Aggregates related to national income - NNP

Correct answer: B. −₹130 crore

Explanation: The relationship between national and domestic net product at factor cost is NNPFC = NDPFC + NFIA. Therefore, NFIA = NNPFC − NDPFC = 2,620 − 2,750 = −₹130 crore. The negative result indicates that residents’ factor income received from abroad is less than factor income paid to non-residents by ₹130 crore.

Correct answer: C. Transfer income such as an old-age pension

Explanation: National income is the sum of factor incomes earned from current production. Compensation of employees, mixed income, rent, and interest are payments connected with productive factor services. An old-age pension is a transfer payment; it is received without providing a current productive service, so it must not be included in NNP_FC as national income. Therefore, option C is correct.

Correct answer: A. Because it does not create current production

Explanation: An old share is a financial asset that was issued in an earlier period. Its resale merely transfers ownership from one person to another and does not represent the production of a new good or service during the current period. NNP measures current final production after depreciation, so the value of old-share trading is not separately added. Brokerage or other current services may be counted, but not the asset’s resale value itself.

Correct answer: A. ₹500 crore

Explanation: First convert NNP from factor cost to market price: NNPₘₚ = NNP𝒻𝒸 + NIT = 4,520 + 180 = ₹4,700 crore. Since NNPₘₚ equals GNPₘₚ minus depreciation, depreciation = GNPₘₚ − NNPₘₚ = 5,200 − 4,700 = ₹500 crore. Therefore, option A is correct. This calculation uses the distinction between gross and net aggregates and the adjustment from factor cost to market price.

Correct answer: A. ₹4,040 crore

Explanation: Convert GDP at factor cost to GDP at market price by adding NIT: GDPₘₚ = 4,100 + 300 = ₹4,400 crore. Add NFIA to convert the domestic product into gross national product: GNPₘₚ = 4,400 + 90 = ₹4,490 crore. Finally, subtract depreciation to obtain net national product: NNPₘₚ = 4,490 − 450 = ₹4,040 crore. Therefore, option A is correct.

Correct answer: A. NNP_MP = GDP_FC + NIT + NFIA − Depreciation

Explanation: GDP_FC is domestic, gross, and measured at factor cost. Add NFIA to convert domestic into national income, add NIT to convert factor cost into market price, and deduct depreciation to convert gross into net. Therefore, NNP_MP = GDP_FC + NFIA + NIT − depreciation, which is option A.

Correct answer: A. NNP shows welfare less completely

Explanation: Unpaid household work, such as cooking, childcare, cleaning, and care of family members, can provide real economic and welfare benefits. However, because these services are not normally sold in markets, they usually have no recorded market price and are excluded from measured NNP. Consequently, NNP may understate actual welfare and is not a complete measure of living standards. Option A is correct.

Correct answer: A. When net indirect taxes (NIT) are not zero

Explanation: The conversion from GNP_MP to NNP_FC requires two adjustments: depreciation is deducted to change gross into net, and net indirect taxes are deducted to change market price into factor cost. Therefore, if NIT is non-zero, the total difference includes both depreciation and NIT, so it is not only depreciation. NFIA is irrelevant because both aggregates are national measures.

Correct answer: A. ₹280 crore

Explanation: Use the national-income identities in two steps. First, NNP at market price equals GNP at market price minus depreciation: NNPₘₚ = 6,400 − 420 = ₹5,980 crore. Second, NNP at factor cost equals NNP at market price minus net indirect taxes: NNPꜰᴄ = NNPₘₚ − NIT. Therefore, NIT = 5,980 − 5,700 = ₹280 crore. Hence, option A is correct. Depreciation is deducted first because the question gives GNP, a gross measure, while NNP is a net measure.

Correct answer: B. It reflects the effect of rising prices

Explanation: Real NNP measures output using constant or base-year prices, so a constant real NNP indicates that the physical volume of production has not increased. Nominal NNP uses current prices and can rise when prices increase, even without additional output. Thus, the most appropriate conclusion is that the rise reflects inflation or higher prices.

Correct answer: A. Higher NNP does not always show equal distribution

Explanation: NNP measures the net value of final goods and services or the associated net income, but it does not show how that income is distributed among people. A higher NNP may coexist with severe inequality. Welfare assessment should also consider distribution, quality of goods, environmental effects, leisure, and non-market services. Therefore, option A is the valid caution.

Correct answer: A. Add depreciation and deduct NFIA

Explanation: To move from NNP_MP to GDP_MP, first add depreciation because net must become gross: NNP_MP + depreciation = GNP_MP. Then deduct NFIA because national must become domestic: GNP_MP - NFIA = GDP_MP. The price basis remains market price throughout, so NIT is not involved. Thus option A gives the correct sequence.

