Aspirant Academy
ENHI

RAS question

GNP is defined as:

Correct answer: (A) GDP + Net factor income from abroad.

GNP is defined as GDP plus net factor income from abroad.

  1. (A)

    GDP + Net factor income from abroad

  2. (B)

    GDP + Depreciation

  3. (C)

    GDP - Net factor income from abroad

  4. (D)

    GDP - Subsidies

Explanation

Gross National Product adjusts Gross Domestic Product for cross-border factor incomes. NCERT states that GNP equals GDP plus factor income earned by domestic factors of production abroad, minus factor income earned by foreign factors of production in the domestic economy; this difference is called net factor income from abroad. NFIA is factor income earned by Indians abroad minus factor income earned by foreigners in India. Therefore, GDP becomes GNP only when NFIA is added. For India, NFIA is usually negative, so adding it generally makes GNP lower than GDP.

Why the other options are wrong

  • (B) Adding depreciation changes a gross measure toward a different depreciation-related concept, but it does not account for factor income earned across national borders, which is what converts GDP to GNP.
  • (C) Net factor income from abroad is added to GDP in the GNP identity; subtracting it reverses the required adjustment.
  • (D) Subsidies relate to price adjustments, not to the national-versus-domestic income distinction in GNP.

Concept

National income accounting distinguishes domestic product from national product. GDP, GNP, NFIA and depreciation identities recur in RAS because they are basic tools for interpreting Indian economy questions.

Source

Related questions