Aggregates related to national income - GNP

To convert a gross product measure into a net product measure, depreciation, also called consumption of fixed capital, is subtracted. Thus, NNP = GNP − depreciation. NFIA is used to convert GDP into GNP, while exports and wages are components of economic activity or income, not the deduction that makes GNP net. Therefore, option A is correct.

Gross National Product measures the value of final goods and services produced by a country’s residents, regardless of where production takes place. Therefore, GNP = GDP + Net Factor Income from Abroad (NFIA). NFIA equals factor income received by residents from abroad minus factor income earned by non-residents domestically: ₹8 − ₹11 = −₹3 lakh crore. Hence, GNP = ₹250 − ₹3 = ₹247 lakh crore. The negative NFIA means that non-residents earn more inside the country than residents earn abroad.

GNP is a national concept. It measures the value of final goods and services produced by a country’s normal residents, whether they produce them within the domestic territory or abroad. Thus, the income of normal residents is central to GNP, whereas GDP is based on production within domestic territory.

GNP measures the gross value of final goods and services produced by normal residents of a country during a specified period. The location of production may be domestic or foreign. Option B describes GDP because GDP is based on domestic territory, while options C and D are only particular components of economic activity.

The identifying basis of GNP is the production of normal residents, not the geographical location of production. Residents’ factor income from abroad is included, while non-residents’ factor income generated domestically is excluded through the NFIA adjustment. Option B instead gives the territorial basis of GDP.

GNP includes factor income earned by the country’s normal residents, even when that income is generated abroad. Such income is added to GDP through Net Factor Income from Abroad. Income earned domestically by a non-resident is counted in GDP and subtracted when moving to GNP. Depreciation and pensions are not the relevant factor income here.

Net Factor Income from Abroad is the adjustment that connects the domestic and national concepts. The formula is GNP = GDP + NFIA, where NFIA equals residents’ factor income from abroad minus non-residents’ factor income earned domestically. Depreciation changes gross and net measures, while consumption and imports are not the direct bridge to GNP.

The relationship between these aggregates is GNPₘₚ = GDPₘₚ + NFIA. Substituting the values gives GNPₘₚ = 2500 + (−200) = 2300. Because NFIA is negative, payments to foreign factors exceed income received from abroad, so the amount is subtracted from GDP. Therefore, option A, 2300, is correct.

GNP measures the value of production attributable to a country’s normal residents, whereas GDP measures production within the domestic territory. Therefore, income earned by residents from abroad is added and income paid to foreign factors is deducted through NFIA. The formula is GNP = GDP + NFIA, so option A is correct.

GDP values production occurring within the domestic territory, while GNP adjusts GDP for the income relationship between residents and the rest of the world. This adjustment is net factor income from abroad: GNP = GDP + NFIA. Depreciation changes a gross measure into a net measure, and taxes affect market-price or factor-cost conversion, not the GDP–GNP distinction. Thus option A is correct.

GDP is based on production within a country’s domestic territory, whereas GNP is based on the production income of its normal residents. The bridge between the two is NFIA, calculated as factor income received from abroad minus factor income paid abroad. Consequently, GNP = GDP + NFIA. Depreciation distinguishes gross from net, not domestic from national, so option A is correct.

Wages are payments to the factor of production called labour. When a resident worker earns wages for work performed abroad, those wages are factor income received from abroad. They enter the receipts side of NFIA and, after adjustment against factor income paid to foreigners, influence GNP. They are not taxes, consumption expenditure, or capital formation. Therefore option A is correct.

Profit is a return to entrepreneurship or capital and is therefore a factor income. When a domestic enterprise pays profit to foreign owners or factors, that payment is factor income paid abroad. It appears on the payment side while calculating NFIA, reducing NFIA and consequently reducing GNP relative to GDP, other things remaining equal. Hence option A is correct.

GNP is called a national concept because it measures the value of final goods and services attributable to the normal residents of a country, regardless of whether the production takes place inside or outside its domestic territory. GDP, in contrast, follows the domestic-territory concept. Therefore, option A correctly describes GNP.

The formula is GNP = GDP + NFIA. If NFIA is positive, residents receive more factor income from abroad than foreign factors receive within the country. Adding this positive amount to GDP makes GNP greater than GDP. If NFIA is zero, the two are equal; if it is negative, GNP is lower. Depreciation does not determine the GDP–GNP difference. Thus option A is correct.

GNP is calculated as GDP plus Net Factor Income from Abroad (NFIA). NFIA equals factor income received by residents from abroad minus factor income paid to foreigners. Therefore, factor income paid abroad is the payment that is subtracted while calculating NFIA. Domestic wages and rent are already included in domestic production income and are not separately subtracted.

The transition from GDP to GNP is made by adding Net Factor Income from Abroad (NFIA). NFIA includes factor income received by the country’s residents from abroad and subtracts factor income paid to foreigners. Thus, income received by residents from abroad is the receipt component that is added, whereas payments to foreigners are deducted.

GDP measures the value of final goods and services produced within a country’s domestic territory, regardless of who owns the factors of production. GNP measures production attributable to the country’s residents, whether it occurs at home or abroad. The difference between them is explained by NFIA: GNP equals GDP plus NFIA.

The correct relationship is GNP = GDP + NFIA. NFIA may be positive or negative. A positive NFIA increases GNP above GDP, while a negative NFIA lowers GNP below GDP. Therefore, the sign must be carried correctly into the calculation. Imports, depreciation, and net exports are not automatically adjusted in this particular formula.

Use the national-income identity GNP = GDP + NFIA. Rearranging it gives NFIA = GNP − GDP. Substituting the values, NFIA = ₹8,800 crore − ₹8,500 crore = ₹300 crore. The positive result means that factor income received from abroad exceeds factor income paid abroad by ₹300 crore. A negative answer would have the wrong sign.

GNP is a gross measure because it includes the value of capital consumed during production. NNP is obtained after deducting depreciation, also called consumption of fixed capital, from GNP. The formula is NNP = GNP − depreciation. Thus, the distinction between gross and net is determined by depreciation, not by gifts, aid, or population.

NNP is calculated by deducting depreciation from GNP because a net measure excludes the value of capital used up during production. Therefore, NNP = GNP − depreciation = ₹9,000 crore − ₹700 crore = ₹8,300 crore. Hence option A is correct. Adding depreciation would incorrectly calculate a value greater than GNP.

There are two separate adjustments. Depreciation is deducted to change a gross measure into a net measure, so GNP becomes NNP. Net indirect taxes are deducted to change valuation from market price to factor cost. Thus, NNPFC = GNPMP − depreciation − net indirect taxes, making option A the only correct answer.

GNP measures the gross value of final goods and services produced by the normal residents of a country, wherever that production occurs, during a given period. It adds residents’ factor income from abroad and excludes income earned domestically by non-residents through the NFIA adjustment. Thus, option A is correct.

The letters in GNP stand for Gross National Product. ‘Gross’ means that depreciation has not yet been deducted, while ‘national’ means that the output or factor income is associated with the country’s residents, including their production abroad. Therefore, option A correctly states both defining features.