Aggregates related to national income - NNP

Correct answer: A. Net national product

Explanation: Gross national product measures the value of final goods and services produced by the normal residents of a country before allowing for capital consumption. Subtracting depreciation gives net national product: NNP = GNP − depreciation. GDP measures production within domestic territory, while money supply and government debt are monetary or fiscal concepts, not results of this subtraction.

Correct answer: A. Net national product

Explanation: A gross national measure becomes a net national measure when depreciation is deducted. Thus, Net National Product (NNP) = Gross National Product (GNP) − Depreciation. The national boundary remains unchanged, so the result is not GDP. Private income and personal income require further adjustments involving factor income, transfers, and taxes. Hence, option A is correct.

Correct answer: A. 1050

Explanation: Net national product is obtained by subtracting depreciation from gross national product: NNP = GNP − Depreciation. Thus, NNP = 1200 − 150 = 1050. Net factor income from abroad is already reflected in GNP because GNP is a national, not domestic, measure. Therefore it should not be added again. The other options either ignore depreciation or use an incorrect operation.

Correct answer: A. Deduct depreciation and net indirect taxes

Explanation: National income is NNP at factor cost. Starting with GNP at market price, depreciation must be deducted to change the gross measure into a net measure, and net indirect taxes must be deducted to change market price into factor cost. Therefore, NNPFC = GNPMP − depreciation − net indirect taxes. Imports, exports, donations, and loans are not the general conversion adjustments asked for here.

Correct answer: A. Effect of indirect taxes and subsidies

Explanation: NNP at market price values final output at the prices paid by buyers. These prices include indirect taxes and are reduced by subsidies; together their net effect is called net indirect taxes. Direct taxes such as income tax are not the market-price adjustment used to convert factor cost into market price.

Correct answer: A. To avoid double counting

Explanation: Final goods and services are purchased for consumption, investment, or other final use and contain the value added at successive production stages. If intermediate goods were counted separately as well as within final goods, the same value would be counted more than once. Excluding them prevents double counting.

Correct answer: A. ₹920 crore

Explanation: Use the conversion formula NNP = GDP + NFIA − Depreciation. Substituting the given values gives NNP = ₹1000 crore + ₹20 crore − ₹100 crore = ₹920 crore. NFIA is added because it converts the domestic measure into a national measure, while depreciation is deducted to convert gross into net.

Correct answer: A. NNP at MP = GNP at MP − depreciation

Explanation: The correct formula is NNP at market price = GNP at market price − depreciation. Both measures remain at market price, and only the gross-to-net adjustment is required. Depreciation is deducted because it represents the value of fixed capital consumed during production. Other options either change the territorial or valuation basis incorrectly.

Correct answer: B. Consumption of fixed capital

Explanation: NNP differs from GNP because it accounts for consumption of fixed capital, commonly called depreciation. GNP is a gross measure and includes the value of output before allowing for the capital worn out during production. NNP deducts this amount, showing the net output remaining after maintaining or replacing used fixed assets.

Correct answer: A. ₹750 crore

Explanation: Net National Product at market price is obtained by subtracting depreciation, also called consumption of fixed capital, from Gross National Product at market price. The formula is NNPMP = GNPMP − Depreciation. Substituting the given values: ₹800 crore − ₹50 crore = ₹750 crore. Therefore, option A is correct. The gross value includes the loss in value of capital goods, whereas the net value excludes that loss.

Correct answer: B. Because it includes the net income of normal residents

Explanation: NNP is called a national aggregate because it is based on the income or output of a country’s normal residents, regardless of whether their production occurs inside or outside the domestic territory. It is net because depreciation is deducted. The national principle differs from the domestic principle, which focuses only on production within geographic boundaries.

Correct answer: B. Net factor income from abroad

Explanation: The main difference between NNP and NDP is net factor income from abroad, or NFIA. Both measures are net because depreciation is deducted, but NNP follows the national principle and includes residents’ net factor income from abroad. NDP follows the domestic principle and measures net production within the country’s territory. Therefore, NNP = NDP + NFIA, when comparable valuation is used.

Correct answer: C. ₹640 crore

Explanation: NNP at market price is obtained by adding Net Factor Income from Abroad to NDP at market price: NNPₘₚ = NDPₘₚ + NFIA. Therefore, NNPₘₚ = ₹600 crore + ₹40 crore = ₹640 crore. Since NFIA is positive, income received from abroad exceeds factor income paid abroad and increases the national aggregate.

