Question

Which of the following is equal to National Income?

• A. NDP$_{FC}$
• B. NNP$_{MP}$
• C. NDP$_{MP}$
• D. NNP$_{FC}$

Hint:

National Income is typically equivalent to NNP$_{MP}$, which represents the total income generated by a country’s residents, both inside and outside the country.

Answer 1

The Correct Option is B

Step 1: Understanding National Income and Its Relationship to Other Measures:
National Income is the total income earned by a country's residents for their participation in the production of goods and services. It is a crucial concept in macroeconomics, as it reflects the economic health of a country by capturing the income generated through all economic activities. National Income is typically measured as Net National Product (NNP) at Market Prices.
Step 2: Key Definitions and Explanations:
- National Income: This is the sum of all income earned by the factors of production (such as labor and capital) within a country. It includes wages, profits, rents, and interest payments. National Income can be calculated by taking the Gross National Product (GNP) and adjusting it for depreciation (to account for the loss of capital).
- Net National Product (NNP): NNP is obtained by subtracting depreciation from the Gross National Product (GNP). It represents the total income of a country’s residents, both domestically and internationally, after accounting for the depreciation of capital.
Step 3: Exploring the Different Options:
- NDP$_{FC$ (Net Domestic Product at Factor Cost):} This measures the total value of goods and services produced within a country, adjusted for depreciation. It is not equal to National Income, as it does not account for income generated by residents abroad.
- NNP$_{MP$ (Net National Product at Market Prices):} This is the correct measure for National Income, as it adjusts for depreciation and reflects the income generated from both domestic and international economic activities at market prices.
- NDP$_{MP$ (Net Domestic Product at Market Prices):} This measure reflects domestic production but excludes income from abroad, which means it cannot be considered equivalent to National Income.
- NNP$_{FC$ (Net National Product at Factor Cost):} While similar to NNP$_{MP}$, this measure calculates the income of the country’s residents at factor cost (not market prices), and hence it is not exactly equivalent to National Income.
Step 4: Conclusion and Answer:
The correct answer is NNP$_{MP}$, as it is the measure that reflects the total income of a country's residents, both domestically and abroad, minus depreciation, and calculated at market prices.