Which of the following options related to the aggregates of national income is correct?
Answer & explanation
Correct answer: option 1
The correct answer is Option (1) → Production done by the national residents during a period of time.
GDP counts what is produced within the domestic territory, by whoever produces it. But Indian residents also earn factor income abroad, and foreigners earn some in India. National aggregates such as GNP take this into account: they add the first and deduct the second, so that they measure the production done by the national residents during a period of time, wherever it is done.
Why the other options are incorrect
Option (2) Bounded by the production in national boundary. — Incorrect. Production within the country’s territory is the domestic aggregate, GDP; the national aggregate goes beyond the boundary to include residents’ earnings abroad.
Option (3) National income does not take NFIA into account. — Incorrect. Net factor income from abroad is the very item that turns a domestic aggregate into a national one: GNP = GDP + NFIA.
Option (4) Leads to double counting. — Incorrect. Double counting means counting the value of an intermediate good twice: once on its own and again inside the final good made from it. The aggregates count only final goods and services, or the value added at each stage, precisely to avoid it.
NCERT (2025-26): “2.3 Some Macroeconomic Identities … Gross Domestic Product measures the aggregate production of final goods and services taking place within the domestic economy during a year. But the whole of it may not accrue to the citizens of the country. 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. The macroeconomic variable which takes into account such additions and subtractions is known as Gross National Product (GNP).…” |