In the current account of the balance of payments, invisibles include flows of factor income, such as wages and profits earned across countries. In national income accounting, the net of such factor income is:
Answer & explanation
Correct answer: option 3
The correct answer is Option (3) → added to GDP to get GNP
Factor income earned across countries, in net terms, is net factor income from abroad. Adding it to GDP gives GNP.
Option (1) subtracted from GNP to get NNP — Incorrect. GNP minus depreciation gives NNP.
Option (2) added to NNP at market prices to get National Disposable Income — Incorrect. National Disposable Income adds current transfers, not factor income.
Option (3) added to GDP to get GNP — Correct. GNP = GDP + net factor income from abroad.
Option (4) subtracted from NNP at market prices to get National Income — Incorrect. NNPMP minus net indirect taxes gives national income.
This question uses National Income Accounting and Open Economy Macroeconomics together.
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” “Chapter 6: Open Economy Macroeconomics – 6.1.1 Current Account: … Invisibles include services, transfers and flows of income that take place between different countries. Services trade includes both factor and non-factor income. Factor income includes net international earnings on factors of production (like labour, land and capital). …” |