Aggregates related to national income - NNP

Correct answer: A. ₹2,100 crore

Explanation: National income is measured as Net National Product at factor cost (NNP₍FC₎). Starting with GDP at market price, add NFIA to convert domestic product into national product, subtract depreciation to obtain the net figure, and subtract net indirect taxes to convert market prices into factor cost: NNP₍FC₎ = GDP₍MP₎ + NFIA − depreciation − NIT = 2,500 + 100 − 300 − 200 = ₹2,100 crore. Therefore, option A is correct.

Correct answer: A. NFIA = +₹60 crore

Explanation: The relationship between domestic and national product is GNP = GDP + NFIA. Hence, GNP − GDP equals NFIA. If the stated difference is +₹60 crore, it means net factor income from abroad is positive ₹60 crore: residents’ factor income received from abroad exceeds factor income paid to foreign factors within the domestic territory.

Correct answer: A. ₹1450 crore

Explanation: NNP is obtained by deducting depreciation from GNP, not from GDP. Since GNP at market price is ₹1550 crore, NNP at market price = GNP_MP − depreciation = 1550 − 100 = ₹1450 crore. The GDP figure is not needed once GNP has already been supplied, so option A is correct.

Correct answer: A. Negative

Explanation: Net factor income from abroad is calculated as factor income received from abroad minus factor income paid to foreign factors in the domestic economy. In this situation, the amount paid to foreigners is greater than the amount received by residents from abroad. Therefore the difference is below zero, and NFIA is negative. Option A correctly expresses this result.

Correct answer: A. Because it deducts capital wear and tear

Explanation: GNP is a gross measure because it includes the value needed to replace capital consumed during production. NNP is obtained by subtracting depreciation, also called consumption of fixed capital, from GNP. It therefore indicates the net addition to productive capacity or the income remaining after allowing for capital wear and tear. This makes NNP a more refined measure than GNP.

Correct answer: A. When the question asks for national income at factor cost

Explanation: In standard national-income accounting, national income is defined as NNP at factor cost. Therefore, when a question asks specifically for national income at factor cost, NNP_FC should be treated as the required aggregate. GDP at market price, wealth stock and import duty are different concepts and cannot be substituted for national income. Hence option A is the relevant and correct situation.

Correct answer: A. NDP₍FC₎ = NNP₍FC₎ − NFIA

Explanation: The national aggregate includes net factor income from abroad: NNP₍FC₎ = NDP₍FC₎ + NFIA. To isolate the domestic aggregate, subtract NFIA from both sides, giving NDP₍FC₎ = NNP₍FC₎ − NFIA. This reversal is valid even when NFIA is negative; subtracting a negative amount then increases NDP₍FC₎. Depreciation and NIT are not part of this particular conversion.

Correct answer: C. ₹1,280 crore

Explanation: Use NNP₍FC₎ = NDP₍FC₎ + NFIA, so NDP₍FC₎ = NNP₍FC₎ − NFIA. Substituting the figures gives ₹1,250 − (−₹30) = ₹1,280 crore. Because NFIA is negative, subtracting it is equivalent to adding ₹30 crore. Therefore, option C is the only numerically correct answer.

Correct answer: A. Full resale value of an old car

Explanation: The full resale value of an old car represents an earlier year’s production, so counting it again would double count output. However, a broker’s or dealer’s current commission on the resale is a new service and can be included. A teacher’s paid service, new-house construction, and current banking services are current productive activities.

Correct answer: A. Only ₹10 crore commission

Explanation: The old machine itself was produced in an earlier period, so its ₹200 crore resale value is not current production and must not be counted again. The ₹10 crore commission is payment for a brokerage or selling service performed in the current period. Therefore, only the commission is included in NNP.

Correct answer: A. Treating transfer payments as factor income

Explanation: Scholarships and unemployment allowances are transfer payments. They redistribute purchasing power but are not payments for a currently supplied productive factor service. Including them in NNP would therefore wrongly treat transfers as factor income and overstate national income. Only the value of current production and factor services is counted.

Correct answer: A. Income method logic

Explanation: Wages, rent, interest and profit are returns paid to the factors of production: labour, land, capital and enterprise. Adding these factor incomes follows the income method of measuring national income. At the aggregate level, NNP at factor cost is also called national income, so the listed components provide the relevant income-side logic.

Correct answer: A. Old-age pension

Explanation: Old-age pension is a transfer payment made without receiving any current productive service in return. Therefore, it is not a factor payment and must not be counted as factor income in NNPFC. Rent, wages and interest are payments for the services of land, labour and capital, respectively, so they are included.

