Gross Domestic Product (GDP) and Net Domestic Product
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Question 1
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Consider the following statements:
1. Gross Domestic Product (GDP) includes Net Factor Income from abroad.
2. Net Domestic Product accounts for depreciation.
Which of the following statements is/are correct?
(a) 1 only
(b) 2 only
(c) Both 1 and 2
(d) Neither 1 nor 2
Explanation Statement 1 is not correct: GDP is the final value of all goods and services produced by the factor of production within the domestic boundary of the country within a period of one financial year. It does not include Net Factor Income from abroad which may include income from NRIs. Gross National Product (GNP) includes Net Factor Income from abroad.
GDP = Indians and Foreigners producing and earning in India
GNP = Indians producing and earning in India and abroad.
Statement 2 is correct: Net Domestic Product accounts for depreciation in capital goods due to wear and tear and passage of time.
NDP = GDP - Depreciation
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