Aggregates related to national income - NNP

Correct answer: B. Net National Product

Explanation: Subtracting depreciation, also called consumption of fixed capital, from Gross National Product gives Net National Product: NNP = GNP − depreciation. The word ‘net’ indicates that the value of capital used up in production has been removed. NNP is therefore a national and net measure, whereas GNP is a national and gross measure.

Correct answer: B. National Income

Explanation: NNP at factor cost is conventionally called National Income. It represents the net factor earnings generated by the normal residents of a country from production, after deducting depreciation from the gross national product and excluding the effect of net indirect taxes by using factor cost. Thus, option B is correct.

Correct answer: B. Depreciation has been deducted

Explanation: In national-income accounting, Net means that depreciation, also called consumption of fixed capital, has been deducted from the corresponding Gross aggregate. Therefore, NNP = GNP − depreciation. The word Net does not mean that exports, taxes, or foreign income have been removed; it specifically refers to the deduction of capital wear and tear.

Correct answer: B. NNP gives net output by deducting depreciation

Explanation: NNP stands for Net National Product. It is obtained after deducting depreciation, or consumption of fixed capital, from GNP. Because it is national rather than domestic, it also incorporates the effect of NFIA: NNP = GDP + NFIA − depreciation, when the valuation basis is kept unchanged.

Correct answer: C. Large

Explanation: Net National Product is obtained by subtracting depreciation from Gross National Product: NNP = GNP − depreciation. Consequently, GNP − NNP equals depreciation. When depreciation is very high, the amount deducted from GNP is also high, so the numerical gap between GNP and NNP becomes large. Therefore, option C is correct.

Correct answer: B. Because it is the cost of maintaining capital

Explanation: Wear and tear of machines, buildings, and other fixed assets is called consumption of fixed capital or depreciation. It represents the part of current production needed merely to replace or maintain used-up capital. Deducting it from GNP gives NNP, which measures production available after preserving the capital stock. Thus, option B is correct.

Correct answer: B. Gross

Explanation: A gross measure records total production before allowing for the loss or wearing out of fixed capital. Depreciation is the amount that must be deducted to convert a gross measure into a net measure. Therefore, if depreciation is not deducted, national output remains gross, regardless of whether it is measured at current or constant prices. Option B is correct.

Correct answer: A. NNP at market prices (NNP₍MP₎)

Explanation: GNP at market prices is already a national and market-price aggregate. Consumption of fixed capital is depreciation, and subtracting it changes only the gross character into net; it does not change national scope or valuation from market prices. Thus, GNP₍MP₎ minus depreciation equals NNP₍MP₎. A further deduction of NIT would be needed to obtain NNP₍FC₎, so option A is correct.

Correct answer: A. NNP at factor cost (NNP₍FC₎)

Explanation: National income is conventionally defined as NNP at factor cost. NNP ensures that depreciation is deducted and that the income is measured on a net basis, while the national component includes net factor income from abroad. Factor-cost valuation removes the effect of net indirect taxes, so NNP₍FC₎ is the standard aggregate representing national income. Hence, option A is correct.

Correct answer: A. Net national measure

Explanation: NNP stands for Net National Product. It is called net because depreciation has been deducted from the corresponding gross product, and it is called national because production is attributed to normal residents rather than being limited to activity within the domestic territory. Therefore, it is a net national measure.

Correct answer: B. Depreciation

Explanation: NNP is obtained from GNP by deducting depreciation, also called consumption of fixed capital. The relationship is NNP = GNP − depreciation. Depreciation represents the value of wear, tear, and obsolescence of machines, buildings, and other fixed capital used during production; exports, imports, and saving are not the required deduction.

Correct answer: C. NNP = GNP − Depreciation

Explanation: The correct relationship is NNP = GNP − depreciation. GNP measures the gross national product, while depreciation measures the value of fixed capital consumed during production. Subtracting depreciation removes this capital consumption and gives the net national product. The other formulas either use the wrong variable or apply an incorrect operation.

Correct answer: D. ₹740 crore

Explanation: To obtain a net measure from a gross measure, depreciation must be subtracted. Using NNP = GNP − depreciation, we get NNP = ₹800 crore − ₹60 crore = ₹740 crore. Hence option D is correct. Adding depreciation would incorrectly move from a net measure toward a gross measure rather than calculating NNP.

