Aggregates related to national income - GDP

Correct answer: B. Because the old phone is not current-year production

Explanation: GDP measures the market value of goods and services newly produced during a specified period. When an old mobile phone is resold, the phone itself was produced and counted when it was originally manufactured, so counting its full resale price again would double-count the same production. The sale may involve a current brokerage or repair service, but the old asset’s main sale value is excluded. Hence, option B is correct.

Correct answer: A. It will be included in India's GDP

Explanation: GDP is based on production within a country's domestic territory, not on the nationality of the buyer. If the handicraft is produced in India and purchased by a foreign tourist, its production contributes to India's GDP. The transaction may also be treated as an export of a domestically produced good because the purchaser is non-resident.

Correct answer: C. Old-age pension

Explanation: An old-age pension is a transfer payment because it is received without the recipient providing a current productive service in exchange. It redistributes income but does not represent current output. Government salaries, factory wages and the value of a crop sold are linked to current production or productive services, so they can be included in GDP through the relevant accounting method.

Correct answer: B. 20

Explanation: Per capita GDP is calculated by dividing total GDP by the population. Therefore, per capita GDP = 24,000 ÷ 1,200 = 20. This figure represents the average value of goods and services produced per person during the period. It does not mean that every individual actually earns 20, because GDP per capita is only an average indicator.

Correct answer: A. Exports are less than imports

Explanation: Net exports are calculated as exports minus imports, written as X − M. Net exports become negative when the value of imports exceeds the value of exports. In the expenditure approach to GDP, net exports are added to consumption, investment, and government expenditure; therefore, a negative value reduces the total measured GDP compared with the other components.

Correct answer: A. Production takes place within the country’s domestic economic territory

Explanation: The term domestic refers to the location of production, not the nationality of the producers or owners. GDP includes the market value of final goods and services produced within a country’s economic territory during a period, even when foreign companies or foreign workers contribute to that production. Production by residents abroad belongs to national, not domestic, territory.

Correct answer: A. Because the production does not take place within India’s domestic territory

Explanation: GDP measures the market value of final goods and services produced within a country’s domestic territory during a specified period. It is based on location of production, not citizenship of the producer. Thus, an Indian citizen working abroad contributes to the GDP of the country where the work is performed. The related factor income may be considered in India’s GNP through NFIA.

Correct answer: A. Market value of final goods and services produced within domestic territory in one year

Explanation: GDP is the gross domestic product: the market value of final goods and services produced within a country’s domestic territory during a specified period, normally one year. “Domestic” refers to the location of production, “final” prevents double counting of intermediate goods, and “market value” permits different products to be added. Foreign income, transfers, and old assets are not included in this definition.

Correct answer: A. By subtracting net indirect taxes

Explanation: GDP at market price includes net indirect taxes, whereas GDP at factor cost measures the income accruing to factors of production. Therefore, GDP at factor cost is obtained by subtracting net indirect taxes: GDPFC = GDPMP − NIT. Option A is correct. Depreciation relates to gross and net measures, net factor income converts domestic to national income, and exports are not used in this conversion.

Correct answer: A. By adding net indirect taxes

Explanation: GDP at factor cost records factor payments, while GDP at market price also reflects net indirect taxes included in the prices paid by buyers. Hence, the conversion is GDPMP = GDPFC + net indirect taxes, making option A correct. Depreciation changes gross and net measures, imports are part of expenditure accounting, and direct taxes are not used in this conversion.

Correct answer: B. ₹8,300 crore

Explanation: To convert GDP at market price into GDP at factor cost, subtract net indirect taxes because market prices include this tax component. The calculation is GDPFC = GDPMP − NIT = ₹9,000 crore − ₹700 crore = ₹8,300 crore. Therefore, option B is correct. ₹9,700 crore comes from incorrectly adding taxes, while ₹9,000 crore ignores the adjustment and ₹7,600 crore uses an incorrect subtraction.

Correct answer: C. ₹2,000

Explanation: Nominal output value is calculated by multiplying the quantity produced in the current year by the price prevailing in the current year. Therefore, nominal value = 100 units × ₹20 per unit = ₹2,000. Option C is correct. The other amounts result from using an incorrect quantity or price and do not follow the stated formula. A base-year price would be needed only for calculating real output value.

Correct answer: C. ₹10,800 crore

Explanation: The relationship is GDP deflator = (Nominal GDP ÷ Real GDP) × 100. Rearranging gives Nominal GDP = (Deflator × Real GDP) ÷ 100. Therefore, nominal GDP = (120 × ₹9,000 crore) ÷ 100 = ₹10,800 crore. Option C is correct. The deflator raises real GDP by 20% because the index is 120.

Correct answer: C. ₹18,000 crore

Explanation: The GDP deflator relationship is: Deflator = (Nominal GDP ÷ Real GDP) × 100. Rearranging gives Nominal GDP = Real GDP × Deflator ÷ 100. Therefore, nominal GDP = 16,000 × 112.5 ÷ 100 = 18,000 crore. Option C is correct. The lower alternatives result from applying an incorrect percentage or failing to use the deflator scale of 100.

Correct answer: D. Sale of a new book produced in the current year

Explanation: GDP includes the market value of final goods and services produced within the current period. A new book made and sold during the current year represents current production, so option D is included. Reselling an old book does not create current production, and unpaid family teaching or free help has no recorded market transaction. Thus the alternatives are excluded for different accounting reasons.

Correct answer: D. Resale of a machine produced last year

Explanation: GDP counts the value of final goods and services produced within the current accounting period. A new table, a medical service delivered this year, and a newly constructed house are current production and may be included subject to national-accounting rules. A machine produced last year was already counted in that earlier period; its resale transfers ownership but creates no new production. Therefore option D is correct.