National Income and Related Aggregates
National Income and Related Aggregates
This domain tests the circular flow, the production, income and expenditure methods, and the relationships among GDP, GNP, NNP, market price and factor cost. CHSE questions often require numerical conversion between aggregates.
Core rules
- GDP at market price is the value of final goods and services produced within domestic territory in a year. GNP = GDP + net factor income from abroad (NFIA).
- NNP = GNP − depreciation. NNP at factor cost is national income. GDP at factor cost = GDP at market price − indirect taxes + subsidies.
- Domestic income is earned within domestic territory; national income is earned by normal residents. Nominal GDP uses current prices; real GDP uses constant prices.
- The production method sums value added; the income method sums factor incomes; the expenditure method sums final consumption, investment, government spending and net exports.
- Avoid double counting by counting only final goods or value added. Transfer payments, second-hand sales, financial transactions and intermediate goods are excluded.
Worked example
GDP at market price = ₹1,000 crore; NFIA = ₹50 crore; depreciation = ₹80 crore; indirect taxes = ₹120 crore; subsidies = ₹20 crore. GNP at market price = 1,000 + 50 = ₹1,050 crore. NNP at market price = 1,050 − 80 = ₹970 crore. NNP at factor cost = 970 − 120 + 20 = ₹870 crore, which is national income. Check: GDP at factor cost = 1,000 − 120 + 20 = ₹900 crore; add NFIA ₹50 crore gives ₹950 crore; subtract depreciation ₹80 crore gives ₹870 crore.
Traps
Do not add NFIA when calculating domestic product. Do not subtract subsidies; add them when moving from market price to factor cost. Depreciation is subtracted once. Do not include transfer payments such as pensions or scholarships in national income. Keep crore units consistent.