Aggregates related to national income - GDP

Correct answer: A. ₹5,800 crore

Explanation: National income is NNP at factor cost. First convert GDP at market price to NDP at factor cost: NDPFC = GDPMP − depreciation − net indirect tax = 7,200 − 650 − 540 = ₹6,010 crore. Then add NFIA: National income = NDPFC + NFIA = 6,010 + (−210) = ₹5,800 crore. The negative NFIA reduces domestic factor income because factor payments to the rest of the world exceed factor receipts from abroad.

Correct answer: A. GDP at market prices (GDPMP)

Explanation: In the expenditure method, GDP at market prices is calculated as PFCE + GFCE + GCF + (X − M). Since NX means net exports, the expression becomes PFCE + GFCE + GCF + NX = GDPMP. This is a gross domestic measure at market prices. Depreciation, net indirect taxes, and NFIA must be adjusted separately to derive other national-income aggregates such as NDP or NNP at factor cost.

Correct answer: A. Because the house provides housing service

Explanation: An owner-occupied house provides housing services to its owner even though no market rent is actually paid. National income accounting estimates the rent that the owner would have paid for a comparable rented dwelling and includes that imputed value in GDP. This maintains comparability between households that rent homes and households that occupy their own homes.

Correct answer: A. They are treated as part of the economic territory of the foreign country concerned

Explanation: For national-income accounting, economic territory is not identical to the country's geographical boundary. Foreign embassies and consulates located in a country are regarded as part of the economic territory of the foreign country they represent. Therefore, their production is not treated as domestic production of the host country. This rule prevents diplomatic premises from being incorrectly assigned to the host country's GDP.

Correct answer: A. Net factor income from abroad

Explanation: GDP measures production within a country’s domestic territory, regardless of who owns the factors of production. GNP, or national income in the gross sense, adjusts GDP for net factor income from abroad: GNP equals GDP plus NFIA. Payments to foreign owners are factor payments flowing abroad, so NFIA creates the difference. Therefore, option A is correct.

Correct answer: A. Domestic territory, final output, market value

Explanation: GDP is the market value of final goods and services produced within the domestic territory of an economy during a given period. The words “domestic territory” identify where production occurs, “final output” prevents double counting of intermediate goods, and “market value” permits different products and services to be added in monetary terms. Hence option A contains the essential concepts.

Correct answer: B. On the basis of production cost

Explanation: The governing national-income principle is that non-market government output is generally valued at the cost of producing it, because there is no observable market price. This cost can include compensation of employees, intermediate inputs and other production expenses. Therefore option B is correct. Profit is not required, exchange rates are irrelevant, and assigning zero would omit the service from nominal GDP.

Correct answer: A. Imports are subtracted to prevent foreign production from being counted as domestic output

Explanation: In the expenditure approach, GDP is calculated as C + I + G + X − M. Consumption, investment, or government spending may include imported goods, so imports are subtracted to remove the value produced abroad and leave domestic production. This is an accounting adjustment, not a judgment that imports reduce welfare. Imports may increase choice and consumer utility, so option A is correct; B, C, and D are factually wrong.