National Income is equal to which of the following?
(A) NDP at factor cost + Net factor income from abroad
(B) NNP at market prices − (Indirect taxes − Subsidies)
(C) GDP at factor cost − Depreciation − Net factor income from abroad
(D) NNP at factor cost
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (B) and (D) only
National income is NNP at factor cost. It can be reached from the domestic side (NDPFC + NFIA) or from market prices (NNPMP − net indirect taxes).
(A) NDP at factor cost + Net factor income from abroad — True. Domestic factor income plus NFIA gives national income.
(B) NNP at market prices − (Indirect taxes − Subsidies) — True. Taking net indirect taxes out of NNPMP gives national income.
(C) GDP at factor cost − Depreciation − Net factor income from abroad — False. NFIA must be added, not subtracted, to go from domestic to national.
(D) NNP at factor cost — True. The book calls NNP at factor cost national income.
NCERT (2026-27): “2.3 Some Macroeconomic Identities It is to be noted that all these variables are evaluated at market prices. Through the expression given above, we get the value of NNP evaluated at market prices. But market price includes indirect taxes. When indirect taxes are imposed on goods and services, their prices go up. Indirect taxes accrue to the government. We have to deduct them from NNP evaluated at market prices in order to calculate that part of NNP which actually accrues to the factors of production. 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)” “Table 2.4: Basic National Income Aggregates … It is the National Product and is not bound by production in the national boundaries. It is the net domestic factor income added with the net factor income from abroad.” |