Question

The information given are, indirect taxes = Rs 10 Lakh crores and Subsidy = Rs 5 lakh crores. Calculate Net National Product (NNP) at factor cost (National Income) of a country if the NNP at market price is Rs 135 Lakh crores.

• A. Rs 140 Lakh crores
• B. Rs 130 Lakh crores
• C. Rs 150 Lakh crores
• D. Rs 120 Lakh crores

Hint:

To convert any economic aggregate from Market Price to Factor Cost, always subtract Net Indirect Taxes (NIT):
\[ \text{Factor Cost} = \text{Market Price} - (\text{Indirect Taxes} - \text{Subsidies}) \]

Answer 1

The Correct Option is B

Step 1: Understanding the Concept:
This question requires calculating National Income (Net National Product at Factor Cost, \(NNP_{FC}\)) from Net National Product at Market Price (\(NNP_{MP}\)).

Step 2: Key Formula or Approach:
The mathematical relationship between a national income aggregate at Market Price and Factor Cost is:
\[ NNP_{FC} = NNP_{MP} - \text{Net Indirect Taxes (NIT)} \] where Net Indirect Taxes (NIT) is calculated as:
\[ \text{Net Indirect Taxes (NIT)} = \text{Indirect Taxes} - \text{Subsidies} \]

Step 3: Detailed Explanation:
Let us identify and substitute the given values from the problem statement:
- \(NNP_{MP}\) (NNP at market price) = \(\text{Rs } 135 \text{ Lakh crores}\)
- Indirect Taxes = \(\text{Rs } 10 \text{ Lakh crores}\)
- Subsidy = \(\text{Rs } 5 \text{ Lakh crores}\)
First, calculate the Net Indirect Taxes (NIT):
\[ \text{NIT} = 10 - 5 = 5 \text{ Lakh crores} \] Next, substitute this value into the main equation to find \(NNP_{FC}\):
\[ NNP_{FC} = 135 - 5 = 130 \text{ Lakh crores} \] The calculated Net National Product at factor cost is Rs 130 Lakh crores, which matches option (B).

Step 4: Final Answer:
The Net National Product at factor cost is Rs 130 Lakh crores.
Therefore, the correct choice is Option (B).