Aggregates related to national income - NNP

Correct answer: A. Because it shows the net income received by factors of production

Explanation: NNP at factor cost is obtained after deducting depreciation from GNP and adjusting for net factor income from abroad, and it measures the net factor earnings generated by the normal economic activity of a nation. Since factor payments such as wages, rent, interest and profit are included, NNP at factor cost is called National Income. Therefore, option A is correct; the other options describe only parts of economic activity, not the complete national income.

Correct answer: A. NNP at factor cost = NNP at market price − Net Indirect Taxes

Explanation: Market price includes net indirect taxes, whereas factor cost represents the payments actually received by factors of production. Therefore, to convert NNP at market price into NNP at factor cost, net indirect taxes must be subtracted: NNPFC = NNMP − NIT. Depreciation and NFIA are relevant to other aggregate conversions, not to this particular price adjustment. Hence option A is unambiguously correct.

Correct answer: A. ₹645 crore

Explanation: First calculate net indirect taxes: NIT = indirect taxes − subsidies = ₹100 crore − ₹25 crore = ₹75 crore. Then convert market price to factor cost by subtracting NIT: NNPFC = NNMP − NIT = ₹720 crore − ₹75 crore = ₹645 crore. Therefore, option A is correct. Option B subtracts only the subsidy, option C adds NIT, and option D makes no adjustment.

Correct answer: A. To avoid double counting

Explanation: Final goods are purchased for consumption, investment, or other final use and are not intended for resale or further processing during the accounting period. If the value of intermediate goods were also added separately, the same output would be counted repeatedly at different production stages. Counting final goods, or alternatively adding value added, prevents this double counting. Therefore, option A is correct.

Correct answer: A. Add NFIA and deduct depreciation

Explanation: GDP at market price measures gross domestic production, while NNP at market price must be national rather than domestic and net rather than gross. First add net factor income from abroad (NFIA) to change domestic into national product. Then deduct depreciation to change gross into net product. Thus NNPMP = GDPMP + NFIA − Depreciation. Therefore, option A is correct; NIT is not needed because both aggregates are already at market price.

Correct answer: A. NNPₘₚ = GNPₘₚ − Depreciation

Explanation: The correct answer is A because the word “net” means that consumption of fixed capital, commonly called depreciation, must be deducted from a gross aggregate. GNP at market price measures the value of output produced by normal residents, while NNP at market price excludes the value of capital used up during production. Therefore, NNPₘₚ = GNPₘₚ − depreciation. GDP-based options do not correctly begin with the national aggregate.

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

Explanation: The correct answer is A. In the conventional national-income accounting framework, national income is defined as Net National Product at Factor Cost. It measures the net factor income earned by the normal residents of a country during an accounting period. “Net” excludes depreciation, “national” includes net factor income from abroad, and “factor cost” refers to income accruing to factors of production. The other aggregates differ in coverage or valuation basis.

Correct answer: A. NNP₍FC₎ can be greater than NNP₍MP₎

Explanation: The correct answer is A. The accounting relationship is NNP₍FC₎ = NNP₍MP₎ − NIT. When NIT is negative, subtracting it is equivalent to adding its absolute value; consequently, NNP₍FC₎ becomes greater than NNP₍MP₎. Negative NIT generally means that subsidies exceed indirect taxes. Equality occurs only when NIT is zero, so the words “always” make options B and C incorrect.

Correct answer: A. It converts a domestic aggregate into a national aggregate

Explanation: The correct answer is A. Domestic aggregates measure production within the geographical boundaries of a country, whereas national aggregates measure income associated with its normal residents. NFIA is calculated as factor income received from abroad minus factor income paid to foreigners within the domestic economy. Adding NFIA to a domestic aggregate changes its geographical basis into a national basis; it does not represent depreciation, an indirect tax, or a transfer payment.

Correct answer: A. Compensation of employees

Explanation: The correct answer is A. Under the income method, national income is obtained by adding factor incomes generated during production. Compensation of employees—wages, salaries, and related benefits—is a major component because it is income earned by labour. Other possible components include operating surplus and mixed income, subject to the accounting framework. Intermediate goods are excluded to avoid double counting, while government borrowing is a financial transaction rather than factor income.

Correct answer: A. Because they are not received in exchange for current production or productive services

Explanation: Transfer payments, such as pensions, scholarships, or unemployment benefits, are payments made without receiving a current productive service in return. NNP measures the value of current production and the factor incomes generated by that production. Including transfer payments would count a redistribution of existing income as new income and would overstate national income. Therefore, they are excluded from NNP.

Correct answer: A. Because their value was already included in national income when they were newly produced

Explanation: The resale of a second-hand car, machine, or other good does not represent current production. Its original value was recorded in national income in the year it was produced. Counting the entire resale price again would therefore cause double counting. However, a broker’s commission or a dealer’s current service charge may be included because it represents a service produced during the current period.

