This set covers the basic aggregates of national income accounting and how they relate to each other. UPSC Prelims regularly tests the differences between GDP, GNP and NNP, and between factor cost, basic prices and market prices.
How to practise: read each question and tap the option you think is correct. You will see right away whether you got it, along with a short explanation, and your score is tracked at the bottom of the screen. This set has 15 questions.
Topics covered in this set
- GDP, GNP and NNP
- Net factor income from abroad and depreciation
- Factor cost, basic prices and market prices
- Real vs nominal GDP and the GDP deflator
- Methods of measuring national income
- Sectors of the economy
UPSC Economy MCQs with answers and explanations
Q1. In national income accounting, Net National Product at factor cost is also known as:
a) Gross value added
b) National income
c) Personal income
d) Personal disposable income
Q2. Gross National Product (GNP) is obtained by adding which of the following to Gross Domestic Product (GDP)?
a) Indirect taxes
b) Depreciation
c) Net factor income from abroad
d) Subsidies
Q3. Which of the following is excluded while calculating GDP?
a) Salaries paid to government employees
b) Old-age pensions paid by the government
c) Value of new houses constructed
d) Fees earned by a private doctor
Q4. GDP at market prices is equal to GDP at factor cost plus:
a) Depreciation
b) Net factor income from abroad
c) Net indirect taxes (indirect taxes minus subsidies)
d) Direct taxes
Q5. Real GDP differs from nominal GDP because real GDP is measured at:
a) Current year prices
b) Prices converted into US dollars
c) Prices excluding all taxes
d) Constant prices of a base year
Q6. Which of the following statements about the GDP deflator is correct?
a) It is the ratio of nominal GDP to real GDP multiplied by 100
b) It covers only consumer goods
c) It is the same as the Wholesale Price Index
d) It excludes the services sector
Q7. Why is the value of intermediate goods excluded while calculating national income?
a) To avoid double counting
b) Because they are not taxed
c) Because they are mostly imported
d) Because they are consumed only by the government
Q8. The difference between Gross National Product and Net National Product is:
a) Net factor income from abroad
b) Net indirect taxes
c) Consumption of fixed capital (depreciation)
d) Transfer payments
Q9. Which body is responsible for compiling national accounts statistics, including GDP estimates, in India?
a) Reserve Bank of India
b) NITI Aayog
c) National Statistics Office under the Ministry of Statistics and Programme Implementation
d) Finance Commission
Q10. In India's national accounts, GVA at basic prices is equal to GVA at factor cost plus:
a) Product taxes minus product subsidies
b) Production taxes minus production subsidies
c) Depreciation
d) Net factor income from abroad
Q11. Which of the following pairs of economic activity and sector is correctly matched?
a) Mining - Tertiary sector
b) Banking - Tertiary sector
c) Construction - Primary sector
d) Fishing - Secondary sector
Q12. Which sector contributes the largest share to India's Gross Value Added?
a) Agriculture and allied activities
b) Manufacturing
c) Services
d) Mining and quarrying
Q13. The base year of the GDP series is revised from time to time mainly in order to:
a) Reflect structural changes in the economy and use newer data sources
b) Show a higher growth rate
c) Match the base year of the United States
d) Change the currency used for measurement
Q14. Which of the following is NOT a method of measuring national income?
a) Value added (product) method
b) Income method
c) Expenditure method
d) Exchange rate method
Q15. Personal disposable income is best described as:
a) National income minus depreciation
b) GDP minus indirect taxes
c) Total corporate profits minus taxes
d) Personal income minus direct taxes and other compulsory payments made by households
Quick revision notes
- GNP = GDP + net factor income from abroad.
- NNP = GNP - depreciation, and NNP at factor cost is national income.
- Market price = factor cost + indirect taxes - subsidies.
- GVA at basic prices + product taxes - product subsidies = GDP.
- Transfer payments and intermediate goods are excluded from national income.
- The National Statistics Office under MoSPI compiles GDP estimates in India.
Frequently asked questions
What is the difference between GDP and GNP?
GDP measures the value of final goods and services produced within a country's territory. GNP adds net factor income from abroad, so it measures income earned by a country's normal residents wherever they work.
Why does India report GVA as well as GDP?
GVA shows the value added by each sector from the supply side, without product taxes and subsidies. GDP is derived from GVA by adding product taxes and subtracting product subsidies.
What is the GDP deflator used for?
The GDP deflator measures the change in prices of all goods and services in the economy. It is used to convert nominal GDP into real GDP.
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