National Income and Related Aggregates
National Income and Related Aggregates tests the definitions of GDP, GNP, NNP, market price versus factor cost, treatment of transfer incomes and intermediate goods, and the three methods of estimation.
Core rules
- Domestic territory includes embassies, ships and aircraft abroad; a normal resident is a person whose centre of interest lies in the country for a year or more.
- Only final goods count; intermediate goods are excluded to avoid double counting, so use value added (output minus intermediate consumption).
- GNP(MP) = GDP(MP) + NFIA. NNP(FC) = GNP(MP) − depreciation − indirect taxes + subsidies.
- Transfer payments, second-hand sales, capital gains and illegal incomes are excluded.
- Methods: product (sum of value added), income (sum of factor incomes), expenditure (C + I + G + NX).
- Real versus nominal: real = nominal ÷ GDP deflator × 100.
Worked example
GDP at market price = ₹1,000 crore; NFIA = −₹50 crore; depreciation = ₹100 crore; indirect taxes = ₹80 crore; subsidies = ₹20 crore. GNP(MP) = 1,000 − 50 = ₹950 crore. NNP(MP) = 950 − 100 = ₹850 crore. NNP(FC) = 850 − 80 + 20 = ₹790 crore.
Traps that cost marks
- Adding NFIA to GDP to get GNP when NFIA is negative; subtract it.
- Treating old-age pensions and scholarships as factor income; they are transfers.
- Including indirect taxes when computing factor cost, or forgetting to add subsidies back.