Aggregates related to national income - GDP

Correct answer: A. Because the production occurred outside India's domestic territory

Explanation: GDP is based on the domestic-territory principle: it counts production taking place within a country's economic territory, regardless of the producer's nationality. Since the factory operates in Nepal, its output contributes to Nepal's GDP. The income earned by an Indian-owned enterprise abroad can be relevant to India's national income or GNP, but it is not part of India's GDP. Sending profits to India does not change the location of production.

Correct answer: B. No new production of that good will be counted in the current year's GDP

Explanation: GDP measures the value of final goods and services produced during a particular period, not merely the value of goods sold during that period. If the good was produced last year, its production was already included in last year's GDP, usually through inventory changes if it remained unsold. Selling it this year does not create new current production, so option B is correct.

Correct answer: A. Because reliable market records are usually unavailable and the activity is outside the legal production framework

Explanation: Illegal production may create economic value, but it is generally difficult for statistical authorities to identify, verify and measure because transactions are hidden and reliable records are absent. School-level national-income measurement therefore normally focuses on recorded legal market production. It is not correct to say that illegal output has zero value, is always final, or is necessarily imported.

Correct answer: A. Because it is a financial claim, not the production of a good or service

Explanation: The principal of a loan records the creation or transfer of a financial claim between the lender and borrower. It does not represent newly produced goods or services during the period, so it is excluded from GDP. However, the bank’s fee or the value of its financial intermediation service may be included as service output when measured according to national-accounting rules.

Correct answer: A. Services provided by a foreign bank located in India

Explanation: GDP follows the domestic-territory principle: it counts final goods and services produced within India’s economic territory, regardless of whether the producer is Indian or foreign-owned. Therefore, services supplied by a foreign bank operating in India enter India’s GDP. The other activities occur outside India and are not part of India’s domestic production, although some may be relevant to national income measures.

Correct answer: A. They arise from changes in asset prices rather than current production

Explanation: A capital gain is the increase in the market price of an existing asset, such as land, a house or a share, between two points in time. It is a valuation change and does not necessarily reflect the production of a new good or service during the current period. GDP records current production, so the gain itself is generally excluded, although brokerage or other services connected with a sale may be counted.

Correct answer: A. Place of production

Explanation: GDP measures the market value of final goods and services produced within a country's domestic territory during a specified period. Thus, when a cross-border worker produces within the country, that production is related to the host country's GDP, regardless of the worker's nationality or residence. Residence is more relevant when calculating GNP.

Correct answer: A. It is a transfer of an existing financial asset

Explanation: GDP records the value of currently produced final goods and services. Trading an old share only transfers ownership of a financial asset that was issued earlier; it does not represent new production during the current period. However, a current service connected with the transaction, such as brokerage or exchange fees, can be included in GDP as payment for a newly provided service.

Correct answer: A. Current production of the service sector

Explanation: A software development service produced and delivered during the current period is a market service and forms part of current domestic output. GDP measures the market value of final goods and services produced within domestic territory during a specified period. It is not automatically an intermediate good; that depends on whether another producer uses it as an input. It is also neither a transfer payment nor an old asset.

Correct answer: A. As an export of services

Explanation: A hotel service is produced within the domestic territory, so its value is part of domestic product. Because the buyer is a foreign tourist, the receipt is treated in the balance of payments and national accounting as an export of services. It is not a transfer payment because a service is exchanged, and it is not net factor income from abroad, which concerns factor earnings rather than domestic service output.

Correct answer: A. GDP may rise because production occurred within domestic territory

Explanation: GDP is a territorial measure: it records the value of production taking place inside the domestic territory, regardless of whether the producers are domestic or foreign-owned. Therefore, greater production by foreign companies can increase GDP even when profits are later remitted abroad. The remittance affects national income and the distinction between GDP and GNP through net factor income from abroad; it does not erase the domestic production from GDP.

Correct answer: C. It will not be directly added to GDP

Explanation: An unemployment allowance is a transfer payment. The government gives it without receiving a currently produced good or service in return. GDP records the value of current production, not the transfer of purchasing power between the government and households. The allowance may influence consumption when spent, but the payment itself is not directly counted as GDP.

Correct answer: B. Resale value of an old house

Explanation: GDP includes the value of goods and services produced during the current accounting period. The resale of an old house does not represent current production, so the house’s resale value is excluded. However, a current brokerage or estate-agent service connected with that resale is a newly produced service and would be included separately.

