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CSEET · Economic and Business Environment · National Income Accounting and Related Concepts

Which of the following is the correct relationship between Gross National Product at market prices (GNP at MP) and Net National Product at market prices (NNP at MP)?

NNP at market prices equals GNP at market prices minus depreciation, also called consumption of fixed capital. Gross figures include the wear and tear of capital assets, so removing depreciation gives the net value of output available after maintaining the capital stock.

  1. ANNP at MP = GNP at MP minus depreciation (consumption of fixed capital)Correct
  2. BNNP at MP = GNP at MP plus depreciation
  3. CNNP at MP = GNP at MP minus net indirect taxes
  4. DNNP at MP = GNP at MP plus net factor income from abroad

Explanation

Net measures are obtained by deducting depreciation from the corresponding gross measure. Hence NNP at MP = GNP at MP minus depreciation. Adding depreciation would give a larger figure and is wrong; subtracting net indirect taxes moves from market prices to factor cost, not from gross to net.

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