Correct answer: A. ₹870 crore

Explanation: The relationship is NNPₘₚ = NDPₘₚ + NFIA. Substituting the values gives NNPₘₚ = ₹900 crore + (−₹30 crore) = ₹870 crore. A negative NFIA means that factor payments made to the rest of the world exceed factor income received from abroad, so the national figure is lower than the domestic figure.

Correct answer: A. ₹620 crore

Explanation: To convert a national-income aggregate from market price to factor cost, subtract Net Indirect Taxes (NIT), because market price includes indirect taxes net of subsidies. Hence, NNP₍FC₎ = NNPₘₚ − NIT = ₹700 crore − ₹80 crore = ₹620 crore. Therefore, option A is correct.

Correct answer: B. Sustainable net production capacity

Explanation: NNP deducts depreciation from GNP, so it measures the output remaining after replacing the capital that has worn out during production. For this reason, it gives a better indication of an economy’s net or sustainable production capacity than a gross measure, although it is not a complete welfare indicator.

Correct answer: A. 950 crore

Explanation: First convert domestic product into national product by adding NFIA: GNP_MP = GDP_MP + NFIA = 1000 + 100 = 1100 crore. Then convert gross national product into net national product by deducting depreciation: NNP_MP = 1100 − 150 = 950 crore. Therefore, option A is correct.

Correct answer: B. Money or nominal NNP

Explanation: NNP measured at current prices is called nominal or money NNP because the valuation uses the prices prevailing in the same period as the production. Therefore, changes in its value may reflect both changes in physical output and changes in the general price level. Constant prices are used instead when the objective is to measure real changes over time.

Correct answer: B. To know real change after removing inflation effect

Explanation: Measuring NNP at constant prices values production using the prices of a selected base year. This removes, or substantially controls for, the effect of inflation and makes comparison across years meaningful. Thus, an increase in constant-price NNP indicates a change in real output rather than merely a rise in prices. It does not remove depreciation or directly change taxes or imports.

Correct answer: A. 830 crore

Explanation: Net National Product is obtained by subtracting depreciation, also called consumption of fixed capital, from Gross National Product. The factor-cost valuation remains unchanged in this conversion. Therefore, NNP at factor cost = GNP at factor cost − depreciation = 900 − 70 = 830 crore. The answer is therefore option A.

Correct answer: A. It is obtained by deducting depreciation from Gross National Product.

Explanation: NNP is the net measure of national production. It is calculated by subtracting depreciation, or consumption of fixed capital, from GNP: NNP = GNP − depreciation. Option B describes the conversion from GDP to GNP by adding NFIA, not the conversion to NNP. Option C describes a domestic concept such as GDP, while option D refers to value-added reasoning rather than the defining NNP relation.

Correct answer: C. Net National Product at factor cost

Explanation: In the standard national-income accounting framework, national income is identified with NNP at factor cost. The term net means that depreciation is deducted from the gross measure, while factor cost means that valuation is based on factor payments and excludes the net effect of indirect taxes. Thus, NNP at market price is not identical to national income until the appropriate tax and subsidy adjustment is made.

Correct answer: A. When depreciation is positive

Explanation: NNP is obtained from GNP by deducting depreciation: NNP at market price = GNP at market price − depreciation. Consequently, whenever depreciation is positive, the net measure is smaller than the corresponding gross measure. NFIA determines the conversion between domestic and national aggregates, while exports, imports, saving, and investment do not determine this specific gross-to-net relationship.

Correct answer: A. Add NFIA to GDP, deduct depreciation, deduct NIT

Explanation: Starting with GDP at market price, add NFIA to convert the domestic measure into GNP, because national income includes net factor income from abroad. Next subtract depreciation to change the gross measure into NNP. Finally subtract net indirect taxes (NIT) to move from market price to factor cost. Therefore, the correct sequence is option A.

Correct answer: A. 970 crore

Explanation: Apply each conversion in sequence. First, GNP at market price = GDP at market price + NFIA = 1200 + (−50) = 1150 crore. Second, NNP at market price = 1150 − 100 depreciation = 1050 crore. Finally, NNP at factor cost = 1050 − 80 NIT = 970 crore. Hence option A is correct.