Correct answer: A. Housing services of an owner-occupied house

Explanation: An owner-occupied house provides housing services to its owner even though no rent is paid to a landlord. National accounting can estimate the rent that would have been paid for a similar property and include this imputed rent as part of current domestic production. Resale of an old car is not current production, while lottery prizes and illegal income are not included in this way.

Correct answer: A. 9,500

Explanation: Net indirect tax (NIT) equals indirect taxes minus subsidies: 700 − 200 = 500. To convert GDP at market price into NDP at factor cost, first subtract depreciation to obtain NDP and then subtract net indirect tax. Therefore, NDPFC = 11,000 − 1,000 − 500 = 9,500. Hence, option A is correct.

Correct answer: A. When some production in the underground economy is not recorded

Explanation: GDP is estimated from recorded economic production and expenditure. If legal or illegal production takes place in the underground economy and is deliberately hidden or not captured by official surveys, that output is omitted from the national accounts. Consequently, the official GDP estimate may be lower than actual production. The other options do not automatically create underestimation.

Correct answer: A. Because brokerage is a service produced in the current period

Explanation: The old house is an existing asset, so its sale merely transfers ownership and the house’s sale value is not counted as new current production. However, the broker performs a real intermediation service during the current period. The brokerage fee is payment for that newly supplied service and can therefore be included in GDP, subject to proper recording. Thus, option A is correct.

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

Explanation: GDP measures the value of final goods and services produced within a country's domestic economic territory during a period. Ownership or nationality of the producer does not determine whether production belongs to GDP. A foreign-owned bank branch operating inside the country produces its paid banking service within domestic territory, so the service is included in domestic GDP. The related income may affect national income differently, but that does not change its GDP treatment. Option A is correct.

Correct answer: A. Government capital formation

Explanation: A newly constructed hospital building is a newly produced fixed asset that can provide healthcare services for many years. Its construction represents investment by the government and is recorded as public or government capital formation in GDP, generally under government investment expenditure. It is not a transfer payment because resources are used to create an asset, and it is not the resale of an existing asset. Therefore, option A is correct.

Correct answer: A. It will be included in domestic GDP

Explanation: GDP is based on production within domestic economic territory, not on the citizenship or nationality of the person providing the service. A paid league match performed inside the country is a service produced within that territory, so its value is included in domestic GDP. The player's foreign nationality may matter for national-income calculations, such as income paid abroad, but it does not exclude the domestic production from GDP. Therefore, option A is correct.

Correct answer: A. Current production of a market service

Explanation: GDP includes the market value of final goods and services produced within domestic territory during the current accounting period. Paid live classes are a current market service, even though the product is intangible. If the platform operates and provides the service within the country, that service output contributes to domestic production. It is not a transfer payment, old-asset sale, or necessarily an import. Option A is correct.

Correct answer: A. Because the service was produced within domestic territory

Explanation: GDP follows the domestic-territory principle: it measures production occurring within a country’s geographical or economic territory, regardless of the nationality of the producer or owner. Therefore, a foreign airline’s passenger service generated within domestic territory is part of domestic product. Ownership and citizenship are relevant to national income, not the basic territorial definition of GDP. Option A is correct.

Correct answer: A. As inventory investment

Explanation: Unsold goods are still part of the current year’s production, even though they have not yet been purchased by consumers or firms. In national income accounting, their value is recorded as an addition to inventories, also called inventory investment or change in stocks. Thus, the entire ₹100 crore of current production can be counted in GDP, with the ₹20 crore unsold portion treated as inventory investment rather than omitted.

Correct answer: C. Resale of an old car

Explanation: The resale of an old car does not represent new production during the current year because the car was already counted when it was originally manufactured. Therefore, the sale price of the used car is not directly added to current GDP. However, a newly provided service connected with the resale, such as a dealer’s commission or brokerage fee, would be counted as current service production.

Correct answer: A. The host country’s GDP

Explanation: GDP is based on the location of production, not on the nationality of the firm or the destination of its profits. Since the mobile phones are manufactured within the host country’s domestic territory, the value of that production is included in the host country’s GDP. The profit sent abroad may affect national income measures through factor-income flows, but it does not shift the production from host-country GDP.