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In Class 12 Economics, this topic from National Income and Related Aggregates explains Net Domestic Product (NDP), the value of final goods and services produced within a country’s domestic territory after deducting depreciation, or consumption of fixed capital, from GDP. Students distinguish NDP at market prices from NDP at factor cost, understand the role of net indirect taxes, and connect these measures with national income accounting and the assessment of current domestic production.
Practice questions
01 If NDP at factor cost is ₹6,400 crore, compensation of employees is ₹3,500 crore, mixed income is ₹1,050 crore, rent is ₹360 crore and interest is ₹290 crore, what is profit?
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Answer and explanation
Correct answer: B. ₹1,200 crore
Explanation: At factor cost, NDP equals the sum of factor incomes: compensation of employees + rent + interest + profit + mixed income. Thus profit = 6,400 − 3,500 − 360 − 290 − 1,050 = ₹1,200 crore. Option B is correct. Every listed factor income must be deducted; omitting mixed income or another component would produce an incorrect higher figure.
02 The imputed annual rent of an owner-occupied house is 4 lakh rupees, intermediate maintenance expense is 60,000 rupees and depreciation is 30,000 rupees. What is net value added?
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Answer and explanation
Correct answer: B. 3 lakh 10 thousand rupees
Explanation: Net value added is obtained by subtracting intermediate consumption and depreciation from the value of output. Here, imputed rent is treated as output from the housing service: ₹4,00,000 − ₹60,000 − ₹30,000 = ₹3,10,000. Therefore, option B is correct. Option C subtracts only maintenance, while option A subtracts an excessive amount; option D adds rather than deducts the relevant costs.
03 An old machine is sold for 20 lakh rupees, the agent receives commission of 70,000 rupees and the repairer receives 90,000 rupees. How much is included in current NDP?
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Answer and explanation
Correct answer: C. 1 lakh 60 thousand rupees
Explanation: NDP measures current production, so the sale value of an old machine is excluded because that machine was produced in an earlier period. However, the current brokerage service and current repair service are productive services. Their combined value is ₹70,000 + ₹90,000 = ₹1,60,000. Therefore, option C is correct; the machine price itself must not be added.
04 If real NDP grows by 5 percent and population grows by 7 percent, what is the exact direction of real per capita NDP?
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Answer and explanation
Correct answer: A. It will fall by about 1.87 percent
Explanation: Real per capita NDP equals total real NDP divided by population. Its growth factor is therefore 1.05/1.07, not simply 1.05 − 1.07. The percentage change is [(1.05/1.07) − 1] × 100 ≈ −1.87%, so real per capita NDP falls by about 1.87%. Option A is correct; a 2% fall is only a rough subtraction approximation.
05 If real NDP grows by 9 percent and population grows by 4 percent, what is the exact approximate growth in real per capita NDP?
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Answer and explanation
Correct answer: A. 4.81 percent
Explanation: Real per capita NDP is real NDP divided by population. Therefore, its growth factor is 1.09/1.04. The percentage increase is [(1.09/1.04) − 1] × 100 = approximately 4.81%. Option A is correct. Subtracting 4 from 9 gives 5%, but that is only a rough approximation and not the exact approximate rate requested; options C and D ignore population adjustment.
06 In which situation may current NDP rise while future productive capacity weakens?
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Answer and explanation
Correct answer: A. Current output rises but net investment remains persistently negative
Explanation: The governing concept is the distinction between current production and the future capital base. Current NDP can increase because existing resources are used more intensively, even when net investment remains negative. Persistent negative net investment means depreciation exceeds gross investment, so the capital stock declines and future productive capacity weakens. Therefore option A is correct. Options B and C expand the capital base, while D improves productivity rather than weakening capacity.
07 If NDP at market price is 10200 crore rupees, indirect taxes are 920 crore rupees, subsidies are 370 crore rupees, net factor income from abroad is 260 crore rupees and depreciation is 520 crore rupees, then what is GNP at factor cost?
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Answer and explanation
Correct answer: C. 10430 crore rupees
Explanation: Use net indirect taxes = indirect taxes − subsidies = 920 − 370 = ₹550 crore. Convert NDP at market price to NDP at factor cost: 10,200 − 550 = ₹9,650 crore. Add net factor income from abroad to obtain NNP at factor cost: 9,650 + 260 = ₹9,910 crore. Finally add depreciation to change net into gross: 9,910 + 520 = ₹10,430 crore. Therefore option C is correct.
08 If GNP at market price is 13800 crore rupees, depreciation is 820 crore rupees, factor income received from abroad is 430 crore rupees, factor income paid abroad is 610 crore rupees, indirect taxes are 760 crore rupees and subsidies are 280 crore rupees, then what is NDP at factor cost?
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Answer and explanation
Correct answer: B. 12680 crore rupees
Explanation: First convert GNP to NNP by subtracting depreciation: 13,800 − 820 = ₹12,980 crore. Net factor income from abroad is 430 − 610 = −₹180 crore, so NDP at market price is NNP at market price − NFIA = 12,980 − (−180) = ₹13,160 crore. Net indirect taxes equal 760 − 280 = ₹480 crore. Subtracting them gives NDP at factor cost = 13,160 − 480 = ₹12,680 crore, option B.
