Aggregates related to national income - NNP

Correct answer: B. ₹1130 crore

Explanation: To convert GDP into NNP, first add NFIA to GDP to obtain GNP, and then subtract depreciation: GNP = ₹1200 + ₹30 = ₹1230 crore. Therefore, NNP = GNP − depreciation = ₹1230 − ₹100 = ₹1130 crore. Hence, option B is correct. This calculation shows that national income adjusts domestic production for net factor income from abroad and capital wear and tear.

Correct answer: A. ₹140 crore

Explanation: The relationship between gross and net national product is NNP = GNP − depreciation. Rearranging the formula gives depreciation = GNP − NNP. Substituting the values, depreciation = ₹1400 crore − ₹1260 crore = ₹140 crore. Therefore, option A is correct. Depreciation represents the value of fixed capital consumed or worn out during production.

Correct answer: B. It will decrease

Explanation: NNP is calculated as GNP minus depreciation: NNP = GNP − depreciation. If GNP does not change but depreciation increases, the amount subtracted from GNP becomes larger. Consequently, NNP falls. Thus, option B is correct. The question tests the difference between a gross aggregate, which includes capital consumption, and a net aggregate, which excludes that consumption.

Correct answer: B. It will increase

Explanation: NNP equals GNP minus depreciation. When GNP remains constant and depreciation decreases, the deduction from GNP becomes smaller. Therefore, the resulting NNP increases. Option B is correct. This demonstrates that net national product can rise even without a change in GNP when the economy experiences a lower amount of capital consumption during the relevant accounting period.

Correct answer: C. Both will be equal

Explanation: The formula is NNP = GNP − depreciation. When depreciation is zero, there is no amount to subtract from GNP, so NNP equals GNP. Therefore, option C is correct. NNP would be lower than GNP only when depreciation is positive. The question isolates the effect of capital consumption by assuming that no fixed capital value is lost during the period.

Correct answer: A. Because it is measured over a period of time

Explanation: NNP measures the value of final goods and services produced during a specified period, normally a financial year. A flow variable has a time dimension and is measured over an interval, unlike a stock variable, which is measured at one particular point in time. Therefore, option A is correct. Income, production, and expenditure are also generally flow concepts.

Correct answer: A. Only final goods and services

Explanation: National income aggregates such as NNP include the value of final goods and services produced during the accounting period. Intermediate goods are not added separately because their value is already embodied in final goods; including both would count the same production more than once. Hence, option A is correct. Second-hand goods and financial assets are not current production.

Correct answer: A. Double counting

Explanation: Intermediate goods are used as inputs in producing final goods, so their value is normally included in the price of the final product. If intermediate goods and final goods are both added separately, the same economic value is counted more than once. This is called double counting and overstates national income. Therefore, option A is correct.

Correct answer: A. Because it is not new production of the current year

Explanation: A second-hand good was produced and normally included in national output in an earlier period. Adding its full resale value again would count old production as current production and could create double counting. Therefore, the full value of the old good is excluded from current NNP. Only a current service connected with the sale, such as a broker’s commission, may be included.

Correct answer: A. Because it is current service income

Explanation: The second-hand good itself is not current production, so its full resale value is excluded from NNP. However, a commission paid to an agent or broker is payment for a selling service provided during the current accounting period. That newly provided service is part of current production and income. Hence, option A is correct, while the old good’s value remains excluded.

Correct answer: A. Yes, because it is a paid productive service

Explanation: Yes, a tuition service provided for a fee is generally included in national income and therefore in NNP, provided it represents a current productive service. The tutor receives income in exchange for teaching, so the payment is factor income or payment for a produced service. It is not a transfer payment, an old good, or depreciation. NNP measures net factor income generated by residents after deducting depreciation.

Correct answer: A. Because its market valuation is difficult

Explanation: A homemaker’s unpaid services for her own family are generally excluded from measured national income because they do not involve a market transaction and have no observable market price. Although the work is useful and economically valuable, assigning a reliable monetary value is difficult and inconsistent. By contrast, similar domestic services performed by a paid worker are normally included because a recorded payment exists.

