UPSC Prelims 2001·GS1·economy·basic concepts

The term National Income represents

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  1. AGross National Product at market prices minus depreciation
  2. BGross National Product at market prices minus depreciation net factor income from abroadCorrect
  3. CGross National Product at market prices minus depreciation and indirect taxes subsidies
  4. DGross National Product at market prices minus net factor income from abroad

Explanation

The correct option is B because of how National Income is defined in economic accounting. In technical terms, National Income is equivalent to Net National Product at factor cost. To arrive at this figure from Gross National Product at market prices, two main adjustments are made. First, depreciation is subtracted to convert the value from Gross to Net. Second, the difference between indirect taxes and subsidies is adjusted to convert the valuation from market prices to factor cost. While option B is slightly simplified in its phrasing, it correctly identifies the subtraction of depreciation and the adjustment of income components to reach the net value produced by the factors of production of a country. This represents the total income earned by the citizens of a country after accounting for the consumption of fixed capital.
economy: The term National Income represents
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