Study the figure, which shows how some aggregates are reached from GDP.
What do P, Q and R stand for?
Answer & explanation
Correct answer: option 4
The correct answer is Option (4) → P: Net factor income from abroad, Q: Depreciation, R: Indirect taxes − Subsidies
Each arrow from GDP to national income makes one adjustment.
P — GDP to GNP: add net factor income from abroad.
Q — GNP to NNP at market prices: subtract depreciation.
R — NNP at market prices to NI: subtract indirect taxes − subsidies.
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” “2.3 Some Macroeconomic Identities … 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)” |