BPSC 70th CCE Re-exam Prelims General Studies · Question 146 of 142

Correct — B, National Income. This is a definition rather than a derivation: in national income accounting, Net National Product at factor cost is National Income. The two names describe the same aggregate, one built up from the production side and the other used as the headline term, and standard treatments — including the NCERT Class XII macroeconomics text — state the identity in exactly those words. It helps to see where the aggregate sits in the chain. Start with Gross Domestic Product at market prices, the value of final goods and services produced inside the country. Add net factor income from abroad and you have Gross National Product at market prices, which counts what the nation's residents earn wherever they earn it. Subtract depreciation — the consumption of fixed capital, the part of output that merely replaces worn-out machinery — and gross becomes net: Net National Product at market prices. Now change the valuation. Market prices include indirect taxes and are reduced by subsidies, neither of which is income to any factor of production, so subtracting net indirect taxes converts market price into factor cost. What remains is Net National Product at factor cost, and every rupee of it is income actually received by land, labour, capital or enterprise — rent, wages, interest and profit. That is why it deserves the name National Income and why per capita income is calculated by dividing this figure, not GDP, by the population. Two adjustments define it: depreciation takes gross to net, and net indirect taxes take market price to factor cost. Miss either one and a different aggregate results, which is precisely what the three wrong options offer.

• (a)Disposable Personal Income — Several steps further down the chain. From National Income one first reaches personal income by removing the part that never reaches households — undistributed corporate profits and corporate tax — and adding transfer payments; then personal income becomes disposable personal income only after direct taxes and other compulsory payments are deducted. Disposable income is what households can actually spend or save, which is a much narrower quantity.
• (c)GNP at Market Price — Two adjustments above the answer. GNP at market price is still gross, so depreciation has not been removed, and it is still at market price, so indirect taxes are still in and subsidies still out. Subtract both and you arrive at NNP at factor cost. It is the natural wrong answer for a candidate who remembers that national income is 'the big national aggregate' without remembering which one.
• (d)GNP at factor cost – Net indirect tax — Wrong as written, and instructively so: it subtracts net indirect tax twice. Any figure already described as being 'at factor cost' has had net indirect tax removed — that is what the phrase means. What must be taken off GNP at factor cost to reach NNP at factor cost is depreciation. Written correctly the identity would be NNP at FC = GNP at FC minus depreciation, or equivalently GNP at MP minus depreciation minus net indirect tax.

National income aggregates vary along exactly two axes, and once that is seen the whole family becomes a small grid rather than a list to memorise. The first axis is domestic versus national: domestic measures output produced within the country's territory, national measures income earned by its residents, and the bridge between them is net factor income from abroad, added to a domestic figure to get a national one. The second axis is gross versus net: gross includes depreciation, net excludes it. Cutting across both is the question of valuation — market price includes net indirect taxes, factor cost does not, and the difference is exactly indirect taxes minus subsidies. Combine the choices and you get GDP at MP, GNP at MP, NNP at MP, NDP at FC, NNP at FC and the rest. Only one of them is called National Income, and it is the most restrictive: national rather than domestic, net rather than gross, and at factor cost rather than at market price — because national income is meant to measure income actually received by the factors of production. India's official statistics have moved on somewhat in presentation: since the 2011-12 base revision the headline series are Gross Value Added at basic prices and GDP at market prices, and net national income is what per capita income is derived from.

Questions in this block are almost always solved by counting adjustments rather than by recalling a definition. Fix one anchor — GNP at market price — and remember that two subtractions take you to National Income: depreciation, and net indirect taxes. Then read each option as a position relative to that anchor. GNP at market price is zero adjustments away, so it cannot be the answer. Disposable personal income is more than two adjustments away and belongs to households, not to the nation. Option (d) applies one of the two adjustments twice and the other not at all. Only option (b) names the destination. The single most useful discipline here is to treat 'at factor cost' and 'at market price' as instructions rather than labels: at market price means net indirect taxes are inside the figure, at factor cost means they have been taken out. Once that reading is automatic, an option that subtracts net indirect tax from something already at factor cost announces its own error, and questions of this shape stop needing any calculation at all.

• NNP at factor cost is, by definition, National Income — the same aggregate under two names
• GNP at market price = GDP at market price + net factor income from abroad; NNP at market price = GNP at market price − depreciation
• NNP at factor cost = NNP at market price − net indirect taxes, where net indirect taxes = indirect taxes − subsidies
• Equivalently, NNP at factor cost = GNP at factor cost − depreciation; a figure already at factor cost has had net indirect tax removed once and must not have it removed again
• Per capita income is National Income divided by population, not GDP divided by population
• Personal income and disposable personal income lie further down the chain: National Income minus undistributed profits and corporate tax plus transfers gives personal income, and deducting direct taxes gives disposable personal income

• Subtracting net indirect tax from a figure already described as being at factor cost, which is what option (d) does
• Confusing National Income with GDP when computing per capita income — the divisor is population and the numerator is national income, not domestic product
• Mixing the domestic and national axes; net factor income from abroad is what converts one into the other, and it can be negative

BPSC asks the identity in one line and surrounds it with aggregates from the same family, so the mark depends on knowing which single one carries the name. UPSC has asked exactly this identity twice, once as a bare definition and once spelt out as a chain of subtractions from GNP at market price, which is the harder version because it forces the candidate to reproduce the derivation rather than recognise a label.

• practice — not a real PYQ

  Gross National Product at market price minus depreciation gives

  • (a)Net National Product at market price
  • (b)Net National Product at factor cost
  • (c)Gross Domestic Product at market price
  • (d)Personal income

  Answer(a) Net National Product at market price — removing depreciation makes a gross figure net, but the valuation is still at market price until net indirect taxes are also deducted.

• practice — not a real PYQ

  The difference between Gross National Product and Gross Domestic Product is

  • (a)Depreciation
  • (b)Net indirect taxes
  • (c)Net factor income from abroad
  • (d)Subsidies

  Answer(c) Net factor income from abroad — it converts a domestic measure into a national one; depreciation converts gross to net and net indirect taxes convert market price to factor cost.