Aggregates related to national income - GNP

Correct answer: A. Interest received by a resident from abroad

Explanation: NFIA records the difference between factor income received from abroad and factor income paid abroad. Interest received by a resident from a foreign source is factor income earned by supplying capital, so it is included in the received side of NFIA. A gift is a transfer receipt, export sales are receipts for goods produced and sold, and loan principal is a financial transaction; none of these is factor income for NFIA.

Correct answer: A. Whether NFIA, depreciation and NIT are applied according to their separate roles

Explanation: A reliable final check is to keep the three adjustments conceptually separate. NFIA changes a domestic aggregate into a national aggregate: GNP = GDP + NFIA. Depreciation changes a gross measure into a net measure. NIT changes market-price valuation into factor-cost valuation: factor cost = market price − NIT. Confusing these roles can lead to sign and formula errors, so option A is the safest check.

Correct answer: B. Net factor income from abroad

Explanation: GDP is based on the location of production, whereas GNP is based on the normal residence of the factors or producers. The adjustment that converts GDP into GNP is Net Factor Income from Abroad: GNP = GDP + NFIA. Depreciation converts gross values to net values, NIT converts market price to factor cost, and intermediate consumption prevents double counting. Hence, NFIA is the decisive element and option B is correct.

Correct answer: A. When both are on the same price basis

Explanation: When GNP and GDP are measured on the same price basis and both are gross aggregates, their only conceptual difference is the residence location of factor income. Consequently, GNPMP − GDPMP = NFIA. If one measure is at market price and the other at factor cost, the difference also contains NIT; if net and gross measures differ, depreciation is involved. Thus, option A is correct.

Correct answer: A. Wage is factor income, gift is a transfer receipt

Explanation: A wage received by a resident from abroad is factor income because it is payment for labour services supplied in production. It is included in factor income from abroad and therefore affects NFIA and GNP. A gift is a unilateral transfer: it is received without supplying a productive factor or service in return. Consequently, it is not factor income and is not included in NFIA. Option A correctly states the distinction.

Correct answer: B. Deduct depreciation and net indirect taxes to obtain NNPFC

Explanation: National Income is measured as NNP at factor cost (NNPFC). Starting with GNP at market price, deduct depreciation to convert the gross measure into a net measure. Then deduct net indirect taxes (indirect taxes minus subsidies) to change market price into factor cost. Thus, GNPMP − depreciation − NIT = NNPFC, so option B is correct. Gifts, loans and intermediate goods are not the required adjustments.

Correct answer: A. ₹98,000 crore

Explanation: National Income equals NNP at factor cost (NNPFC). To calculate it from GNP at market price, first subtract depreciation: ₹110,000 − ₹7,000 = ₹103,000 crore. Next subtract net indirect taxes: ₹103,000 − ₹5,000 = ₹98,000 crore. Therefore, NNPFC and hence National Income is ₹98,000 crore. Option A correctly applies both the gross-to-net and market-price-to-factor-cost adjustments.

Correct answer: A. Whether it is factor income earned from production

Explanation: GNP is based on production attributable to the residents of a country, not on every receipt connected with them. Profit earned by an Indian resident’s enterprise abroad is included through Net Factor Income from Abroad (NFIA) only when it represents factor income generated by production, such as entrepreneurial or business income. A gift, tax receipt or sale of an old good is not automatically factor income and therefore cannot simply be added to GNP.

Correct answer: B. NFIA is negative ₹3,200 crore

Explanation: The relationship between the two aggregates is GNP = GDP + NFIA. Therefore, NFIA = GNP − GDP = ₹121,800 crore − ₹125,000 crore = −₹3,200 crore. The negative sign means that factor income paid to the rest of the world exceeds factor income received from abroad by ₹3,200 crore. It does not represent depreciation or net indirect taxes, so option B is correct.

Correct answer: A. The old house is not current production, but the service fee is payment for a current service

Explanation: National product records the value of goods and services produced during the current accounting period. An old house was produced in an earlier period, so its resale value is not counted again; including it would create double counting. However, a registration agent, lawyer or other intermediary may provide a current service during the sale. The fee paid for that present service is current production income and is included. Thus, option A is correct.

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

Explanation: The relationship between gross national product and gross domestic product is GNP = GDP + NFIA, where NFIA means net factor income from abroad. Therefore, when GNP is greater than GDP, the difference GNP − GDP is positive and NFIA must also be positive. This means factor income received from abroad exceeds factor income paid to foreign factors within the domestic economy. Depreciation and net indirect taxes do not determine this particular difference.

Correct answer: A. Because GNP at market price is a gross measure

Explanation: The word “gross” means that depreciation, also called consumption of fixed capital, is included in the measure. GNP at market price therefore records the value of final goods and services before subtracting the decline in the value of fixed assets. To obtain net national product at market price, depreciation is deducted: NNPMP = GNPMP − depreciation. Depreciation is neither NFIA nor NIT.

