Which of the following relation is incorrect ?

Question

Accepted Answer

The correct option is 4:
The relation NNPMP = GDPMP + Depreciation + Net Factor Income from Abroad is incorrect because it involves a mix of gross/net concepts and domestic/national concepts that violate standard national accounting identities. Recall that 'Gross' (G) becomes 'Net' (N) by *subtracting* Depreciation, and 'Domestic' (D) becomes 'National' (N) by *adding* Net Factor Income from Abroad (NFIA). To correctly convert GDP at Market Price (GDPMP) to Net National Product at Market Price (NNPMP), you must first convert 'Gross' to 'Net' (subtract Depreciation) and then convert 'Domestic' to 'National' (add NFIA). The correct identity would be NNPMP = GDPMP - Depreciation + NFIA. Option 4 incorrectly *adds* Depreciation, suggesting that Net = Gross + Depreciation, which is fundamentally wrong, making it the incorrect relation.

The incorrect option is 1:
GDPMP = GDPFC + Net Indirect Taxes. This relation is correct. To move from Factor Cost (FC), which excludes taxes, to Market Price (MP), which includes them, you must add Net Indirect Taxes (Indirect Taxes minus Subsidies).

The incorrect option is 2:
NNPFC = NDPFC + Net Factor Income from Abroad. This relation is correct. To transition from a Domestic concept (D) to a National concept (N), you must add Net Factor Income from Abroad (NFIA), which represents the difference between income earned by residents from the rest of the world and income paid to non-residents.

The incorrect option is 3:
GNPMP = NNPFC + Depreciation + Net Indirect Taxes. This relation is correct. Starting with Net National Product at Factor Cost (NNPFC), you move from 'Net' to 'Gross' by adding Depreciation, and simultaneously move from 'Factor Cost' to 'Market Price' by adding Net Indirect Taxes. Both additions are necessary to arrive at Gross National Product at Market Price (GNPMP).