Aggregates related to national income - GNP

Correct answer: A. 5100

Explanation: First find depreciation from the domestic product measures: depreciation = GDP − NDP = 5000 − 4550 = 450. Gross and net measures of national product differ by the same depreciation, so GNP = NNP + depreciation = 4650 + 450 = 5100. Therefore, option A is correct. NNP is the given net measure, while 4550 is NDP and 5000 is GDP, so they cannot be the required GNP after adjustment.

Correct answer: C. Net factor income from abroad (NFIA)

Explanation: GNP at market prices is obtained from GDP at market prices by adding net factor income from abroad: GNPMP = GDPMP + NFIA. NFIA is the difference between factor income received by domestic residents from abroad and factor income paid to foreign factors within the domestic economy. Therefore, it explains the gap between domestic and national product.

Correct answer: A. 8,750

Explanation: First calculate NFIA: factor income received from abroad minus factor income paid abroad = 700 − 950 = −250. Then apply GNP at market price = GDP at market price + NFIA. Thus GNPMP = 9,000 + (−250) = 8,750. The negative NFIA lowers GNP below GDP because payments to foreign factors are greater than receipts from abroad. Therefore, option A is correct.

Correct answer: B. Using them to calculate NFIA

Explanation: A normal resident’s income from abroad is factor income received from abroad, while a foreign resident’s income earned domestically is factor income paid abroad. Their difference is NFIA = factor income received from abroad − factor income paid abroad. NFIA is then added to GDP to obtain GNP. These incomes are not themselves private consumption, depreciation or net exports. Hence option B is correct.

Correct answer: A. Wages earned abroad by a normal resident of India

Explanation: Wages earned abroad by an Indian normal resident are factor income received from abroad. They are included in India’s GNP because GNP follows the resident or national concept, but they are excluded from India’s GDP because the earning arises outside India’s domestic territory. Options B, C and D represent production or services occurring within India and therefore belong to domestic output. Thus A is correct.

Correct answer: C. When factor income received from abroad is less than factor income paid abroad

Explanation: The relationship is GNPMP = GDPMP + NFIA. GNP will be less than GDP only when NFIA is negative. NFIA becomes negative when factor income paid to the rest of the world exceeds factor income received from abroad. A positive NFIA makes GNP larger, zero NFIA makes them equal, and depreciation does not determine this comparison because both figures are gross. Therefore, option C is correct.

Correct answer: B. Profit received by an Indian resident from a factory located abroad

Explanation: Profit received by an Indian resident from a factory abroad is factor income received from abroad. It is included in India’s GNP because GNP counts income associated with Indian normal residents, but it is not included in India’s GDP because the production takes place outside India. Profit earned by a foreign company in India belongs to domestic output and is part of GDP, while a used-car sale and pension are not current production. Hence B is correct.

Correct answer: B. Product associated with normal residents without deducting depreciation

Explanation: In GNP, “gross” means that depreciation or consumption of fixed capital has not been deducted from the value of final output. “National” means that the measure is based on the normal residents of a country, irrespective of whether they earn within the domestic territory or abroad. Therefore, GNP represents gross product associated with residents. Option B combines both meanings accurately.

Correct answer: A. 12,600

Explanation: First calculate NFIA: 1,100 − 1,600 = −500. Therefore, GNP at market price = GDP at market price + NFIA = 15,000 − 500 = 14,500. Subtract depreciation to obtain NNP at market price: 14,500 − 900 = 13,600. Finally subtract net indirect taxes to convert market price to factor cost: NNPFC = 13,600 − 1,000 = 12,600. Thus, option A is correct.

Correct answer: B. ₹700 crore

Explanation: Use the identity GNPMP = GDPMP + NFIA, where NFIA equals factor income received from abroad minus factor income paid abroad. Thus NFIA = ₹21,700 − ₹22,000 = −₹300 crore. Therefore, received income − ₹1,000 = −₹300, so received income is ₹700 crore. The negative NFIA shows that payments abroad exceed receipts.

Correct answer: A. First calculate NFIA, convert GDP into GNP, and then make gross-net and market-price-factor-cost adjustments

Explanation: A reliable solution sequence prevents sign errors and mixing unrelated adjustments. First calculate NFIA as factor income received from abroad minus factor income paid abroad. Use it to convert GDP into GNP. Next, subtract depreciation when moving from gross to net, and adjust for net indirect taxes when moving from market price to factor cost. NFIA, depreciation, and NIT are separate concepts.

Correct answer: B. Deduct depreciation and net indirect taxes

Explanation: To convert GNP at market price into NNP at factor cost, two adjustments are required. First subtract depreciation to change the gross measure into a net measure. Then subtract net indirect taxes to change market prices into factor cost, because factor cost excludes the net effect of indirect taxes. Hence, NNPFC = GNPMP − depreciation − net indirect taxes. NFIA is not deducted at this stage because the measure is already national.

Correct answer: A. When it is gross and at market price

Explanation: National income is defined as NNP at factor cost (NNPFC), not simply as GNP. GNP measured at market price is both gross, because depreciation is still included, and valued at market prices, because net indirect taxes are included. To obtain national income from GNPMP, depreciation and net indirect taxes are deducted. Thus, option A correctly identifies the starting aggregate.

