from GNP, the measure of aggregate income that we get is called Net National Product (NNP). The point is that all these variables are evaluated at market price. We get the value of NNP evaluated at the market prices. But market price includes indirect taxes.

When indirect taxes are imposed on goods and services, the prices go up. This means that when we pay for any product, we are paying more that its actual value, due to the taxes imposed by the government. We have to deduct the value of these taxes from NNP, which was evaluated at market price. Similarly, there may be subsidies granted by the government on the prices of some commodities, such as LPG cylinder. So, we add subsidies to the NNP evaluated at market price. The measure that we obtain by doing so is called Net National Product at factor cost or National Income.

Class 12 Macro Economics Chapter 2 Important Question answers

What are the four factors of production and what are the remunerations to each of them is called?

There are four factors of production:

    1. Capital, remuneration of which is called interest.
    2. Human labor, remuneration of which is called wages.
    3. Entrepreneurship, remuneration of which is called profit.
    4. Fixed natural resources as land, remuneration for which is called rent.

What is called a ‘final good’?

When a produce goes through different types of procedures and transformation, and reach its final stage where it is ready to be used or consumed by the consumer, is called final good.

Distinguish between capital goods and consumption goods.

Those goods which are ready to consume by the consumer are called consumption goods, such as food items, groceries etc. And the goods which are ready to use by the customer, but it can be used for a long period of time, like tools, machinery, etc. are called capital goods.

What is depreciation?

When a part of the capital goods produced in a year goes for replacement of existing capital goods and is not an addition to the stock of capital goods already existing and its value needs to be subtracted from gross investment for arriving at the measure for net investment. This deletion, which is made from the value of gross investment in order to accommodate regular wear and tear of capital, is called depreciation.

What is ‘unplanned accumulation of inventories’ and ‘unplanned decumulation of inventories?

In case of an unexpected fall in the sales, the firm will have unsold stock of goods which it had not anticipated. Hence, there will be ‘unplanned accumulation of inventories. In the opposite case, where there is unexpected rise in the sales, there will be ‘unplanned decumulation of the inventories.

Class 12 Economics terms – GDP and Welfare

If someone earns more, he can buy more goods and services and his material well-being improves. So, it is kind of reasonable to treat his income level as his level of well-being. For example, if there is someone who frequently buys new things like a car, mobile etc., we ought to think that he is living a very good life, so it is natural to think that he is earning huge money. The total of value of goods and services created within the boundaries of a country in a particular year is called Gross Domestic Product. And it is distributed among the people of the country as income. Because of this, we may treat higher level of GDP of a country as an image of greater well-being of the people of that country. This may not be correct and for that there are at least three reasons:

    • Distribution and uniformity of distribution of GDP
    • Non-monetary exchanges
    • Externalities

Class 12 Macro Economics Chapter 2 MCQ with Answers


Which one leads to Factor Cost?

[A]. Market price – indirect taxes
[B]. Market price – net indirect taxes
[C]. Market price + indirect taxes
[D]. Market price – net indirect taxes

Increase in stock of the capital is known as

[A]. Capital loss
[B]. Capital gain
[C]. Capital formation
[D]. None of these

Which of the following is not included in the final consumption expenditure?

[A]. Household expenditure on food
[B]. Government final consumption expenditure
[C]. Household expenditure on education
[D]. Expenditure on raw materials

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 last five years
Distribution and uniformity of distribution of GDP

If the GDP of a country is rising, the welfare may not rise as a consequence. This is because the rise in GDP may be concentrated in the hands of very few individuals and firms. For the rest, their income may have decreased in comparison of their last year’s income. In such a case the welfare of the entire country cannot be said to have increased.

Class 12 Macro Economics Chapter 2 Multiple Choice Questions

Which of the following is a flow variable?

[A]. Consumption
[B]. Wealth
[C]. Quantity of money
[D]. None of these

Which of the following leads to depreciation?

[A]. Normal wear and tear
[B]. Damages due to flood
[C]. Damages due to market-crash
[D]. None of the above

Which of the following is a semi-durable goods?

[A]. Radio
[B]. Milk
[C]. Clothes
[D]. Petrol

Which of the following is not included while estimating the national income by income method?

[A]. Rent
[B]. Mixed income
[C]. Fixed investment
[D]. Undistributed profits
Non-monetary exchanges

There are many activities in an economy which are not evaluated in terms of money. Example: Women are not paid for all the domestic work they do. The exchange which takes place in the informal sector without the help of money are call barter exchanges. In barter exchanges, goods or services are directly exchanged with each other. There is no involvement of the money.


Externalities refer to the benefits or harms a firm or an individual causes to another for which they are not paid. Externalities do not have any market in which they can be bought and sold. These are the unplanned and unexpected things which makes impact on the economy.