09 GDP at market price is ₹11,500 crore, depreciation is ₹900 crore, indirect taxes are ₹1,100 crore and subsidies are ₹300 crore. What is NDP at factor cost?
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Answer and explanation
Correct answer: B. ₹9,800 crore
Explanation: First calculate net indirect taxes: NIT = indirect taxes − subsidies = ₹1,100 − ₹300 = ₹800 crore. To obtain NDP at factor cost from GDP at market price, subtract both depreciation and net indirect taxes: NDPFC = GDPMP − depreciation − NIT = ₹11,500 − ₹900 − ₹800 = ₹9,800 crore. Therefore option B is correct. Subtracting only one adjustment or adding subsidies separately without forming NIT gives the other distractor values.
10 What can be used instead of gross capital formation to directly calculate NDP at market price under the expenditure method?
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Answer and explanation
Correct answer: A. Net domestic capital formation
Explanation: The expenditure method normally gives GDP at market price when gross domestic capital formation is included. To obtain NDP directly, depreciation must already be deducted from the capital-formation component. Net domestic capital formation equals gross domestic capital formation minus depreciation, so it can replace the gross measure in the expenditure sum. Hence option A is correct; the other choices do not provide the required net domestic aggregate.
11 Private final consumption expenditure is ₹4,600 crore, government final consumption expenditure is ₹1,400 crore, net domestic capital formation is ₹900 crore, and net exports are ₹100 crore. What is NDP at market price?
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Answer and explanation
Correct answer: C. ₹7,000 crore
Explanation: Under the expenditure method, NDP at market price equals private final consumption expenditure + government final consumption expenditure + net domestic capital formation + net exports. Therefore, NDP = ₹4,600 + ₹1,400 + ₹900 + ₹100 = ₹7,000 crore. Option C is correct. Because capital formation is already net, depreciation must not be subtracted again; doing so would understate NDP.
12 Real NDP rises by 8 percent and population rises by 5 percent in a year. What is the approximate exact growth in real NDP per capita?
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Answer and explanation
Correct answer: A. 2.86 percent
Explanation: Per-capita real NDP equals total real NDP divided by population. With an 8% rise, output becomes 1.08 times its original value; with a 5% population rise, population becomes 1.05 times its original value. Per-capita growth = (1.08 ÷ 1.05 − 1) × 100 ≈ 2.86%. Thus option A is correct; 3% is only the subtraction approximation.
13 National income is ₹12,400 crore and net factor income from abroad is ₹600 crore. What is NDP at factor cost?
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Answer and explanation
Correct answer: B. ₹11,800 crore
Explanation: National income is NNP at factor cost. The relationship is NNP at factor cost = NDP at factor cost + NFIA. Therefore, NDP at factor cost = NNP at factor cost − NFIA = ₹12,400 crore − ₹600 crore = ₹11,800 crore. Option B is correct. Adding NFIA would incorrectly move from domestic to national rather than the reverse.
14 How is the output of an international organisation's office located within India generally treated in India's domestic product?
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Answer and explanation
Correct answer: B. Excluded from India's domestic product
Explanation: The relevant concept is economic territory, which is not identical to a country’s geographical boundaries. Offices of international organisations are generally treated under national-accounting conventions as outside the host country’s domestic territory. Consequently, their production is not normally included in India’s domestic product. It is not classified as depreciation, restricted to agriculture, or included merely because the office is physically located in India. Therefore option B is the appropriate answer.
15 Why does conventional NDP not automatically deduct environmental damage?
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Answer and explanation
Correct answer: A. Because it deducts recorded depreciation of produced fixed capital within the monetary production boundary
Explanation: Conventional NDP is calculated by subtracting consumption of produced fixed capital from GDP. It does not automatically subtract every loss of natural capital, pollution damage, or decline in environmental quality because these effects may not be recorded as market transactions in the standard production accounts. This limitation does not mean that the environment has no value. Green or adjusted accounting is needed to include such costs. Therefore option A is correct.
16 If output rises but remedial spending on pollution control rises by the same proportion, why may NDP overstate welfare?
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Answer and explanation
Correct answer: A. Remedial spending may be added to output while the original environmental damage is not fully deducted
Explanation: National product measures market-valued production, so expenditure on cleaning pollution or treating its effects can itself raise recorded output. However, the original loss of environmental quality, health, or natural capital may not be fully valued and deducted from NDP. In that situation, NDP increases even though some spending merely repairs damage created by pollution. Thus the measured product can overstate welfare, making option A correct.
17 An economy has GDP at market price of ₹14,000 crore, depreciation of ₹1,100 crore, and net indirect taxes of ₹900 crore. If net factor income from abroad is ₹200 crore, what is national income?
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Answer and explanation
Correct answer: C. ₹12,200 crore
Explanation: National income is NNP at factor cost. First convert GDP at market price to NDP at factor cost: NDPFC = GDPMP − depreciation − net indirect taxes = 14,000 − 1,100 − 900 = ₹12,000 crore. Then add net factor income from abroad to change domestic factor income into national factor income: national income = 12,000 + 200 = ₹12,200 crore. Therefore option C is correct.
