Aggregates related to national income - GNP

GDP is based on the location of production, so output produced by a foreign company within the country is included in domestic GDP. GNP, however, is based on the income attributable to residents. The factor income earned by the foreign company or paid to foreign factors is therefore removed through the net factor income from abroad adjustment. Thus, option A is correct.

GNP is a flow measure, so it records the market value of final goods and services produced by a country’s residents during a specified accounting period. That period is generally one financial year, although another clearly defined period may be used for statistical purposes. Production from the entire past or an indefinite period cannot be added because it would not represent a current flow. Therefore, option A is correct.

First convert GDP at market price into GNP at market price by adding NFIA: ₹9,600 crore + ₹250 crore = ₹9,850 crore. Then convert market-price valuation to factor-cost valuation by subtracting net indirect taxes: ₹9,850 crore − ₹600 crore = ₹9,250 crore. Equivalently, GNP at factor cost = GDP at market price + NFIA − NIT. Therefore, option A is correct.

An unemployment allowance is a transfer payment made without a corresponding current supply of goods or productive services. Including it in GNP would count a redistribution of existing income rather than newly produced output. In contrast, wages earned abroad by a resident, profit from production, and interest on capital used in production are factor incomes associated with productive activity and can enter national income under the relevant conditions. Hence option A is correct.

GDP is called a domestic concept because it measures the value of final goods and services produced within a country’s domestic territory during a specified period, regardless of whether the producers are residents or foreigners. GNP instead focuses on residents and adjusts GDP by adding net factor income from abroad. Thus, the territorial basis of GDP explains why option A is correct.

To convert GNP at market price into NNP at factor cost, first subtract depreciation because gross must become net. Then subtract net indirect taxes because market-price valuation must become factor-cost valuation. The calculation is: NNPFC = GNPMP − depreciation − net indirect taxes = ₹11,000 − ₹900 − ₹700 = ₹9,400 crore. Therefore, option A is correct.

GNP is measured on a national or resident basis rather than only within geographical domestic territory. Therefore, factor income earned by residents from production abroad is included through net factor income from abroad, or NFIA. Gifts, loans, and sales of old goods are not payments for current factor production, so option A is correct.

Gross National Product is calculated using the formula: GNP = GDP + Net Factor Income from Abroad (NFIA). Here, GDP is ₹7,800 crore and NFIA is zero. Therefore, GNP = ₹7,800 + ₹0 = ₹7,800 crore. When NFIA is zero, the income earned by domestic factors abroad exactly equals the income paid to foreign factors domestically, so GDP and GNP have the same value.

The relationship is GNP = GDP + NFIA, where NFIA equals factor income received from abroad minus factor income paid abroad. Here NFIA = ₹450 − ₹450 = ₹0 crore. Therefore, GNP = ₹9,200 + ₹0 = ₹9,200 crore. Equal inward and outward factor incomes cancel each other, so option B is correct.

The resale of an old share, bond, or other financial asset only transfers ownership of an existing asset. It does not represent the production of a new final good or service during the current period, so its full sale value is excluded from GNP. However, a current brokerage or transfer service connected with the sale may be included as service output.

Brokerage commission is payment for a financial intermediation service performed in the current period. Since the broker provides a current service, the commission represents current factor income and service output and can be included in national-product measurement. In contrast, the full price of a previously issued share is only a financial transfer, while gifts and loans are not current production.

GNP at market price is obtained by adding net factor income from abroad to GDP at market price: GNPMP = GDPMP + NFIA. Since NFIA is negative ₹500 crore, it must be added as a negative amount: ₹14,000 + (−₹500) = ₹13,500 crore. Therefore, option A is correct; ₹14,500 would require positive NFIA.

GNP measures the gross value of final goods and services produced during the accounting year by a country’s normal residents, whether production occurs within the domestic territory or abroad. It excludes resale of previously produced assets, gifts, and financial transactions such as bank loans because these do not represent current final production.

Income generated within a country by a foreign resident is connected with the domestic-territory concept and is included in GDP, subject to the relevant accounting rules. GNP follows the national or resident concept, so income paid to foreign factors is removed through NFIA, while residents’ factor income from abroad is added.

The relationship between the two aggregates is GNP = GDP + NFIA. Therefore, a positive NFIA raises GNP above GDP, while a negative NFIA lowers GNP below GDP. The sign records whether residents receive more factor income from abroad than non-residents earn domestically, so it must not be ignored in numerical questions.

GNP can be identified through three ideas: it is gross rather than net, it counts final goods and services rather than intermediate transactions, and it follows the normal-resident concept rather than only domestic territory. Algebraically, GNP equals GDP plus NFIA; depreciation is deducted only when moving from a gross measure to a net measure.

A dividend received by an Indian resident from a foreign company is factor or property income received from abroad. It enters the receipt side of NFIA and is added to India’s GDP to obtain GNP. The other payments go to foreign residents from India and therefore form factor income paid abroad.

Profit earned within the country by a foreign resident is factor income paid to the rest of the world. GDP includes production within domestic territory, but GNP adjusts it for residence by subtracting factor income paid to foreign residents and adding factor income received by domestic residents from abroad. Hence, option B is correct.

National income is NNP at factor cost. Starting with GNP at market price, first subtract depreciation to convert the gross measure into a net measure. Then subtract net indirect taxes to convert market price into factor cost. Thus, NNP at factor cost = GNP at market price − depreciation − net indirect taxes, making option A correct.

First calculate Net Factor Income from Abroad: NFIA = factor income received by residents from abroad − factor income paid to foreigners domestically = ₹50 crore − ₹30 crore = ₹20 crore. Then apply the identity GNP = GDP + NFIA. Thus, GNP = ₹800 crore + ₹20 crore = ₹820 crore. Option C incorrectly adds the entire resident income without subtracting foreign factor income earned inside the country.

The word “national” in GNP refers to the production and factor income of the normal residents of a country, irrespective of whether that income is earned inside the domestic territory or abroad. This is the main distinction from GDP, which is based on production within domestic boundaries regardless of the producer’s nationality or residence. Thus, resident factors of production are the relevant basis for GNP.

Use the national income identity GNP = GDP + NFIA. Substituting the given values gives GNP = ₹7,200 crore + ₹350 crore = ₹7,550 crore. Since NFIA is positive, it is added to GDP. The value ₹6,850 crore would result from subtracting the positive NFIA incorrectly, while ₹7,200 crore ignores NFIA and ₹350 crore is only the NFIA amount. Therefore, option C is correct.

Apply the formula GNP = GDP + NFIA, keeping the sign of NFIA unchanged. Thus, GNP = ₹9,000 crore + (−₹450 crore) = ₹8,550 crore. A negative NFIA means that factor income paid to foreign residents exceeds factor income received from abroad, so the national measure is lower than the domestic measure. ₹9,450 crore would incorrectly treat NFIA as positive; the other values do not represent the calculation.

In GNP, “gross” means that depreciation, or the consumption of fixed capital, has not yet been deducted from the value of production. GNP therefore includes the value needed to replace worn-out or used-up capital goods. When depreciation is subtracted from GNP, the result is Net National Product (NNP). NFIA remains relevant to the national measure, so option B is false, and the other options do not define gross.

To convert Gross National Product into Net National Product, deduct depreciation, also called consumption of fixed capital. The formula is NNP = GNP − depreciation. NFIA changes a domestic aggregate into a national aggregate, while taxes and subsidies are relevant to market-price and factor-cost conversions.