NNI - production. Therefore the value of indirect tax is to...

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NNI (MP) - NNI (FC): Another important distinction is between NNI in its market price value and NNI in its factor cost value. When national income value is computed in terms of market prices, the presence of two elements may not allow for the estimation of the true factor expenditure or cost of production of these goods. These two elements contained in the market price are indirect taxes (IT) such as sales tax, excise duty etc. and subsidy (S) or assistance in cash and kind provided by the government to private producers. The estimate of NNI will exceed the true cost of production to the extent of the IT value. On the other hand the presence of subsidies unduly reduces the correct value than what it would otherwise have been in the form of cost of
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Unformatted text preview: production. Therefore the value of indirect tax is to be deducted and that of subsidies is to be added to the estimated value of NNI at market prices in order to arrive at the factor cost value of the NNI. With these adjustments we have: NNI (MP)- IT + S = NNI (FC) , or 1530 - 460 + 120 = 1190 where IT = 460 and S = 120 In its reverse form: NNI (FC) + IT - S = NNI (MP) 1190 + 460 - 120 = 1530 In macroeconomics national income value (NI) is stated in its factor cost version. Therefore unless otherwise stated we will refer to this value as NI (that is National Income at factor cost)....
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This note was uploaded on 11/17/2011 for the course EC ec 201 taught by Professor - during the Fall '10 term at Montgomery.

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