If GDP(MP) = ₹1,000 crore, NIT = ₹100 crore and Depreciation = ₹50 crore, what is NNP(FC)?

₹850 crore. NNP(FC) = GDP(MP) − Depreciation − NIT = 1000 − 50 − 100 = ₹850 crore (assuming NFIA = 0).

What is the difference between GDP and GNP in Class 12 Economics?

GDP (Gross Domestic Product) measures the value of all final goods and services produced within a country's domestic territory in a year, regardless of who produces them. GNP (Gross National Product) measures production by a country's residents anywhere in the world. The relationship is GNP = GDP + Net Factor Income from Abroad (NFIA).

What is Net Factor Income from Abroad (NFIA)?

NFIA is the difference between factor income earned by Indian residents from abroad and factor income earned by non-residents within India. NFIA = Income earned by residents abroad − Income earned by non-residents in India. NFIA is positive when residents earn more abroad than non-residents earn in India, and negative otherwise.

How do you convert between Market Price and Factor Cost?

Subtract Net Indirect Taxes (NIT) from any Market Price aggregate to get its Factor Cost equivalent: GDP(FC) = GDP(MP) − NIT, where NIT = Indirect Taxes − Subsidies. Market price includes the effect of indirect taxes and subsidies; factor cost reflects only the actual payments made to factors of production.

What is depreciation (Consumption of Fixed Capital) in national income accounting?

Depreciation, or Consumption of Fixed Capital (CFC), is the wear and tear of fixed capital assets used in production during the year. It is subtracted from gross aggregates (GDP, GNP) to arrive at net aggregates (NDP, NNP). For example, NNP(MP) = GNP(MP) − Depreciation. Depreciation itself is not part of national income.

Why are transfer payments excluded from national income?

Transfer payments — pensions, scholarships, unemployment allowances, and gifts — are one-way payments for which no productive service is rendered in return. Since national income measures only the value of new production, transfer payments are excluded to avoid inflating the figure with mere redistribution of income.

Are Basic Concepts of National Income MCQs important for CBSE Class 12 board exams?

Yes. This chapter is part of Unit 1 (National Income & Related Aggregates) of CBSE Class 12 Macroeconomics, which carries 10 marks weightage. Conversion numericals between GDP, GNP, NDP, NNP at market price and factor cost appear in almost every CBSE board paper as 3-mark or 4-mark questions.

How many MCQs does Just Practice offer on Basic Concepts of National Income?

Just Practice has 75 free MCQs on Basic Concepts of National Income for CBSE Class 12 Economics, covering GDP, GNP, NDP, NNP, factor cost vs market price, depreciation, and personal/disposable income. Each question includes the correct answer and explanation. No signup required.

75 MCQs 50 Flashcards Unit 1 · 10 marks weightage Updated April 2026

Ch 2 · Unit 1 · Part A

Ch 2: Basic Concepts of National Income

Master every national income aggregate — GDP, GNP, NDP, NNP — and the relationships between factor cost, market price, and depreciation that link them.

Take a Test on This Chapter Revise 50 Flash Cards

Chapter Overview

National income accounting uses a family of aggregates — GDP, GNP, NDP, NNP, National Income, Personal Income, and Disposable Income — to measure economic activity at different levels of scope and valuation. The two key adjustments that connect these aggregates are: (i) adding or subtracting Net Factor Income from Abroad (NFIA) to move between domestic and national measures, and (ii) subtracting depreciation (Consumption of Fixed Capital) to move from gross to net measures. Understanding these relationships is essential for solving the conversion numericals that appear every year in boards.

A second critical distinction is between valuation at Market Price and at Factor Cost. Market price includes Net Indirect Taxes (NIT = Indirect Taxes − Subsidies), while factor cost excludes them. The formula GDP(MP) − NIT = GDP(FC) appears repeatedly in board papers, both as a standalone question and embedded in multi-step numericals. Students must also know the components of personal income and disposable personal income, and be able to distinguish transfer payments from factor incomes.

What You'll Learn

Define and distinguish GDP, GNP, NDP, and NNP with examples
Explain Net Factor Income from Abroad (NFIA) and when it is positive or negative
Differentiate between gross and net aggregates using the concept of depreciation
Convert between market price and factor cost using Net Indirect Taxes (NIT)
Calculate National Income, Personal Income, and Disposable Personal Income step by step
Identify what is included in and excluded from national income (transfer payments, windfall gains)
Solve multi-step conversion numericals between any two national income aggregates

Key Concepts & Formulas

Formula

GDP to GNP GNP(MP) = GDP(MP) + NFIA
NFIA = Factor income earned by residents abroad − Factor income earned by non-residents in India

Formula

Gross to Net (Depreciation) NNP(MP) = GNP(MP) − Depreciation
NDP(MP) = GDP(MP) − Depreciation
Depreciation = Consumption of Fixed Capital (CFC)

Formula

Market Price to Factor Cost GDP(FC) = GDP(MP) − NIT
NIT = Indirect Taxes − Subsidies
NNP(FC) = National Income (NI)

Formula

Personal & Disposable Income Personal Income = NI − Undistributed profits − Corporate taxes − Net interest paid by households + Transfer payments
Disposable Income = Personal Income − Personal taxes

Definition

Depreciation (CFC) The wear and tear of fixed capital assets during production over the year. It is subtracted from gross aggregates to arrive at net aggregates and is NOT a part of national income.

Definition

Transfer Payments One-way payments (pensions, scholarships, unemployment allowance) for which no productive service is rendered in return. These are excluded from national income.

Sample MCQ Questions

1. What is the key difference between GDP and GNP?

GDP includes depreciation; GNP does not
GDP is valued at factor cost; GNP is at market price
GDP measures output within domestic territory; GNP also includes net factor income from abroad
GDP is always greater than GNP

Correct: C — GNP = GDP + NFIA. GDP is a domestic concept (all production within borders); GNP is a national concept (production by residents, wherever located).

2. National Income (NI) is equal to which of the following?

GDP at Market Price
GNP at Market Price − Depreciation
NNP at Factor Cost
GDP at Factor Cost − Depreciation

Correct: C — National Income = NNP(FC) = GNP(MP) − Depreciation − Net Indirect Taxes. It represents the net income earned by a country's residents from productive activities.

3. If GDP(MP) = ₹1,000 crore, Net Indirect Taxes = ₹100 crore, and Depreciation = ₹50 crore, what is NNP(FC)?

₹950 crore
₹900 crore
₹850 crore
₹800 crore

Correct: C — NNP(FC) = GDP(MP) − Depreciation − NIT = 1000 − 50 − 100 = ₹850 crore. (We assume NFIA = 0 here, treating GNP = GDP.)

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