Question

Read the following text carefully:
“A country’s total National Income (NI) at the end of the year is ₹ 80,000 crore. During the same year, the Gross Domestic Product (GDP) increased by ₹ 2,00,000 crore. Price index for capital goods at the end of year is ₹ 15 lakh crore. Additionally, country invested ₹ 8,000 crore in new capital goods industries.”
In the light of the above text, classify the items as ‘stock’ or ‘flow’ variables with valid arguments. OR The value of Nominal Gross National Product (GNP) of an economy was ₹ 2,500 crore in a particular year. The value of Gross National Product (GNP) of that country during the same year, estimated at the prices of base year was ₹ 3,000 crore.

• [(i)] Estimate the Gross National Product (GNP) deflator (in percentage).
• [(ii)] “The price level has risen between the base year and the year under consideration.” Defend or refute the statement with suitable argument.

Hint:

Deflator<100 → price fall
Stock = at a point, Flow = over time

Answer 1

(A) Stock and Flow Variables
Concept:

• Stock variables are measured at a point of time.
• Flow variables are measured over a period of time.

Step 1:Classify each item

• National Income (₹ 80,000 crore) → Flow
  (because it is earned over a year)
• Increase in GDP (₹ 2,00,000 crore) → Flow
  (change over a period)
• Price index of capital goods (₹ 15 lakh crore) → Stock
  (measured at a specific point of time)
• Investment in new capital goods (₹ 8,000 crore) → Flow
  (occurs during a period)

Conclusion: \[ \text{Stock: Price index} \quad ; \quad \text{Flow: NI, GDP change, Investment} \] (B)
(i) GNP Deflator
Concept:
\[ \text{GNP Deflator} = \frac{\text{Nominal GNP}}{\text{Real GNP}} \times 100 \]
Step 1:Given data
\[ \text{Nominal GNP} = 2500,\quad \text{Real GNP} = 3000 \]
Step 2:Calculation
\[ \text{Deflator} = \frac{2500}{3000} \times 100 = 83.33% \] Conclusion (i): \[ \text{GNP Deflator} = 83.33% \] (ii) Price level interpretation

Step 1:Interpret deflator

• If deflator = 100 → no change
• If deflator>100 → price rise
• If deflator<100 → price fall

Step 2:Apply value
\[ 83.33<100 \] Conclusion (ii): \[ \text{Statement is false — price level has fallen} \]