Which one of the following statements is not correct for National Income Accounting for India?
- (a)Imports are subtracted in calculating Gross Domestic Product.
- (b)Net factor payments earned from abroad are included in Gross Domestic Product.
- (c)Purchase and sale of second-hand goods are not included in Gross Domestic Product.
- (d)Inventories are included in Gross Domestic Capital Formation.
Correct — B, Net factor payments earned from abroad are included in Gross Domestic Product. This is the statement that is not correct, and it fails on the difference between 'domestic' and 'national'. Gross Domestic Product measures what is produced inside the geographical boundary of the country, whoever owns the factors of production. Net factor income from abroad — what Indian-owned factors earn abroad, minus what foreign-owned factors earn in India — lies outside that boundary by definition, and the standard identity adds it on top: GNP is GDP plus net factor income from abroad. If it were already inside GDP, that identity would be double counting. The other three statements are all sound accounting rules, so this is the odd one out.
- (a)Imports are subtracted in calculating Gross Domestic Product. — This is correct. In the expenditure method GDP is written as consumption plus investment plus government spending plus exports minus imports. Imports are deducted because spending on foreign goods has already been counted inside the first three terms, and it did not pay for domestic production.
- (c)Purchase and sale of second-hand goods are not included in Gross Domestic Product. — This is correct. GDP counts the value of goods and services produced during the year, and a second-hand car was counted in the year it was made. Only the dealer's or broker's service charge, which is a current service, enters this year's GDP.
- (d)Inventories are included in Gross Domestic Capital Formation. — This is correct. NCERT is explicit that inventories are treated as capital and that a change in a firm's inventory is treated as investment, alongside fixed business investment and residential investment.
National income can be measured three ways — by product, by expenditure or by income — and all three must give the same total. The expenditure route writes GDP as consumption plus investment plus government spending plus exports minus imports. From GDP the other aggregates follow by a chain of adjustments: add net factor income from abroad to reach GNP, subtract depreciation to reach Net National Product, and adjust market prices for indirect taxes less subsidies to reach National Income, which is NNP at factor cost.
Almost every national-income question in CDS turns on one of three boundaries, and it is worth naming them. The first is domestic against national — the geographical boundary, crossed by net factor income from abroad, which is what this item tests. The second is gross against net — the depreciation boundary. The third is market price against factor cost — the indirect-tax boundary. A student who tags each aggregate with those three labels can reconstruct the whole chain from memory rather than learning eight definitions separately. The second-hand rule has a useful corollary too: transfer payments such as pensions and scholarships are excluded for the same reason, since no new production stands behind them.
- GDP measures output produced within the country's geographical boundary, whoever owns the factors.
- GNP equals GDP plus net factor income from abroad, so that item sits outside GDP.
- By the expenditure method, GDP equals consumption plus investment plus government spending plus exports minus imports.
- Sales of second-hand goods are excluded because they are not current production; only the dealer's service margin counts.
- Change in inventories is treated as investment and forms part of gross capital formation, along with fixed and residential investment.
Each step crosses exactly one boundary — geography, depreciation, then taxes.
- Reading 'domestic' and 'national' as interchangeable — net factor income from abroad is exactly what separates them.
- Thinking imports are subtracted because they harm the economy; they are subtracted to remove foreign production already counted in C, I and G.
- Assuming nothing about a second-hand sale enters GDP, when the dealer's service charge does.
Asked as a not-correct item where three options are standard accounting conventions and the fourth moves a term across the domestic-national boundary.
National Income is the
- (a) Net National Product at market price
- (b) Net National Product at factor cost
- (c) Net Domestic Product at market price
- (d) Net Domestic Product at factor cost
Answer(b) Net National Product at factor cost
Two of the same three boundaries in one line. That item makes you choose national over domestic and factor cost over market price at the same time, which is the discipline this CDS question tests with net factor income from abroad.
CDS_GK_2021_I_Q12021Which one of the following statements is not correct?
- (a) Real GDP is calculated by valuing outputs of different years at common prices.
- (b) Potential GDP is the real GDP that the economy would produce if its resources were fully employed.
- (c) Nominal GDP is calculated by valuing outputs of different years at constant prices.
- (d) Real GDP per capita is the ratio of real GDP divided by population.
Answer(c) Nominal GDP is calculated by valuing outputs of different years at constant prices.
The same question format on the same syllabus block, three years earlier — three sound definitions and one that swaps a term. CDS clearly likes the not-correct pattern for national income accounting, so practise reading all four options before committing.
- practice — not a real PYQ
Gross National Product exceeds Gross Domestic Product when
- (a)exports exceed imports
- (b)net factor income from abroad is positive
- (c)depreciation is zero
- (d)indirect taxes exceed subsidies
Answer(b) net factor income from abroad is positive — GNP is GDP plus that term, so GNP is larger whenever the term is positive.
- practice — not a real PYQ
Which one of the following is included in this year's Gross Domestic Product?
- (a)The sale price of a second-hand motorcycle
- (b)The commission charged by the dealer who sold that motorcycle
- (c)An old-age pension paid by the government
- (d)The purchase of shares on a stock exchange
Answer(b) The commission charged by the dealer — it is a service produced this year; the other three are not current production.