National Income and Related Aggregates
What the domain tests
National Income and Related Aggregates tests the circular flow, GDP and GNP, market price versus factor cost, net versus gross, nominal versus real income, and the income, expenditure, and value-added methods. You must avoid double counting and classify transfers correctly.
Core rules
- GDP at market price: value of final goods and services produced within domestic territory in a year.
- GNP at market price: GDPmp + net factor income from abroad (NFIA).
- NNP at factor cost: GNPmp − depreciation − net indirect taxes. This is national income.
- Nominal vs real: nominal GDP uses current prices; real GDP uses constant base-year prices. GDP deflator = nominal GDP ÷ real GDP × 100.
- Methods: product or value-added, income, and expenditure methods should give the same total.
Worked example
GDPmp = ₹1,000 crore, NFIA = −₹50 crore, depreciation = ₹100 crore, net indirect taxes = ₹80 crore. GNPmp = 1,000 + (−50) = ₹950 crore. NNPfc = 950 − 100 − 80 = ₹770 crore. The negative NFIA means factor income paid abroad exceeds income received from abroad.
Traps that cost marks
Do not include intermediate goods, second-hand sales, transfer payments, or financial transactions in national income. Do not add indirect taxes when converting from market price to factor cost; subtract them. Do not confuse GDP with GNP: GDP is territorial, GNP is ownership-based. Do not treat depreciation as factor income. Real GDP changes only when quantities change.