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National Income Accounting — Economics STD 12 Commerce — Question

CBSE BoardEnglish MediumSTD 12 CommerceEconomicsNational Income Accounting3 Marks
Question
Should we treat subsidies as transfer payments?
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Answer

  1. No, subsidies should not be treated as transfer payments.
  2. Transfer payments are those payments corresponding to which there is no value addition in the economy, like scholarships to the students or old age pensions.
  3. In the case of subsidies value addition has already occurred.
  4. In fact subsidies tend to lower the market value of the goods produced.
  5. Accordingly, these are added to the market price (while indirect tax is deducted) to make it equal to the factor cost.

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