Aggregates related to national income - NDP

Correct answer: B. Reliable market valuation is difficult

Explanation: Unpaid household activities such as cooking, cleaning and caring for family members may create real welfare and useful services, but they normally have no market transaction or observable price. Consequently, assigning a reliable monetary value is difficult, so conventional NDP accounts generally exclude them. This exclusion reflects a measurement boundary, not an absence of usefulness.

Correct answer: B. They are not factor income arising from current production

Explanation: A capital gain caused by a rise in share prices is an increase in the market value of an existing financial asset. It is not payment for producing a new good or service during the accounting period. NDP measures the value of current domestic production after depreciation, so a price change in an already existing asset is excluded, although trading services may be counted.

Correct answer: B. ₹5,500 crore

Explanation: Using the standard price-index formula, real NDP at base-year prices equals nominal NDP divided by the price index and multiplied by 100. Thus, real NDP = (₹6,600 ÷ 120) × 100 = ₹5,500 crore. The nominal amount includes the effect of current prices, whereas the real measure removes that price-level effect to show output at base-year prices.

Correct answer: B. It deducts the cost of capital used up

Explanation: The governing concept is net versus gross domestic product. GDP measures total final output before allowing for consumption of fixed capital, whereas NDP = GDP − depreciation. By deducting the value of machinery, buildings and other fixed capital used up during production, NDP indicates the output left after maintaining productive capacity. Therefore, option B is correct; transfer payments, foreign income and government-only production are unrelated to this distinction.

Correct answer: C. When net factor income from abroad is zero

Explanation: The governing distinction is domestic versus national product. At the same valuation, NNP = NDP + net factor income from abroad (NFIA). Therefore, NNP and NDP become equal when NFIA is zero. Zero depreciation would make gross and net aggregates equal, not domestic and national aggregates. Net indirect taxes affect market-price and factor-cost valuation, while exports equalling imports does not by itself determine NFIA.

Correct answer: A. Output of a foreign-company factory located in India

Explanation: The governing principle for a domestic product is the location of production within the country’s economic domestic territory, not the nationality of the producer. Thus, a foreign company’s factory physically operating in India contributes to India’s NDP, after allowing for depreciation. An Indian company’s overseas branch belongs to the foreign territory, while a gift and the sale of an old bond are transfers or financial transactions rather than current production.

Correct answer: B. It is treated as part of the foreign government’s domestic territory

Explanation: National accounting uses an economic concept of domestic territory, not merely a geographic boundary. A foreign embassy is treated as part of the sending country’s economic territory, even though it is physically located in the host country. Therefore its production is attributed to the foreign country rather than the host country’s NDP. Option B is correct; the embassy does provide services, and tax status or employee nationality is not the governing criterion.

Correct answer: C. In India's NDP

Explanation: For national income accounting, the production of a resident institutional unit is generally attributed to the economic territory associated with that resident unit. A ship operated by an Indian resident company is treated as part of India's domestic territory even when it is working in international waters. Therefore, the transport services produced by it are included in India's NDP. The residence of passengers and the place where the vessel was built do not determine this classification.

Correct answer: B. As part of capital formation

Explanation: An increase in inventories represents goods that have been produced during the accounting period but have not yet been sold or used. Since this unsold output is treated as investment in inventories, it forms part of gross capital formation. When a net aggregate such as NDP is calculated, depreciation is deducted from total gross investment, but the inventory increase itself remains an investment component rather than a transfer payment or intermediate consumption.

Correct answer: B. Depreciation exceeds gross investment

Explanation: Net domestic capital formation is calculated as gross domestic capital formation minus depreciation. A negative value therefore means that depreciation is greater than gross investment. New investment is not enough to replace the capital consumed during production, so the economy's capital stock may decline. This conclusion does not imply that gross investment is zero, that NDP is negative, or that net exports must be negative.

Correct answer: A. The expenditure components reconcile with NDP

Explanation: The expenditure identity for NDP at market price is NDPMP = final consumption expenditure + net domestic capital formation + net exports. Here, the stated components give ₹7,400 crore + ₹600 crore = ₹8,000 crore, exactly equal to NDP at market price. Therefore, the figures reconcile the expenditure approach with the measured NDP. They do not by themselves establish depreciation, net indirect taxes, or net factor income from abroad.

Correct answer: B. Double counting will occur

Explanation: The value of an intermediate good is already included in the selling price of the final good into which it is incorporated. If both the intermediate good and the final good are counted separately, the same output value is counted more than once, causing double counting and overstating NDP. To avoid this problem, national income is measured using only final goods or the value added at each stage of production.

Correct answer: A. ₹230

Explanation: The bread is the final product, so its final sale value of ₹250 represents the total value of production for the chain. Equivalently, total value added is ₹100 by the farmer, ₹60 by the mill, and ₹90 by the bakery, giving ₹250. NDP at market price is obtained after deducting depreciation: ₹250 − ₹20 = ₹230. Adding all three sale values would double-count intermediate transactions.

