AP DSC School Assistant Social Studies Model Test 2

Concept:National income measures the total earnings of a country’s residents in a year. It equals Net National Product (NNP) valued at factor cost.Explanation:National income is the sum of all factor incomes (land, labour, capital, entrepreneurship) earned by residents.It is calculated after subtracting depreciation from Gross National Product (GNP).Depreciation is the wear and tear of capital goods. So national income is NNP, not GNP.Valuation at factor cost means the price received by producers, excluding taxes and subsidies.Market price includes indirect taxes and subsidies, so national income is not NNP at market price.Thus, national income = NNP at factor cost.For example: $NNP_{FC} = GNP_{MP} - Depreciation - Net\ indirect\ taxes$.Only this definition matches the standard concept used in economics.Answer:NNP at factor cost (Option C)