How many of the following statements are correct?
(A) NDP at market prices helps policy-makers estimate how much a country has to spend just to maintain its current GDP.
(B) NDP at factor cost = NDP at market prices − Net product taxes − Net production taxes.
(C) NDP at market prices = GDP at market prices − Depreciation.
(D) Net Domestic Product includes the depreciation of capital stock.
(E) If a country does not replace the capital stock lost through depreciation, its GDP will rise.
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → Three
NDP is GDP less depreciation. Going from market prices to factor cost takes out the net product and production taxes.
(A) NDP at market prices helps policy-makers estimate how much a country has to spend just to maintain its current GDP. — Correct. NDPMP shows how much the country has to spend just to maintain its current GDP.
(B) NDP at factor cost = NDP at market prices − Net product taxes − Net production taxes. — Correct. Net product taxes and net production taxes are deducted to reach factor cost.
(C) NDP at market prices = GDP at market prices − Depreciation. — Correct. Net = gross minus depreciation.
(D) Net Domestic Product includes the depreciation of capital stock. — Incorrect. Net Domestic Product does not include depreciation.
(E) If a country does not replace the capital stock lost through depreciation, its GDP will rise. — Incorrect. If lost capital is not replaced, GDP will fall.
NCERT (2026-27): “Table 2.4: Basic National Income Aggregates … 3. Net Domestic Product at Market Prices (NDPMP) … This measure allows policy-makers to estimate how much the country has to spend just to maintain their current GDP. If the country is not able to replace the capital stock lost through depreciation, then GDP will fall. …” “Table 2.4: Basic National Income Aggregates … Market prices are the prices as paid by the consumers Market prices also include product taxes and subsides. The term factor cost refers to the prices of products as received by the producers. Thus, factor cost is equal to market prices, minus net indirect taxes. …” Glossary: “Net Domestic Product (NDP) – Aggregate value of goods and services produced within the domestic territory of a country which does not include the depreciation of capital stock.” |