Assertion (A): If the net factor income from abroad of a country is negative, its NNP at market prices is smaller than its NDP at market prices.
Reason (R): NNP at market prices is equal to NDP at market prices plus net factor income from abroad.
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Both (A) and (R) are true and (R) is the correct explanation of (A).
Assertion (A): If the net factor income from abroad of a country is negative, its NNP at market prices is smaller than its NDP at market prices. — True. With NFIA negative, adding it to NDPMP gives a smaller NNPMP.
Reason (R): NNP at market prices is equal to NDP at market prices plus net factor income from abroad. — True. GNP = GDP + NFIA and NNP = GNP − Depreciation, so NNPMP = NDPMP + NFIA.
Why R explains A?
R gives the relation between the two aggregates. Put a negative NFIA into it and NNPMP comes out below NDPMP, which is A.
NCERT (2026-27): “Gross National Product (GNP) … 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). Thus NNP ≡ GNP – Depreciation” |