Aggregates related to national income - Market price and factor cost

Correct answer: A. GVA at factor cost (GVA₍FC₎)

Explanation: The difference between market price and factor cost is adjusted through net indirect tax: GVA at factor cost equals GVA at market prices minus net indirect tax. Since depreciation has not been deducted, the measure remains gross. Therefore, the result is GVA at factor cost, not NVA at factor cost. NVA would require an additional deduction of depreciation.

Correct answer: A. ₹1,06,000 crore

Explanation: National income is NNP at factor cost. To convert GNP at market price into NNP at factor cost, subtract depreciation to remove the gross component and subtract net indirect taxes to move from market prices to factor cost: NNPFC = GNPMP − depreciation − NIT = ₹1,20,000 − ₹8,000 − ₹6,000 = ₹1,06,000 crore. Thus A is correct.

Correct answer: A. ₹93,500 crore

Explanation: First convert GDP at market price into GNP at market price by adding NFIA: GNPMP = ₹95,000 + ₹2,500 = ₹97,500 crore. Then convert market price to factor cost by subtracting NIT: GNPFC = ₹97,500 − ₹4,000 = ₹93,500 crore. Depreciation is not deducted because the requested aggregate remains gross.

Correct answer: B. Net indirect taxes are ₹4,500 crore

Explanation: The difference between a gross aggregate at market price and the same gross aggregate at factor cost is caused by net indirect taxes. Therefore, NIT = GNPMP − GNPFC = ₹95,000 − ₹90,500 = ₹4,500 crore. Depreciation would require a comparison between gross and net product, while NFIA compares a domestic aggregate with a national aggregate. Hence, option B is correct.

Correct answer: A. When indirect taxes and subsidies exist

Explanation: The difference between market price and factor cost is explained by net indirect taxes, which are indirect taxes minus subsidies. Market price includes the effect of these taxes and subsidies, while factor cost reflects payments to factors of production. Depreciation explains the gross-net distinction, and NFIA explains the domestic-national distinction, not the price-cost difference.

Correct answer: A. Add NFIA, deduct depreciation and deduct NIT

Explanation: GDPMP is domestic, gross and valued at market prices. To obtain NNPFC, first add NFIA to change domestic into national, subtract depreciation to change gross into net, and subtract NIT to change market price into factor cost. Therefore, NNPFC = GDPMP + NFIA − depreciation − NIT, making option A the complete adjustment.

Correct answer: B. The market value of final goods and services produced by normal residents after deducting depreciation

Explanation: NNPMP is obtained from GNPMP by deducting depreciation: NNPMP = GNPMP − depreciation. The word national refers to production by normal residents rather than activity within domestic territory, and net means depreciation has been subtracted. Option A is GDPMP, option C is NDPMP, and option D is neither the correct product aggregate nor net.

Correct answer: A. NIT is increasing

Explanation: The relevant identity is NNPFC = NNPMP − NIT. If NNPMP remains constant and NIT increases, the larger deduction causes NNPFC to fall. A fall in NIT would instead raise NNPFC, assuming the market-price value is unchanged. NFIA and depreciation do not directly alter the conversion between NNP at market price and NNP at factor cost once NNPMP is given.

Correct answer: A. NFIA adjustment

Explanation: GNP is already a national aggregate because it includes net factor income from abroad. Hence, no further NFIA adjustment is needed. To obtain national income, convert gross to net by subtracting depreciation and convert market price to factor cost by subtracting NIT.

Correct answer: A. GDP at factor cost (GDP₍FC₎)

Explanation: Market price includes net indirect taxes, where net indirect taxes equal indirect taxes minus subsidies. To convert GDP at market prices into GDP at factor cost, net indirect taxes are subtracted: GDPFC = GDPMP − (indirect taxes − subsidies), or equivalently GDPMP − indirect taxes + subsidies. No adjustment for depreciation or net factor income from abroad is made, so the result remains GDP and becomes factor-cost GDP. Option A is correct.

Correct answer: A. 1650

Explanation: To convert GDP at market price into NDP at factor cost, first subtract depreciation to remove the consumption of fixed capital: NDPMP = 2200 − 300 = 1900. Then subtract net indirect taxes to change market prices into factor cost: NDPFC = 1900 − 250 = 1650. Therefore, option A is correct. Option B is only NDP at market price.

Correct answer: A. 11850

Explanation: The conversion formula is GDP at factor cost = GDP at market price − net indirect taxes. Net indirect taxes equal indirect taxes minus subsidies: 1000 − 350 = 650. Therefore, GDP at factor cost = 12500 − 650 = 11850. Subsidies are subtracted from taxes because they reduce the market price relative to the factor payments received by producers.

Correct answer: A. Depreciation and net indirect taxes

Explanation: To convert GDP at market price into NDP at factor cost, first deduct depreciation to change the gross measure into a net measure. Then deduct net indirect taxes, calculated as indirect taxes minus subsidies, to move from market prices to factor cost. The formula is NDP₍FC₎ = GDP₍MP₎ − depreciation − net indirect taxes.

