What is subtracted from GDP to arrive at NDP?

Correct — C. NDP = GDP − depreciation.

Gross and net differ by exactly one item in national accounting: consumption of fixed capital, the wearing out of machines, buildings and infrastructure over the year.

Take that out of Gross Domestic Product and what is left is the output remaining after replacing what wore out, which is Net Domestic Product — option (c).

Why the others are wrong

• (a)
  Net indirect taxes — Net indirect taxes, meaning indirect taxes minus subsidies, is the bridge between market price and factor cost. It does not move an aggregate from gross to net.
• (b)
  Subsidies — Subsidies are one half of net indirect taxes, added back when you move from market price to factor cost. They have nothing to do with depreciation.
• (d)
  Net factor income from abroad — Net factor income from abroad is the bridge between domestic and national, since GDP plus NFIA gives GNP. It changes the boundary, not the gross-to-net step.

Three adjustments move you around the national-income table, and each does exactly one job.

Gross to net: subtract depreciation. Domestic to national: add net factor income from abroad. Market price to factor cost: subtract net indirect taxes.

Chain them and the four aggregates follow — GDP, NDP, GNP and NNP. NNP at factor cost is what is called National Income.

Key facts

• NDP equals GDP minus depreciation.
• Depreciation is also called consumption of fixed capital.
• GDP plus net factor income from abroad gives GNP.
• Net indirect taxes equal indirect taxes minus subsidies and separate market price from factor cost.

Common traps

• Subtracting net factor income from abroad, which converts domestic to national rather than gross to net.
• Folding the market-price to factor-cost adjustment into the gross-to-net one. They are separate steps.

No directly related past PYQ was found.