Which of the following correctly describes GNP at factor cost?
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → It measures the value of output received by the factors of production belonging to a country in a year.
GNP at factor cost is a national, gross measure at factor cost: the value of output received by the factors belonging to a country.
Option (1) It is the market value of all final goods produced within the domestic territory in a year. — Incorrect. This describes GDP at market prices.
Option (2) It shows how much the country has to spend just to maintain its current GDP. — Incorrect. This describes NDP, GDP less depreciation.
Option (3) It measures the value of output received by the factors of production belonging to a country in a year. — Correct. Factors belonging to a country make it national; factor cost makes it net of taxes.
Option (4) It measures the income earned by the factors within the domestic territory of a country. — Incorrect. Income of factors within the domestic territory is NDP at factor cost.
NCERT (2026-27): “Table 2.4: Basic National Income Aggregates GNP at factor cost measures value of output received by the factors of production belonging to a country in a year.” “Table 2.4: Basic National Income Aggregates This measure allows policy-makers to estimate how much the country has to spend just to maintain their current GDP. …” “Table 2.4: Basic National Income Aggregates NDP at factor cost is the income earned by the factors in the form of wages, profits, rent, interest, etc., within the domestic territory of a country.” |