Correct answer: A. 4,000 crore

Explanation: First add depreciation to convert net national product into gross national product: GNP_MP = 3,400 + 480 = 3,880 crore. Next use GNP_MP = GDP_MP + NFIA, so GDP_MP = GNP_MP - NFIA. Since NFIA is -120 crore, GDP_MP = 3,880 - (-120) = 4,000 crore. A negative NFIA increases GDP relative to GNP.

Correct answer: A. They provide housing services with an estimated value

Explanation: An owner-occupied house provides housing services to its owner even though no money changes hands as rent. National-income accounting imputes, or estimates, the rent that would have been paid for a comparable house in the market. Including this value prevents the output and income of owner-occupied housing services from being omitted and ensures fair comparison with rented housing.

Correct answer: A. Because it is current production even if it is not sold in the market

Explanation: Self-consumed agricultural output is produced during the current accounting year and provides an economic service or good to the household, even though it is not sold in a market. Its imputed or estimated market value is therefore counted as part of domestic production and, after the relevant national and depreciation adjustments, can contribute to NNP. It is not depreciation, a transfer payment, or merely the sale of an old stock.

Correct answer: A. GNP will be greater than GDP

Explanation: GNP measures the value of production attributable to the normal residents of a country, whereas GDP measures production within its domestic territory. The relationship is GNP = GDP + NFIA, where NFIA is net factor income from abroad. When NFIA is positive, residents receive more factor income from abroad than foreign factors receive domestically, so GNP exceeds GDP.

Correct answer: A. Their difference is due to NIT

Explanation: NNP at market price and NNP at factor cost measure the same net national output but use different valuation bases. The market-price measure includes net indirect taxes, while factor cost reflects payments to factors of production. Therefore, NNPFC = NNPMP − NIT, or equivalently NNPMP = NNPFC + NIT. NFIA is used to move between domestic and national aggregates, not between these two valuation bases.

Correct answer: A. NNP will decrease

Explanation: NNP is the net value obtained after deducting depreciation, or consumption of fixed capital, from GNP: NNP = GNP − depreciation. When GNP is held constant and depreciation increases, the deduction becomes larger. Consequently, the remaining net national product decreases. The change does not make NNP equal to NIT, and it is not an increase or an unchanged value.

Correct answer: A. Real NNP remained almost constant

Explanation: Real NNP removes the effect of changes in prices and measures the change in actual production. If nominal NNP increases by approximately 10% only because prices have increased by approximately 10%, the quantity of goods and services has not changed materially. Therefore, real NNP is approximately unchanged, although exact results can depend on the precise price index and rounding.

Correct answer: A. Normal depreciation is regular wear, whereas accidental damage is an abnormal capital loss

Explanation: Normal depreciation, also called consumption of fixed capital, is the expected loss in the value of a fixed asset because of regular use, ageing, or normal obsolescence. Accidental destruction, such as damage from a fire or natural disaster, is an abnormal capital loss and is not ordinarily treated as routine depreciation in the same way. Thus, option A correctly distinguishes them.

Correct answer: A. Because they are part of current production and inventory investment

Explanation: A final good is included in national product when it is produced, not only when it is sold to consumers. If a firm produces goods during the current period but does not sell them, the goods become inventory. The increase in inventory is treated as inventory investment, so current production is included without waiting for a later sale. After depreciation and other required adjustments, it contributes to NNP.

Correct answer: A. It may fall

Explanation: Per-capita NNP equals total NNP divided by population. The total can rise while the denominator rises by a larger percentage. For example, if NNP rises by 5% but population rises by 8%, NNP per person falls because the available income is spread among more people. Therefore, a faster increase in population may reduce per-capita NNP, even when aggregate NNP is growing.

Correct answer: B. −₹170 crore

Explanation: Net Factor Income from Abroad is calculated as: NFIA = factor income received from abroad − factor income paid to foreigners. Substituting the values gives NFIA = ₹780 crore − ₹950 crore = −₹170 crore. The negative sign means that factor payments to foreigners exceed factor income received from abroad by ₹170 crore. Therefore, option B is correct.

Correct answer: B. ₹-50 crore

Explanation: For the same national and net aggregate, the price-basis relationship is NNPMP = NNPFC + NIT. Therefore, NIT = NNPMP − NNPFC = 780 − 830 = −50 crore. The negative result means net indirect taxes are negative: subsidies exceed indirect taxes by 50 crore. Hence option B, not the positive 50 crore option, is correct.

Correct answer: A. ₹1200 crore

Explanation: Because NDPMP is already net, use NNPFC = NDPMP + NFIA − NIT and do not subtract depreciation again. Substituting the values gives NNPFC = 1250 + 60 − 110 = 1200 crore. NFIA raises the domestic aggregate to the national aggregate, while NIT is deducted to move from market prices to factor cost. Therefore, option A is correct.