Aggregates related to national income - NNP

National income is conventionally defined as NNP at factor cost, or NNP₍FC₎. It is national because it includes net factor income from abroad, and it is net because depreciation is deducted. Factor-cost valuation excludes the effect of net indirect taxes, so the income accruing to factors of production is measured more accurately.

The sale of a used machine is a transfer of an existing capital asset, not the production of a new good during the current accounting period. Its full resale value should not be added again to current output. If it is counted as new output, national production and therefore NNP will be overstated. Only any current service or brokerage involved may represent current production.

Transfer payments such as pensions, scholarships, and unemployment benefits are received without providing a current productive service in exchange. They are therefore not factor payments generated by current production and are excluded from national income. Adding them to NNP at factor cost would include non-factor receipts and make measured national income appear higher than the income earned from current production.

A lottery prize is generally a transfer receipt, not payment for supplying a factor of production such as labour, land, capital, or entrepreneurship. NNP measures the value of current final output and the factor incomes generated through production. Since the prize is received without providing a productive service in the relevant transaction, it is excluded from factor income. It may redistribute existing income, but it does not represent newly generated factor earnings.

NNP_MP is obtained from GNP_MP by deducting consumption of fixed capital, commonly called depreciation. The word ‘national’ refers to production by normal residents, including their net factor income relationship with the rest of the world; ‘net’ means depreciation has been deducted; and ‘market price’ means valuation includes the effect of net indirect taxes. Hence option C gives the correct identity.

Initially, per capita NNP_FC = ₹9,000 crore ÷ 300 crore = ₹30 per person. Finally, per capita NNP_FC = ₹9,900 crore ÷ 330 crore = ₹30 per person. Total NNP increases by 10 percent, but population also increases by 10 percent, so the ratio remains constant. Therefore, average income measured by per capita NNP_FC is unchanged, and option A is correct.

Net indirect taxes (NIT) equal indirect taxes minus subsidies. When subsidies increase and indirect taxes remain unchanged, NIT decreases. The conversion formula is NNP₍FC₎ = NNP₍MP₎ − NIT. Since NNP₍MP₎ is fixed, a decrease in NIT increases NNP₍FC₎. Therefore, option A is correct. This also shows that factor cost may exceed market price when subsidies are sufficiently high.

First calculate net indirect taxes: NIT = indirect taxes − subsidies = ₹900 crore − ₹1,100 crore = −₹200 crore. To convert market-price value into factor-cost value, use NNP₍FC₎ = NNP₍MP₎ − NIT. Thus, NNP₍FC₎ = ₹8,000 − (−₹200) = ₹8,200 crore. The negative NIT increases the factor-cost aggregate above the market-price aggregate.

The relationship between a national and a domestic aggregate at the same valuation is generally National = Domestic + NFIA. If NFIA is negative, factor income paid to foreigners exceeds factor income received from abroad. Subtracting this negative net amount makes the national aggregate lower than the domestic aggregate. NIT, depreciation, and current prices do not by themselves determine this national-domestic difference.

The identity GNP = GDP + NFIA shows that the difference between GNP and GDP is NFIA. If GDP and GNP are equal, their difference is zero; therefore NFIA must be zero. This conclusion does not imply zero depreciation, zero NIT, or equality between NNP and GDP. In fact, NNP equals GNP minus depreciation, so depreciation may still be positive.

The conversion relationship is NNP₍FC₎ = NNP₍MP₎ − NIT, where NIT means indirect taxes minus subsidies. If NNP₍MP₎ and NNP₍FC₎ are equal, their difference is zero. Therefore NIT must be zero, meaning indirect taxes equal subsidies. NFIA and depreciation affect other comparisons and are not implied by equality of the two NNP measures.

GNP is a gross measure because it includes the value of capital goods used up or worn out during production. NNP is obtained by subtracting capital depreciation from GNP. The resulting figure represents the output or income remaining after maintaining the productive capital stock, so it gives a better indication of the income that can be sustained without reducing productive capacity. The other options are unrelated.

