Aggregates related to national income - NNP

Correct answer: A. High depreciation

Explanation: GNP₍FC₎ is a gross national measure, whereas NNP₍FC₎ is the corresponding net measure. The only adjustment needed to move from gross to net, when both are national and measured at factor cost, is consumption of fixed capital, also called depreciation. Therefore, a large gap directly indicates high depreciation.

Correct answer: A. NNP₍MP₎ = NDP₍MP₎ + NFIA

Explanation: NNP and NDP are both net aggregates and are measured at the same market-price basis, so depreciation and net indirect taxes do not create a difference between them. The only distinction is national versus domestic coverage. Adding net factor income from abroad (NFIA) converts the domestic aggregate into the national aggregate: NNP₍MP₎ = NDP₍MP₎ + NFIA. Hence, option A is correct.

Correct answer: A. Net factor income earned by normal residents after allowing for depreciation, valued at factor cost

Explanation: NNP at factor cost is the net factor income earned by the normal residents of a country during an accounting year. It is obtained after deducting depreciation from national gross product and making the appropriate market-price-to-factor-cost adjustment. It excludes transfer receipts because they are not payments for current factor services. Thus, option A expresses the concept most accurately, while domestic output alone describes a territorial measure rather than a national one.

Correct answer: A. Conversion of domestic product into national product

Explanation: Domestic product measures production within the geographical boundaries of a country, whereas national product measures income generated by its normal residents. Profit earned in India by a foreign company belongs to the domestic product, but it is factor income paid to foreigners. Therefore it is deducted through net factor income from abroad when converting domestic product into national product. Hence option A is correct.

Correct answer: A. Non-factor income will be included

Explanation: NNP at factor cost is intended to measure net factor income earned through the provision of productive services. Transfer payments such as pensions, scholarships, gifts, and lottery receipts are received without a current factor service being supplied. Adding them would therefore introduce non-factor income into national income and overstate factor earnings. It would not automatically double-count depreciation or eliminate NFIA. Hence option A is correct.

Correct answer: A. It is payment for a productive brokerage service provided during the current year

Explanation: The old shares are financial assets whose resale merely transfers ownership; their full sale price does not represent current production and is therefore excluded from NNP. However, the broker performs a current-year service by arranging, facilitating, and completing the transaction. The commission is the payment for that newly produced service, so it is included as factor income or service output in national income. Thus option A is correct.

Correct answer: A. The final sale of a newly produced computer

Explanation: The final sale of a newly produced computer represents current production of a final good and is counted once in NNP, subject to the appropriate national, net, and valuation adjustments. The chip is an intermediate component already embodied in the computer’s price, so adding it separately would cause double counting. Resale of an old computer is not current production, and a gift is a transfer. Therefore option A is correct.

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

Explanation: The full resale value of an old book is excluded from current production because the book was produced and counted in an earlier period. Its resale is merely a transfer of ownership of an existing asset. However, any current service involved in the resale, such as an agent’s commission, is included because it is a service produced during the current period.

Correct answer: A. Market valuation and recording will be difficult

Explanation: The main difficulty is assigning a reliable monetary value and maintaining a complete record of unpaid voluntary teaching. Since no market payment is made, there may be no observable price for the service. National income accounts therefore generally include market-based productive services and face measurement limitations when valuing unpaid or non-market activities.

Correct answer: A. Agent commission on the sale of an old property

Explanation: When an old property is sold, the property itself is an existing asset and its full sale value does not represent current production. However, the agent’s commission is payment for a current brokerage service and is included in NNP. Thus, only the service charge is counted, not the value of the old property transferred.

Correct answer: A. Lack of reliable data and legal reporting

Explanation: A practical reason for excluding illegal market activity is the lack of reliable information. Participants may hide transactions, avoid official reporting and maintain no verifiable accounts. Without dependable data on the quantity, value and income generated, statisticians cannot measure the activity accurately for national income accounting, even if it involves economic production.

Correct answer: A. NNP may fall

Explanation: NNP equals GNP minus depreciation. Therefore, an increase in GNP does not guarantee an increase in NNP. If depreciation rises by a larger amount than GNP, the subtraction effect dominates and NNP can decline. The exact result depends on the relative changes in GNP and depreciation, making ‘may fall’ the correct conclusion.

Correct answer: A. NIT has decreased

Explanation: The relationship is NNPFC = NNPMP − net indirect taxes (NIT). If NNPMP remains unchanged and NIT decreases, subtracting the smaller amount produces a higher NNPFC. No conclusion about NFIA, depreciation or GDP is necessary from these two facts alone. Hence, a fall in NIT is the valid possibility.

