Aggregates related to national income - Market price and factor cost

Correct answer: B. Market price exceeds factor cost

Explanation: Net indirect taxes equal indirect taxes minus subsidies. If this value is positive, indirect taxes exceed subsidies. Since market price = factor cost + net indirect taxes, adding a positive amount makes market price greater than factor cost. Therefore option B must be true. Option A describes negative net indirect taxes, option C reverses the relationship, and option D is not required by the information given.

Correct answer: B. ₹23,350 crore

Explanation: The governing conversion is GDP at factor cost = GDP at market price − net indirect taxes. Substituting the given values gives ₹24,800 − ₹1,450 = ₹23,350 crore. Therefore option B is correct. Option C simply repeats the market-price value without adjustment; option D adds the tax, which reverses the required direction. No depreciation is relevant because both aggregates are gross.

Correct answer: C. ₹17,450 crore

Explanation: First calculate net indirect taxes: indirect taxes − subsidies = ₹1,500 − ₹450 = ₹1,050 crore. To move from factor cost to market price, add net indirect taxes. Therefore NDP at market price = ₹16,400 + ₹1,050 = ₹17,450 crore, so option C is correct. Option D adds the gross tax and ignores subsidies; option B makes no adjustment.

Correct answer: B. Minus ₹720 crore

Explanation: The governing identity is net indirect taxes = market price − factor cost. If market price is ₹720 crore lower than factor cost, then MP − FC = −₹720 crore. Hence net indirect taxes are minus ₹720 crore, making option B correct. A positive ₹720 crore would mean market price exceeded factor cost, while zero would imply equality rather than a difference.

Correct answer: B. Increase of ₹160 crore

Explanation: Net indirect taxes are defined as indirect taxes minus subsidies. Therefore, the change in net indirect taxes equals the change in taxes minus the change in subsidies: ₹250 crore − ₹90 crore = ₹160 crore. Thus option B is correct. Adding the two changes would incorrectly treat subsidies as increasing net taxes, while using ₹250 crore ignores the subsidy increase.

Correct answer: C. They will remain unchanged

Explanation: Net indirect taxes are the difference between market price and factor cost: NIT = MP − FC. If both MP and FC increase by the same ₹2,000 crore, the new difference is (MP + 2,000) − (FC + 2,000) = MP − FC. The equal additions cancel, so net indirect taxes remain unchanged. The other options wrongly treat one common increase as a change in the difference.

Correct answer: C. They will remain unchanged

Explanation: Net indirect taxes are defined as indirect taxes minus subsidies: NIT = T − S. When taxes rise by ₹500 crore and subsidies also rise by ₹500 crore, the change is ΔNIT = +₹500 − ₹500 = ₹0. The increase in the tax component is exactly offset by the increase in the subsidy component. Thus net indirect taxes remain unchanged, not negative or changed by ₹500 crore.

Correct answer: A. Increase in subsidy

Explanation: The relevant identity is MP = FC + NIT, and NIT equals indirect taxes minus subsidies. An increase in subsidy reduces net indirect taxes; with factor cost unchanged, this directly lowers market price. Wages, rent, and profit are factor payments or components of factor cost, so increases in them would affect factor cost rather than leave it unchanged. Therefore option A is correct.

Correct answer: A. Increase in wage payments

Explanation: Factor cost measures payments to factors of production, such as wages, rent, interest, and profit. A rise in wage payments therefore directly increases factor cost without necessarily changing net indirect taxes. GST, customs duty, and a reduction in product subsidy change indirect taxes or subsidies, so they alter net indirect taxes instead. Hence option A is the only suitable answer.

Correct answer: C. ₹1,050 crore

Explanation: The governing relationship is market price = factor cost + net indirect taxes. Rearranging gives NIT = market price − factor cost. Substitution yields ₹14,600 crore − ₹13,550 crore = ₹1,050 crore. Therefore option C is correct. The other amounts come from inaccurate subtraction or from confusing one of the given totals with the difference between market price and factor cost.

Correct answer: C. T − S

Explanation: The governing concept is net indirect tax, defined as indirect taxes minus subsidies. Market price includes the payments received by producers plus taxes, but subsidies reduce the effective burden; therefore MP = FC + T − S. Rearranging gives MP − FC = T − S. Option A incorrectly adds subsidies, option B reverses the order, and option D gives both components the wrong signs. Thus, option C is correct.

Correct answer: D. 125

Explanation: The GDP deflator measures the overall price level of domestically produced final goods and services. It is calculated as (Nominal GDP ÷ Real GDP) × 100. Thus, (₹3,000 ÷ ₹2,400) × 100 = 125. Therefore, option D is correct; the result indicates that the current price level is 25% above the base-year level.