18 If GNP at market price is ₹11,200 crore, depreciation is ₹680 crore, net factor income from abroad is ₹260 crore, and net indirect taxes are ₹490 crore, what is NDP at factor cost?
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Answer and explanation
Correct answer: A. ₹9,770 crore
Explanation: Use the sequence implied by the aggregate definitions. First subtract depreciation from GNP at market price: NNP at market price = ₹11,200 − ₹680 = ₹10,520 crore. Subtract NFIA to convert national to domestic: NDP at market price = ₹10,520 − ₹260 = ₹10,260 crore. Finally subtract net indirect taxes to reach factor cost: ₹10,260 − ₹490 = ₹9,770 crore. Option A is correct.
19 If NNP at factor cost is ₹8,750 crore, net factor income from abroad is −₹220 crore, indirect taxes are ₹680 crore, and subsidies are ₹240 crore, what is NDP at market price?
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Answer and explanation
Correct answer: B. ₹9,410 crore
Explanation: Convert NNP at factor cost to NDP at factor cost by subtracting NFIA: ₹8,750 − (−₹220) = ₹8,970 crore. Net indirect taxes equal taxes minus subsidies, or ₹680 − ₹240 = ₹440 crore. Add this valuation adjustment to obtain NDP at market price: ₹8,970 + ₹440 = ₹9,410 crore. Hence option B is correct; the negative NFIA must not be treated as positive.
20 If GDP at market price is ₹10,100 crore, NDP at factor cost is ₹9,080 crore, and depreciation is ₹410 crore, what are net indirect taxes?
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Answer and explanation
Correct answer: B. ₹610 crore
Explanation: First convert GDP at market price into NDP at market price by removing depreciation: ₹10,100 − ₹410 = ₹9,690 crore. The difference between NDP at market price and NDP at factor cost is net indirect taxes: ₹9,690 − ₹9,080 = ₹610 crore. Therefore option B is correct. Option D is the unadjusted GDP–NDP difference and ignores the common net basis.
21 If NDP at market price is ₹8,260 crore, indirect taxes are ₹590 crore, and NDP at factor cost is ₹7,850 crore, what are subsidies?
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Answer and explanation
Correct answer: A. ₹180 crore
Explanation: The difference between NDP at market price and factor cost gives net indirect taxes: ₹8,260 − ₹7,850 = ₹410 crore. Since net indirect taxes = indirect taxes − subsidies, subsidies = ₹590 − ₹410 = ₹180 crore. Thus option A is correct. Option B is only the net-tax amount, while C is the gross tax and D has no valid basis in the given relationship.
22 If GNP at market price is ₹12,600 crore, NDP at factor cost is ₹11,020 crore, depreciation is ₹730 crore, and net factor income from abroad is ₹290 crore, what are net indirect taxes?
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Answer and explanation
Correct answer: B. ₹560 crore
Explanation: First remove depreciation from GNP at market price: NNP at market price = ₹12,600 − ₹730 = ₹11,870 crore. Remove NFIA to obtain NDP at market price: ₹11,870 − ₹290 = ₹11,580 crore. The difference between this and NDP at factor cost is net indirect taxes: ₹11,580 − ₹11,020 = ₹560 crore. Therefore option B is correct.
23 If GDP at factor cost is ₹7,800 crore, NDP at market price is ₹7,920 crore, and net indirect taxes are ₹520 crore, what is depreciation?
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Answer and explanation
Correct answer: B. ₹400 crore
Explanation: First convert NDP at market price to NDP at factor cost by subtracting net indirect taxes: ₹7,920 − ₹520 = ₹7,400 crore. GDP at factor cost equals NDP at factor cost plus depreciation, so depreciation = ₹7,800 − ₹7,400 = ₹400 crore. Hence option B is correct. Option C confuses the tax adjustment with depreciation, while D uses the gross difference without valuation conversion.
24 If NDP at factor cost is 6900 crore rupees GDP at market price is 7900 crore rupees and depreciation is 5.5 percent of GDP at market price then what are net indirect taxes?
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Answer and explanation
Correct answer: B. 565.5 crore rupees
Explanation: Use the sequence GDP at market price − depreciation = NDP at market price, followed by NDP at market price − net indirect taxes = NDP at factor cost. Depreciation is 5.5% of 7,900 = 434.5 crore rupees, so NDP at market price is 7,465.5 crore rupees. Net indirect taxes = 7,465.5 − 6,900 = 565.5 crore rupees. Thus B is correct.
25 In an economy value of output is 2500 crore rupees intermediate consumption is 890 crore rupees depreciation is 190 crore rupees and net product taxes are 110 crore rupees. What is net value added at factor cost?
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Answer and explanation
Correct answer: A. 1310 crore rupees
Explanation: Under the value-added method, gross value added at market price equals value of output minus intermediate consumption: 2,500 − 890 = 1,610 crore rupees. Subtract depreciation to obtain net value added at market price: 1,610 − 190 = 1,420. Finally subtract net product taxes: 1,420 − 110 = 1,310 crore rupees. Hence, option A is correct.
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