NNP at factor cost is equal to

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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.

Why the other options are wrong — (a) 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) 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) 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.

Concept: 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.

State PCS 2025 Q146 — Economy PYQ with Answer

State PCS 2025 Q146 — Economy PYQ with Answer