National Income MCQs with Explanations

Correct Answer: (C) Gross National Product at market prices minus depreciation and indirect taxes plus subsidies

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The term National Income (NI) represents Gross National Product at market prices MP (GNP) minus depreciation and indirect taxes plus subsidies. Net National Product at Factor Cost FC (NNPFC) is known as national Income (NI).
NNPMP = GNPMP – Depreciation
NNIFC (NI) = NNPMP – Indirect Taxes + Subsidies (or)
NNPMP – Net Product Taxes – Net Production Taxes (or)
GNPMP – Depreciation – Indirect Taxes + Subsidies
The relation between different forms of National Product -
Net Indirect Taxes (NIT) = Indirect Taxes – Subsidy,
GNP = Gross National product, NNP = Net National product,
GDP = Gross Domestic product, NDP = Net Domestic Product,
MP = Market Prices, FC = Factor Cost,
D = Depreciation, NFI = Net Factor Income from Abroad

Correct Answer: (D) Money value of final goods and services produced

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National income refers to the total monetary value of all the finals goods and services produced by the normal residents of a country in a specific time period (generally one year). In other words, National Income of a country is defined as the sum of total factor incomes accruing to the normal residents of that country from the production activity performed by them both within and outside the national boundaries in a year. In India computation of National Income is the responsibility of National Statistical Office (NSO), Government of India.

Correct Answer: (B) Diminishing cost method

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enditure method
Ans. (b)
Exp: The 3 methods which are used for calculating the Gross Domestic Product (GDP) are as follows :
1. Product method
2. Income method
3. Expenditure method
The diminishing cost method is not used to calculate the GDP.

Correct Answer: (C) The year whose prices are being used to calculate the real GDP

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'Base year' in National Income accounting means – the year whose prices are being used as reference prices to calculate the real GDP or real National Income. At present, the base year for National Income accounting is 2011-12. For example– if goods and services produced during the year 2021-22 are valued at the prices of the base year (i.e. 2011-12), it will be called National Income at constant prices.

Correct Answer: (D) None of the above options is true

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Net Domestic Product (NDP) is an annual measure of the economic output of a nation that is calculated by subtracting depreciation from Gross Domestic Product (GDP). It means,
Net Domestic Product = Gross Domestic Product – Depreciation.
Hence, Statement I is incorrect while Statement II is also not true. Per Capita Income is the average income earned per person in a nation or geographic region in a specified year. It can be calculated by dividing National Income (Net National Product) from the total population of the nation. Statement III is also incorrect as Net Domestic Product is the better metrics than Gross Domestic Product for comparing the economies of the world, since the former also reveals the amount of investment spent on improving the obsolete equipment’s to maintain the production level. An increase in depreciation alone can push up the GDP level, but it does not indicate improvements in that country's social and economic well-being.

Correct Answer: (B) Growth in financial aid from World Bank

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Growth in Gross Domestic Product (GDP), Gross National Product (GNP) and Per Capita Gross National Product are considered in the Economic Development. Growth in World Bank's financial aid is not included in this.