The sum of the gross value added of all the firms in an economy in a year is called _____.
Show answer & explanation
Correct answer: A
Explanation
The correct answer is Option 1: Gross Domestic Product (GDP).
Explanation:
- In National Income Accounting, according to the Value Added Method, the goods and services produced within the geographical boundaries of a country are calculated.
- Gross Value Added: The aggregate sum of the value added by all productive units (firms) within an economy during a specific year is termed Gross Domestic Product (GDP).
- Significance: It serves as the most critical indicator of a country's economic activity and productive capacity.
Analysis of Other Options:
Net National Product (NNP) – Option 2: When depreciation is deducted from the Gross National Product (GNP), the result is known as NNP.
Gross Disposable Income – Option 3: This refers to the income available to the residents of a country for the purposes of consumption or saving.
Net National Income (National Income) – Option 4: Technically, the Net National Product at Factor Cost (NNP_{FC}) is what is referred to as 'National Income'.
Additional Facts:
Types of GDP:
Nominal GDP: Based on current market prices.
Real GDP: Based on constant prices of a 'Base Year' (this serves as a superior measure of economic growth).
Calculation in India: In India, GDP is calculated by the National Statistical Office (NSO). Currently, India's base year is 2011-12.
Potential Questions for Upcoming Examinations:
Question: What is obtained when 'Depreciation' is deducted from the Gross Domestic Product (GDP)?
Answer: Net Domestic Product (NDP).
Question: What is the difference between GDP_{MP} (Market Price) and GDP_{FC} (Factor Cost) called?
Answer: Net Indirect Tax.
Question: Which is the nodal agency currently responsible for calculating National Income in India? Answer: NSO (under the Ministry of Statistics and Programme Implementation).