Aggregates related to national income - GNP

Correct answer: A. Applying positive and negative signs incorrectly to NFIA

Explanation: The correct relationship is GNP = GDP + NFIA, where NFIA equals factor income received from abroad minus factor income paid to foreign factors within the domestic economy. NFIA may be positive or negative, so its sign must be retained correctly. A positive NFIA raises GNP above GDP, while a negative NFIA lowers it. Confusing the signs can therefore produce an incorrect national income estimate. Depreciation and exports are not the issue in this specific adjustment.

Correct answer: A. Income of foreign residents earned in the domestic territory must be adjusted

Explanation: GNP follows the national or resident concept, whereas GDP follows the domestic or territorial concept. Therefore, income earned domestically by foreign residents is excluded from the national measure, and income earned abroad by domestic residents is included. This adjustment is represented by net factor income from abroad: NFIA = factor income received from abroad − factor income paid abroad.

Correct answer: B. It measures final production income earned by residents at home and abroad

Explanation: The national basis of GNP means that the relevant criterion is residence or ownership of productive factors, not the location of production alone. GNP includes the value of final goods and services produced by a country’s residents both domestically and abroad. It excludes factor income earned domestically by foreign residents through the NFIA adjustment. Therefore, option B is correct.

Correct answer: A. ₹24,700 crore

Explanation: First calculate NFIA: factor income received from abroad minus factor income paid abroad = ₹1,300 − ₹1,600 = −₹300 crore. Then apply GNPMP = GDPMP + NFIA. Thus GNPMP = ₹25,000 + (−₹300) = ₹24,700 crore. Since factor payments abroad exceed receipts from abroad, NFIA is negative and GNP is lower than GDP.

Correct answer: A. ₹26,000 crore

Explanation: To obtain NNP at factor cost from GNP at market price, subtract both depreciation and net indirect taxes. Therefore, NNPFC = GNPMP − depreciation − NIT = ₹30,000 − ₹2,200 − ₹1,800 = ₹26,000 crore. Depreciation removes the consumption of fixed capital, while subtracting NIT changes the valuation from market price to factor cost. Hence, option A is correct.

Correct answer: B. ₹17,850 crore

Explanation: The relationship between gross national product and gross domestic product at factor cost is GNPFC = GDPFC + NFIA. Therefore, GNPFC = ₹18,600 + (-₹750) = ₹17,850 crore. The negative NFIA means that factor income paid to foreigners is greater than factor income received by residents from abroad. Thus, option B is correct; ₹19,350 crore would incorrectly treat NFIA as positive.

Correct answer: A. Because it is linked to production in India but may be income of a non-resident factor

Explanation: GDP is based on the location of production, so output produced by a foreign company's branch within India is included in India's domestic product. GNP is based on the ownership or residence of factors of production. Profit remitted to the foreign owner is factor income paid abroad and reduces NFIA; therefore it is deducted while moving from GDP to GNP.

Correct answer: B. Factor income received from abroad

Explanation: Rent received by an Indian resident from property located abroad is income earned by a resident factor from outside the domestic territory. It is therefore factor income received from abroad and forms part of NFIA. When this receipt is greater than payments made to foreign factors, NFIA becomes positive and raises GNP above GDP. Hence, option B is correct.

Correct answer: B. Factor income paid abroad is greater than factor income received from abroad

Explanation: The relevant identity is GNP = GDP + NFIA. If GNP is persistently below GDP, the difference GNP - GDP is negative, so NFIA must be negative. NFIA is factor income received from abroad minus factor income paid abroad. Thus, payments to foreign factors exceed receipts by domestic residents. Depreciation does not explain the GDP–GNP difference.

Correct answer: B. Double counting

Explanation: Intermediate goods are purchased for further processing or resale, and their value is already embodied in the price of the final good. If both intermediate and final goods were counted, the same value would be included more than once, overstating GNP. Counting only final goods, or using value added at each stage, prevents this double-counting problem.

Correct answer: B. It is not a reward for a factor service in production

Explanation: GNP measures the value of final production attributable to resident factors of production, along with the relevant factor incomes. Foreign aid is normally a transfer receipt: it is given without a current productive factor service in exchange. Its receipt does not represent newly produced output or factor remuneration, so it is excluded from GNP. The currency in which aid is received is irrelevant.

Correct answer: A. ₹2,400 crore

Explanation: Capital consumption allowance (CCA) means depreciation, the value of capital wear and tear during production. The relationship is NNP = GNP − CCA. Therefore, CCA = GNP − NNP = ₹41,000 crore − ₹38,600 crore = ₹2,400 crore. Hence, option A is correct. The other figures are respectively NNP and GNP, not depreciation.

