Aggregates related to national income - GNP

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

Explanation: GDP follows the domestic-territory principle: it counts final production occurring within the economic territory, regardless of whether producers are residents or foreigners. GNP follows the nationality or normal-resident principle: it counts production income belonging to residents, whether earned at home or abroad. The adjustment between the two is net factor income from abroad, so GNP = GDP + NFIA.

Correct answer: A. When factor income received from abroad is greater than factor income paid abroad

Explanation: GNP is calculated as GDP plus net factor income from abroad: GNP = GDP + (factor income received from abroad − factor income paid abroad). GNP will exceed GDP only when this difference is positive. Hence, receipts from abroad must be greater than payments abroad. Equal receipts and payments make GNP equal to GDP, while higher payments make GNP lower than GDP.

Correct answer: A. GNP > GDP

Explanation: Net factor income from abroad equals factor income received by residents from abroad minus factor income paid to non-residents. If NFIA is positive, residents receive more factor income from abroad than foreigners receive domestically. Since GNP = GDP + NFIA, adding a positive amount to GDP makes GNP greater than GDP. The comparison does not require any information about depreciation because both measures are gross.

Correct answer: A. Factor income received from abroad

Explanation: An Indian company is treated as a resident institutional unit when it earns income through its foreign branch. Profit generated by that branch and received by the Indian company is a return on entrepreneurship or capital from abroad. It therefore enters the receipt side of net factor income from abroad and raises India’s GNP relative to its GDP, other things remaining unchanged. It is not depreciation or an indirect tax.

Correct answer: B. NNP is obtained by subtracting depreciation from GNP

Explanation: GNP is a gross measure because it includes the value of depreciation, or the wear and tear of fixed capital. NNP is the corresponding net measure, so depreciation must be deducted from GNP: NNP = GNP − depreciation. Subtracting NFIA from GNP gives GDP, while taxes and exports do not create the gross-to-net distinction.

Correct answer: C. 9,900

Explanation: The distinction between a net and a gross aggregate is depreciation. Net product excludes the value of capital consumption, while gross product includes it. Therefore, to move from NNP at market price to GNP at market price, add depreciation: GNPMP = NNPMP + depreciation = 9,200 + 700 = 9,900. Hence, option C is the only correct answer.

Correct answer: B. Net factor income from abroad is positive

Explanation: At the same valuation, the relationship is GNPMP = GDPMP + NFIA. If GNPMP is greater than GDPMP, the difference must be positive; therefore NFIA is positive. This means residents receive more factor income from abroad than foreigners receive within the country. The comparison does not by itself provide information about depreciation or net indirect taxes.

Correct answer: A. When factor income received from abroad and paid abroad are equal

Explanation: At the same valuation, the difference between GNP and GDP is net factor income from abroad: GNP₍MP₎ = GDP₍MP₎ + NFIA. If factor income received from abroad equals factor income paid to non-residents, NFIA is zero. Adding zero leaves GDP unchanged, so GNP₍MP₎ equals GDP₍MP₎. Depreciation, net indirect taxes, imports, and exports do not by themselves determine this equality.

Correct answer: A. Applying positive and negative signs incorrectly

Explanation: The formula is GNP = GDP + NFIA, where NFIA equals factor income received from abroad minus factor income paid abroad. Therefore, a positive NFIA raises GNP above GDP, while a negative NFIA lowers it. Reversing the signs or treating every foreign receipt as a positive addition produces a wrong result. Depreciation is relevant when moving from a gross aggregate to a net aggregate, not when deciding the sign of NFIA.

Correct answer: B. GNPMP = GDPMP + NFIA

Explanation: GDP at market price measures production within the domestic territory, while GNP at market price measures production attributable to residents. The difference is net factor income from abroad. Therefore, GNPMP = GDPMP + NFIA. If NFIA is positive, GNP exceeds GDP; if NFIA is negative, adding it reduces GDP and produces a lower GNP. Depreciation and transfer payments are not used in this conversion.

Correct answer: B. Depreciation

Explanation: In national-income accounting, gross means that consumption of fixed capital, commonly called depreciation, has not yet been deducted. Therefore, depreciation remains included in GNP. When depreciation is subtracted from GNP, the result is NNP: NNP = GNP − depreciation. Foreign aid, transfer payments, and sales of old goods do not represent current production and are not included merely because the measure is gross.

Correct answer: A. GNP will be less than GDP

Explanation: The identity GNP = GDP + NFIA determines the relationship. If NFIA is negative, factor income paid to foreign factors in the domestic economy is greater than factor income received by domestic residents from abroad. Adding a negative amount to GDP reduces the result. Consequently, GNP is less than GDP. Equality occurs only when NFIA is zero, and GNP exceeds GDP only when NFIA is positive. Hence, option A is unambiguous.

Correct answer: B. Gross to net

Explanation: Depreciation, or consumption of fixed capital, measures the loss of value of fixed assets during production. A gross figure includes this amount, whereas a net figure excludes it. Thus, subtracting depreciation converts a gross product into a net product. Domestic-to-national conversion uses NFIA, and market-price-to-factor-cost conversion uses NIT. Hence, option B is correct.

