In recent years, which one among the following is the source of demand in the Indian economy in descending order?
- (a)Private Consumption, Government Consumption, Net Exports, Gross Fixed Capital Formation
- (b)Government Consumption, Private Consumption, Net Exports, Gross Fixed Capital Formation
- (c)Private Consumption, Gross Fixed Capital Formation, Government Consumption, Net Exports
- (d)Government Consumption, Private Consumption, Gross Fixed Capital Formation, Net Exports
Correct — C, Private Consumption, Gross Fixed Capital Formation, Government Consumption, Net Exports. On the expenditure side, gross domestic product is private final consumption expenditure plus gross fixed capital formation plus government final consumption expenditure plus net exports, with changes in stocks and valuables making up the small remainder. In recent Indian national accounts private final consumption is close to three-fifths of gross domestic product, gross fixed capital formation about three-tenths, government final consumption around a tenth, and net exports negative because India runs a persistent trade deficit. Ranking those gives household spending first, investment second, government spending third, and net exports last — and last by a wide margin, since a negative number sits below every positive one.
- (a)Private Consumption, Government Consumption, Net Exports, Gross Fixed Capital Formation — It puts investment last, behind a negative net-exports figure. Gross fixed capital formation has run at roughly three times government final consumption in recent years and cannot sit at the bottom.
- (b)Government Consumption, Private Consumption, Net Exports, Gross Fixed Capital Formation — It opens with government consumption, which is about a tenth of gross domestic product against nearly six-tenths for household consumption, and then repeats the error of ranking investment below net exports.
- (d)Government Consumption, Private Consumption, Gross Fixed Capital Formation, Net Exports — It gets the tail of the ordering right but inverts the first two. Private final consumption is the largest single component of Indian demand by a long distance.
Expenditure-side national accounting reads gross domestic product as the sum of what is spent on final output: household consumption, investment, government consumption and net exports. The identity is Y equal to C plus I plus G plus exports minus imports. In an economy with a trade deficit the last term is negative, so it reduces measured domestic product even while imports themselves are a sign of demand.
This is a ranking question, and rankings are usually safer than levels. A candidate does not need the exact percentages to answer it; two orderings settle the item. Household consumption exceeds every other component in almost every large economy, and India's investment rate has stayed near thirty per cent of gross domestic product for years, well above the ten per cent or so absorbed by government consumption. Net exports being negative pins them at the bottom, so only one option can survive.
- Expenditure-side gross domestic product is private consumption plus investment plus government consumption plus net exports.
- Private final consumption expenditure is close to three-fifths of India's gross domestic product.
- Gross fixed capital formation has run at roughly thirty per cent of gross domestic product in recent years.
- Government final consumption expenditure is around a tenth of gross domestic product.
- India's net exports are negative, reflecting a persistent merchandise trade deficit.
A negative component must rank last, which removes two of the four options at a stroke.
- Ranking net exports above a positive component when the figure itself is negative.
- Overstating government consumption because government spending is politically visible.
- Confusing gross fixed capital formation with gross capital formation, which also includes changes in stocks and valuables.
An ordering item that can be solved by two comparisons rather than four figures, which is how ranking questions are usually meant to be attacked.
In an open economy, the national income (Y) of the economy is: (C, I, G, X, M stand for Consumption, Investment, Government Expenditure, total exports and total imports respectively.)
- (a) Y = C + I + G + X
- (b) Y = C + I + G – X + M
- (c) Y = C + I + G + (X – M)
- (d) Y = C + I – G + X – M
Answer(c) Y = C + I + G + (X – M)
The identity this ranking is built on, asked as algebra. Once net exports are written as exports minus imports, a trade deficit makes that term negative, which is what forces it to the bottom of the order.
Which one of the following is the correct sequence in the decreasing order of contribution of different sectors to the Gross Domestic Product of India?
- (a) Service – Industry – Agriculture
- (b) Service – Agriculture – Industry
- (c) Industry – Service – Agriculture
- (d) Industry – Agriculture – Service
Answer(a) Service – Industry – Agriculture
The same ordering exercise on the production side of the accounts rather than the demand side. Both are solved by knowing which component dominates, not by recalling exact shares.
- practice — not a real PYQ
In the expenditure method of measuring national income for an open economy, the identity is
- (a)Y = C + I + G + X
- (b)Y = C + I + G + (X − M)
- (c)Y = C + I − G + X − M
- (d)Y = C + I + G − X + M
Answer(b) Y = C + I + G + (X − M) — net exports enter as exports minus imports.
- practice — not a real PYQ
The largest single component of demand in the Indian economy in recent years has been
- (a)Government final consumption expenditure
- (b)Gross fixed capital formation
- (c)Private final consumption expenditure
- (d)Net exports
Answer(c) Private final consumption expenditure — close to three-fifths of gross domestic product.