An economy’s GDP at current market prices is 300 lakh crore. Its residents receive factor income of 12 lakh crore from abroad, while foreign residents earn factor income of 18 lakh crore within the country. A student states that GNP is 312 lakh crore. After correcting the error, what is the correct GNP?
Answer and explanation
Correct answer: 294 lakh crore
First calculate net factor income from abroad: NFIA = factor income received from abroad − factor income paid to foreign residents domestically = 12 − 18 = −6 lakh crore. Then apply GNP = GDP + NFIA. Thus, GNP = 300 + (−6) = 294 lakh crore. The student incorrectly added only the receipt of 12 lakh crore and ignored the 18 lakh crore paid to foreign residents. Because NFIA is negative, GNP must be below GDP.
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What is the correct answer to this question?
294 lakh crore
Why is this the correct answer?
First calculate net factor income from abroad: NFIA = factor income received from abroad − factor income paid to foreign residents domestically = 12 − 18 = −6 lakh crore. Then apply GNP = GDP + NFIA. Thus, GNP = 300 + (−6) = 294 lakh crore. The student incorrectly added only the receipt of 12 lakh crore and ignored the 18 lakh crore paid to foreign residents. Because NFIA is negative, GNP must be below GDP.
Which subject and chapter does this question cover?
This is a Class 12 Economics question. Chapter: National Income and Related Aggregates. Topic: Aggregates related to national income - GNP.
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