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Difficulty: HardEconomic Growth, National Income Accounting, and Development Indicators

Consider the following statements regarding national income accounting identities and aggregates:

Statement I: Gross National Income (GNI) at market prices is derived by adding Net Primary Income from Abroad (NPIA) to Gross Domestic Product (GDP) at market prices.
Statement II: When a country records negative Net Factor Income from Abroad (NFIA), its Gross Domestic Product (GDP) is less than its Gross National Income (GNI).
Statement III: National Income, conceptually measured as Net National Product at Factor Cost (NNPFCNNP_{FC}), is calculated by deducting Net Indirect Taxes from Net National Product at Market Prices (NNPMPNNP_{MP}).

Which of the statements given above are correct?

  1. Statement I and Statement III onlyAnswer
  2. B
    Statement I and Statement II only
  3. C
    Statement II and Statement III only
  4. D
    Statement I, Statement II, and Statement III

Answer

Statement I and Statement III only are correct.
The correct option includes Statement I and Statement III while excluding Statement II. Statement I correctly states the identity GNI=GDP+NPIAGNI = GDP + NPIA. Statement III correctly reflects that National Income (NNPFCNNP_{FC}) is derived from NNPMPNNP_{MP} by removing Net Indirect Taxes. Statement II is false because a negative Net Factor Income from Abroad implies domestic economic output (GDPGDP) exceeds national income earned by residents (GNIGNI).

Step-by-Step Solution

1
Evaluate Statement I
Statement I is correct
Gross National Income (GNI) measures total income earned by residents. GNIMP=GDPMP+Net Primary Income from AbroadGNI_{MP} = GDP_{MP} + \text{Net Primary Income from Abroad}.
2
Evaluate Statement II
Statement II is incorrect
Since GNI=GDP+NFIAGNI = GDP + NFIA, if NFIA<0NFIA < 0, then GNI=GDP−∣NFIA∣GNI = GDP - |NFIA|, which means GDP>GNIGDP > GNI. Thus, GDP is greater than GNI, not less.
3
Evaluate Statement III
Statement III is correct
By definition, National Income corresponds to NNPFCNNP_{FC}, which equals NNPMP−Net Indirect TaxesNNP_{MP} - \text{Net Indirect Taxes} (where Net Indirect Taxes = Indirect Taxes - Subsidies).

Key Concept

National Income Accounting Identities and Aggregates
Estimated Time:2m 0s
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Topics

Economic Growth, National Income Accounting, and Development Indicators