Gross National Product (GNP) is equal to which of the following?

The correct answer is B. GDP measures production inside the borders of a country in one accounting year, whoever the producer may be. A foreign firm making cars in India adds to India's GDP, because the test is the place of production and not the nationality of the producer.

Option A describes Gross National Product, which counts what the residents of a country produce anywhere in the world; the two differ by net factor income from abroad. Option C is wrong because GDP covers the whole economy, private and public, organised and, as far as it can be estimated, unorganised. Option D contradicts the definition: only final goods are counted, since including intermediate goods would count the same value more than once, as with wheat, flour and bread. This idea of value added at each stage is the basis of the product method of measurement.

The correct answer is B, depreciation. Machines, buildings and vehicles wear out as they are used, and the value of that wear and tear must be set aside if the country is to keep its capital intact. Deducting it from GNP gives NNP, and NNP measured at factor cost is what economists call national income.

Option A, indirect taxes, and Option C, subsidies, connect market price with factor cost, not gross with net. Option D, net factor income from abroad, is the item that connects the domestic aggregates with the national ones, so subtracting it from GNP would take you back to GDP rather than to NNP. Note the parallel: GDP minus depreciation gives NDP in just the same way that GNP minus depreciation gives NNP.

The correct answer is C, Dadabhai Naoroji. He made the earliest estimate of India's national income in the nineteenth century and used it to argue that British rule was draining wealth out of the country, putting the average income at about twenty rupees a person a year. His work is the starting point of every account of national income estimation in India.

Option A, V. K. R. V. Rao, made the first scientific estimate, for the year 1931-32, using methods close to those in use today. Option B, P. C. Mahalanobis, chaired the National Income Committee appointed in 1949, which gave the country its first official series and submitted its report in 1954. Option D, D. R. Gadgil, was a member of that committee along with Rao. Learn the four names as a sequence rather than separately.

The correct answer is A, P. C. Mahalanobis. The committee was appointed in 1949 to prepare official estimates of national income after independence, and it submitted its final report in 1954. Its other members were D. R. Gadgil and V. K. R. V. Rao. Mahalanobis is also remembered as the architect of the Second Five Year Plan and as the founder of the Indian Statistical Institute.

Option B, Dadabhai Naoroji, belongs to the nineteenth century and made the first estimate of all. Option C, V. K. R. V. Rao, was a member of the committee and had earlier made the first scientific estimate for 1931-32, but he did not chair it. Option D, C. Rangarajan, is associated with later committees on statistics and on the measurement of poverty, not with the committee of 1949.

The correct answer is B. A market price contains the indirect taxes the buyer pays, which never reach the producer, so they must be taken out. A subsidy works the other way: the producer receives it although the buyer does not pay it in the price, so it must be added back. Hence factor cost equals market price minus indirect taxes plus subsidies.

Option A reverses both adjustments and is the usual trap; it would give market price from factor cost instead. Options C and D treat taxes and subsidies in the same direction, which cannot be right, since one is a payment to the government and the other a payment from it. Factor cost is so named because it measures what the factors of production actually earn as rent, wages, interest and profit.