Aggregates related to national income - NNP

Correct answer: A. Add depreciation and add NIT

Explanation: NNP at factor cost is already national and net. To obtain GNP, which is the gross national aggregate, add depreciation. To change factor cost into market price, add net indirect taxes, NIT. The national basis is already present, so NFIA is not involved in this conversion. Consequently, option A gives the correct reverse conversion.

Correct answer: A. ₹7,270 crore

Explanation: NNP at factor cost is net and measured at factor cost. Add depreciation of ₹760 crore to convert net into gross, and add NIT of ₹310 crore to convert factor cost into market price. Thus, GNP at market price = NNPFC + depreciation + NIT = 6,200 + 760 + 310 = ₹7,270 crore. Hence, option A is correct.

Correct answer: A. NFIA, depreciation and NIT

Explanation: GNP₍FC₎ is national, gross, and measured at factor cost, whereas NDP₍MP₎ is domestic, net, and measured at market prices. To move between them, remove NFIA to change national into domestic, subtract depreciation to change gross into net, and add NIT to change factor cost into market price.

Correct answer: A. Official NNP may appear lower than actual production

Explanation: National-income accounts depend on recorded production and income transactions. Illegal output is often hidden and therefore omitted or under-recorded in official statistics. As a result, measured NNP may understate the economy’s actual production and income. This is a measurement and coverage problem, not an automatic change in depreciation, NIT, or the NNP formula.

Correct answer: A. ₹4,500 crore

Explanation: First convert gross domestic value into net domestic value by deducting depreciation: ₹4,900 crore − ₹600 crore = ₹4,300 crore. Since the question keeps the same valuation basis, add net factor income from abroad to obtain the corresponding net national aggregate: ₹4,300 crore + ₹200 crore = ₹4,500 crore. No separate tax adjustment is required when the valuation basis is unchanged.

Correct answer: A. Deduct NFIA and add NIT

Explanation: NNP_FC is national and net, while NDP_MP is domestic, net, and measured at market prices. To change national into domestic, subtract net factor income from abroad (NFIA). To change factor cost into market price, add net indirect taxes (NIT), where NIT equals indirect taxes minus subsidies. No depreciation adjustment is required because both aggregates are net. Therefore, option A is correct.

Correct answer: A. ₹5,025 crore

Explanation: To convert NNP_FC into NDP_MP, first remove the foreign component by deducting NFIA and then change factor cost into market price by adding NIT. Thus, NDP_MP = NNP_FC − NFIA + NIT = 5,100 − 250 + 175 = ₹5,025 crore. Depreciation is not used because both NNP and NDP are net measures. Hence, option A is the only correct numerical answer.

Correct answer: A. Add depreciation, deduct NFIA, and deduct NIT

Explanation: NNP_MP is national, net, and valued at market prices, whereas GDP_FC is domestic, gross, and valued at factor cost. Add depreciation to change net into gross, subtract NFIA to change national into domestic, and subtract NIT to change market price into factor cost. Therefore, GDP_FC = NNP_MP + depreciation − NFIA − NIT, making option A correct.

Correct answer: A. Net available output may be overestimated because a large part of gross output is needed to replace worn-out capital.

Explanation: GNP is a gross measure: it includes production before deducting depreciation. When capital is old, depreciation can be very large, so much of current output merely maintains or replaces existing machines and buildings rather than adding to usable income. Therefore, relying only on GNP may overstate the economy’s net available output. NNP, calculated as GNP minus depreciation, gives a more realistic picture.

Correct answer: A. Treating the resale price of old furniture as current output.

Explanation: National income measures the value of current production during the accounting period. The resale of old furniture is only a transfer of an already produced asset and does not represent new current output; therefore, its resale price should not be counted again. However, self-consumed farm output, imputed rent from owner-occupied housing, and current brokerage services represent current services or production and may be included.

Correct answer: A. Identify three features of every aggregate: domestic or national, gross or net, and market price or factor cost.

Explanation: Every national-income aggregate has three independent identities: its geographical coverage is domestic or national, its capital treatment is gross or net, and its valuation basis is market price or factor cost. Correctly identifying the starting and target aggregates tells you whether to add or subtract NFIA, depreciation, and NIT. This systematic check prevents sign and conversion errors.

Correct answer: A. NNPFC = GDPMP + NFIA − depreciation − NIT

Explanation: The symbolic conversion formula does not change merely because NFIA or NIT has a negative numerical value. Starting from GDP at market price, add NFIA to move from domestic to national, subtract depreciation to move from gross to net, and subtract net indirect taxes to move from market price to factor cost: NNPFC = GDPMP + NFIA − depreciation − NIT. Negative values are then substituted algebraically.