Correct answer: B. It will fall

Explanation: The governing identity is real NDP = real GDP − real depreciation. Since real GDP is unchanged, there is no offsetting increase in gross output. A rise in depreciation means that a larger part of existing production is required to replace worn-out capital, so the remaining net output decreases. Therefore option B is correct; A reverses the subtraction, while C ignores the higher capital consumption.

Correct answer: B. By deducting environmental degradation and depletion of natural resources

Explanation: Green NDP extends conventional NDP by recognising that production can reduce natural wealth and impose environmental costs. After allowing for depreciation of produced capital, it additionally deducts the depletion of resources such as forests or minerals and relevant environmental degradation. Thus option B is correct. Net factor income, subsidies, and transfers concern other national-income adjustments and do not define the green measure.

Correct answer: B. It does not fully reflect income distribution, non-market services, and environmental costs

Explanation: Per capita NDP is calculated by dividing net domestic product by population, so it indicates average net output or income per person. However, an average can conceal severe inequality, and recorded output may omit unpaid household work, leisure, health, safety, and environmental damage. Hence option B is correct; the other choices incorrectly deny what the measure includes or how it is calculated.

Correct answer: A. 7350 crore rupees

Explanation: The governing relationships are NDP = GDP − depreciation and factor-cost valuation = market-price valuation − net indirect taxes. Depreciation equals 7.5% of 8400, or 8400 × 0.075 = 630 crore rupees. Therefore, NDP at market price is 8400 − 630 = 7770 crore rupees. After deducting net indirect taxes, NDP at factor cost is 7770 − 420 = 7350 crore rupees, so option A is correct. Option B omits taxes, while the other values use an incorrect deduction.

Correct answer: B. 477 crore rupees

Explanation: Use GDP at market price − depreciation = NDP at market price, and NDP at market price − net indirect taxes = NDP at factor cost. Depreciation is 6% of 7050, so it equals 7050 × 0.06 = 423 crore rupees. NDP at market price is therefore 7050 − 423 = 6627 crore rupees. Net indirect taxes equal 6627 − 6150 = 477 crore rupees. Hence option B is correct. Option D ignores depreciation, while the smaller figures do not satisfy the valuation difference.

Correct answer: C. 5770 crore rupees

Explanation: The conversion rule is NDP at factor cost = NDP at market price − net indirect taxes. Here net indirect taxes are −150 crore rupees, so the calculation is 5620 − (−150) = 5620 + 150 = 5770 crore rupees. A negative tax amount represents net subsidies exceeding indirect taxes, which makes factor-cost income higher than market-price income. Therefore option C is correct; option A incorrectly subtracts 150 as a positive amount.

Correct answer: D. 300 crore rupees

Explanation: The identity is NDP at factor cost = NDP at market price − net indirect taxes, where net indirect taxes = indirect taxes − subsidies. Since factor-cost NDP is 125 crore rupees higher, the net indirect tax must be −125 crore rupees. Let subsidies be S: 175 − S = −125. Rearranging gives S = 175 + 125 = 300 crore rupees. Thus option D is correct. Options A and B confuse the excess with subsidies, while C ignores the negative net-tax position.

Correct answer: A. Initial amounts of GDP and depreciation

Explanation: NDP is calculated as GDP minus depreciation. To obtain its new growth rate, we need the original levels: NDP₀ = GDP₀ − Depreciation₀, and NDP₁ = 1.09GDP₀ − 1.18Depreciation₀. The percentage change is then (NDP₁ − NDP₀)/NDP₀ × 100. Growth rates alone are insufficient, so option A is correct.

Correct answer: A. NDP rises by ₹650 crore and NFIA falls by ₹120 crore

Explanation: Domestic product is based on where production takes place, not on the ownership of the company. Thus the entire ₹650 crore net value added produced inside India enters India’s NDP. Profit sent to a foreign owner is a factor payment to abroad, so it reduces India’s net factor income from abroad by ₹120 crore. Therefore option A is correct.

Correct answer: C. ₹5,250 crore

Explanation: Under the income method, NDP at factor cost is the total of factor incomes generated within the domestic territory. Add all five components: ₹2,750 + ₹420 + ₹310 + ₹1,020 + ₹750 = ₹5,250 crore. Therefore option C is correct. No depreciation, net factor income from abroad or indirect-tax adjustment is required because the requested measure is domestic and at factor cost.

Correct answer: C. ₹2,600 crore

Explanation: Compensation of employees includes three elements: cash wages, wages paid in kind and employers’ social contributions. Therefore, total compensation = ₹2,100 + ₹260 + ₹240 = ₹2,600 crore. Option C is correct. Option A excludes the employer contribution, while option B excludes wages in kind; option D incorrectly adds an amount not given in the question.

Correct answer: D. ₹710 crore

Explanation: Government and other non-market services are generally valued by the cost of production because they do not have a reliable market price. Gross value of output equals compensation of employees plus intermediate consumption plus depreciation: ₹510 + ₹160 + ₹40 = ₹710 crore. Therefore option D is correct. Excluding depreciation gives net value, while excluding intermediate goods understates total production cost.