Aggregates related to national income - Market price and factor cost

Correct answer: C. ₹1,045 crore

Explanation: When converting an aggregate from factor cost to market price, add net indirect taxes. Thus, NDP at Market Price = NDP at Factor Cost + Net Indirect Taxes = ₹980 crore + ₹65 crore = ₹1,045 crore. Therefore, option C is correct. Option A subtracts the tax and represents the reverse direction, while options B and D do not result from the given values.

Correct answer: B. ₹85 crore

Explanation: Net indirect taxes are calculated by subtracting subsidies from indirect taxes: Net Indirect Taxes = Indirect Taxes − Subsidies. Therefore, ₹130 crore − ₹45 crore = ₹85 crore. Option B is correct. ₹130 crore is only the gross indirect-tax amount, while ₹175 crore would result from incorrectly adding taxes and subsidies. ₹75 crore reflects an incorrect subtraction and is not the required net value.

Correct answer: B. −₹24 crore

Explanation: Use the formula Net Indirect Taxes = Indirect Taxes − Subsidies. Therefore, net indirect taxes = ₹48 crore − ₹72 crore = −₹24 crore. Option B is correct. The negative sign is meaningful: subsidies exceed indirect taxes by ₹24 crore, causing market price to be below factor cost by that amount. ₹120 crore incorrectly adds the two figures.

Correct answer: C. Net indirect taxes

Explanation: The accounting relationship is Market Price − Factor Cost = Net Indirect Taxes. Net indirect taxes are indirect taxes minus subsidies, and they explain the adjustment between the price paid in the market and the factor payments received by producers. Therefore, a difference of ₹110 crore equals net indirect taxes, making option C correct. Depreciation, foreign factor income, and net exports belong to different national-income adjustments.

Correct answer: B. Subsidies exceed indirect taxes

Explanation: The difference is given by Market Price − Factor Cost = Indirect Taxes − Subsidies. If market price is lower, the left side is negative, so net indirect taxes must also be negative. This occurs when subsidies exceed indirect taxes. Hence option B is correct. If taxes exceed subsidies, market price is higher; if both are zero, the two values are equal. Direct taxes do not determine this specific conversion.

Correct answer: C. ₹445

Explanation: The governing relation is Market Price = Factor Cost + Net Indirect Taxes, where Net Indirect Taxes = Indirect Taxes − Subsidies. Thus, net indirect taxes = ₹60 − ₹15 = ₹45. Therefore, market price = ₹400 + ₹45 = ₹445, so option C is correct. ₹400 ignores taxes, ₹355 subtracts the net tax, and ₹475 incorrectly adds the subsidy.

Correct answer: B. ₹665

Explanation: The governing conversion formula is Factor Cost = Market Price − Net Indirect Taxes, because market price includes the net effect of indirect taxes over factor payments. Substituting the values gives ₹720 − ₹55 = ₹665. Hence option B is correct. ₹720 is the given market price, while ₹775 results from adding the tax instead of subtracting it; ₹610 uses an incorrect deduction.

Correct answer: B. It reduces the gap

Explanation: The difference between market price and factor cost equals net indirect taxes: indirect taxes minus subsidies. When a subsidy rises while other factors remain unchanged, net indirect taxes fall. Consequently, the gap between market price and factor cost generally becomes smaller. Thus option B is correct. The subsidy does not always double the gap, and saying it has no effect ignores its direct role in reducing net indirect taxes.

Correct answer: B. ₹45 crore

Explanation: The governing relationship is: Market Price − Factor Cost = Net Indirect Taxes, and Net Indirect Taxes = Indirect Taxes − Subsidies. Therefore, 75 = 120 − Subsidies, so Subsidies = 120 − 75 = ₹45 crore. Option A incorrectly subtracts the wrong quantities, while ₹75 crore is the net indirect tax, not the subsidy. Thus, option B is correct.

Correct answer: B. Negative ₹30 crore

Explanation: Net indirect taxes are calculated as Market Price − Factor Cost. Thus, Net Indirect Taxes = ₹1,320 crore − ₹1,350 crore = −₹30 crore. The negative sign is economically meaningful: subsidies exceed indirect taxes by ₹30 crore. Option A gives the correct magnitude but misses the sign, whereas options C and D use an incorrect difference. Therefore, option B is correct.

Correct answer: D. ₹600 crore

Explanation: The governing identity is Market Price = Factor Cost + Net Indirect Taxes. Rearranging gives Factor Cost = Market Price − Net Indirect Taxes. Substituting the values: Factor Cost = 560 − (−40) = 560 + 40 = ₹600 crore. A negative net tax means subsidies exceed indirect taxes; therefore, option B incorrectly subtracts 40 instead of subtracting a negative number. Option D is correct.

Correct answer: A. It is not part of the market price of goods

Explanation: The conversion between market price and factor cost uses net indirect taxes because indirect taxes and subsidies affect the prices of goods and services. A direct tax is levied on personal income, company income or property after income is earned; it does not enter the selling price of the product. It is therefore neither a factor payment nor a subsidy, and it is not limited to foreign countries. Option A is correct.

