Aggregates related to national income - NNP

Correct answer: B. Because it is linked with production within the domestic territory of a country

Explanation: GDP measures the market value of final goods and services produced within a country’s domestic territory during a specified period, regardless of whether the producers are residents or foreigners. The word domestic therefore refers to location of production, so option B is correct.

Correct answer: A. Net national product

Explanation: Gross national product measures the final output produced by the normal residents of a country, whether production occurs domestically or abroad. Depreciation represents the value of fixed capital consumed in producing that output. Subtracting it from GNP gives net national product: GNP − depreciation = NNP. GDP, private income, and export income are not the corresponding net aggregate.

Correct answer: B. NNP = GNP - Depreciation

Explanation: GNP measures the value of final goods and services produced by the factors of production of a nation before deducting capital consumption. To obtain Net National Product, depreciation is subtracted from GNP: NNP = GNP − Depreciation. Adding depreciation would move from a net measure to a gross measure, while the remaining options reverse or misuse the identity. Hence, option B is correct.

Correct answer: D. 70

Explanation: The relationship is NNP = GNP − Depreciation. Rearranging it gives Depreciation = GNP − NNP. Using the given figures, depreciation = 700 − 630 = 70. The values 700 and 630 are the stated gross and net products, while 1330 comes from an incorrect addition. Therefore, option D, 70, is correct.

Correct answer: A. Deduct depreciation

Explanation: The distinction between gross and net measures is depreciation. Gross national product includes the value of production before allowing for the wear and tear of capital goods. To obtain net national product, depreciation, also called consumption of fixed capital, is deducted from GNP. The other options are unrelated adjustments.

Correct answer: A. NNP at factor cost (NNP₍FC₎)

Explanation: In the conventional national-income accounting framework, national income is defined as Net National Product at Factor Cost, or NNPFC. It is net because depreciation is deducted from gross product, national because net factor income from abroad is considered, and at factor cost because the measure reflects factor payments rather than market prices including net indirect taxes.

Correct answer: A. ₹80,500 crore

Explanation: Net national product at factor cost is obtained by deducting depreciation from gross national product at factor cost. The formula is NNPFC = GNPFC − depreciation. Substituting the figures gives ₹85,000 crore − ₹4,500 crore = ₹80,500 crore. Therefore, option A is correct. The gross amount remains ₹85,000 crore before depreciation is deducted, while ₹4,500 crore is only the deduction itself.

Correct answer: A. Net National Product

Explanation: NNP stands for Net National Product. “National” indicates that the measure is based on the production or income of normal residents, while “Net” means depreciation, or consumption of fixed capital, has been deducted from the corresponding gross national product. Thus, NNP = GNP − depreciation, and option A is correct.

Correct answer: A. By subtracting depreciation from GNP

Explanation: NNP is obtained by subtracting depreciation, also called consumption of fixed capital, from GNP: NNP = GNP − depreciation. GNP already has the national and gross dimensions; deducting the loss in value of fixed assets changes it into a net national product. The other options do not represent the NNP formula, so A is correct.

Correct answer: A. Depreciation

Explanation: NNP is the net form of GNP. The defining adjustment is subtraction of depreciation, or consumption of fixed capital, from gross national product: NNP = GNP − depreciation. Exports, private consumption and government expenditure are components used in other national-income calculations, but none is the specific deduction that converts GNP into NNP. Therefore, A is correct.

Correct answer: B. ₹450 crore

Explanation: The relationship between gross and net national product is NNP = GNP − depreciation. Substituting the given values gives NNP = ₹500 crore − ₹50 crore = ₹450 crore. Depreciation is deducted because it represents the value of fixed capital used up during production. Therefore, option B is correct; adding depreciation would incorrectly increase a net measure.

Correct answer: B. Net measure

Explanation: NNP is a net product measure because depreciation is deducted from GNP. The word “net” indicates the value remaining after allowing for the consumption or wearing out of fixed capital during production. “National” refers to normal residents, but it does not make NNP a purely domestic or private measure. Hence, option B is correct.

