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CA Foundation · Business Economics · Determination of National Income

Rashmi Ltd., a manufacturing company in India, reports the following data for the financial year: Gross Domestic Product at Market Prices: ₹50,000 crore Net Factor Income from Abroad: ₹(–)500 crore Depreciation: ₹2,000 crore If indirect taxes exceed subsidies by ₹1,500 crore, what is the Net National Income at Factor Cost for this economy?

NNI at Factor Cost equals ₹46,000 crore. The correct sequence is: deduct depreciation from GDP to get NDP, adjust for net income from abroad to get NNP at market prices, then subtract the net indirect taxes to convert to factor cost.

  1. A₹46,000 croreCorrect
  2. B₹47,000 crore
  3. C₹48,500 crore
  4. D₹49,500 crore

Explanation

Start with GDP at MP (₹50,000 cr). Subtract depreciation to get NDP: ₹50,000 – ₹2,000 = ₹48,000 cr. Add Net Factor Income from Abroad: ₹48,000 + (–500) = ₹47,500 cr to get NNP at MP. Convert to factor cost by subtracting (Tax – Subsidy): ₹47,500 – ₹1,500 = ₹46,000 cr. Common error: forgetting to adjust for depreciation or net factor income leads to wrong answers like ₹49,500 cr.

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