Aggregates related to national income - GNP

Correct answer: B. Factor income paid abroad

Explanation: Interest paid by a domestic unit to a foreign company is factor income paid to non-residents. It is therefore recorded on the payments side of NFIA. In the formula NFIA equals factor income received from abroad minus factor income paid abroad, this payment reduces NFIA and may reduce GNP relative to GDP. It is not private consumption or capital formation.

Correct answer: A. Depreciation

Explanation: GNP is a gross national product measure because it is calculated before deducting depreciation, also called consumption of fixed capital. NNP is the corresponding net measure: NNP = GNP − depreciation. NFIA is instead the adjustment that converts GDP into GNP, so it does not explain the difference between GNP and NNP. Thus depreciation is the correct answer.

Correct answer: A. It is added to GDP

Explanation: GNP is a residence-based measure of production and is obtained by adjusting GDP for net factor income from abroad. The relationship is GNP = GDP + NFIA, where NFIA is factor income received by residents from abroad minus factor income paid to non-residents. If NFIA is negative, the numerical adjustment is a subtraction, but the accounting treatment is still addition of NFIA.

Correct answer: A. GNP includes net factor income earned by the country’s residents from abroad.

Explanation: GDP measures production within a country’s domestic territory, regardless of who owns the factors of production. GNP adjusts GDP for NFIA and therefore reflects production or factor income associated with the country’s normal residents: GNP = GDP + NFIA. Depreciation is deducted to obtain NNP, while GNP is not limited to agriculture or government services.

Correct answer: B. Factor income earned abroad by the country’s residents

Explanation: GNP is based on the production and factor income of a country’s normal residents, whether the activity occurs inside the country or abroad. Therefore, factor income earned abroad by residents is included through NFIA. Production by foreign firms within the country belongs to GDP, not automatically to GNP, while second-hand resale value is not new current production.

Correct answer: A. Gross National Product

Explanation: A gross measure is calculated before deducting depreciation, which represents the wear and tear or consumption of fixed capital during production. Gross National Product therefore shows national output before this deduction. When depreciation is subtracted from GNP, the result is Net National Product: NNP = GNP − depreciation. Hence, option A is correct.

Correct answer: A. GNP = GDP + NFIA

Explanation: GDP measures production within the domestic territory, whereas GNP measures production or factor income associated with normal residents. The adjustment between them is Net Factor Income from Abroad (NFIA). Therefore, GNP = GDP + NFIA, where NFIA equals factor income received from abroad minus factor income paid abroad. Depreciation and imports do not define this relationship.

Correct answer: A. Net factor income from abroad

Explanation: Gross National Product measures the income generated by a country’s normal residents, whereas Gross Domestic Product measures production within the domestic territory. Therefore, GNP is obtained by adding Net Factor Income from Abroad (NFIA) to GDP: GNP = GDP + NFIA. NFIA is factor income received by residents from abroad minus factor income paid to foreigners within the country. Depreciation, indirect taxes and net exports are not the required adjustment here.

Correct answer: B. Wages earned by an Indian normal resident working in Japan

Explanation: GNP is based on the income of a country’s normal residents, regardless of whether they earn that income inside or outside the domestic territory. Thus, wages earned by an Indian normal resident while working in Japan are included in India’s GNP through factor income from abroad. Wages earned by a foreign resident in India belong to India’s GDP, while imports and transfer payments such as pensions are not included as current domestic production income in this way.

Correct answer: A. Factor income received from abroad by a normal resident

Explanation: The essential relationship is GNP = GDP + NFIA. The positive component of NFIA is factor income received from abroad by the country’s normal residents. This income is added because GNP follows the nationality or residence principle rather than only the domestic-territory principle. Factor income received by foreigners in the country is subtracted while calculating NFIA. Depreciation and the sale of an old good are not additions of this type.

Correct answer: A. Factor income paid within the country to a foreign normal resident

Explanation: Net Factor Income from Abroad is calculated as factor income received by normal residents from abroad minus factor income paid to foreigners within the domestic territory. Therefore, factor income paid from the country to a foreign normal resident is the subtracting item. The income received abroad by domestic residents is added. Domestic wages and rent are already part of domestic production income and are not the specific NFIA subtraction asked here.

Correct answer: A. Because GNP is related to income earned by normal residents

Explanation: The word national in GNP refers to the normal residents of a country. GNP counts factor income generated by those residents, including their income earned abroad, and excludes the factor income of foreigners earned domestically through the NFIA adjustment. GDP uses a different basis: it measures production within domestic territory, irrespective of the producers’ nationality or normal residence. Hence, the normal-resident concept is central to GNP.

