If NNP at factor cost is falling while NNP at market price is constant, which reason is possible?
Answer and explanation
Correct answer: NIT is increasing
The relevant identity is NNPFC = NNPMP − NIT. If NNPMP remains constant and NIT increases, the larger deduction causes NNPFC to fall. A fall in NIT would instead raise NNPFC, assuming the market-price value is unchanged. NFIA and depreciation do not directly alter the conversion between NNP at market price and NNP at factor cost once NNPMP is given.
Frequently asked questions
What is the correct answer to this question?
NIT is increasing
Why is this the correct answer?
The relevant identity is NNPFC = NNPMP − NIT. If NNPMP remains constant and NIT increases, the larger deduction causes NNPFC to fall. A fall in NIT would instead raise NNPFC, assuming the market-price value is unchanged. NFIA and depreciation do not directly alter the conversion between NNP at market price and NNP at factor cost once NNPMP is given.
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 - Market price and factor cost.
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