ISS 2016 Statistics Paper-2 Solution: Question 77 (National Accounts Equations Explained)

Continuing with our question-by-question walkthrough of the ISS Statistics Paper-2 previous year papers, today we take up a question from the 2016 paper that tests how well you actually understand the chain of identities that link GDP to National Income. It looks like a quick "tick the correct statements" question, but it quietly checks whether you know the exact sign in each formula.

Quick Summary

• Topic:National Accounts – relationships between GDP, NDP, GNI and NNI

• Question Reference:ISS 2016, Statistics Paper-2, Question 77

• Correct Answer:Option (b) – Statements 2 and 3 only

The Question

Which of the following equations are correct in respect of National Accounts?

1. NDP = GDP + CFC

2. GNI = GDP + net factor income from abroad

3. NNI = GNI − CFC

Select the correct answer using the code given below:

• (a) 1 and 2 only

• (b) 2 and 3 only

• (c) 1 and 3 only

• (d) 1, 2 and 3

Step 1: Understand the Building Blocks

Before checking any of the three statements, we need to be clear about what each term means.

GDP (Gross Domestic Product)is the total value of all final goods and services produced within the domestic territory of a country during a year, regardless of who owns the factors of production (residents or non-residents).

CFC (Consumption of Fixed Capital), also called depreciation, is the wear and tear of fixed capital (machinery, buildings, equipment) that occurs during production. Every year, some part of the capital stock is used up, and CFC measures that loss in value.

NFIA (Net Factor Income from Abroad)is the difference between the income domestic residents earn from assets and work abroad, and the income foreign residents earn from assets and work inside the domestic economy. It can be positive or negative.

Step 2: Check Statement 1 – NDP = GDP + CFC

NDP stands for Net Domestic Product. The word "Net" is the key clue here: net figures are always obtained by subtracting depreciation from the corresponding gross figure, never by adding it.

The correct identity is:

NDP = GDP − CFC

This makes intuitive sense: GDP measures the total value of goods and services produced, but part of the capital equipment used to produce them wore out in the process. To get the true "net" addition to the economy's wealth, we must subtract that wear and tear (CFC) from GDP. The statement in the question says NDP = GDP + CFC, with a plus sign instead of a minus sign, so it is incorrect.

Step 3: Check Statement 2 – GNI = GDP + Net Factor Income from Abroad

GNI (Gross National Income, used interchangeably with GNP, Gross National Product, in most national accounting frameworks) measures production attributable to the residents of a country, rather than production happening within its borders.

To move from a "domestic" concept (GDP) to a "national" concept (GNI), we must:

• Add the income residents earn from abroad (because that income belongs to residents even though it was not produced domestically), and

• Subtract the income foreigners earn within the country (because that income does not belong to residents, even though it was produced domestically).

These two adjustments combined are exactly what NFIA represents. So:

GNI = GDP + NFIA

This matches the statement in the question exactly, so statement 2 is correct.

Step 4: Check Statement 3 – NNI = GNI − CFC

Just like in Step 2, the word "Net" tells us we need to subtract depreciation. NNI (Net National Income) is obtained from GNI by removing the consumption of fixed capital, because GNI still includes the value of capital that was used up during production.

NNI = GNI − CFC

This is exactly what the statement says, so statement 3 is correct. (As a side note, NNI at factor cost is what we usually call "National Income" in everyday economic reporting.)

Pro Tip: Whenever you see the word "Net" in any national accounts term — NDP, NNP, NNI — your first instinct should be "subtract CFC (depreciation)" from the corresponding Gross figure. And whenever you move from a "Domestic" concept to a "National" concept — GDP to GNI, or NDP to NNI — your instinct should be "add Net Factor Income from Abroad." Keeping these two separate mental rules (Net vs Gross, Domestic vs National) is the single habit that prevents sign errors on this entire topic, and it is exactly the kind of drilling that is usually emphasised question after question until it becomes automatic, rather than something you re-derive from scratch under exam pressure.

Step 5: Combine the Results

Putting the three checks together:

• Statement 1 (NDP = GDP + CFC): Incorrect (sign should be minus)

• Statement 2 (GNI = GDP + NFIA): Correct

• Statement 3 (NNI = GNI − CFC): Correct

Only statements 2 and 3 are correct, which corresponds to option (b) – 2 and 3 only.

This matches the official answer key for ISS 2016 Statistics Paper-2, Series A, which lists the answer to Question 77 as (b). Our independent derivation and the official key are in full agreement.

Why This Question Matters

National Accounts statistics form a recurring, high-weightage area in the ISS Statistics Paper-2 syllabus because they sit at the intersection of economic statistics and applied national income accounting, a core responsibility of the Indian Statistical Service. Questions like this one are designed to catch candidates who have memorised the names of the aggregates (GDP, NDP, GNP, GNI, NNP, NNI) without internalising the exact direction of each adjustment. Getting comfortable with the Gross–Net and Domestic–National distinctions pays off across many similar questions in this paper, not just this one.

Frequently Asked Questions

What is the difference between GNP and GNI?

In most modern national accounting systems, including the System of National Accounts (SNA) used by India's Central Statistics Office, GNP and GNI are conceptually the same aggregate: GDP plus net factor income from abroad. GNI is simply the more recent and more commonly used terminology for the same concept historically called GNP.

Why is CFC always subtracted and never added?

CFC represents the portion of capital that is consumed or worn out during production. A "Gross" measure includes this consumed capital, while a "Net" measure represents only the genuine addition to the economy's wealth after accounting for that wear and tear. Since wear and tear reduces the usable capital stock, it must always be subtracted, never added, when moving from a Gross figure to the corresponding Net figure.

Can Net Factor Income from Abroad be negative for India?

Yes. NFIA is negative when foreign residents earn more income from assets and employment within the domestic economy than domestic residents earn from assets and employment abroad. For many developing economies, including India in various years, NFIA has historically been negative, which means GNI can be slightly lower than GDP in those years.

Is National Income the same as NNI?

National Income, in its standard definition, refers to Net National Income at factor cost, which is NNI adjusted to remove net indirect taxes (indirect taxes minus subsidies). So NNI at market prices and "National Income" are closely related but not always numerically identical, depending on whether the market-price or factor-cost version is used.

How should I remember all these aggregates (GDP, NDP, GNP, NNP) quickly in an exam?

A reliable shortcut is to build a small two-step mental ladder: first decide Domestic vs National (add or subtract NFIA), then decide Gross vs Net (add or subtract CFC). Any of the four combinations, GDP, NDP, GNP/GNI, or NNP/NNI, can be derived by applying these two adjustments in the right order, which is far more reliable under exam time pressure than memorising four separate formulas.

Do I need to memorise the exact SNA definitions for the ISS exam?

You should know the working definitions and the direction of each adjustment, as tested in this question, but detailed technical SNA documentation is not required. Candidates preparing with a structured approach, such as the one followed at Sunrise Classes, typically focus on these applied conceptual relationships rather than the full technical manual, since that is what previous year papers consistently test.

If anything in this derivation felt unclear, or if you spotted a shortcut we missed, drop a comment below and we will be happy to clarify. And if you found this useful, do share it with a fellow ISS aspirant who might be working through the same paper.