Question

National Income = ________.

• A. Gross National Income at Market Price
• B. Net National Income at Factor Cost
• C. Net Domestic Income at Factor Cost
• D. National Disposable Income

Hint:

Remember the formula: \( NNP_{FC} = \) National Income.
\( NDP_{FC} = \) Domestic Income.

Answer 1

The Correct Option is B

Step 1: Understanding the Concept:
National Income is the total value of final goods and services produced by normal residents of a country in a year, representing the total factor payments.
Step 2: Detailed Explanation:
1. Factor Cost (FC): We use factor cost because it represents the actual income earned by factors of production (Wages + Rent + Interest + Profit). Market Price includes taxes which are not "income" for factors.
2. Net: We use "Net" because depreciation (consumption of fixed capital) is subtracted from "Gross" to find the actual new value added.
3. National: We use "National" (which includes Net Factor Income from Abroad) instead of "Domestic" to account for the income of residents worldwide.
4. Therefore, standard National Income is technically defined as \( NNP_{FC} \) (Net National Product at Factor Cost).
Step 3: Final Answer:
National Income is equivalent to Net National Income at Factor Cost.