Correct answer: A. 12,300

Explanation: First calculate NDP at market price by deducting depreciation: 14,000 − 1,100 = 12,900. Next calculate net indirect taxes: 900 − 300 = 600. Since factor cost is obtained from market price by subtracting net indirect taxes, NDP₍FC₎ = 12,900 − 600 = 12,300. Hence option A is correct.

Correct answer: A. 4,000

Explanation: To convert GDP at market price into NDP at factor cost, first subtract depreciation to obtain NDP at market price and then subtract net indirect taxes to remove the market-price adjustment: NDPFC = GDPMP − depreciation − net indirect taxes = 5,000 − 700 − 300 = 4,000. Hence, option A is correct.

Correct answer: C. 250 crore rupees

Explanation: The governing relationship is NDP at market price = NDP at factor cost + indirect taxes − subsidies. Since the two NDP measures are equal, net indirect taxes must be zero: indirect taxes − subsidies = 0. With indirect taxes of ₹250 crore, subsidies must also be ₹250 crore. Therefore option C is correct; zero, ₹125 crore, and ₹500 crore do not satisfy the equality.

Correct answer: C. ₹85 crore

Explanation: Use the relation MP = FC + Indirect Taxes − Subsidies. First find net indirect taxes: MP − FC = ₹880 crore − ₹820 crore = ₹60 crore. Since net indirect taxes = indirect taxes − subsidies, indirect taxes = ₹60 crore + ₹25 crore = ₹85 crore. Therefore option C is correct. Option B is only the net amount, not the total indirect tax.

Correct answer: B. The initial levels of market price and factor cost

Explanation: Net indirect taxes are measured by the absolute difference between market-price and factor-cost aggregates. A difference between growth rates, such as 10% − 8% = 2%, does not reveal the change in that absolute gap unless the initial values are known. The base levels allow both years’ amounts and gaps to be calculated. Therefore option B is correct; depreciation and population are not required for this comparison.

Correct answer: B. Subsidies exceed indirect taxes by ₹250 crore

Explanation: The governing relationship is Market Price = Factor Cost + Net Indirect Taxes, where Net Indirect Taxes = Indirect Taxes − Subsidies. If factor cost is ₹250 crore higher than market price, the net indirect tax must be −₹250 crore. Therefore, subsidies exceed indirect taxes by ₹250 crore, making option B correct. Direct taxes and depreciation affect other calculations, not this price-valuation conversion.

Correct answer: C. ₹20,000 crore

Explanation: Use the valuation formula Market Price = Factor Cost + Net Indirect Taxes. Since net indirect taxes equal 15% of factor cost, let factor cost be x. Then market price = x + 0.15x = 1.15x. Therefore, 1.15x = ₹23,000 crore, so x = ₹20,000 crore. Hence option C is correct. The percentage must be applied to factor cost, not directly to market price.

Correct answer: C. ₹20,000 crore

Explanation: Let market price be x. Net indirect taxes are 20% of market price, so factor cost equals market price minus those taxes: x − 0.20x = 0.80x. Given factor cost is ₹16,000 crore, 0.80x = 16,000, which gives x = ₹20,000 crore. Thus option C is correct. The crucial point is that the 20% is calculated on market price, not on factor cost.

Correct answer: B. ₹1,500 crore

Explanation: Net indirect taxes equal indirect taxes minus subsidies. With a ratio of 5:2, the difference is 5 − 2 = 3 parts. These 3 parts equal ₹900 crore, so 1 part equals ₹300 crore. Indirect taxes represent 5 parts, giving 5 × ₹300 crore = ₹1,500 crore. Therefore, option B is correct; the subsidy amount would be ₹600 crore.

Correct answer: C. ₹1,000 crore

Explanation: Net indirect taxes are indirect taxes minus subsidies. The ratio 3:5 means subsidies exceed taxes by 2 parts. Since the net amount is −₹400 crore, that difference of 2 parts equals ₹400 crore. One part is therefore ₹200 crore, and subsidies equal 5 parts: 5 × ₹200 crore = ₹1,000 crore. Hence option C is correct; the negative sign confirms that subsidies are larger.

Correct answer: C. ₹26,900 crore

Explanation: National income is NNP at factor cost. Starting with GDP at market price, subtract depreciation to obtain NDP at market price: ₹30,000 − ₹2,500 = ₹27,500 crore. Subtract net indirect taxes to obtain NDP at factor cost: ₹27,500 − ₹1,300 = ₹26,200 crore. Add NFIA of ₹700 crore to obtain national income of ₹26,900 crore. Thus option C is correct.

Correct answer: C. ₹850 crore

Explanation: The governing conversion is NNP at market price = national income + net indirect taxes. Therefore, net indirect taxes = 18,500 − 17,900 = ₹600 crore. Since net indirect taxes equal indirect taxes minus subsidies, indirect taxes = 600 + 250 = ₹850 crore. Thus option C is correct; ₹600 crore is only the net amount, while the other values do not satisfy the formula.