What should be done to obtain GDP at factor cost (GDPFC) from GDP at market price (GDPMP)?
Answer and explanation
Correct answer: Subtract net indirect taxes
Market price includes the effect of indirect taxes after allowing for subsidies, whereas factor cost reflects the amount accruing to factors of production. Therefore, the conversion is GDPFC = GDPMP − net indirect taxes. Adding NFIA changes a domestic aggregate into a national aggregate, and subtracting depreciation changes a gross measure into a net measure.
Frequently asked questions
What is the correct answer to this question?
Subtract net indirect taxes
Why is this the correct answer?
Market price includes the effect of indirect taxes after allowing for subsidies, whereas factor cost reflects the amount accruing to factors of production. Therefore, the conversion is GDPFC = GDPMP − net indirect taxes. Adding NFIA changes a domestic aggregate into a national aggregate, and subtracting depreciation changes a gross measure into a net measure.
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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