GDPMP will be equal of GDPFC ifa)Gross Domestic Capital formation = Ne...
Net Indirect Tax (NIT) refers to the difference between indirect taxes and subsidies.Net indirect taxes are equal to zero in case indirect taxes are equal to subsidies.
GDPMP will be equal of GDPFC ifa)Gross Domestic Capital formation = Ne...
GDPMP will be equal to GDPFC if:
The correct answer is option 'B', which states that indirect taxes will equal subsidies. This means that the total amount of indirect taxes collected by the government will be equal to the total amount of subsidies provided by the government.
Explanation:
To understand why this answer is correct, let's first define GDPMP and GDPFC.
- GDPMP (Gross Domestic Product at Market Prices) is the total value of all final goods and services produced within a country's borders during a specific period, valued at market prices. It includes the value of all goods and services produced by both domestic and foreign entities operating within the country.
- GDPFC (Gross Domestic Product at Factor Cost) is the total value of all final goods and services produced within a country's borders during a specific period, valued at factor cost. It includes only the value of goods and services produced by domestic entities.
Now let's analyze each option to understand why option 'B' is correct:
- Gross Domestic Capital Formation = Net Domestic Capital Formation:
Gross Domestic Capital Formation refers to the total value of investment in the country, including both public and private investment. Net Domestic Capital Formation is the difference between Gross Domestic Capital Formation and the depreciation of existing capital. While this equation is important in the calculation of national income, it does not directly determine the equality between GDPMP and GDPFC.
- Indirect Taxes = Subsidy:
Indirect taxes are taxes imposed on the sale and consumption of goods and services, such as sales tax or value-added tax. Subsidies, on the other hand, are financial assistance provided by the government to individuals, businesses, or sectors to support their activities. In the context of GDP calculation, indirect taxes are included in the market prices of goods and services, while subsidies are deducted from market prices. Therefore, if the total amount of indirect taxes collected by the government is equal to the total amount of subsidies provided, the effect on GDPMP and GDPFC will be offset, resulting in their equality.
- Factor Income from Abroad = Factor Income to Abroad:
Factor income from abroad refers to the income earned by domestic factors of production (such as labor or capital) from their activities outside the country. Factor income to abroad refers to the income earned by foreign factors of production from their activities within the country. While these two components are important in the calculation of national income, they do not directly determine the equality between GDPMP and GDPFC.
- Opening Stock = Closing Stock:
Opening stock refers to the value of goods and materials held by businesses at the beginning of a specific period, while closing stock refers to the value of goods and materials held at the end of that period. While changes in stock levels are considered in the calculation of GDP, the equality between opening stock and closing stock does not directly determine the equality between GDPMP and GDPFC.
In conclusion, the correct answer is option 'B' because if indirect taxes and subsidies are equal, the effect on GDPMP and GDPFC will cancel out, resulting in their equality.
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