Aggregates related to national income - NNP

NNP is obtained after deducting depreciation from GNP, so the relationship is NNP = GNP − Depreciation. To recover the gross figure, add depreciation back: GNP = NNP + Depreciation = ₹1,080 crore + ₹120 crore = ₹1,200 crore. Therefore, option C is correct. Option A subtracts depreciation, B ignores it, and D gives only depreciation rather than GNP.

NNP is a national net aggregate, whereas NDP is a domestic net aggregate. The difference between a national aggregate and the corresponding domestic aggregate is Net Factor Income from Abroad (NFIA). Thus, NFIA = NNP − NDP = ₹720 crore − ₹700 crore = ₹20 crore. Therefore, option A is correct.

The conversion from NNP at market price to NNP at factor cost is: NNPFC = NNPMP − Net Indirect Taxes (NIT). Since NIT is negative ₹30 crore, the calculation becomes ₹650 crore − (−₹30 crore) = ₹680 crore. Subtracting a negative amount increases the value, so option C is correct.

The terms gross and net refer to the treatment of depreciation, also called consumption of fixed capital. GNP is a gross measure because depreciation has not been deducted. NNP is obtained by subtracting depreciation from GNP. Thus, depreciation explains the difference between GNP and NNP, making option B correct.

Net Indirect Taxes are calculated by subtracting subsidies from indirect taxes: NIT = Indirect Taxes − Subsidies. Substituting the given values gives NIT = ₹210 crore − ₹85 crore = ₹125 crore. The sum, ₹295 crore, is not appropriate because subsidies reduce the net tax burden; ₹210 crore ignores subsidies and ₹85 crore is only the subsidy amount. Hence option C is correct.

The distinction between domestic and national aggregates is based on the income connection with the rest of the world. Net Factor Income from Abroad, or NFIA, is added to a domestic aggregate to obtain the corresponding national aggregate: National = Domestic + NFIA. Depreciation changes gross to net, NIT changes market price to factor cost, and per capita income is a separate distribution measure. Hence option B is correct.

Real NNP measures the value of current production after removing the effect of price changes. It is therefore calculated at constant prices, usually with a selected base year. This allows a comparison of physical output and real economic performance across years without confusing inflation with genuine growth.

The relationship is NNP at factor cost = NNP at market prices − net indirect taxes. Therefore, net indirect taxes equal the difference between the two measures: NIT = 1,600 − 1,510 = ₹90 crore. The positive difference shows that net indirect taxes raise market prices above factor cost in this example.

The selling price of a final good generally already contains the value of the intermediate goods used to produce it. If intermediate goods were added separately to the value of final goods, the same production would be counted more than once. Excluding them separately and counting final output prevents double counting in NNP.

A second-hand good was produced and normally counted in national output when it was first manufactured. Counting its entire resale value again would count old production as current production. Therefore, the resale itself is excluded from NNP, although current services such as a broker’s commission may be included because they are produced in the current period.

NNP measured at current prices is a nominal measure: it uses the prices prevailing in the year of measurement. Inflation can therefore raise its money value even when the physical quantity of output has not increased. Constant-price NNP removes the effect of price changes and is more suitable for identifying real growth.

Depreciation, also called consumption of fixed capital, represents the loss in value of fixed capital assets caused by use, ageing and normal obsolescence during production. A high depreciation figure means that more capital has been used up. It also creates a larger difference between a gross aggregate and its corresponding net aggregate.

The difference between a gross aggregate and the corresponding net aggregate is consumption of fixed capital, commonly called depreciation. Therefore, depreciation = GNP at MP − NNP at MP = 2600 − 2310 = 290 crore. Both figures use the same national and market-price basis, so no other adjustment is needed.

NDP at MP is a domestic net measure, whereas NNP at MP is a national net measure. Since NNP = NDP + NFIA, NFIA = NNP − NDP = 1510 − 1550 = −40 crore. The negative result shows that factor income paid to the rest of the world exceeds factor income received from abroad by 40 crore.

First convert the gross national measure into a net national measure by deducting depreciation: NNP at FC = 2000 − 300 = 1700 crore. Then convert factor cost to market price by adding NIT: NNP at MP = 1700 + 110 = 1810 crore. Thus option C is the only correct answer.

A doctor’s paid consultation is a current, market-valued productive service, so its fee represents current output and can be included in NNP, subject to the relevant accounting boundary. A family gift and lottery prize are transfer receipts, while buying old shares is a financial transaction; none of these three represents current production.

In national-income accounting, national income is conventionally defined as NNP at factor cost. The word national indicates that net factor income from abroad is included, while factor cost indicates that net indirect taxes are excluded. Therefore, when both terms appear as options in a standard macroeconomics question, they refer to the same aggregate, subject to the stated accounting conventions.

Net indirect taxes are calculated as indirect taxes minus subsidies: NIT = indirect taxes − subsidies. Substituting the values gives 540 − 690 = −150 crore. The negative result means that subsidies exceed indirect taxes by 150 crore. Therefore, NIT is −150 crore, making option B correct.

NNP_MP is obtained by deducting consumption of fixed capital, or depreciation, from GNP_MP: NNP_MP = GNP_MP - depreciation. The word national refers to residents rather than only domestic territory, and the word net signals the deduction of depreciation. Option B reverses the national-domestic adjustment and option D wrongly restricts production to government activity.

Per-capita NNP is calculated by dividing aggregate NNP by the population: ₹8,400 crore ÷ 210 crore = ₹40. The unit ‘crore’ appears in both the numerator and denominator and therefore cancels. Thus, the average NNP per person is ₹40, assuming both figures refer to the same period and the same valuation basis.

Net factor income from abroad (NFIA) is calculated as factor income received from abroad minus factor income paid abroad. Therefore, NFIA = ₹90 crore − ₹130 crore = −₹40 crore. The negative sign is essential: it shows that residents’ factor income received from abroad is smaller than the factor income paid to foreign factors within the country. Hence option B is correct.

NFIA equals factor income received from abroad minus factor income paid abroad. It becomes negative when the second amount is larger than the first. Thus, a country is paying more factor income to foreign factors operating within its territory than its residents are receiving from factors employed abroad. Negative NFIA does not by itself tell us anything about depreciation or net indirect taxes, so option A is the only valid statement.

A lottery prize is a transfer receipt, not a payment for supplying labour, land, capital, or entrepreneurial service during the current production period. NNP at factor cost includes factor incomes such as wages, rent, interest, and profit after accounting for depreciation and relevant adjustments. Since a lottery prize does not arise from a productive factor service, including it would make the measure conceptually inaccurate. Therefore option A is correct.

When gross and net aggregates are measured on the same price basis, depreciation equals the difference between them: depreciation = GNP_MP − NNP_MP. Therefore, depreciation = ₹2,000 − ₹1,760 = ₹240 crore. Option A is correct. The other options merely repeat one input or add the two aggregates, which does not represent the deduction needed to move from gross to net national product.

The net difference between factor income received by a country’s normal residents from abroad and factor income paid to foreign factors within the country is called Net Factor Income from Abroad, or NFIA. NFIA is added to GDP to obtain GNP, and after depreciation it helps obtain NNP. NIT, depreciation, and intermediate consumption are separate concepts.