On the basis of the data given below, estimate the value of Gross National Product at Factor Cost (GNP_FC): | S.No. | Items | Amount (in ₹ crore) | | --- | --- | --- | | (i) | Wages and Salaries | 2,000 | | (ii) | Rent and Interest | 700 | | (iii) | Corporate Tax | 500 | | (iv) | Undistributed Profit | 300 | | (v) | Consumption of Fixed Capital | 200 | | (vi) | Dividend | 150 | | (vii) | Net factor income from abroad | (–) 50 |

On the basis of the data given below, estimate the – Class 12 Economics

Question 50 of 75

On the basis of the data given below, estimate the value of Gross National Product at Factor Cost (GNP_FC):

S.No.	Items	Amount (in ₹ crore)
(i)	Wages and Salaries	2,000
(ii)	Rent and Interest	700
(iii)	Corporate Tax	500
(iv)	Undistributed Profit	300
(v)	Consumption of Fixed Capital	200
(vi)	Dividend	150
(vii)	Net factor income from abroad	(–) 50

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Concept understanding — National Income Identity

The National Income Identity: Where Does a Country's Money Come From?

Imagine you're running a lemonade stand. Every rupee you earn comes from someone buying your lemonade. Now imagine the whole country as one giant lemonade stand — every rupee earned by anyone must come from someone else spending money. That simple idea is the heart of the National Income Identity.

The Everyday Intuition

Think of the economy as a circular flow. Households earn income by working for firms. Firms produce goods and services that households buy. What households spend becomes the income of firms, which then becomes wages, rent, and profit for households again. So:

Total spending in the economy = Total income earned in the economy

This isn't a theory — it's an accounting identity. It must be true because every rupee spent by one person is a rupee earned by someone else.

The Precise Meaning (NCERT Class 12, Macroeconomics, Chapter 2)

The National Income Identity breaks down total spending into four components. NCERT gives it as:

Y = C + I + G + (X - M)

Where:

$Y$ = National Income (GDP at market prices)
$C$ = Private Final Consumption Expenditure (what households spend on goods and services)
$I$ = Gross Investment Expenditure (spending on capital goods like machinery, buildings, and inventory changes)
$G$ = Government Final Consumption Expenditure (government spending on goods and services, not transfers)
$X$ = Exports of goods and services
$M$ = Imports of goods and services
$(X - M)$ = Net Exports (exports minus imports)

Why This Matters

This identity is the foundation of all macroeconomic analysis. Here's what it tells you:

1. It's a checklist for growth. If you want GDP ( $Y$ ) to rise, at least one of $C$ , $I$ , $G$ , or $(X-M)$ must increase. No other way exists.

2. It reveals trade-offs. If government spending ( $G$ ) rises but taxes don't, either consumption ( $C$ ) or investment ( $I$ ) must fall — unless net exports improve. This is the "crowding out" debate.

3. It explains recessions. During a downturn, consumption ( $C$ ) and investment ( $I$ ) typically fall. The identity shows why governments try to boost $G$ or encourage exports.

A Simple Diagram (Describe in Words) …

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GNP at Factor Cost is the sum of all factor incomes earned by residents, plus depreciation, adjusted for net factor income from abroad. Using the income method, the answer is ₹3,800 crore.

The income method of measuring national income adds up all factor payments — wages, rent, interest, and profit — that accrue to factors of production within a country's domestic territory, then adjusts for net factor income from abroad to get the national (GNP) figure. Factor Cost means we value output at the cost of factors, so indirect taxes are not added and subsidies are not subtracted; here, no such taxes or subsidies are given, so the data is already at factor cost.

Let's identify the components from the table. Wages and Salaries (₹2,000 crore) are compensation of employees. Rent and Interest (₹700 crore) are the returns to land and capital. The profit portion of a firm is split into three parts: Corporate Tax (₹500 crore), Dividend (₹150 crore), and Undistributed Profit (₹300 crore). These three together make up total corporate profit. So:

\text{Corporate Profit} = \text{Corporate Tax} + \text{Dividend} + \text{Undistributed Profit} = 500 + 150 + 300 = 950 \text{ crore}

Now, sum all domestic factor incomes (this gives Net Domestic Product at Factor Cost, or NDP_FC):

\text{NDP}_{\text{FC}} = \text{Wages and Salaries} + \text{Rent and Interest} + \text{Corporate Profit}

\text{NDP}_{\text{FC}} = 2000 + 700 + 950 = 3,650 \text{ crore}

Watch out

Do not include Consumption of Fixed Capital (depreciation) in NDP — it is not a factor income. Depreciation is added later to go from NDP to GDP.

To move from NDP to GDP, we add Consumption of Fixed Capital (depreciation):

$\text{GDP}_{\text{FC}} = \text{NDP}_{\text{FC}} + \text{Depreciation} = 3,650 + 200 = 3,850 \text{ crore}$ …

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Same / Similar Concept — real previous-year questions on the same or a closely similar concept, not this exact question.

JKBOSE Class 12 Annual Regular Examination (Commerce) 2026Set ANNUAL1 mark
$Q. GNP at market price is equals to GDP at market price plus _______.$
›Reveal solutionSolution
GNP at market price = GDP at market price + Net Factor Income from Abroad (NFIA, also written NYFA).

GDP (Gross Domestic Product) measures the value of final goods and services produced within the domestic territory of a country during a year, by both residents and non-residents.

GNP (Gross National Product) measures the value of final goods and services produced by the normal residents of a country (within the country and abroad) during a year. …
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JKBOSE Class 12 Annual Regular Examination (Commerce) 2026Set ANNUAL1 markMCQ
$Q. NNP at factor cost is equals to$
(a) NDP at market price plus NIT
(b) GDP at market price – Depreciation + NYFA – NIT
(c) GDP at factor Price – NIT + NYFA
(d) None of the above
›Reveal solutionSolution
NNP at Factor Cost (i.e., National Income) = GDP at market price − Depreciation + Net Factor Income from Abroad (NYFA) − Net Indirect Taxes (NIT).

We can build up this identity step by step:

GNP at Market Price = GDP at Market Price + Net Factor Income from Abroad (NYFA)

NNP at Market Price = GNP at Market Price − Depreciation

NNP at Factor Cost = NNP at Market Price − Net Indirect Taxes (NIT)

Substituting (1) into (2) and then into (3):

NNP at Factor Cost = GDP at Market Price + NYFA − Depreciation − NIT

= GDP at market price − Depreciation + NYFA − NIT

…
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JKBOSE Class 12 Annual Regular Examination (Commerce) 2020Set ANNUAL1 mark
$Q. Give the other name used for National Income.$
›Reveal solutionSolution

National Income — the aggregate value of goods and services produced by a country's residents in a year, measured as Net National Product at Factor Cost (NNPFC) — is also commonly referred to as 'National Dividend'.

Explanation

National Income represents the sum total of factor incomes (rent, wages, interest, and profit) earned by the normal residents of a country from both domestic and abroad economic activity during an accounting year, after adjusting for depreciation and net indirect taxes. Classical economists such as Alfred Marshall and A.C. Pigou referred to this aggregate as the …

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