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CA Foundation · Business Economics · Determination of National Income

Which of the following correctly describes Gross National Product (GNP) at market prices in relation to Gross Domestic Product (GDP) at market prices?

GNP at market prices equals GDP at market prices plus net factor income from abroad. GDP counts output within the domestic territory, while GNP counts income of normal residents, so factor income received from abroad is added and factor income paid to non-residents is deducted.

  1. AGNP = GDP + Net factor income from abroadCorrect
  2. BGNP = GDP - Net factor income from abroad
  3. CGNP = GDP + Net indirect taxes
  4. DGNP = GDP - Depreciation

Explanation

GDP measures output produced within the domestic territory. GNP adds the income earned by residents from abroad and deducts income earned by non-residents within the country, i.e. it adds net factor income from abroad (NFIA). Subtracting depreciation gives net product, not GNP, and net indirect taxes link market prices to factor cost.

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