Which one of the following statements is not correct for National Inco

Which one of the following statements is not correct for National Income Accounting for India?

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Imports are subtracted in calculating Gross Domestic Product.

Net factor payments earned from abroad are included in Gross Domestic Product.

Purchase and sale of second-hand goods are not included in Gross Domestic Product.

Inventories are included in Gross Domestic Capital Formation.

Answer is Right!

Answer is Wrong!

This question was previously asked in

UPSC CDS-1 – 2024

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Statement B is incorrect. Net factor payments earned from abroad are included when calculating Gross National Product (GNP) or Net National Product (NNP), not Gross Domestic Product (GDP). GDP measures the value of goods and services produced within the geographical boundaries of a country, regardless of who owns the factors of production.

GDP is a measure of production within the domestic territory. GNP is a measure of production by the residents of a country. The difference is Net Factor Income from Abroad (NFIA). NFIA = Factor income earned by residents from abroad – Factor income paid to non-residents in the domestic territory.

A) Imports are subtracted in calculating GDP using the expenditure method (C+I+G+X-M) as they represent spending on goods/services produced elsewhere.
C) Purchase and sale of second-hand goods are not included in GDP as they do not represent current production. Their value was already accounted for in the GDP of the year they were produced.
D) Change in inventories (unsold goods held by firms) is considered as investment (part of Gross Domestic Capital Formation) and is included in GDP calculation as it represents production that occurred within the period.

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