Which of the following statement/s is/are incorrect about Net National Product (NNP) ? (a) It shows net production of goods and services produced in a given financial year adjusted for net factor income from abroad. (b) It includes exports, imports but not factor income from abroad. (c) It is called 'net' because it deducts capital depreciation from total National Income.
- (1)(c)
- (2)(a)
- (3)(b)
- (4)(a) and (c)
The Commission cancelled this question. It carries no answer in the final key, and this card names none — nothing written below should be read as an indication of what the withdrawn answer was, and no statement printed in the stem is judged here one way or the other. The topic the question stood on is standard national-income accounting and it is worth learning cleanly. Start with the four aggregates and the two words that generate them. 'Domestic' and 'national' answer the question of whose income is being counted. Gross Domestic Product is the market value of all final goods and services produced inside the country's geographical territory in a year, whoever produces them; Gross National Product is the income of the country's residents, wherever they earn it, and is obtained by adding net factor income from abroad to GDP. Net factor income from abroad is the factor income — wages, rent, interest and profit — earned by residents abroad minus the factor income earned by non-residents inside the domestic territory. It is worth being precise about what it is not: it is a flow of factor payments, not a flow of goods. The export and import of goods and services enter the accounts by a different route, as net exports inside the expenditure measure of domestic product; they are not the same channel as factor income from abroad, and confusing the two is the commonest error in this part of the syllabus. The word 'gross' and the word 'net' answer a different question, namely whether wear and tear has been allowed for. Capital equipment is used up in the course of producing, and the value of that using-up is called depreciation, or in the national accounts the consumption of fixed capital. Deducting it from a gross figure gives the corresponding net figure, so Net Domestic Product is GDP minus depreciation and Net National Product is GNP minus depreciation. This is why the whole family can be written as a small grid: gross or net down one side, domestic or national across the top, four aggregates in the cells. One more distinction completes the picture. An aggregate can be measured at market prices, which is what buyers actually pay, or at factor cost, which is what the factors of production actually receive; the two differ by net indirect taxes, that is by indirect taxes minus subsidies. Net National Product at factor cost is what is conventionally called National Income, and dividing it by the population gives per capita income. In India these accounts are compiled by the National Statistical Office of the Ministry of Statistics and Programme Implementation and published in the National Accounts Statistics; since the 2011-12 base-year revision the headline production-side measure has been Gross Value Added at basic prices, with GDP obtained from GVA by adding product taxes and subtracting product subsidies.
National income accounting is the system that turns a country's production into a small set of comparable numbers, and almost every question about it is answerable from three distinctions applied in sequence. The first is domestic against national: domestic aggregates count what is produced inside the geographical territory, national aggregates count what accrues to residents, and the bridge between them is net factor income from abroad. The second is gross against net: gross aggregates ignore the using-up of capital equipment, net aggregates subtract it as depreciation or consumption of fixed capital, so 'net' in this vocabulary always means 'after depreciation' and never anything else. The third is market prices against factor cost: market prices include indirect taxes and exclude subsidies, factor cost strips both out, and the gap between the two is net indirect taxes. Apply the three in order and every aggregate in the syllabus falls out — GDP, GNP, NDP, NNP, each at market prices or at factor cost, with NNP at factor cost carrying the special name National Income and per capita income following from it by division. There are three routes to the same total, which is why the accounts hold together: the production or value-added method, the income method that sums wages, rent, interest and profit, and the expenditure method that sums consumption, investment, government spending and net exports. India's accounts are compiled by the National Statistical Office and published as the National Accounts Statistics, and since the 2011-12 series the production side is presented as Gross Value Added at basic prices.
Seven questions in this paper were withdrawn by the Commission — the most in any of its recent prelims papers — and this is one of them. A cancelled question is not a topic a candidate may skip. The syllabus material behind it stays in the syllabus and returns in later papers in better-drafted form, so the useful response is to learn the ground the question stood on rather than to note the cancellation and move past it. National income aggregates are a favourite of MPSC's economy section precisely because they can be asked from several directions using one small body of material: the definition of an aggregate, the arithmetic linking two of them, the identity of the compiling agency, the base year of the current series, or a numerical item in which a few figures are given and one aggregate has to be derived from another. All of those are answerable from the grid of gross-or-net against domestic-or-national, plus the market-price-against-factor-cost adjustment. It is also worth noticing what this item's stem does structurally: the word 'incorrect' is printed in bold in the English column and 'अयोग्य' in bold in the Marathi, so the question asked which statements were wrong rather than which were right. Five of the paper's seven negative stems carry that bold marking in both columns, this one among them; a sixth bolds it in the English column only, and the seventh bolds it in neither. A negative stem inverts everything a candidate does after reading it, and the discipline that survives it is to write the inversion down beside the question number before touching the statements at all.
