National Income and Related Aggregates
Class 12 begins with circular flow and the aggregate identities. The exam repeatedly tests the chain from GDP at market price to national income, the domestic–national distinction, and inclusions and exclusions in the accounts.
Core rules
- GDPmp is market value of final goods and services produced within domestic territory in a year. GNPmp = GDPmp + net factor income from abroad (NFIA).
- NDP = GDP − depreciation. NNPfc = NDPfc + NFIA = national income.
- Market price to factor cost: subtract net indirect taxes (indirect taxes minus subsidies).
- Domestic territory includes embassies, ships and aircraft owned by residents; it excludes foreign embassies in India.
- Nominal GDP uses current prices; real GDP uses base-year prices. GDP deflator = (nominal/real) × 100.
- Include: final goods, imputed rent of owner-occupied houses, own-account production, value of own-grown produce consumed.
- Exclude: intermediate goods, transfer payments, second-hand sales (except dealer's commission), sale of shares and bonds, illegal output, non-market services.
Worked example
GDPmp = ₹5,000 crore, depreciation ₹200 crore, NFIA = (−)₹50 crore, net indirect taxes ₹400 crore. NDPmp = 5,000 − 200 = ₹4,800 crore. NDPfc = 4,800 − 400 = ₹4,400 crore. NNPfc = 4,400 − 50 = ₹4,350 crore, which is national income. GNPmp would be 5,000 − 50 = ₹4,950 crore.
Traps that cost marks
- Adding subsidies instead of subtracting them when converting market price to factor cost.
- Reversing the NFIA sign; a negative NFIA makes national income less than domestic income.
- Counting intermediate expenditure, which double-counts output.
- Treating pensions, scholarships and unemployment allowance as factor income rather than transfers.