Correct answer: A. ₹55 crore

Explanation: When subsidies exceed indirect taxes by ₹55 crore, net indirect taxes equal −₹55 crore because Net Indirect Taxes = Indirect Taxes − Subsidies. Since Market Price = Factor Cost + Net Indirect Taxes, the negative amount makes market price ₹55 crore lower than factor cost. Option D reverses the relationship, while options B and C have no basis in the stated difference. Thus, option A is correct.

Correct answer: C. ₹3,420 crore

Explanation: The governing relationship is GNP at market price = GNP at factor cost + net indirect taxes. Net indirect taxes equal indirect taxes minus subsidies: ₹280 − ₹60 = ₹220 crore. Hence, GNP at market price = ₹3,200 + ₹220 = ₹3,420 crore, so option C is correct. Option D incorrectly adds subsidies, while options A and B do not apply the proper adjustment.

Correct answer: C. ₹470

Explanation: To convert market price into factor cost, subtract net indirect taxes. The formula is factor cost = market price − indirect taxes + subsidies. Thus, factor cost = ₹525 − ₹75 + ₹20 = ₹470. Therefore, option C is correct. ₹450 results from forgetting to add back the subsidy, while ₹430 and ₹580 use incorrect adjustments or signs.

Correct answer: D. ₹1,135 crore

Explanation: The governing formula is output at factor cost = output at market price − net indirect taxes. Since net indirect taxes are negative ₹35 crore, the calculation is ₹1,100 − (−₹35) = ₹1,135 crore. Subtracting a negative amount increases the result. Therefore, option D is correct; ₹1,065 would incorrectly treat the negative tax as positive.

Correct answer: A. ₹915 crore

Explanation: The relationship is market price = factor cost + net indirect taxes. Here, factor-cost output is ₹940 crore and net indirect taxes are −₹25 crore. Therefore, market price = ₹940 + (−₹25) = ₹915 crore. Option A is correct. A positive ₹25 adjustment would produce ₹965 crore, but the question clearly states that net indirect taxes are negative.

Correct answer: A. Increase of ₹12 crore

Explanation: Net indirect taxes are calculated as indirect taxes minus subsidies. The change in them is therefore change in taxes minus change in subsidies: ₹18 crore − ₹6 crore = ₹12 crore. Net indirect taxes consequently increase by ₹12 crore, so option A is correct. Adding both changes would give ₹24 crore, but that ignores the opposite effect of subsidies.

Correct answer: B. Decrease of ₹6 crore

Explanation: Since net indirect taxes = indirect taxes − subsidies, their change equals −₹15 crore − (−₹9 crore). This gives −₹6 crore, meaning a decrease of ₹6 crore. Option B is correct. The decrease in subsidies partly offsets the tax decrease because a smaller amount is being subtracted. Treating both falls as reductions would incorrectly give ₹24 crore.

Correct answer: C. It will remain unchanged

Explanation: The gap between market price and factor cost equals net indirect taxes, which are indirect taxes minus subsidies. If both taxes and subsidies rise equally by ₹25 crore, the change in the gap is +₹25 − +₹25 = zero. Thus, the gap remains unchanged and option C is correct. It would change only if the two components changed by unequal amounts.

Correct answer: A. It will increase

Explanation: GDP at factor cost is obtained by subtracting net indirect taxes from GDP at market price: GDPFC = GDPMP − NIT. When GDP at market price remains constant and NIT decreases, a smaller amount is subtracted. Therefore, GDP at factor cost increases, making option A correct. It does not remain unchanged because the deduction has changed.

Correct answer: B. It will increase

Explanation: The governing relationship is output at market price = output at factor cost + net indirect taxes. Factor-cost output is constant, so an increase in net indirect taxes raises the market-price measure by the same direction. Therefore, output at market price increases and option B is correct. It would remain unchanged only if net indirect taxes did not change.

Correct answer: B. It will increase

Explanation: The gap between market price and factor cost equals net indirect taxes, calculated as indirect taxes minus subsidies. With indirect taxes unchanged, a decrease in subsidies makes the subtraction smaller, so net indirect taxes rise. Consequently, the gap widens and option B is correct. It would remain unchanged only if subsidies also remained unchanged or another change exactly offset this effect.

Correct answer: B. The gap between market price and factor cost will fall

Explanation: Net indirect taxes are calculated as indirect taxes minus subsidies. When indirect taxes fall and subsidies remain unchanged, net indirect taxes decrease. Since market price equals factor cost plus net indirect taxes, the difference between market price and factor cost becomes smaller. Option A reverses the effect, while C is not necessarily true and D has no logical basis.

Correct answer: B. GNP at factor cost = GNP at market price − NIT / GNPFC = GNPMP − NIT

Explanation: Net indirect taxes (NIT) are the difference between market price and factor cost: NIT = indirect taxes − subsidies. Therefore, to convert the same aggregate from market price to factor cost, subtract NIT: GNPFC = GNPMP − NIT. Option A uses the wrong direction, C reverses the conversion, and D changes GNP into GDP without justification.