RAS question
NNP at factor cost is also known as:
Correct answer: (B) National Income.
NNP at factor cost is known as National Income.
Explanation
NNP at factor cost is called National Income because it measures the part of Net National Product that actually accrues to the factors of production. NCERT explains that NNP is first evaluated at market prices, but market prices include indirect taxes, which go to the government, and may also reflect subsidies. To move from market prices to factor cost, net indirect taxes are deducted. The resulting measure is Net National Product at factor cost, or National Income. This matches the standard identity: NNP at factor cost = NNP at market prices - net indirect taxes. In the question's given formula, the same idea is expressed through GNP at market price minus depreciation minus net indirect taxes.
Why the other options are wrong
- (A) Gross Domestic Product measures final goods and services produced within the domestic economy, whereas NNP at factor cost is a national-income measure after depreciation and the factor-cost adjustment.
- (C) Per Capita Income is derived by dividing national income by population, so it is not another name for NNP at factor cost itself.
- (D) Personal Income refers to the part of national income received by households, while NNP at factor cost is the aggregate National Income before that household-level classification.
Concept
This tests the national income accounting identities in Indian Economy. RAS often repeats these terms because small changes in domestic/national, gross/net and market price/factor cost completely change the aggregate being measured.