Which of the following statements about the links between national income aggregates are correct?
(A) Net factor income from abroad links GDP and GNP.
(B) Depreciation links GNP and NNP at market prices.
(C) Personal tax payments and non-tax payments link National Income and Personal Income.
(D) Transfers received by households are added while moving from National Income to Personal Income.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → (A), (B) and (D) only
Each step from GDP down to personal income has its own link.
(A) Net factor income from abroad links GDP and GNP. — True. GNP = GDP + NFIA.
(B) Depreciation links GNP and NNP at market prices. — True. NNP = GNP − depreciation.
(C) Personal tax payments and non-tax payments link National Income and Personal Income. — False. Personal tax and non-tax payments link personal income and personal disposable income.
(D) Transfers received by households are added while moving from National Income to Personal Income. — True. Transfer payments to households are added to get personal income.
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 … Thus, Personal Income (PI) ≡ NI – Undistributed profits – Net interest payments made by households – Corporate tax + Transfer payments to the households from the government and firms. However, even PI is not the income over which the households have complete say. They have to pay taxes from PI. If we deduct the Personal Tax Payments (income tax, for example) and Non-tax Payments (such as fines) from PI, we obtain what is known as the Personal Disposable Income. Thus Personal Disposable Income (PDI ) ≡ PI – Personal tax payments – Non-tax payments. …” |