Which of the following statements are correct?
(A) GNP = GDP + Net factor income from abroad.
(B) The wage of an Indian citizen working in Saudi Arabia is included in India's GDP.
(C) Net factor income from abroad = factor income earned by domestic factors employed in the rest of the world − factor income earned by foreign factors employed in the domestic economy.
(D) Profits of a foreign-owned car factory in India are subtracted from India's GDP to arrive at India's GNP.
(E) GNP at factor cost = GNP at market prices + Net product taxes + Net production taxes.
Choose the correct answer from the options given below:
Answer & explanation
Correct answer: option 2
The correct answer is Option (2) → (A), (C) and (D) only
GNP adds to GDP what our factors earn abroad and takes out what foreign factors earn here.
(A) GNP = GDP + Net factor income from abroad. — True. GNP = GDP + net factor income from abroad.
(B) The wage of an Indian citizen working in Saudi Arabia is included in India's GDP. — False. Her wage is in Saudi Arabia’s GDP; it enters India’s GNP, not its GDP.
(C) Net factor income from abroad = factor income earned by domestic factors employed in the rest of the world − factor income earned by foreign factors employed in the domestic economy. — True. NFIA = income of our factors abroad − income of foreign factors here.
(D) Profits of a foreign-owned car factory in India are subtracted from India's GDP to arrive at India's GNP. — True. Profits of a foreign-owned factory are subtracted from India’s GDP to get GNP.
(E) GNP at factor cost = GNP at market prices + Net product taxes + Net production taxes. — False. Factor cost is market prices minus the net product and production taxes.
NCERT (2026-27): “2.3 Some Macroeconomic Identities … For example, a citizen of India working in Saudi Arabia may be earning her wage and it will be included in the Saudi Arabian GDP. But legally speaking, she is an Indian. Is there a way to take into account the earnings made by Indians abroad or by the factors of production owned by Indians? When we try to do this, in order to maintain symmetry, we must deduct the earnings of the foreigners who are working within our domestic economy, or the payments to the factors of production owned by the foreigners. For example, the profits earned by the Korean-owned Hyundai car factory will have to be subtracted from the GDP of India. …” “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). …” “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. …” |