For a country (Rs crore): GDP at market prices is 1,000; net factor income from abroad is (−) 50; depreciation is 80; indirect taxes are 40 and subsidies are 70. Arrange the following in increasing order of value:
(A) GNP at market prices
(B) NNP at market prices
(C) NNP at factor cost (National Income)
(D) GDP at factor cost
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (B), (C), (A), (D)
Work out each aggregate from GDP at market prices, one step at a time. Net indirect taxes = 40 − 70 = −30, because subsidies are larger than indirect taxes.
(A) GNP at market prices — GDP + NFIA = 1,000 − 50 = 950.
(B) NNP at market prices — GNP − depreciation = 950 − 80 = 870.
(C) NNP at factor cost — NNPMP − net indirect taxes = 870 − (−30) = 900.
(D) GDP at factor cost — GDPMP − net indirect taxes = 1,000 + 30 = 1,030.
With negative NFIA and subsidies above indirect taxes, the domestic and factor-cost measures come out larger than the usual order suggests.
NCERT (2026-27): “2.3 Some Macroeconomic Identities … Hence, GNP ≡ GDP + Net factor income from abroad (Net factor income from abroad = Factor income earned by the domestic factors of production employed in the rest of the world – Factor income earned by the factors of production of the rest of the world employed in the domestic economy). We have already noted that a part of the capital gets consumed during the year due to wear and tear. This wear and tear is called depreciation. Naturally, depreciation does not become part of anybody’s income. If we deduct depreciation from GNP the measure of aggregate income that we obtain is called Net National Product (NNP). …” “… Similarly, there may be subsidies granted by the government on the prices of some commodities (in India petrol is heavily taxed by the government, whereas cooking gas is subsidised). So we need to add subsidies to the NNP evaluated at market prices. The measure that we obtain by doing so is called Net National Product at factor cost or National Income. Thus, NNP at factor cost ≡ National Income (NI ) ≡ NNP at market prices – (Indirect taxes – Subsidies) ≡ NNP at market prices – Net indirect taxes (Net indirect taxes ≡ Indirect taxes – Subsidies) …” “• GDP at factor cost is gross domestic product at market prices, less net product taxes. • Market prices are the prices as paid by the consumers Market prices also include product taxes and subsides. The term factor cost refers to the prices of products as received by the producers. Thus, factor cost is equal to market prices, minus net indirect taxes. …” |