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CA Foundation · Business Economics · Determination of National Income

In a year, the GDP at market prices of an economy is ₹900 crore. Factor income received from the rest of the world is ₹60 crore and factor income paid to the rest of the world is ₹85 crore. Depreciation (consumption of fixed capital) is ₹70 crore. What is the Net National Product at market prices (NNP MP)?

NNP at market prices is ₹805 crore. Net factor income from abroad is 60 − 85 = −25, so GNP is 900 − 25 = 875 crore. Deducting depreciation of ₹70 crore from GNP gives NNP at market prices of 805 crore.

  1. A₹805 croreCorrect
  2. B₹855 crore
  3. C₹830 crore
  4. D₹905 crore

Explanation

Net factor income from abroad = 60 − 85 = −25. GNP MP = 900 − 25 = 875. NNP MP = GNP MP − depreciation = 875 − 70 = 805. Option B (855) is obtained by adding the 25 instead of subtracting it and then deducting 70... no, 900+25−70 = 855, which wrongly treats net factor income as positive.

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