Correct answer: A. ₹1,350 crore

Explanation: National income is defined as Net National Product at factor cost, or NNPFC. To convert GNPFC into NNPFC, depreciation must be deducted because depreciation represents the loss of value of fixed capital during production. Thus, NNPFC = GNPFC − depreciation = ₹1,600 crore − ₹250 crore = ₹1,350 crore. Therefore, option A is correct.

Correct answer: A. ₹1,150 crore

Explanation: First convert GDP at factor cost into GNP at factor cost by adding NFIA: GNPFC = GDPFC + NFIA = ₹1,400 crore + (−₹100 crore) = ₹1,300 crore. Next deduct depreciation to obtain NNPFC: ₹1,300 crore − ₹150 crore = ₹1,150 crore. The negative NFIA lowers GNP, and depreciation lowers the gross aggregate to the net aggregate.

Correct answer: A. Because it is the estimated value of a housing service

Explanation: An owner-occupied house provides a housing service to its owner even though no rent is actually paid in the market. National income accounting imputes, or estimates, the rent that would have been paid for a similar property. This estimated rent represents the value of a current housing service and is therefore included in NNP. It is not a transfer payment or depreciation.

Correct answer: A. Real NNP

Explanation: Real NNP is measured at constant prices, so it removes or reduces the effect of changes in the general price level. Nominal NNP is measured at current prices and may rise merely because prices have increased, even when physical output has not changed. Therefore, real NNP gives a more meaningful basis for comparing production or income across periods and, with suitable adjustments, across countries.

Correct answer: A. It does not fully show inequality in income distribution

Explanation: NNP measures the net value of goods and services or the income generated by an economy, but it is an aggregate measure. It does not reveal how that income is distributed among households. Two countries may have the same NNP while one has an equitable distribution and the other has severe inequality. Welfare also depends on health, education, leisure, environmental quality, and other non-market factors.

Correct answer: A. −₹70 crore

Explanation: The relationship between the two measures is NNP at market price = NNP at factor cost + net indirect taxes. Therefore, NIT = NNPMP − NNPFC = ₹900 crore − ₹970 crore = −₹70 crore. A negative NIT means that subsidies exceed indirect taxes by ₹70 crore. Hence, option A is correct, not the positive value of ₹70 crore.

Correct answer: A. Household non-market services may often be left out

Explanation: NNP measures the money value of final goods and services included in recorded economic production. However, many useful household services, such as unpaid childcare, cooking, or care of elderly family members, are not bought and sold in markets. Since they have no observable market price, they may be excluded from NNP even though they contribute to human well-being. Therefore, option A correctly identifies the limitation.

Correct answer: A. Deduct depreciation and net indirect taxes

Explanation: GNP is already a national aggregate, so NFIA does not need to be added again. To change Gross into Net, depreciation must be deducted: GNP − depreciation = NNP. To change market price into factor cost, net indirect taxes must also be deducted: market price − NIT = factor cost. Thus, NNPFC = GNPMP − depreciation − NIT, making option A correct.

Correct answer: A. ₹1,440 crore

Explanation: To obtain NNP at factor cost from GNP at market price, first deduct depreciation to remove the capital-consumption allowance: ₹1,800 − ₹220 = ₹1,580 crore. Then deduct net indirect taxes to convert market price into factor cost: ₹1,580 − ₹140 = ₹1,440 crore. Therefore, option A is correct. Equivalently, NNPFC = GNPMP − depreciation − NIT.

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

Explanation: The formula follows three necessary adjustments. Add NFIA to change a domestic measure into a national measure; subtract depreciation to change Gross into Net; and subtract net indirect taxes to change market price into factor cost. Therefore, NNPFC = GDPMP + NFIA − depreciation − NIT. Option B reverses the required signs, while options C and D omit or misuse essential adjustments.

Correct answer: A. Double counting

Explanation: Intermediate goods are used as inputs in producing final goods. Their value is normally already included in the selling price of the final goods. If the intermediate goods and final goods are both added, the same production value is counted more than once, causing double counting and overstating NNP. National income accounting therefore counts only final goods or uses value added at each production stage.

Correct answer: A. ₹50 / 50 rupees

Explanation: Per capita NNP is calculated by dividing total NNP by the population: ₹1000 crore ÷ 20 crore = ₹50 per person. The unit “crore” cancels because both the numerator and denominator are expressed in crore. Therefore, the correct answer is option A, ₹50. This measure represents the average NNP available per person, not the actual income received by every individual.

Correct answer: A. Applying incorrect signs to NFIA, depreciation, and NIT

Explanation: NNP numericals require careful movement between related aggregates. Add NFIA when changing domestic to national, subtract depreciation when changing gross to net, and adjust for net indirect taxes when changing market price to factor cost. Confusing these directions or signs is the common error. Population and percentage conversions are not automatically part of every NNP calculation, so option A is correct.