Correct answer: A. It may remain the same

Explanation: The relationship is NNP at factor cost = NNP at market price − net indirect taxes, or NNPFC = NNPMP − NIT. If NNPMP increases by ₹X and NIT also increases by ₹X, the two changes cancel each other: the resulting NNPFC can remain unchanged. The word “may” is appropriate because this conclusion assumes that no other relevant adjustment changes. The other options do not follow from the identity.

Correct answer: A. Output obtained by subtracting depreciation from Gross National Product

Explanation: NNP at market price represents the value of the final goods and services produced by the normal residents of a country during a period, valued at market prices, after allowing for depreciation. It is calculated as GNPMP minus consumption of fixed capital. GDP-based subtraction would produce NDPMP, because GDP measures domestic rather than national production.

Correct answer: A. Net indirect taxes (NIT)

Explanation: In national-income accounting, national income means NNP at factor cost (NNPFC). To convert NNPMP into NNPFC, net indirect taxes must be deducted: NNPFC = NNPMP − NIT, where NIT equals indirect taxes minus subsidies. Depreciation is unnecessary because both NNP and the target national income are already net measures; NFIA is also unnecessary because both are national aggregates.

Correct answer: A. ₹1,050 crore

Explanation: National income is NNP at factor cost. First calculate net indirect taxes: NIT = indirect taxes − subsidies = ₹140 crore − ₹40 crore = ₹100 crore. Then convert market price to factor cost: NNPFC = NNPMP − NIT = ₹1,150 crore − ₹100 crore = ₹1,050 crore. Hence option A is correct.

Correct answer: A. From GNPMP to NNPMP

Explanation: The conversion from GNP at market price to NNP at market price changes only the aggregate from gross to net. Since the price basis remains market price and the national basis remains unchanged, only depreciation is deducted: NNPMP = GNPMP − depreciation. NIT is required for changing market price to factor cost, as in option B and the other mixed conversions.

Correct answer: A. NFIA is zero

Explanation: At the same net and factor-cost basis, the relationship between the two aggregates is NNPFC = NDPFC + NFIA. If NNPFC equals NDPFC, subtracting NDPFC from both sides gives NFIA = 0. This equality says nothing about depreciation or NIT because both measures are already net and are stated at the same factor-cost basis.

Correct answer: A. Positive

Explanation: The relevant identity is NNPFC = NDPFC + NFIA. Rearranging gives NFIA = NNPFC − NDPFC. Therefore, when NNPFC is greater than NDPFC, their difference is positive and NFIA must be positive. The comparison does not determine NIT, because NIT is related to the market-price and factor-cost conversion rather than the national-versus-domestic distinction.

Correct answer: A. GNP at factor cost minus depreciation

Explanation: NNP at factor cost is obtained by starting with Gross National Product at factor cost and deducting depreciation, also called consumption of fixed capital: NNPFC = GNPFC − depreciation. GDPFC minus depreciation gives NDPFC because it remains domestic. GNPMP minus depreciation gives NNPMP, not NNPFC, because the price basis is still market price.

Correct answer: A. NNP shows net output but does not fully measure welfare

Explanation: NNP measures the net value of final goods and services produced by the normal residents of a country during a period. It may indicate the availability of economic resources, but it is not a complete welfare index because it ignores income distribution, unpaid household work, leisure, environmental damage, and the quality of goods and services. Therefore, option A is the most accurate and qualified statement.

Correct answer: A. No definite conclusion about welfare can be drawn

Explanation: A rise in NNP means that the country’s total net income or output has increased, but it does not tell us how that income is distributed among people. If inequality rises, the additional income may be concentrated among a small group. Since welfare also depends on distribution and other non-income factors, no definite welfare conclusion can be drawn from the rise in NNP alone. Hence, option A is correct.

Correct answer: A. NFIA and NIT (Net Factor Income from Abroad and Net Indirect Taxes)

Explanation: The conversion formula is NNPₘₚ = NDP₍FC₎ + NFIA + NIT. Both aggregates are already net, so depreciation does not create a difference. The first adjustment changes the domestic measure into a national measure by adding net factor income from abroad. The second changes factor cost into market price by adding net indirect taxes, equal to indirect taxes minus subsidies. Therefore, option A is the only complete answer.

Correct answer: A. ₹70 crore

Explanation: Use the identity NNPₘₚ = NDP₍FC₎ + NFIA + NIT. Substituting the given values gives 3,900 = 3,650 + NFIA + 180. Hence NFIA = 3,900 − 3,650 − 180 = ₹70 crore. The positive result means residents earned ₹70 crore more factor income from abroad than foreign factors earned domestically, on a net basis.