SSC
Gross National Product (GNP) minus depreciation is equal to:
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Answer: Option C — Net National Product (NNP)
Detailed Solution
National income accounting uses several related measures. Understanding the relationships between them is important:
Gross Domestic Product (GDP): the market value of all final goods and services produced within the domestic territory of a country in a year, by residents and non-residents.
Gross National Product (GNP): GDP plus net factor income from abroad (NFIA). NFIA is the income earned by residents of the country from abroad (such as wages, interest, profits and dividends) minus the income earned by foreigners within the country. So GNP = GDP + NFIA. It measures the output produced by the nationals of a country, wherever they are. For India, NFIA is usually negative, so GNP is slightly less than GDP.
Depreciation (consumption of fixed capital): the loss in the value of fixed capital assets, such as machinery and buildings, due to normal wear and tear, ageing and obsolescence during production.
Net National Product (NNP) = GNP – Depreciation. It represents the net value of output after setting aside what is needed to replace worn-out capital.
Net Domestic Product (NDP) = GDP – Depreciation.
The above measures can be calculated at market prices (MP) or at factor cost (FC). Market prices include indirect taxes and exclude subsidies. Factor cost is the cost of the factors of production (land, labour, capital and enterprise).
Factor cost = Market price – Net indirect taxes (indirect taxes – subsidies).
NNP at factor cost is called National Income. It is the sum of all factor incomes, namely rent, wages, interest and profits, earned by the normal residents of a country in a year.
Per capita income = National income / Population.
In India, national income estimates are prepared by the National Statistics Office (NSO), MoSPI. The first estimate of India's national income was made by Dadabhai Naoroji in 1867-68, in his book "Poverty and Un-British Rule in India".
Why not the other options?
- ✗GDP is GNP minus net factor income from abroad.
- ✗Personal income is the income actually received by households.
- ✗Disposable income is personal income minus direct taxes.
Quick tip
Remember: GNP = GDP + NFIA; NNP = GNP – depreciation; NNP at factor cost = National Income; first estimate by Dadabhai Naoroji (1867-68).
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National Income & GDP — Preparation
This question tests your understanding of National Income & GDP, a key topic in the General Knowledge section. The detailed solution above uses a step-by-step approach to show the reasoning, and where available, a shortcut that helps you solve similar questions in under 90 seconds during the actual exam.
This topic covers national income and how it is measured: GDP, GNP, NDP and NNP, measurement at market price and at factor cost, the production, income and expenditure methods, per capita income, base years, and the sectors of the economy (primary, secondary and tertiary). Exam questions test the differences between the measures (GNP = GDP + net factor income from abroad, and NDP = GDP - depreciation), which body estimates national income in India (the National Statistical Office), and which sector contributes the most to India's GDP (the services sector). Dadabhai Naoroji made one of the first estimates of India's national income. Practise the national income and GDP questions below, written in the style of the general awareness sections of exams such as SSC, banking, railways, CUET GAT, MAH CET and CLAT. Each question comes with a detailed explanation that adds related facts, so every question helps you revise more than one point.