Question 7 of 9intermediate🔧 ApplyNumerical4 marks

From the following data, calculate Personal Income and Personal Disposable Income. (a) Net Domestic Product at factor cost: 8,000 (b) Net Factor Income from abroad: 200 (c) Undisbursed Profit: 1,000 (d) Corporate Tax: 500 (e) Interest Received by Households: 1,500 (f) Interest Paid by Households: 1,200 (g) Transfer Income: 300 (h) Personal Tax: 500

Correct Answer

Personal Income is Rs 7,300 crores and Personal Disposable Income is Rs 6,800 crores.

Exercise: EXERCISES | Q: 9 | (Page 25)
For More Understanding

Explanation

To solve this, we first determine National Income (NI) by adding Net Factor Income from Abroad to Net Domestic Product at factor cost. Then, we apply the formula for Personal Income provided in the text: PI = NI – Undistributed profits – Net interest payments made by households – Corporate tax + Transfer payments. 'Net interest payments made by households' is calculated as Interest Paid minus Interest Received. Finally, Personal Disposable Income is calculated by deducting Personal Tax from Personal Income.

Solution Steps

  1. Step 1: Calculate National Income (NI). NI = Net Domestic Product at factor cost + Net Factor Income from abroad NI = 8,000 + 200 = Rs 8,200 crores.

  2. Step 2: Calculate Net Interest Payments made by Households. Net Interest Payments = Interest Paid by Households – Interest Received by Households Net Interest Payments = 1,200 – 1,500 = (-) Rs 300 crores.

  3. Step 3: Calculate Personal Income (PI). PI = NI – Undistributed profits – Net interest payments made by households – Corporate tax + Transfer payments PI = 8,200 – 1,000 – (-300) – 500 + 300 PI = 8,200 – 1,000 + 300 – 500 + 300 PI = Rs 7,300 crores.

  4. Step 4: Calculate Personal Disposable Income (PDI). PDI = PI – Personal tax payments – Non-tax payments PDI = 7,300 – 500 – 0 PDI = Rs 6,800 crores.

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