Correct answer: A. When subsidies are greater than indirect taxes

Explanation: The relationship is NNPMP = NNPFC + net indirect taxes, where net indirect taxes equal indirect taxes minus subsidies. If subsidies exceed indirect taxes, net indirect taxes become negative. Consequently, NNPMP becomes smaller than NNPFC. Depreciation and NFIA do not determine this particular market-price versus factor-cost relationship.

Correct answer: C. ₹730 crore

Explanation: Use NNPFC = NNPMP − net indirect taxes. Net indirect taxes are ₹80 crore − ₹110 crore = −₹30 crore. Therefore, NNPFC = ₹700 − (−₹30) = ₹730 crore. Because subsidies exceed indirect taxes, the negative adjustment raises factor-cost income above market-price income.

Correct answer: A. NFIA is zero

Explanation: GNP is obtained from GDP by adding net factor income from abroad: GNPMP = GDPMP + NFIA. If GNPMP and GDPMP are equal, their difference is zero, so NFIA must be zero. This equality says nothing about depreciation, net indirect taxes or subsidies; those may still have positive or non-zero values.

Correct answer: A. GDPMP − ₹70 crore

Explanation: NNP is obtained by subtracting depreciation from GNP: NNPMP = GNPMP − depreciation. Since GNPMP equals GDPMP in the question and depreciation is ₹70 crore, substitute these values to get NNPMP = GDPMP − ₹70 crore. Net indirect taxes are relevant only when converting between market price and factor cost.

Correct answer: A. Reward received by entrepreneurship

Explanation: Profit is the return to the entrepreneurial factor of production. Entrepreneurs organise production, take business risks and make decisions; the reward for these services is profit. Thus, profit is factor income and is included in NNPFC when it represents current productive activity. Government transfers, resale transactions and household gifts are not entrepreneurial factor payments.

Correct answer: A. The separate value of intermediate goods

Explanation: Intermediate goods are used as inputs in producing final goods, so their value is already embodied in the value of final output. If their value is added separately to final goods, the same production is counted twice. National output therefore counts final goods and services, or adds value at each production stage, while excluding separate intermediate-goods values.

Correct answer: A. NIT = ₹80 crore, and indirect taxes are greater than subsidies

Explanation: The relationship is NNPMP = NNPFC + NIT, so NIT = NNPMP − NNPFC = 1,400 − 1,320 = ₹80 crore. Since NIT is positive, indirect taxes exceed subsidies by ₹80 crore. The difference is not NFIA or depreciation because both aggregates are already national and net, and they differ only in valuation at market price versus factor cost.

Correct answer: B. -₹60 crore

Explanation: The relationship is NNPFC = NDPFC + NFIA. Therefore, NFIA = NNPFC − NDPFC = 1500 − 1560 = −60 crore. The negative value means that net factor income from abroad is negative: factor payments made to the rest of the world exceed factor income received from abroad by ₹60 crore. Hence, option B is correct.

Correct answer: A. Because GNP is already a national aggregate

Explanation: GNP is already measured on a national basis because it includes production or factor income of normal residents, including their net factor income from abroad. Therefore, no separate domestic-to-national conversion is required. To obtain national income from GNPMP, subtract depreciation to make it net and subtract NIT to convert market price to factor cost: NI = GNPMP − depreciation − NIT.

Correct answer: A. ₹1850 crore

Explanation: National income is NNP at factor cost. First calculate net indirect taxes: NIT = indirect taxes − subsidies = 180 − 80 = ₹100 crore. Then convert GNP at market price into NNP at factor cost by subtracting depreciation and NIT: 2200 − 250 − 100 = ₹1850 crore. Therefore, option A is correct.

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

Explanation: National income is conventionally defined as NNP at factor cost, or NNPFC. NNP makes the measure net by deducting depreciation from GNP, while the national basis includes NFIA. Factor-cost valuation excludes net indirect taxes, so NNPFC represents the factor incomes earned by normal residents during the accounting period.

Correct answer: B. -₹125 crore

Explanation: The relationship between the two measures is NNPFC = NNPMP − NIT. Rearranging gives NIT = NNPMP − NNPFC = 3600 − 3725 = −₹125 crore. Since NNP at factor cost is higher than NNP at market price, net indirect taxes must be negative, which indicates that subsidies exceed indirect taxes by ₹125 crore. Option B is correct.