Aggregates related to national income - NDP

Correct answer: B. 5660 crore rupees

Explanation: Use both required conversions. First, net indirect taxes = 420 − 120 = 300 crore rupees. Convert NDP at factor cost to NDP at market price: 5100 + 300 = 5400 crore rupees. Then add depreciation to change net into gross: GDP at market price = 5400 + 260 = 5660 crore rupees. Thus option B is correct; the other values omit or mishandle one adjustment.

Correct answer: D. 3030 crore rupees

Explanation: To convert factor-cost NDP into market-price NDP, add net indirect taxes. Net indirect taxes = indirect taxes − subsidies = 240 − 70 = 170 crore rupees. Therefore, NDP at market price = 2860 + 170 = 3030 crore rupees. Option A subtracts the adjustment, option B adds gross taxes, and option C ignores taxes. Thus option D is correct.

Correct answer: A. 4490 crore rupees

Explanation: Two deductions are needed. First remove depreciation to obtain NDP at market price: 5100 − 330 = 4770 crore rupees. Then remove net indirect taxes to convert market price to factor cost: 4770 − 280 = 4490 crore rupees. Option B stops after the first step, while C and D use incorrect arithmetic or adjustments. Therefore option A is the only correct answer.

Correct answer: B. 3780 crore rupees

Explanation: First convert gross domestic product into net domestic product by deducting depreciation: NDP at factor cost = 3900 − 250 = 3650 crore rupees. Then convert domestic to national by adding net factor income from abroad: NNP at factor cost = 3650 + 130 = 3780 crore rupees. Option D omits NFIA, while the other options use incorrect signs or totals. Hence option B is correct.

Correct answer: C. 3340 crore rupees

Explanation: The governing relation is NDP at factor cost = NNP at factor cost − net factor income from abroad. Substituting the values gives NDPFC = 3250 − (−90) = 3250 + 90 = 3340 crore rupees. Therefore, option C is correct. Option A would result from subtracting 90 as if NFIA were positive, while options B and D ignore or overstate the adjustment.

Correct answer: A. 5580 crore rupees

Explanation: Two adjustments are required. First convert GNP to NNP by deducting depreciation: NNPMP = 6100 − 370 = 5730 crore rupees. Then convert NNP to NDP by deducting positive NFIA: NDPMP = 5730 − 150 = 5580 crore rupees. Therefore, option A is correct. Option C stops after the first step, while B and D use incorrect arithmetic.

Correct answer: C. Legal service related to sale of an old factory

Explanation: NDP measures the value of currently produced final goods and services within domestic territory after deducting depreciation. The legal service is a newly provided service in the current year, so its value is included in current production. The old factory is an existing asset, unemployment allowance is a transfer payment, and purchase of old shares is a financial transaction; none represents current production.

Correct answer: A. Entire net output produced in India

Explanation: The governing distinction is between domestic product and national product. NDP is based on the location of production, so the entire net output created within India is included even when the producer is foreign-owned. Remitting profits abroad affects factor income from abroad and the conversion from domestic to national aggregates, but it does not remove Indian production from NDP. Therefore option A is correct.

Correct answer: A. Because production occurred outside India's domestic territory

Explanation: NDP is a domestic aggregate: it records net production occurring inside the country’s domestic territory during the period. Since the goods were manufactured in Sri Lanka, that production belongs to Sri Lanka’s domestic product, after the relevant depreciation adjustment. The Indian nationality of the company is relevant to national-income considerations, not to the geographical boundary used for NDP. Hence A is correct.

Correct answer: A. 40 crore rupees

Explanation: Net factor income from abroad (NFIA) is calculated as factor income received by residents from abroad minus factor income paid to foreigners within the country. Thus, NFIA = 275 − 235 = 40 crore rupees. Because receipts exceed payments, the result is positive. Options C and D incorrectly add the amounts, while B reverses the sign.

Correct answer: C. 4290 crore rupees

Explanation: To move from net domestic product to net national product, add net factor income from abroad: NNP = NDP + NFIA. Substituting the values gives 4,250 + 40 = 4,290 crore rupees. The positive NFIA raises the national aggregate above the domestic aggregate. Option A subtracts NFIA, option B ignores it, and option D adds it twice or uses an incorrect amount.

Correct answer: B. 3000 crore rupees

Explanation: The income method measures NDP at factor cost as the sum of factor incomes generated within domestic territory: compensation of employees, operating surplus, and mixed income. Hence NDP at factor cost = 1,600 + 920 + 480 = 3,000 crore rupees. Option B is correct. The other figures result from omitting a component or using an incorrect addition.