When moving from factor cost to market price, net indirect taxes are added because market price includes indirect taxes but excludes subsidies. The complete relation is NNP_{MP} = GDP_{FC} + NFIA - depreciation + NIT. Thus, regardless of other adjustments, NIT is added; option A is correct.

NNP_{FC} and GNP_{MP} are both national aggregates, so no NFIA adjustment is required. However, NNP must be changed to GNP by adding depreciation, and factor cost must be changed to market price by adding NIT. Therefore, both depreciation and NIT are added, so option A is correct.

To convert NNP at factor cost into GNP at market price, add depreciation to change net into gross and add NIT to change factor cost into market price. Thus, GNP_{MP} = 1250 + 140 + 60 = ₹1450 crore. No NFIA is used because both aggregates are measured on the national basis.

A newly produced machine is a capital good created during the current accounting year. If it is a final good, its value represents current production and is included in the relevant gross national product before depreciation is deducted to obtain NNP. Resales, financial transactions and family gifts do not represent current production.

Farm produce consumed by the farmer's own household is still the result of productive activity and could have been sold in the market. Since no actual sale price may be recorded, national accounting can use an imputed value, usually based on the prevailing market price. This helps capture output that would otherwise be missed.

The relationship is NNPFC = GNPFC − depreciation. If GNPFC increases by exactly the same amount as depreciation, the positive change in GNPFC is completely offset by the negative change caused by higher depreciation. Thus the change in NNPFC is zero, so it may remain unchanged, assuming all other components are constant.

The conversion formula is NNPFC = NNPMP − NIT. When NNPMP is fixed, an increase in NIT must reduce the factor-cost measure by the same amount. Market price includes net indirect taxes, whereas factor cost excludes them. Hence higher NIT creates a lower NNPFC, not a higher one.

The conversion from factor cost to market price is NNPMP = NNPFC + NIT. Since NNPFC is unchanged, a decrease in NIT directly lowers NNPMP by the same amount. The market-price measure includes net indirect taxes, so reducing that component reduces the final market-price aggregate rather than increasing it.

GDP₍MP₎ and NNP₍MP₎ are both measured at market prices, so no conversion between market price and factor cost is required. NIT is used only when changing the price basis, such as converting market price to factor cost or factor cost to market price. To derive NNP₍MP₎ from GDP₍MP₎, the relevant adjustments are NFIA for domestic-to-national conversion and depreciation for gross-to-net conversion. Therefore, option A is correct.

NNP is obtained by subtracting depreciation from GNP because depreciation measures the loss of value of fixed capital during production. Since GNP₍MP₎ is already given, there is no need to calculate or add NFIA again. Thus, NNP₍MP₎ = GNP₍MP₎ − depreciation = ₹1,640 crore − ₹120 crore = ₹1,520 crore. Therefore, option A is the only numerically and conceptually correct answer.

The identity is NNP₍MP₎ = GNP₍MP₎ − depreciation. Suppose GNP falls by ₹50 crore while depreciation falls by ₹80 crore. Subtracting a smaller depreciation loss increases NNP by ₹30 crore overall, so NNP can rise. The final result depends on the relative sizes of the two changes; therefore, it is incorrect to say that NNP must always fall or become zero. Option A expresses the possible outcome.

Per-capita national income is calculated as NNP₍FC₎ divided by population. A rise in total NNP does not automatically guarantee a rise in the per-capita figure. If population increases at a faster rate than NNP, the denominator grows proportionately more than the numerator, so the quotient may decline. Thus, option A is correct. Total national income and per-capita national income must be distinguished carefully.

The difference between NNP at market price and NNP at factor cost is net indirect tax. Net indirect tax = indirect taxes − subsidies = ₹200 crore − ₹75 crore = ₹125 crore. Therefore, NNPMP exceeds NNPFC by ₹125 crore, assuming the usual national-income accounting relationship and no other adjustment is involved.