Correct answer: B. GNP

Explanation: GNP is based on the production or factor income of a country’s normal residents. It includes residents’ factor income earned abroad and removes the factor income of foreigners earned within the country by applying NFIA to GDP. GDP instead follows the domestic-territory principle and counts production inside the territory regardless of the producer’s residence. Consequently, GNP is the aggregate more closely associated with normal residents.

Correct answer: A. Wages earned abroad by an Indian normal resident

Explanation: GDP is territory-based, so wages generated by production inside India are included in India’s GDP, even when the worker is a foreign resident. GNP is resident-based and includes factor income earned abroad by Indian normal residents. Therefore, wages earned abroad by an Indian normal resident are included in GNP through NFIA but are not part of India’s GDP. This example clearly demonstrates the difference between domestic and national product.

Correct answer: A. GNP = GDP + NFIA

Explanation: The fundamental relationship for moving from domestic product to national product is GNP = GDP + NFIA, where NFIA means Net Factor Income from Abroad. NFIA is the factor income received from abroad by the country’s normal residents minus the factor income paid to foreigners within the country. Adding this net adjustment converts the territory-based GDP into the resident-based GNP. The other formulas do not define GNP.

Correct answer: A. Factor income

Explanation: Income from abroad in GNP refers specifically to net factor income from abroad (NFIA). It includes factor payments such as wages, rent, interest and profits earned by the resident factors of a country from the rest of the world, minus similar factor payments made to foreign factors within the domestic economy. Lottery winnings, donations and loans are transfer or financial receipts, not factor income, so they are not included in NFIA.

Correct answer: A. Factor income paid to foreign residents

Explanation: Payment abroad in GNP accounting means factor income paid by the domestic economy to foreign residents or non-resident factors of production. It can include wages, rent, interest, or profit paid abroad. Such payments are deducted while finding net factor income from abroad, or NFIA.

Correct answer: A. It is obtained by adding NFIA to GDP

Explanation: Gross National Product is calculated as GNP = GDP + NFIA, where NFIA means net factor income from abroad. Because NFIA may be positive, zero or negative, GNP is not necessarily always greater or always less than GDP. “Gross” means that depreciation has not been deducted; deducting depreciation gives a net measure. Imports alone cannot represent national production, so option A is the only correct statement.

Correct answer: A. Apply the correct sign of NFIA

Explanation: The basic relationship is GNP = GDP + NFIA. Therefore, a positive NFIA must be added to GDP, while a negative NFIA reduces the value of GNP when it is algebraically added. Students should copy the sign exactly before performing the calculation. Depreciation and imports are not automatically added in this formula, and GDP is the starting aggregate rather than zero. Hence, applying the correct NFIA sign is essential.

Correct answer: A. GNP = GDP + NFIA

Explanation: The simplest formula is GNP = GDP + NFIA. GDP measures the value of final goods and services produced within the domestic territory, while NFIA adjusts this domestic measure for factor income received from abroad and factor income paid to foreign residents. If NFIA is positive, it raises GNP; if it is negative, the algebraic addition lowers GNP. The other options describe unrelated relationships.

Correct answer: A. Both will be equal

Explanation: The standard relationship is GNP = GDP + NFIA, where NFIA means net factor income from abroad. When NFIA equals zero, no income is added to or deducted from GDP. Consequently, GNP equals GDP. GNP would exceed GDP with positive NFIA and would be below GDP with negative NFIA.

Correct answer: A. Because the production occurred within domestic territory

Explanation: GDP is a domestic-territory concept. It counts the value of final goods and services produced within the geographical boundaries of a country during a given period, regardless of whether the producer is domestically or foreign owned. Therefore, production by a foreign company operating in India contributes to India’s GDP, although the related factor income may later affect GNP through NFIA.

Correct answer: A. Because it is the value of final output produced during a fixed period

Explanation: GNP is a flow measure, not a stock measure. It records the market value of final goods and services produced by a country’s normal residents during a specified accounting period, usually one year. Without defining the period, the quantity of output and income cannot be measured consistently or compared meaningfully. Hence, option A is correct.

Correct answer: A. It is not a reward for a current production service

Explanation: Unemployment allowance is a transfer payment made by the government to support people who are not currently providing a production service. It does not arise as payment for producing a current good or service, so including it would not measure current output or factor income. GNP therefore excludes it. Option A is correct.

Correct answer: A. Gross National Product

Explanation: GNP is the abbreviation for Gross National Product, so option A is the direct expansion of the term. It measures the market value of final goods and services produced by a country’s normal residents during a period, including their factor income from abroad and excluding the relevant income of foreign residents within the country. GDP is based on domestic territory, NNP is obtained after deducting depreciation from GNP, and personal income is income received by individuals rather than a product aggregate.