Aggregates related to national income - GNP

Correct answer: A. 53,600

Explanation: First calculate NFIA: 4,200 − 5,100 = −900. Thus, GNP at market price = GDP at market price + NFIA = 62,000 − 900 = 61,100. To obtain NNP at factor cost, subtract depreciation and net indirect taxes: 61,100 − 4,000 − 3,500 = 53,600. Therefore, option A is correct.

Correct answer: C. ₹2,800 crore

Explanation: Use the conversion formula NNPFC = GNPMP − depreciation − NIT. Substituting the figures gives 65,000 = 67,000 − depreciation − (−800). Hence, 65,000 = 67,800 − depreciation, so depreciation = 2,800 crore. The negative NIT must be handled with its sign; treating it as a positive deduction would produce an incorrect result. Therefore, option C is correct.

Correct answer: A. ₹80,800 crore

Explanation: First convert GDP at market price into GNP at market price by adding NFIA: GNPMP = 82,000 + 2,400 = ₹84,400 crore. Next convert market price into factor cost by subtracting net indirect taxes: GNPFC = 84,400 − 3,600 = ₹80,800 crore. Option B is only the intermediate GNPMP value, while option A is the required final GNPFC. Therefore, option A is correct.

Correct answer: A. ₹94,000 crore

Explanation: First calculate NFIA: factor income received from abroad minus factor income paid abroad = 6,000 − 7,500 = −₹1,500 crore. Therefore, GNPMP = GDPMP + NFIA = 1,00,000 − 1,500 = ₹98,500 crore. To obtain GNP at factor cost, subtract NIT: GNPFC = 98,500 − 4,500 = ₹94,000 crore. Hence, option A is correct.

Correct answer: A. When it is a return earned from ownership of capital abroad

Explanation: A dividend is a return on ownership of financial or physical capital. When a resident owns shares or another capital asset abroad and receives a dividend generated from that investment, the receipt is treated as factor income from abroad for national accounting purposes. It contributes to NFIA and therefore affects GNP. A family gift is a transfer, a loan is a financial transaction, and an old-good sale is not current production income. Hence, option A is correct.

Correct answer: A. ₹1,35,000 crore

Explanation: First convert GDPMP into GNPMP by adding NFIA: ₹150,000 + ₹5,000 = ₹155,000 crore. Next subtract depreciation to obtain NNPMP: ₹155,000 − ₹11,000 = ₹144,000 crore. Finally subtract NIT to convert market price into factor cost: ₹144,000 − ₹9,000 = ₹135,000 crore. Therefore NNPFC is ₹135,000 crore, making option A correct.

Correct answer: A. Whether the receipt is payment for a factor service in production

Explanation: The relevant test is the economic nature of the receipt, not its currency, size or method of payment. Factor income arises as a return for providing a factor of production, such as labour, capital, land or entrepreneurship, in a productive activity. A scholarship is generally a transfer or educational grant and is not payment for a factor service. Therefore, only a receipt linked to factor service is included as factor income in NFIA and relevant to GNP. Option A is correct.

Correct answer: A. It enters GDP and is deducted in NFIA as factor payment abroad

Explanation: Production performed within a country’s domestic economic territory is included in GDP, regardless of whether the worker is a resident or non-resident. However, wages paid to a non-resident are factor income paid abroad. Thus, they reduce NFIA when moving from GDP to GNP: GNP = GDP + NFIA. Therefore, the same payment can be part of domestic production in GDP while being deducted through NFIA in calculating GNP.

Correct answer: A. NFIA = 0

Explanation: Using the identity GNP = GDP + NFIA, equality of GDP and GNP implies that NFIA is zero. It means factor income received from abroad equals factor income paid abroad. This equality does not provide information about depreciation or net indirect taxes. National income is generally NNP at factor cost, so its value cannot be determined from GDP and GNP alone without additional data on depreciation and net indirect taxes.

Correct answer: A. Sale of an old machine is not current production, while a repair charge is a current service

Explanation: The sale of an old machine is mainly a transfer of ownership of an asset produced in an earlier period, so its sale value is not counted as current production in GNP. However, the repairer provides a service during the current period. The fee paid for that repair represents current production and is included in national output, although the value of any separately purchased intermediate inputs must be treated appropriately to avoid double counting.

Correct answer: A. Economic territory

Explanation: Embassies are a classic example in which geographical boundaries and economic territory do not coincide. For GDP, production is classified according to the economic territory where production takes place, while GNP focuses on the income belonging to the normal residents of a country. Therefore, the first concept to check is economic territory, followed by the residence and factor-income implications for the GDP-to-GNP adjustment.

Correct answer: A. ₹57800 crore

Explanation: First convert GDP at market price into GNP at market price: GNPMP = GDPMP + NFIA = ₹67000 − ₹1200 = ₹65800 crore. To obtain NNP at factor cost, subtract depreciation to move from gross to net and subtract NIT to move from market price to factor cost: NNPFC = ₹65800 − ₹5000 − ₹3000 = ₹57800 crore. Thus option A is correct.

Correct answer: A. ₹2800 crore

Explanation: The conversion formula is NNPFC = GNPMP − depreciation − NIT. Rearranging gives NIT = GNPMP − depreciation − NNPFC. Substituting the values: NIT = ₹88000 − ₹5200 − ₹80000 = ₹2800 crore. The amount ₹5200 crore is only depreciation, while ₹8000 crore is the total difference between GNPMP and NNPFC before separating the two deductions.

Correct answer: A. Confusion among transfer, liability, and production income

Explanation: Foreign aid is generally a transfer receipt and is not payment for current factor services. A foreign loan creates a financial liability and is not itself production income. Foreign factor income, however, is a return to labour, capital, land, or entrepreneurship and is relevant to NFIA. Mixing these categories produces a conceptual error by confusing transfers, liabilities, and factor income.

Correct answer: A. If intermediate goods and transfer payments are added

Explanation: Adding the value of intermediate goods to final goods can cause double counting because the value of intermediates is already embodied in the final product. Transfer payments, such as gifts or pensions, are not payments for current production and should not be counted as national output. Including both categories incorrectly can inflate the measured GNP. The other options describe correct accounting practices.

Correct answer: A. (₹154500) crore

Explanation: National income is NNP at factor cost. First convert GDP at market price into GNP at market price: GNPMP = GDPMP + NFIA = 175000 + (-3500) = ₹171500 crore. Then subtract net indirect taxes to reach factor cost and depreciation to reach the net measure: NI = 171500 − 7500 − 9500 = ₹154500 crore. Therefore, option A is correct.

Correct answer: B. Domestic, national, market and net bases may get confused

Explanation: These adjustments perform different functions. NFIA changes the territorial basis from domestic to national, NIT changes the valuation basis from market prices to factor cost, and depreciation changes the aggregate from gross to net. Misapplying them can produce an incorrect result and confuse domestic, national, market-price and net concepts. Thus, B is correct.

Correct answer: A. 200

Explanation: The relationship between these aggregates is GNP at market price = GDP at market price + net factor income from abroad. Therefore, NFIA = GNPMP − GDPMP = 3,000 − 2,800 = 200. A positive value means residents earned 200 more factor income from abroad than foreigners earned from domestic production.

Correct answer: B. About 5.33%

Explanation: First find net indirect taxes: GNP at market price − GNP at factor cost = ₹22,500 − ₹21,300 = ₹1,200 crore. The requested base is market price, so percentage = (1,200 ÷ 22,500) × 100 = 5.333..., approximately 5.33%. Hence option B is correct. Dividing by factor cost or using the difference as a percentage without the market-price base gives other distractors.