Correct answer: A. Because no current productive service is received in return

Explanation: A transfer payment is excluded from NNP because the recipient does not provide a current productive service or good in exchange for it. Examples include old-age pensions, scholarships, and certain welfare benefits. Including such payments would count a redistribution of previously generated income as if it were fresh production. NNP records income arising from current production after depreciation is deducted.

Correct answer: A. Old-age pension

Explanation: An old-age pension is generally treated as a transfer payment because it is paid without the recipient supplying a current productive service in return. It redistributes income rather than rewarding present production. Wages, rent, and profit are normally factor incomes because they arise from labour, property, or entrepreneurship used in production. Therefore, option A is the only correct answer.

Correct answer: A. Wages, rent, interest, and profit

Explanation: NNP at factor cost represents the net income earned by factors of production. Its principal components are compensation for labour in the form of wages, returns to land in the form of rent, returns to capital as interest, and entrepreneurial profit. Donations, pensions, taxes, financial assets, and loans are not the four main factor payments generated directly by current production.

Correct answer: A. Wage paid to a worker

Explanation: Wages paid to a worker are factor income because they are received in return for labour supplied to the production process. Labour is a factor of production, and its reward is called wages. A scholarship, a gift, and government assistance without a corresponding service are transfer receipts; they redistribute purchasing power but do not arise as payment for current productive activity.

Correct answer: A. Positive

Explanation: Net indirect taxes, or NIT, are calculated as indirect taxes minus subsidies: NIT = indirect taxes − subsidies. If indirect taxes are greater than subsidies, the difference is above zero, so NIT is positive. For example, if indirect taxes are 80 and subsidies are 30, NIT equals 50. This positive NIT creates a difference between market-price and factor-cost measures.

Correct answer: C. Negative

Explanation: NIT is defined as indirect taxes minus subsidies. When subsidies exceed indirect taxes, the subtraction produces a value below zero, so NIT is negative. For instance, if indirect taxes are 40 and subsidies are 70, NIT equals 40 − 70 = −30. A negative NIT means subsidies are larger than the indirect-tax burden and affects the conversion between factor cost and market price.

Correct answer: A. When NFIA is zero

Explanation: NNP and NDP differ because national product includes net factor income from abroad, whereas domestic product measures production within the domestic territory. The relationship is NNP = NDP + NFIA, where NFIA is net factor income from abroad. Thus, NNP equals NDP when NFIA is zero. Depreciation concerns gross versus net measures and does not determine this equality.

Correct answer: A. Depreciation

Explanation: The gradual loss in the value and productive capacity of machines, buildings, and other capital goods because of use, age, or normal obsolescence is called depreciation. In national-income accounting, depreciation is deducted from GNP to obtain NNP: NNP = GNP − Depreciation. Therefore, option A is correct.

Correct answer: A. Depreciation

Explanation: Capital consumption allowance is another accounting term for depreciation, especially in national-income and macroeconomic accounts. It represents the estimated value of capital goods used up or worn out during production. Since this amount is deducted from gross product to obtain net product, option A is the correct answer.

Correct answer: A. National output

Explanation: Net National Product, or NNP, measures the value of final goods and services produced by the normal residents of a country during a period after allowing for depreciation. It is therefore a net measure or indication of national output, not a measure limited to population, bank deposits, or imports. Option A is correct.

Correct answer: A. NFIA

Explanation: Domestic product is based on production within the domestic territory, whereas national product is based on the production or factor income of normal residents. The conversion is made by adding Net Factor Income from Abroad (NFIA): National Product = Domestic Product + NFIA. Depreciation and indirect taxes are used for other conversions, so option A is correct.

Correct answer: A. Depreciation

Explanation: The word gross includes the value of capital consumption, while net excludes the part of capital stock used up during production. Therefore, depreciation must be deducted from any gross product measure to obtain the corresponding net measure: Net Product = Gross Product − Depreciation. NFIA changes domestic to national, and NIT changes market price to factor cost, so option A is correct.

Correct answer: A. Subtract depreciation from GNP

Explanation: NNP means Net National Product. It is obtained by taking Gross National Product and deducting depreciation, which represents the capital consumed during production: NNP = GNP − Depreciation. Imports, taxes, and exports are not the defining adjustment in this formula. Hence, option A is the correct basic rule.