Correct answer: A. ₹2,560 crore

Explanation: First calculate net indirect taxes: NIT = indirect taxes − subsidies = 160 − 220 = −60 crore. Then use NNPFC = GDPMP + NFIA − depreciation − NIT. Substitution gives 2,800 + (−90) − 210 − (−60) = 2,560 crore. The negative NIT increases the result because subsidies exceed indirect taxes.

Correct answer: A. Add NFIA.

Explanation: National income is NNP at factor cost. NDPFC is already domestic, net, and valued at factor cost, so the net and valuation adjustments have already been handled. The only remaining difference is domestic versus national coverage. Therefore, add net factor income from abroad: national income = NDPFC + NFIA. Depreciation and NIT should not be applied again.

Correct answer: A. ₹1,700 crore

Explanation: Net factor income from abroad is calculated as factor income received from abroad minus factor income paid abroad: NFIA = 120 − 170 = −50 crore. Since NDPFC is already net and at factor cost, national income is obtained by adding NFIA: 1,750 + (−50) = ₹1,700 crore. The negative NFIA lowers national income below domestic product.

Correct answer: A. Subtract NFIA, add depreciation, and subtract NIT.

Explanation: NNPMP is national, net, and measured at market prices, whereas GDPFC must be domestic, gross, and at factor cost. To change national to domestic, subtract NFIA; to change net to gross, add depreciation; and to change market price to factor cost, subtract NIT. Thus GDPFC = NNPMP − NFIA + depreciation − NIT, which is option A.

Correct answer: A. ₹1,850 crore

Explanation: Use the reverse-conversion formula GDPFC = NNPMP − NFIA + depreciation − NIT. Substituting the figures gives 1,900 − 75 + 125 − 100 = ₹1,850 crore. NFIA is subtracted because the conversion changes national to domestic, depreciation is added because it changes net to gross, and NIT is subtracted because it changes market price to factor cost.

Correct answer: A. ₹−50 crore

Explanation: The relationship between the two price measures is NNP_MP = NNP_FC + NIT. Rearranging gives NIT = NNP_MP − NNP_FC = ₹910 − ₹960 = −₹50 crore. Thus option A is correct. A negative NIT means subsidies exceed indirect taxes by ₹50 crore. Option B reverses the subtraction, while C adds the aggregates and D ignores the ₹50-crore difference.

Correct answer: A. ₹1,940 crore

Explanation: National income is defined as NNP at factor cost. First calculate net indirect taxes: NIT = indirect taxes − subsidies = ₹250 − ₹90 = ₹160 crore. Then convert GNP_MP to NNP_FC by subtracting depreciation and NIT: ₹2,400 − ₹300 − ₹160 = ₹1,940 crore. Therefore option A is correct; the other choices omit or mishandle one of these adjustments.

Correct answer: A. ₹2050 crore

Explanation: Use the conversion formula NNP_{MP} = GDP_{FC} + NFIA - depreciation + NIT. Substitution gives 2200 + (-40) - 180 + 70 = 2050 crore. The negative NFIA reduces the total, depreciation converts gross into net, and NIT converts factor cost into market price. Therefore, option A is correct.

Correct answer: A. NNP_{FC} = NDP_{MP} + NFIA - NIT

Explanation: National income is NNP at factor cost. NDP_{MP} is already net, so depreciation must not be adjusted again. To move from domestic to national, add NFIA; to move from market price to factor cost, subtract NIT. Therefore, NNP_{FC} = NDP_{MP} + NFIA - NIT, making option A correct.

Correct answer: A. ₹1350 crore

Explanation: Calculate net indirect tax first: NIT = 120 - 50 = ₹70 crore. Since NDP_{MP} is already a net measure, no depreciation adjustment is needed. Convert to national income, NNP_{FC}, by adding NFIA and subtracting NIT: 1450 + (-30) - 70 = ₹1350 crore. Thus, option A is correct.

Correct answer: A. A transfer payment will be wrongly included

Explanation: A pension is generally a transfer payment because the recipient does not provide any current productive factor service in exchange for it. Factor income includes current wages, rent, interest and profit earned from production. Including pension as factor income would therefore add an income that is not generated by current production and would overstate national income.

Correct answer: A. Only the ₹15 crore agent fee

Explanation: The ₹500 crore resale price is a transfer of an existing asset and does not represent production during the current year. However, the agent provides a current brokerage service, whose ₹15 crore fee is part of current service output. Therefore only the agent fee is included in national income, subject to the usual accounting assumptions.

Correct answer: A. Grain is marketable output, whereas unpaid household service is difficult to value reliably

Explanation: Self-consumed grain is a tangible good produced through farming and has an observable or estimable market price. It can therefore be assigned an imputed market value in national accounting. Unpaid services performed within the household are generally excluded because there is no market transaction and their comparable monetary value is difficult to measure consistently.