- The Commission cancelled this question and published no answer for it in the final key; the material it was set on, national income accounting, remains squarely in the syllabus and is examined regularly in other forms.
- Gross National Product equals Gross Domestic Product plus net factor income from abroad, where that item is the factor income — wages, rent, interest and profit — earned by residents abroad minus the factor income earned by non-residents within the domestic territory.
- The word 'net' in these aggregates always means after the deduction of depreciation, called the consumption of fixed capital: Net Domestic Product is GDP minus depreciation and Net National Product is GNP minus depreciation.
- Market prices and factor cost differ by net indirect taxes, that is indirect taxes minus subsidies; Net National Product at factor cost is what is conventionally called National Income, and per capita income is that figure divided by the population.
- Exports and imports enter the accounts as net exports within the expenditure method of measuring domestic product, which is a different channel from net factor income from abroad — the first is a flow of goods and services, the second a flow of factor payments.
- India's national accounts are compiled by the National Statistical Office of the Ministry of Statistics and Programme Implementation and published as the National Accounts Statistics; since the 2011-12 base-year revision the headline production-side measure is Gross Value Added at basic prices.
The Commission cancelled this question and published no answer for it. Nothing in this figure maps onto the sentences printed in the stem, and no statement of the stem is judged here one way or the other — the figure sets out the standard accounting framework and stops there. A cancelled question is not a topic that can be dropped: national income aggregates are a favourite of MPSC's economy section because one small body of material supports questions about a definition, about the arithmetic linking two aggregates, about the compiling agency, about the base year, or about deriving one aggregate from another. Note the shape of the stem as well. It is a negative item, and the negation is printed in bold in the English column and in the Marathi one — but a bold word is a courtesy, not a safeguard. The discipline that survives an inverted question is to write the inversion beside the question number before touching the statements at all.
- Treating a cancelled question as a topic that can be dropped, when the material behind it returns in later papers in a better-drafted form
- Confusing net factor income from abroad with net exports — the first is a flow of factor payments between residents and non-residents, the second a flow of goods and services
- Forgetting that 'net' in national income vocabulary always means after depreciation, and never refers to any other subtraction
- Mixing up factor cost and market prices, which differ by net indirect taxes, and quoting a figure at one valuation as though it were at the other
- Reading a negative stem as though it were positive — this item printed its negation in bold in both columns, and an inverted question inverts every judgment that follows it
National income reaches MPSC papers in four shapes. The first is a definition item asking which aggregate a described quantity is, or what a named aggregate excludes. The second is an arithmetic item that supplies GDP, depreciation, net factor income from abroad and net indirect taxes and asks for one of the other aggregates, which is entirely mechanical once the grid is held. The third is institutional — who compiles the accounts, what the current base year is, when the series was last revised — and this is the shape that catches candidates who have read only the concept and not the Indian practice. The fourth is a statement-verification item of the kind attempted here, in which three or four claims about an aggregate are printed and have to be sorted, sometimes with the ask inverted so that the wrong statements are wanted. Preparing the grid and the Indian institutional facts together covers all four.
No directly related past PYQ was found.
- practice — not a real PYQ
Net National Product at factor cost is obtained from Gross National Product at market prices by making which of the following adjustments ?
- (a)Adding depreciation and adding net indirect taxes
- (b)Subtracting depreciation and subtracting net indirect taxes
- (c)Subtracting depreciation and adding net indirect taxes
- (d)Adding net factor income from abroad and subtracting subsidies
Answer(b) Subtracting depreciation and subtracting net indirect taxes — moving from gross to net means deducting the consumption of fixed capital, and moving from market prices to factor cost means deducting net indirect taxes, that is indirect taxes minus subsidies. The result, Net National Product at factor cost, is what is conventionally called National Income, and dividing it by the population gives per capita income. Net factor income from abroad plays no part here because both figures are already national rather than domestic.
- practice — not a real PYQ
Net factor income from abroad is best described as which of the following ?
- (a)The excess of a country's exports of goods and services over its imports
- (b)Factor income earned by residents abroad minus factor income earned by non-residents in the domestic territory
- (c)Foreign direct investment inflows minus outflows in a financial year
- (d)Remittances received by households minus the depreciation of capital equipment
Answer(b) Factor income earned by residents abroad minus factor income earned by non-residents in the domestic territory — it is the item that converts a domestic aggregate into a national one, so Gross National Product equals Gross Domestic Product plus net factor income from abroad. It is a flow of factor payments such as wages, rent, interest and profit. The excess of exports over imports is net exports, which enters the expenditure method of measuring domestic product and is a different channel altogether.