Which adjustment converts GNP at market prices into NNP at market prices?
Answer and explanation
Correct answer: Consumption of fixed capital is deducted
GNP is a gross measure because it includes consumption of fixed capital, commonly called depreciation. To obtain the corresponding net measure, this amount must be deducted: NNP at market prices = GNP at market prices − consumption of fixed capital. NFIA changes domestic to national, while NIT changes market price to factor cost. Therefore, option A is correct.
Frequently asked questions
What is the correct answer to this question?
Consumption of fixed capital is deducted
Why is this the correct answer?
GNP is a gross measure because it includes consumption of fixed capital, commonly called depreciation. To obtain the corresponding net measure, this amount must be deducted: NNP at market prices = GNP at market prices − consumption of fixed capital. NFIA changes domestic to national, while NIT changes market price to factor cost. Therefore, option A is correct.
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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