Correct answer: C. Gift received from abroad

Explanation: GNP is based on the income earned by a country’s residents from current factor services, regardless of where those services are performed. Wages, rent and profit earned abroad by residents are factor incomes and form part of NFIA. A gift is a transfer receipt, not payment for a factor service or current production, so it is excluded. Hence, option C is correct.

Correct answer: A. It must be current production and its imputed market value must be estimable

Explanation: National product measures current production, even when the output is not sold in a market. Grain produced during the current period and consumed by the producing household may be included by assigning it an imputed value based on a comparable market price. Previous-year stock is not current production, and gifts or loans do not determine inclusion. Therefore, option A is correct.

Correct answer: B. Net factor income from abroad is positive by ₹550 crore

Explanation: The relationship between the two aggregates is GNP = GDP + NFIA. Rearranging gives NFIA = GNP − GDP = ₹36,550 crore − ₹36,000 crore = ₹550 crore. Since GNP exceeds GDP, residents receive ₹550 crore more factor income from abroad than they pay to foreign factors. Thus NFIA is positive, and option B is correct.

Correct answer: A. Because it is a reward for a current market service

Explanation: A domestic servant provides a current labour service to the household, and the service is purchased through a recorded wage payment. That wage is factor income generated by current productive service and can therefore be included in measured national output, subject to the usual accounting rules. This differs from unpaid household work, which has no explicit market transaction. Thus, option A is correct.

Correct answer: B. GDP is domestic-territory based and GNP is resident-based

Explanation: GDP measures the value of final goods and services produced within a country’s domestic territory, regardless of whether residents or foreigners produce them. GNP measures the output or factor income attributable to the country’s normal residents, including their income from abroad. The relationship is GNP = GDP + NFIA. Depreciation concerns gross versus net measures, not GDP versus GNP.

Correct answer: B. −₹750 crore

Explanation: The relationship between these aggregates is GNP = GDP + NFIA. Therefore, NFIA = GNP − GDP = ₹55,000 crore − ₹55,750 crore = −₹750 crore. The negative sign means that factor payments made to the rest of the world exceed factor income received from abroad by ₹750 crore. Hence, option B is correct.

Correct answer: C. GNP will be equal to GDP

Explanation: NFIA is calculated as factor income received from abroad minus factor payments made abroad. If the two amounts are equal, NFIA equals zero. Using GNP = GDP + NFIA, we get GNP = GDP + 0, so GNP equals GDP. This does not mean that GNP itself is zero; only the net factor-income adjustment is zero.

Correct answer: A. ₹1,100 crore

Explanation: The relevant identity is GNP = GDP + NFIA, so NFIA = GNP − GDP. The question states that GNP is ₹1,100 crore greater than GDP; therefore, their difference is +₹1,100 crore. The positive value indicates that factor income received from abroad exceeds factor payments made abroad by ₹1,100 crore. Thus, option A is correct.

Correct answer: D. It is only the income of non-residents within domestic territory

Explanation: GNP is gross national product measured on a resident basis. It can be calculated as GDP + NFIA and represents final output attributable to normal residents, whether production or factor income arises domestically or abroad. It is not merely the income of non-residents within domestic territory; that description relates to a component relevant to the domestic-versus-national adjustment and is incomplete and incorrect.

Correct answer: A. ₹44,800 crore

Explanation: Net national product is obtained by deducting depreciation, also called consumption of fixed capital, from gross national product. Since both figures are already at factor cost, no market-price or factor-cost adjustment is needed. Thus, NNPFC = GNPFC − depreciation = ₹48,000 − ₹3,200 = ₹44,800 crore. NNP at factor cost is commonly identified with national income.

Correct answer: A. Commission is payment for a service, whereas winnings are transfer-type receipts

Explanation: A lottery agent performs a current distribution or selling service and receives commission as payment for that productive service. The commission therefore represents factor income generated by current economic activity and may enter national-product accounting. Lottery winnings, in contrast, are a transfer of money to the winner and are not payment for producing a good or service, so the winnings themselves are excluded.

Correct answer: A. It is part of domestic hotel-service production in GDP and affects GNP according to the ownership of the factors receiving the income

Explanation: The hotel service is produced within the domestic territory, so its value is included in GDP when it is a current final service. GNP is based on the income of resident factors, not simply on the customer’s nationality. Thus, the payment contributes to GNP to the extent that the related factor income accrues to residents; income paid to non-resident factors is reflected through NFIA.

Correct answer: A. Both may represent current production if they can be properly valued

Explanation: National-income accounting is concerned with current production, not merely with market sales. A good produced for self-consumption can be included when its value is estimated using a suitable imputed or comparable market value. A purchased consumption good is also included when it is a current final good. In both cases, the relevant issue is measurable current output, while transfer payments and old-goods sales do not represent current production.