Correct answer: A. Income of normal residents of a country

Explanation: In national-income accounting, “national” refers to the normal residents of a country, regardless of whether their factor income is earned inside the domestic territory or abroad. “Domestic” instead refers to production within geographical borders. Therefore, the word national in NNP points to normal residents, making option A correct.

Correct answer: A. Depreciation is deducted in NNP

Explanation: NNP means Net National Product, while GNP means Gross National Product. NNP is obtained by subtracting depreciation, also called consumption of fixed capital, from GNP: NNP = GNP − Depreciation. Both aggregates are national concepts and include net factor income from abroad; the essential difference is net versus gross.

Correct answer: A. NNP = GNP − Depreciation

Explanation: The correct formula is NNP = GNP − Depreciation. GNP measures the gross value of final goods and services produced by the normal residents of a country, whereas depreciation represents the loss in value of fixed capital during production. Subtracting this capital consumption converts the gross national product into net national product.

Correct answer: B. NNP

Explanation: When depreciation is deducted from GNP, the result is NNP: NNP = GNP − Depreciation. GNP is a gross national aggregate because it includes the value of capital consumed during production. After allowing for this wear and tear or replacement requirement, the remaining value is called Net National Product.

Correct answer: A. Because the value of capital wear and tear is deducted

Explanation: NNP is called net because it measures national output after deducting depreciation, or consumption of fixed capital, from GNP. This deduction recognises that part of current production is needed to replace machines, buildings, and other fixed assets used up in production. Therefore, NNP represents the output left after maintaining the capital stock.

Correct answer: B. NNP will decrease

Explanation: NNP is calculated as GNP minus depreciation. If GNP does not change but depreciation rises, a larger amount must be subtracted from the same GNP, so NNP falls. For example, if GNP is 1,000 and depreciation rises from 100 to 150, NNP falls from 900 to 850. Thus option B is correct.

Correct answer: A. Normal residents

Explanation: NNP is a national-income aggregate, so it relates to the productive activity of a country’s normal residents, not merely to production occurring within its geographical borders. It is obtained after deducting depreciation from the gross national product. The term normal residents includes resident households and institutions whose economic interests are centred in the country.

Correct answer: A. National Income

Explanation: NNP at factor cost is conventionally called National Income. It measures the net factor earnings generated by the normal residents of a country during an accounting period. The factor-cost valuation excludes the effect of net indirect taxes, and the word net indicates that depreciation has already been deducted from the corresponding gross national product.

Correct answer: A. NNP at factor cost

Explanation: In the standard national-income accounting framework, National Income is equal to NNP at factor cost. NNP makes the measure net by deducting depreciation from GNP, while factor cost removes the effect of net indirect taxes and reflects payments to factors of production. Therefore, neither GNP at market price nor GDP at market price is the correct identity.

Correct answer: B. ₹560 crore

Explanation: To convert NNP at market price into NNP at factor cost, subtract net indirect taxes because market price includes the effect of indirect taxes less subsidies. Thus, NNPFC = NNPMP − net indirect taxes = ₹600 crore − ₹40 crore = ₹560 crore. Therefore, option B is correct; adding the tax would incorrectly give ₹640 crore.

Correct answer: A. Zero

Explanation: The relationship between NNP at market price and NNP at factor cost is: NNPMP = NNPFC + Net Indirect Taxes (NIT). Therefore, NIT = NNPMP − NNPFC. If both aggregates are equal, their difference is zero, so net indirect taxes must be zero. This means indirect taxes and subsidies, taken together, exactly offset each other; it does not mean that both individual components are necessarily absent.

Correct answer: A. It is part of the national concept

Explanation: NNP is a national aggregate, so it measures the net production or income attributable to the normal residents of a country. Net factor income from abroad, or NFIA, is used when converting a domestic aggregate into a national aggregate: National aggregate = domestic aggregate + NFIA. Its sign determines whether it is added or subtracted numerically.

Correct answer: A. Net factor income from abroad

Explanation: NDP is a domestic aggregate because it measures net production within the economic territory. NNP is a national aggregate because it measures net production attributable to the country’s residents. The conversion from a domestic to a national aggregate is made by adding net factor income from abroad: NNP = NDP + NFIA, when the corresponding valuation is unchanged.