Question

Identify the correct formula:

• A. GDP_mp– Depreciation = NNP_mp – Net Factor Income from Abroad
• B. GDP_mp – net indirect taxes = NNP_fc + net indirect taxes
• C. GNP_fc + net indirect taxes = NNP_fc
• D. NDP_mp + Net Factor Income from Abroad = GDP_fc – depreciation

Answer 1

The Correct Option is A

The correct formula is derived from the definition of national income at market prices NNP_mp . NNP_mp is obtained by subtracting depreciation from GDP_mp (Gross Domestic Product at market prices) and then subtracting Net Factor Income from Abroad. This formula highlights how national income is adjusted to account for capital depreciation and international income flows.

Answer 2

The correct formula for national income at market prices, NNP_mp, is derived from the definition of national income and reflects adjustments for capital depreciation and international income flows. The formula is as follows:

NNP_mp = GDP_mp - Depreciation - Net Factor Income from Abroad

Here, GDP_mp represents the Gross Domestic Product at market prices, which is the total market value of all goods and services produced within a country in a given period.

Depreciation (also known as consumption of fixed capital) refers to the decrease in the value of physical capital due to wear and tear or obsolescence over time. Subtracting depreciation from GDP adjusts the measure of output to reflect the net production after accounting for the capital that has been used up in the production process.

Net Factor Income from Abroad is the difference between the income earned by residents from foreign investments and the income earned by foreign residents within the domestic economy. This is subtracted from the GDP to reflect the income that flows in and out of the country.

This formula highlights how national income is adjusted to account for the reduction in capital value due to depreciation and the income earned or paid to foreign countries, providing a more accurate representation of the economic welfare of a nation.