Correct answer: A. ₹95,000 crore

Explanation: National income is conventionally measured as net national product at factor cost. Since the given value is GNP at factor cost, only depreciation must be deducted to change the gross measure into the net measure. Thus, NNPFC = GNPFC − depreciation = ₹104,000 crore − ₹9,000 crore = ₹95,000 crore. Net indirect taxes are not involved because the measure is already stated at factor cost.

Correct answer: B. Factor income paid abroad

Explanation: A dividend paid by a domestic enterprise to a foreign company is a return on a factor of production owned by a non-resident. Therefore, it is factor income paid abroad. In the calculation of net factor income from abroad, it is deducted from factor income received from abroad: NFIA = factor income from abroad minus factor income paid abroad. It is neither a gift nor depreciation.

Correct answer: A. NFIA is positive ₹1800 crore

Explanation: The relevant identity is GNP = GDP + NFIA, provided both aggregates are measured on the same price basis. Hence, NFIA = GNP − GDP = ₹150000 crore − ₹148200 crore = ₹1800 crore. Since GNP exceeds GDP, the result is positive, meaning factor income received from abroad is greater than factor income paid abroad. The data do not determine depreciation or net indirect taxes.

Correct answer: A. Because it has no direct market transaction

Explanation: Goods produced for self-consumption are not normally sold through an observable market transaction. National-income accounting may still include eligible production, but it must assign an imputed value using comparable market prices or another reliable estimate. The difficulty is therefore measurement and valuation, not the fact that the output is automatically a gift, tax, or foreign loan.

Correct answer: A. Market transaction and direct payment

Explanation: A domestic servant provides a service that is purchased in the market, and the recorded wage is a monetary payment for that service. Routine unpaid household work by a family member usually has no market sale or recorded wage, so it is generally excluded from measured national production. The distinction is based on market valuation and payment, not currency, depreciation, or taxation.

Correct answer: C. Family gift received from abroad

Explanation: A family gift received from abroad is a transfer payment, not a payment for current production or a return to a factor of production. It is therefore excluded from GNP. In contrast, a resident’s factor income from abroad contributes through NFIA, current-year final services are part of production, and domestic production is included in GDP and contributes to GNP after the appropriate national adjustment.

Correct answer: A. NFIA = 0 and GNP = GDP

Explanation: Net factor income from abroad is calculated as factor income received from abroad minus factor income paid abroad. If the two amounts are equal, their difference is zero, so NFIA = 0. Using GNP = GDP + NFIA, GNP equals GDP, assuming both are measured using the same valuation and price basis. This does not mean that either aggregate itself is zero.

Correct answer: C. ₹1,33,400 crore

Explanation: To convert GNP at factor cost into GNP at market price, net indirect taxes are added because market price includes indirect taxes after accounting for subsidies. Therefore, GNPMP = GNPFC + NIT = ₹1,26,000 crore + ₹7,400 crore = ₹1,33,400 crore. Hence, option C is correct.

Correct answer: A. Resident

Explanation: GNP is based on the normal residents or nationals of a country rather than only on production within its geographical boundaries. Therefore, income earned abroad by a resident is relevant and is included through net factor income from abroad, or NFIA. The key idea is the resident basis, so option A is correct.

Correct answer: A. ₹1,000 crore

Explanation: First convert GNP at factor cost into GNP at market price by adding net indirect taxes: GNPMP = ₹48,000 crore + ₹3,000 crore = ₹51,000 crore. Since GNPMP = GDPMP + NFIA, NFIA = GNPMP − GDPMP = ₹51,000 crore − ₹50,000 crore = ₹1,000 crore. Thus, option A is correct.

Correct answer: A. It may be compensation for loss, not a reward for a production service

Explanation: A foreign insurance claim is generally a payment made to compensate the policyholder for damage, loss, or risk. It is not automatically payment for supplying labour, land, capital, or entrepreneurship in current production. National accounting therefore requires its nature to be examined before classifying it as factor income. Option A is correct.

Correct answer: A. When depreciation is still included

Explanation: National income is defined as NNP at factor cost, or NNPFC. GNPFC is a gross measure because it still includes depreciation. To obtain national income from GNPFC, depreciation must be deducted, giving NNPFC. Factor cost and the national basis are already appropriate conditions, so option A identifies the problem correctly.

Correct answer: A. Counting only current-period production

Explanation: GNP measures the value of final goods and services produced during a specified accounting period. A second-hand or old good was produced in an earlier period, so its resale is merely a transfer of ownership and does not represent new current production. Only any current service or brokerage charge connected with the sale may be counted. Hence, option A is correct.