Correct answer: A. Amount after deducting depreciation

Explanation: In national-income accounting, net means that depreciation, or consumption of fixed capital, has been deducted from the gross value. Therefore, NNP is obtained after deducting depreciation from GNP. This distinction is important: gross product includes the value needed to replace worn-out capital, whereas net product excludes that capital consumption.

Correct answer: B. Normal residents

Explanation: The word national in NNP refers to the normal residents of a country. National product includes the factor income earned by residents from both domestic and foreign activities, while it excludes the income of foreign residents earned within the country when the national measure is constructed. This differs from the domestic concept, which is based on territory.

Correct answer: A. One accounting year

Explanation: Net National Product (NNP) measures the value of net production generated by the normal residents of a country during a specified accounting period, generally one financial or accounting year. It is a flow concept, so its measurement must always be related to a period of time. Therefore, one accounting year is the correct answer.

Correct answer: B. Flow variable

Explanation: NNP is a flow variable because it records the value of net national production generated over a particular period, normally one accounting year. A stock is measured at a point in time, such as wealth on 31 March, whereas a flow is measured across time, such as income, expenditure, or output during a year. Hence, NNP is a flow variable.

Correct answer: C. Consumption of fixed capital

Explanation: In national income accounting, depreciation is commonly called consumption of fixed capital (CFC). It represents the loss in value of fixed assets such as machines, buildings, and equipment due to normal wear and tear, regular use, or obsolescence during production. Since depreciation is deducted from gross aggregates to obtain net aggregates, option C is correct.

Correct answer: D. ₹80 crore

Explanation: The relationship between gross and net national product is: NNP = GNP − depreciation. Therefore, depreciation = GNP − NNP = ₹950 crore − ₹870 crore = ₹80 crore. The difference between the gross and net measures is the consumption of fixed capital, so option D is the only correct answer.

Correct answer: B. Factor Cost

Explanation: In NNPFC, the abbreviation FC stands for Factor Cost. Thus, NNPFC means Net National Product at Factor Cost. Factor cost refers to the payments received by the factors of production—wages for labour, rent for land, interest for capital, and profit for entrepreneurship. It differs from market price because net indirect taxes are excluded when converting market price to factor cost.

Correct answer: C. Net indirect taxes

Explanation: To convert NNP at Market Price into NNP at Factor Cost, net indirect taxes are subtracted: NNPFC = NNPMP − net indirect taxes. Net indirect taxes equal indirect taxes minus subsidies. Market prices include the effect of indirect taxes and subsidies, whereas factor cost reflects payments to factors of production. Therefore, option C is correct.

Correct answer: A. Indirect taxes − Subsidies

Explanation: Net indirect taxes are calculated as indirect taxes minus subsidies. Indirect taxes, such as GST or excise duties, raise the market price of goods, while subsidies reduce the effective market price received from buyers or paid by producers. Therefore, the subsidy component must be deducted from indirect taxes. This gives NIT = Indirect Taxes − Subsidies, so option A is correct.

Correct answer: B. Net factor income from abroad

Explanation: Net National Product (NNP) is obtained from Net Domestic Product (NDP) by adding Net Factor Income from Abroad (NFIA). The domestic measure covers factor income generated within the country, whereas the national measure also includes the net factor income earned from the rest of the world. Therefore, NNP = NDP + NFIA. Depreciation is already removed when moving from gross to net, so it is not added here.

Correct answer: C. Net Factor Income from Abroad

Explanation: NFIA stands for Net Factor Income from Abroad. It is the difference between factor income received by residents from abroad and factor income paid to non-residents within the domestic economy. NFIA helps convert a domestic aggregate into the corresponding national aggregate. Thus, when moving from NDP to NNP, NFIA is added: NNP = NDP + NFIA.

Correct answer: D. ₹665 crore

Explanation: The relevant conversion formula is NNP = NDP + NFIA because NDP is a domestic net aggregate and NFIA changes it into a national net aggregate. Substituting the values gives NNP = ₹640 crore + ₹25 crore = ₹665 crore. Therefore, option D is correct. Subtracting NFIA would be incorrect because the given NFIA is positive.