Aggregates related to national income - NNP

To convert NNP at Market Price into NNP at Factor Cost, net indirect taxes must be subtracted. The relationship is NNPFC = NNPMP − NIT, where NIT equals indirect taxes minus subsidies. Market price contains the effect of these net taxes, while factor cost represents factor payments. Therefore, option B is correct; NFIA and depreciation are used for different national-income adjustments.

The conversion formula is NNPFC = NNPMP − NIT. Substituting the given values gives NNPFC = ₹840 crore − ₹40 crore = ₹800 crore. Net indirect taxes are deducted because market price includes their effect, whereas factor cost measures the amount accruing to factors of production. Therefore, option B, ₹800 crore, is correct.

When converting from factor cost to market price, net indirect taxes are added. Thus, NNPMP = NNPFC + NIT = ₹760 crore + ₹25 crore = ₹785 crore. Subtracting NIT would move in the opposite direction, from market price to factor cost. The value ₹760 crore ignores the tax adjustment. Therefore, option C is the only correct answer.

The formula for obtaining Net National Product from Net Domestic Product is NNP = NDP + NFIA. Inserting the data gives NNP = ₹900 crore + ₹35 crore = ₹935 crore. Because NFIA is positive, income received from abroad exceeds comparable factor income paid abroad, so it raises the national figure above the domestic figure. Hence, option C is correct.

National product is based on the production and factor income of a country’s normal residents, rather than solely on the geographical location of production. Thus, factor income earned abroad by a normal resident is included through net factor income from abroad, subject to the net-product adjustment for depreciation. Option A states the relevant criterion.

Income earned in the domestic territory by a foreign company is factor income accruing to non-residents. When this income is paid or attributed to foreigners, it enters the outflow side of net factor income from abroad and can reduce NFIA. Since national product is derived using NFIA, this can lower NNP relative to the corresponding domestic measure. Option A is correct.

The correct relationship is gross product to net product through deduction of depreciation. Domestic-to-national conversion uses NFIA, not NIT; market-price-to-factor-cost conversion uses NIT, not NFIA; and exports do not convert net product into gross product. Therefore, only option A correctly pairs a conversion with its required adjustment.

The governing sequence is GDP plus NFIA equals GNP, and GNP minus depreciation equals NNP. Since NFIA is negative, it reduces GDP: GNP = ₹1,500 + (−₹50) = ₹1,450 crore. Deducting depreciation gives NNP = ₹1,450 − ₹200 = ₹1,250 crore. Therefore, option A is correct; options B, C and D result from mishandling the negative NFIA or depreciation.

NNP measures the value of net final goods and services produced by the normal residents of a country during a period. It is called net because depreciation, or consumption of fixed capital, is deducted from the corresponding gross national product. Therefore, option B is correct.

To convert Gross National Product at Market Price into Net National Product at Market Price, depreciation must be deducted: NNPMP = GNPMP − depreciation = ₹2100 crore − ₹260 crore = ₹1840 crore. The market-price basis remains unchanged; only the gross-to-net adjustment is made.

Net National Product is obtained by adding Net Factor Income from Abroad to Net Domestic Product: NNPMP = NDPMP + NFIA. Therefore, NNPMP = ₹1350 crore + ₹90 crore = ₹1440 crore. A positive NFIA increases the domestic net product to obtain the national net product.

NNPMP is the market value of final goods and services produced by a country’s normal residents during a year, less depreciation. “National” refers to residents, “net” means depreciation is deducted, and “market price” means valuation includes net indirect taxes. Therefore, option A is correct.

National income is defined as Net National Product at Factor Cost, or NNP at FC. It measures the net factor income earned by the normal residents of a country during an accounting period. “National” includes net factor income from abroad, “net” means depreciation has been deducted, and “factor cost” excludes net indirect taxes. Therefore, option C is correct; NDP at FC is domestic rather than national.

NNP at Market Price is calculated as GNP at Market Price minus depreciation, also called capital consumption allowance. GNP is already a national and gross aggregate; subtracting depreciation changes gross into net while retaining the market-price valuation. Option B produces NDP at MP, and option C also describes a conversion from a domestic aggregate rather than the direct definition. Thus option A is correct.

In national-income accounting, national income is NNP at Factor Cost. The term “net” excludes depreciation, “national” includes the income of normal residents and NFIA, and “factor cost” expresses income received by factors of production after removing net indirect taxes. GDP at MP and GNP at MP are gross and market-price measures, while NDP at FC is domestic. Hence option A is the only correct answer.

Capital consumption allowance is another name for depreciation: the estimated loss in value of fixed capital because of normal wear, obsolescence or accidental damage during production. NNP is a net measure, so depreciation is subtracted from the corresponding gross national product. Adding it would produce a gross figure, while NFIA and subsidies are different concepts. Therefore, option B is correct.

The relationship between the two valuations is NNP at MP = NNP at FC + Net Indirect Taxes. Net indirect taxes equal indirect taxes minus subsidies. If NIT is positive, indirect taxes exceed subsidies, so market price is higher than factor cost. If NIT is negative, subsidies exceed taxes and NNP at MP is lower. Depreciation and NFIA do not determine the difference between market price and factor cost.

To convert GDP at MP into NNP at MP, first add NFIA to change domestic into national and then subtract depreciation to change gross into net: NNP at MP = GDP at MP + NFIA − Depreciation. Thus, ₹2,500 + (−₹120) − ₹280 = ₹2,500 − ₹120 − ₹280 = ₹2,100 crore. The negative NFIA lowers the national total, so option A is correct.

When NNP is measured at current prices, changes in its value may result from changes in the general price level rather than from changes in actual production. Thus, inflation can make nominal NNP appear to rise even when real output has not increased. Constant-price NNP is preferred for meaningful comparison across years.

Market price includes net indirect taxes in addition to the payments received by factors of production. To obtain NNP at factor cost, indirect taxes are subtracted and subsidies are added back. In formula form, NNP at factor cost equals NNP at market price minus indirect taxes plus subsidies, or minus net indirect taxes.

Use the formula NNP at factor cost = NNP at market prices − NIT. Substituting the values gives ₹870 − (−₹40) = ₹870 + ₹40 = ₹910 crore. A negative NIT means subsidies exceed indirect taxes, so factor-cost NNP is higher than market-price NNP by ₹40 crore.

Transfer payments, such as pensions, scholarships, or certain welfare benefits, are made without receiving a currently produced good or productive service in return. Including them would treat a redistribution of existing income as new production. Since NNP records income arising from current production, transfer payments are excluded from it.

An owner-occupied house provides housing services to its owner even though no rent is actually paid to a landlord. To measure the value of all current production consistently, statisticians estimate the rent that the house could have earned in the market. This imputed rent represents a current housing service and can be included in NNP.

The relationship between gross and net national product at the same market price is NNP_MP = GNP_MP − depreciation. Therefore, GNP_MP − NNP_MP equals depreciation. Since the given difference is ₹410 crore, depreciation is ₹410 crore. No other adjustment, such as NFIA or net taxes, is required because both aggregates are measured at the same price basis.

Net national product is obtained by subtracting depreciation from gross national product when both are measured at market price: NNP_MP = GNP_MP − depreciation. Rearranging gives GNP_MP = NNP_MP + depreciation. Thus, GNP_MP = ₹1,900 crore + ₹250 crore = ₹2,150 crore. Hence option C is correct.