Aggregates related to national income - NDP

Correct answer: A. It will be included as a current service

Explanation: The old house itself was produced in an earlier period, so its resale value is not counted as current production in the present period. However, the broker performs a new service during the sale and receives a commission for that service. The commission therefore represents current domestic production and is included in NDP, provided the brokerage service is produced within the domestic territory.

Correct answer: B. Net domestic investment

Explanation: NDP measures domestic production after allowing for the depreciation of capital goods. Therefore, in the expenditure approach, investment is taken as net domestic investment rather than gross domestic investment. Net domestic investment equals gross domestic investment minus depreciation. Financial investment and foreign investment by themselves do not represent the complete domestic expenditure component used to calculate NDP.

Correct answer: D. By subtracting depreciation from gross value added

Explanation: Net value added (NVA) is calculated by deducting consumption of fixed capital, commonly called depreciation, from gross value added (GVA): NVA = GVA − Depreciation. Depreciation represents the loss in value of fixed assets caused by wear and tear or obsolescence during production. Therefore, option D is correct. When NVA is measured for the domestic territory, it contributes to the calculation of net domestic product.

Correct answer: B. Compensation of employees

Explanation: Compensation of employees is a factor income because it is paid to labour for providing current productive services. It includes wages, salaries, and related benefits. An old-age pension and lottery winnings are transfer or non-factor receipts, while the sale of shares is a financial transaction rather than payment for current production.

Correct answer: C. Mixed income

Explanation: The income of a self-employed person is called mixed income because it contains more than one factor return. It may include payment for the person’s own labour as well as a return on the capital or enterprise used in the business. Since these parts are not separately observable, they are recorded together as mixed income.

Correct answer: A. 60 crore rupees

Explanation: Net indirect taxes are calculated as indirect taxes minus subsidies. Therefore, NIT = 80 crore − 20 crore = 60 crore rupees. Subsidies reduce the effective burden of indirect taxes and are consequently subtracted rather than added. This adjustment is used when converting between national-income aggregates at market prices and factor cost.

Correct answer: A. Domestic net output after depreciation has increased

Explanation: NDP is the value of final goods and services produced within a country’s domestic territory after deducting depreciation from GDP. Therefore, an increase in NDP can indicate that net domestic production has increased. However, NDP alone does not prove that population, prices, or net factor income from abroad changed in any particular way, nor does it by itself guarantee higher welfare.

Correct answer: B. NDP divided by population

Explanation: Per capita NDP is calculated by dividing total NDP by the relevant population. The formula is: Per capita NDP = NDP ÷ Population. It expresses the average net domestic product available per person and is useful for comparison across years or regions, although it does not show how income is distributed among people.

Correct answer: B. 100 crore rupees

Explanation: The relationship between gross and net domestic product is NDP = GDP − Depreciation. Rearranging gives Depreciation = GDP − NDP. Substituting the values, depreciation = 1,250 − 1,150 = 100 crore rupees. Thus, option B is correct; depreciation is the value of fixed capital consumed during production.

Correct answer: A. A domestic and net measure

Explanation: NDP is both domestic and net. It is domestic because it measures production occurring within the economic or domestic territory of a country, regardless of the producer’s nationality. It is net because depreciation, or consumption of fixed capital, is deducted from GDP. Thus, NDP is not a national, gross, consumption-only, or foreign-only measure.

Correct answer: B. Depreciation

Explanation: NDP is obtained from GDP by deducting depreciation, also called consumption of fixed capital. The formula is NDP = GDP − Depreciation. Net exports, compensation of employees, and subsidies are not the specific adjustment that converts a gross domestic measure into a net domestic measure. Therefore, depreciation is the only correct answer.

Correct answer: C. NDP = GDP − Depreciation

Explanation: The correct formula is NDP = GDP − Depreciation. GDP is the gross value of final production within domestic territory, while NDP measures the value remaining after allowing for the wear and tear or consumption of fixed capital. The plus sign would move from net to gross, not from gross to net, so option C is correct.

