An economy has the following data (Rs crore):
| Item | Amount |
|---|---|
| Wages | 500 |
| Rent | 100 |
| Interest | 80 |
| Profits | 220 |
| of which: dividends | 120 |
| of which: corporate tax | 50 |
| of which: undistributed profits | 50 |
| Depreciation | 60 |
| Net indirect taxes | 90 |
| Net factor income from abroad | (−) 20 |
What is the Gross National Product at market prices?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → Rs 1,030 crore
Given (Rs crore):
Wages = 500
Rent = 100
Interest = 80
Profits = 220
Depreciation = 60
Net indirect taxes = 90
NFIA = (−) 20
By the income method, wages + profits + interest + rent give the domestic factor income (NDP at factor cost). Dividends, corporate tax and undistributed profits are only parts of profits, so they are not added again.
\( \displaystyle NDP_{FC} = 500 + 100 + 80 + 220 = 900 \)
\( \displaystyle NNP_{FC} = 900 + (-20) = 880 \)
\( \displaystyle NNP_{MP} = 880 + 90 = 970 \)
\( \displaystyle GNP_{MP} = 970 + 60 = 1{,}030 \)
GNP at market prices is Rs 1,030 crore.
Option (2) Rs 1,250 crore — adds the three parts of profit again.
NCERT (2026-27): “2.2.3 Income Method As we mentioned in the beginning, the sum of final expenditures in the economy must be equal to the incomes received by all the factors of production taken together (final expenditure is the spending on final goods, it does not include spending on intermediate goods). This follows from the simple idea that the revenues earned by all the firms put together must be distributed among the factors of production as salaries, wages, profits, interest earnings and rents. …” “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). …” “… 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) …” |