Correct answer: A. ₹45,000 crore

Explanation: National income is NNP at factor cost. First convert GDPMP into GNPMP: ₹50,000 + ₹1,200 = ₹51,200 crore. Deduct depreciation to obtain NNPMP: ₹51,200 − ₹3,500 = ₹47,700 crore. Finally deduct net indirect taxes: ₹47,700 − ₹2,700 = ₹45,000 crore. Therefore, option A is correct; ₹47,700 crore is only NNP at market price.

Correct answer: B. It may be deducted as factor income paid abroad

Explanation: The consultancy service is performed in India, so the fee can be part of domestic production and GDP. However, if the expert is a non-resident, the payment is factor income paid abroad. It therefore reduces NFIA, because NFIA equals factor income received from abroad minus factor income paid abroad. Consequently, it lowers GNP relative to GDP, making option B correct.

Correct answer: B. Because they are generally transfers of ownership, not current production

Explanation: Buying or selling an existing share, bond or other financial asset usually changes ownership of a previously created claim; it does not represent current production of a good or service. Therefore, the transaction value itself is normally excluded from GNP. However, a current service connected with it, such as brokerage or financial advice, may be included as service output. Hence, option B is correct.

Correct answer: A. ₹38,800 crore

Explanation: First calculate GNP at market price: GNPMP = GDPMP + NFIA = ₹42,000 + (−₹900) = ₹41,100 crore. To convert a market-price measure into a factor-cost measure, subtract net indirect taxes. Therefore, GNPFC = ₹41,100 − ₹2,300 = ₹38,800 crore. The negative NFIA lowers GNP below GDP, while subtraction of NIT removes the tax component.

Correct answer: A. When income involving embassies, foreign branches, and international institutions is considered

Explanation: GDP is measured according to production within domestic territory, whereas GNP is measured according to the income or production of normal residents. Embassies, foreign branches, and international institutions may have special territorial or resident status, so they can affect the correct classification of income. The other situations do not directly determine the GDP–GNP distinction.

Correct answer: A. ₹34,200 crore

Explanation: First convert GDP at market price into GNP at market price by adding NFIA: GNPMP = 38,000 + 600 = ₹38,600 crore. To obtain NNP at factor cost, deduct depreciation to remove the gross component and deduct NIT to change market price into factor cost: NNPFC = 38,600 − 2,500 − 1,900 = ₹34,200 crore. Therefore, option A is correct.

Correct answer: A. ₹46,100 crore

Explanation: NFIA equals factor income received from abroad minus factor income paid abroad. Since payments abroad exceed receipts by ₹900 crore, NFIA is negative ₹900 crore. Apply GNP = GDP + NFIA: GNP = ₹47,000 + (−₹900) = ₹46,100 crore. Therefore, option A is correct. A positive adjustment such as ₹47,900 crore would be appropriate only if receipts from abroad exceeded payments.

Correct answer: B. Check whether factor income paid abroad is intended to be zero or whether the information is incomplete

Explanation: NFIA is not the same as factor income received from abroad alone. It is the net difference: NFIA = factor income received from abroad − factor income paid abroad. Therefore, if the payment abroad is missing, one must determine whether the question explicitly assumes it to be zero. If no such assumption is stated, the data are insufficient for a unique GNP calculation. Hence, option B is the necessary precaution.

Correct answer: B. The current service is current production, but the sale of last year's good is not current production

Explanation: GNP measures the value of final goods and services produced during the relevant accounting year by the normal residents of a country. A service actually produced in the current year is therefore counted, provided it is a final service. However, selling a good made in an earlier year is only a resale of an existing product; it does not represent new production in the current year. Its original production was counted in the earlier year's accounts, while only a separately produced current-year selling service, if any, may be included.

Correct answer: C. ₹5,000 crore

Explanation: The conversion from a gross aggregate to the corresponding net aggregate requires subtraction of depreciation. Thus, NNP at factor cost equals GNP at factor cost minus depreciation. The given GDP, NFIA and net indirect tax figures are useful for calculating the levels of the aggregates, but they do not change the difference between GNPFC and NNPFC. Therefore, GNPFC − NNPFC = depreciation = ₹5,000 crore, making option C correct.

Correct answer: A. Because GDP is based on domestic territory, whereas GNP is based on normal residents

Explanation: GDP counts production generated within a country's domestic territory, so the output and associated factor income of a factory operating inside the country can be included even when the company is foreign-owned. GNP instead measures production or factor income attributable to the country's normal residents. If the foreign company's profit is paid to non-residents, it is factor income paid abroad and reduces NFIA; consequently, the domestic amount included in GDP is adjusted when moving to GNP. Ownership, however, does not mean that profit is never factor income.

Correct answer: C. 1,100

Explanation: To convert GNP at market price into NNP at factor cost, subtract depreciation and net indirect taxes: NNPFC = GNPMP − depreciation − NIT. Substituting the given values gives 15,800 = 17,500 − depreciation − 600. Therefore, depreciation = 17,500 − 600 − 15,800 = 1,100. The calculation first removes net indirect taxes to change market price to factor cost and then removes depreciation to change gross into net. Thus, option C is correct.