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If the National income of a country is ₹4000 million, the consumption of fixed capital is ₹200 million, Gross national product at market price is ₹5000 million and subsidies are ₹100 million, what will be the amount of Indirect taxes?

Solution

✅ Correct Option: 3

₹900 million -> We need to find Indirect Taxes using the relationship between GNP at Market Price and National Income.

Step 1: Find GNP at Factor Cost

  • National Income (NI) = NNP at Factor Cost = ₹4000 million
  • GNP at FC = NNP at FC + Depreciation
  • GNP at FC = 4000 + 200 = ₹4200 million

Step 2: Apply the formula

  • GNP at MP = GNP at FC + Indirect Taxes - Subsidies
  • 5000 = 4200 + Indirect Taxes - 100
  • 5000 = 4100 + Indirect Taxes
  • Indirect Taxes = 900 million

The relationship shows that market prices include indirect taxes but exclude subsidies, while factor cost represents actual income earned. -> correct

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