Correct answer: A. GNP will be greater than GDP.

Explanation: The identity at the same valuation is GNPMP = GDPMP + NFIA. A positive NFIA means that residents receive more factor income from abroad than non-residents receive from production or assets within the country. Adding this positive amount to GDP raises GNP above GDP. Equality occurs only when NFIA is zero, while a negative NFIA would make GNP smaller than GDP.

Correct answer: A. ₹70,000 crore

Explanation: To convert an aggregate from market price to factor cost, subtract net indirect taxes because market prices include taxes net of subsidies that are not payments to factors of production. Therefore, GNPFC = GNPMP − NIT = ₹73,500 crore − ₹3,500 crore = ₹70,000 crore. Hence, option A is correct.

Correct answer: A. Net factor income from abroad

Explanation: GNP is obtained from GDP by making a residence-based adjustment rather than a price or depreciation adjustment. Net factor income from abroad (NFIA) equals factor income received by residents from abroad minus factor income paid to non-residents. Therefore, GNP = GDP + NFIA. Depreciation is deducted only when a gross measure is converted into a net measure; net indirect taxes and government consumption are components or valuation items, not the GDP-to-GNP adjustment.

Correct answer: A. When net factor income from abroad is zero

Explanation: The relationship between the two aggregates is GNP = GDP + NFIA. Consequently, GNP and GDP have the same value only when net factor income from abroad is zero—that is, when factor income received from abroad exactly equals factor income paid to non-residents. Zero depreciation would affect the relationship between gross and net aggregates, not national and domestic aggregates. Equal exports and imports concern trade balance and do not necessarily make NFIA zero.

Correct answer: A. When net factor income from abroad is positive

Explanation: The market-price relationship is GNP_MP = GDP_MP + NFIA. GNP_MP will exceed GDP_MP when NFIA is positive, meaning factor income received by the country’s residents from abroad is greater than factor income paid to foreign residents. Indirect taxes and subsidies affect the conversion between factor cost and market price, not directly the national-versus-domestic distinction. Depreciation changes gross measures into net measures, and a decline in domestic output alone does not determine the sign of NFIA.

Correct answer: B. Depreciation (consumption of fixed capital)

Explanation: GNP is a gross measure because it includes the value of capital goods used up during production. NNP is a net measure and excludes this loss of capital value. Therefore, depreciation, also called consumption of fixed capital, must be subtracted: NNP = GNP − depreciation. NFIA, exports, and wages are not the adjustment that changes gross product into net product.

Correct answer: B. Factor income received from abroad

Explanation: Rent is a return to the factor land or property when it is earned for the use of an asset. If a country’s resident receives rent from property located abroad, that income is received from abroad and is included in the receipts component of NFIA. It is therefore added while moving from GDP to GNP, not treated as depreciation or tax.

Correct answer: C. When net factor income from abroad is negative

Explanation: The relationship between the two aggregates is GNP = GDP + NFIA. If NFIA is positive, GNP exceeds GDP; if it is zero, they are equal. When factor income paid to foreign factors is greater than factor income received by residents from abroad, NFIA becomes negative, so adding it to GDP makes GNP lower than GDP.

Correct answer: B. It is the value of final goods and services produced by a country's normal residents, both domestically and abroad

Explanation: GNP is the gross value of final goods and services attributable to a country's normal residents, whether production occurs inside the country or abroad. It can be expressed as GNP = GDP + NFIA. Option A defines GDP because it uses domestic territory. Option C is too narrow because GNP includes residents' domestic production as well. Option D describes a net measure, such as NNP, because depreciation has been deducted.

Correct answer: B. Factor income received from abroad minus factor income paid to abroad

Explanation: NFIA means Net Factor Income from Abroad. It is calculated as factor income received by residents from the rest of the world minus factor income paid to non-residents: NFIA = factor income received from abroad − factor income paid abroad. It may include wages, rent, interest and profit arising from factor services. Foreign aid and loans are financial or transfer items, not factor income. Since GNP = GDP + NFIA, option B is correct.

Correct answer: A. ₹6,000 crore

Explanation: The difference between a gross and a net aggregate at the same valuation level is depreciation. Since NNPFC = GNPFC − depreciation, rearrange the equation to obtain depreciation = GNPFC − NNPFC. Substituting the figures gives ₹99,000 crore − ₹93,000 crore = ₹6,000 crore. Both values are at factor cost, so no market-price or factor-cost adjustment is needed. Therefore, option A is correct.

Correct answer: A. ₹77,800 crore

Explanation: GNP at market price is obtained by adding net factor income from abroad to GDP at market price. The relevant identity is GNPMP = GDPMP + NFIA. Substituting the given values gives ₹76,000 crore + ₹1,800 crore = ₹77,800 crore. NIT and depreciation are not used in this particular calculation because they are required for other conversions, such as market price to factor cost or gross to net measures.