a) ‘Real Gross Domestic Product is a better indicator of economic growth than Nominal Gross Domestic Product’. Do you agree with the given statement? Support your answer with a suitable numerical example.4

b) Calculate ‘Depreciation on Capital Asset’ from the following data 2

Or

a) ‘Circular flow of income in a two sector economy is based on the axiom that one’s expenditure is other’s income’.

Do you agree with the given statement? Support your answer with valid reasons.3

b) Calculate compensation of employees from the following data: 3

a) The given statement is correct. Real Gross Domestic Product is a better indicator of economic growth than Nominal Gross Domestic Product as it is not affected by the general price level.

Numerical example:

In the above example the difference between real GDP and nominal GDP is 13000-5700=7300.

Here, the only difference is monetary difference as the quantity remains the same the only difference in GDP is due to change in prices in the economy.

B) Depreciation on capital asset =

Cost of capital asset-scrap value/estimated life of the capital asset

Deprecation =1000-0/20

Depreciation=50 crores

Or

Yes the given statement is correct. In two sector economy, the firms produce goods and services and make factor payments to the households. The factor incomes earned by households will consumed to buy goods and services which would equal to the income of firms. The aggregate consumption on goods and services produced by the firms is equal the aggregate expenditure on goods and services produced by the firms in the economy which is income of the producers.

Compensation of employees=(iii)-(v)-(iv)-(vi+IiIvii)

=200-50-10-(25+45+20+5)

=45 crores