Correct answer: A. Employer contribution to an employee's provident fund

Explanation: Compensation of employees includes payment in cash or kind for current labour services and may also include employers’ social contributions made for employees, such as provident-fund contributions. Therefore option A is appropriate. A gain from selling old land is a capital gain, pension is generally a transfer receipt for a past service or entitlement, and lottery income is not remuneration for current employment.

Correct answer: A. It combines returns to labour and own capital

Explanation: Mixed income is the combined return received by a self-employed person whose work uses both personal labour and owned capital or business resources. In a lawyer’s practice, it is normally difficult to separate the part earned purely for professional effort from the return on office equipment, premises, and self-owned capital. Thus option A is correct; tax status, foreign origin, or transfer-payment classification does not define mixed income.

Correct answer: A. Cost of production

Explanation: Free municipal sanitation is a non-market service: users do not pay a market price that can be used for valuation. In national-income accounting, such government services are generally valued at their cost of production, especially the compensation of employees and other operating costs. Therefore option A is correct. The number of citizens, land value, or an assumed profit rate does not measure the service actually produced.

Correct answer: A. It provides a real current housing service

Explanation: The governing concept is that NDP measures the value of current final goods and services produced within the domestic territory, including housing services. An owner-occupied house provides a real housing service during the period even though no rent is paid in cash. Its rental value is therefore imputed and included. The house is not sold every year, imputed rent is not a transfer payment, and it does not eliminate depreciation. Hence option A is correct.

Correct answer: C. Value of the entire output

Explanation: The governing principle is that domestic product records current production, not merely goods sold in markets. The 60 percent sold by the farmer is valued at its market price, while the 40 percent retained for family consumption is valued at an appropriate imputed market price. Since both portions were produced during the current period, the value of the entire wheat output is included. Therefore option C is correct; excluding the retained portion would understate production.

Correct answer: B. Gain from rise in price of old gold

Explanation: National accounting distinguishes income from current production from holding gains caused only by changes in asset prices. If the market price of old gold rises, the owner receives a capital gain, but no new gold or current productive service has been created. Construction of a new shop, current banking services, and rental services of a new house represent current production and can enter domestic product. Thus option B is correct.

Correct answer: C. 1 lakh rupees

Explanation: The governing rule is that resale of an old asset is not current production because the house was counted when it was originally constructed. However, the property agent performs a new brokerage service in the current period. The commission of 1 lakh rupees is payment for that current service and is included in current production, while the 50 lakh resale price is excluded. Therefore option C is correct.

Correct answer: A. No current productive service is received in return

Explanation: The governing concept is the distinction between transfer payments and payments for current production. A widow pension transfers purchasing power from the government to a recipient, but the recipient does not provide a current productive service in exchange for that payment. Consequently, the pension itself is excluded from NDP, although any goods or services later purchased with it may be counted when produced. It is not necessarily foreign income, an indirect tax, or capital formation. Option A is correct.

Correct answer: B. 5.5 percent

Explanation: Real per capita NDP is calculated as real NDP divided by population. For a simple growth approximation, the growth rate of the denominator is subtracted from the growth rate of the numerator: 8 percent − 2.5 percent = 5.5 percent. Thus each person’s average real output rises by approximately 5.5 percent. Adding the rates or using either rate alone ignores the per-capita calculation. Therefore option B is correct.

Correct answer: B. Negative 120 crore rupees

Explanation: The governing relationship is NDP at market price = NDP at factor cost + net indirect taxes, or NDPMP = NDPFC + NIT. If NDP at market price is 120 crore rupees less than NDP at factor cost, then NDPMP − NDPFC = −120 crore rupees. Therefore net indirect taxes are negative 120 crore rupees, indicating that subsidies exceed indirect taxes by 120 crore. Option B is correct.

Correct answer: A. 65 crore rupees

Explanation: The relevant identity is NNP = NDP + net factor income from abroad, when both aggregates are measured on the same price and depreciation basis. Rearranging gives NFIA = NNP − NDP. Since NNP is 65 crore rupees greater than NDP, NFIA is +65 crore rupees. A negative value would apply only if NNP were lower.

Correct answer: A. Depreciation due to technological obsolescence

Explanation: Technological obsolescence occurs when a newer and more efficient technology makes an existing machine less useful or less valuable, even if the machine still physically works. This reduction in economic value is recognised as a form or cause of depreciation. It is not a transfer payment, tax adjustment, or foreign factor income, so option A is correct.

Correct answer: A. Population may grow faster than total NDP

Explanation: Per capita NDP is calculated as total NDP divided by population. Total NDP can increase while per capita NDP decreases if population grows at a faster rate than total NDP. For example, a 5% rise in NDP alongside a 7% rise in population lowers output per person. The other options are neither necessary nor logically implied by the definition.