Correct answer: A. 1300 crore rupees

Explanation: To convert GDP into NDP, depreciation must be deducted. Using the formula NDP = GDP − Depreciation, NDP = 1,500 − 200 = 1,300 crore rupees. Therefore, option A is correct. Adding depreciation would calculate GDP from NDP, whereas leaving it unchanged would ignore the gross-to-net adjustment.

Correct answer: C. 80 crore rupees

Explanation: Depreciation is the loss in value of fixed capital during the production process. The relationship is NDP = GDP − Depreciation. Therefore, Depreciation = GDP − NDP = 980 − 900 = 80 crore rupees. Hence, option C is correct. The difference between a gross measure and the corresponding net measure represents depreciation.

Correct answer: D. Market price paid by buyer

Explanation: NDP at market price values the net final output at the prices actually paid by purchasers in the market. These prices include net indirect taxes, meaning indirect taxes minus subsidies. It is not restricted to the producer’s receipt, export prices, or base-year prices. Therefore, option D correctly describes market-price valuation.

Correct answer: A. Domestic income

Explanation: NDP at factor cost measures the income generated by factors of production within the domestic territory during an accounting period. Since it represents wages, rent, interest, and profit earned domestically, it is also called domestic income. Personal income, private income, and disposable income are different income concepts. Thus, option A is correct.

Correct answer: D. 850 crore rupees

Explanation: The conversion formula is NDP at factor cost = NDP at market price − net indirect taxes. Substituting the given values gives 920 − 70 = 850 crore rupees. Therefore, NDP at factor cost is 850 crore rupees, and option D is correct. The tax component is removed because factor cost reflects payments to factors of production.

Correct answer: B. 65 crore rupees

Explanation: Net indirect taxes are calculated by subtracting subsidies from indirect taxes: NIT = Indirect Taxes − Subsidies. In this case, NIT = 90 − 25 = 65 crore rupees. Subsidies reduce the effective tax burden included in market prices. Therefore, option B is correct.

Correct answer: D. Negative 20 crore rupees

Explanation: Net indirect taxes are calculated as indirect taxes minus subsidies. Therefore, NIT = 50 − 70 = −20 crore rupees. The negative value means that subsidies exceed indirect taxes, producing a net subsidy rather than a net tax. Hence, option D is correct.

Correct answer: A. The country whose embassy it is

Explanation: For national-accounting purposes, an embassy is treated as part of the economic territory of the country it represents, even when the embassy is physically located in another country. Therefore, the production or services of a foreign embassy are attributed to the domestic territory of the embassy’s own country, not to the host country. Hence option A is correct.

Correct answer: B. In the host country’s domestic product

Explanation: A foreign bank branch operating within a country produces financial services inside that country’s domestic territory. Domestic product is determined by the location of production, not by the nationality or ownership of the enterprise. Consequently, the branch’s value added is included in the host country’s domestic product. Ownership may affect national income through factor-income flows, but it does not remove the activity from domestic product.

Correct answer: C. The country owning the ship

Explanation: In the conventional national-accounting treatment used in school economics, a ship operated by a country is regarded as an extension of that country’s domestic territory while it is providing services abroad or in international waters. Therefore, the value of the service is attributed to the domestic product of the country operating or owning the ship. It is not assigned to the nearest country or to every country.

Correct answer: B. Included at imputed market value

Explanation: Grain produced by a farmer and retained for the family’s own consumption is still current production. Although it is not sold in an observed market transaction, national income accounting includes its estimated or imputed market value in domestic product. This ensures that production is measured consistently whether the output is sold or consumed by the producer. It is not a transfer payment and is not excluded merely because no cash sale occurs.

Correct answer: C. It is included in domestic product

Explanation: Imputed rent represents the value of the housing service consumed by the owner when no actual rent is paid. National income accounting includes this estimated service so that owner-occupied houses are treated consistently with rented houses. Therefore, it contributes to domestic product, although it is not a cash receipt.

Correct answer: D. Because its production was counted in an earlier year

Explanation: The sale of a second-hand machine is only a transfer of ownership and does not represent new production during the current year. The machine's value was recorded when it was originally produced. However, a current brokerage, repair, or other selling service may be included because that service is produced now.